ML20136C521

Transcript of 790830 Hearing in Seattle,Wa. Pp 14,802-15,048

ML20136C521
Person / Time
Site:	Skagit
Issue date:	08/30/1979
From:	Deale V, Hooper F, Linenberger G Atomic Safety and Licensing Board Panel
To:
References
NUDOCS 7909260128
Download: ML20136C521 (247)

Text

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NUCLEAR REGULATORY COMMISSION ,

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IN THE MATTER OF: ,

l'UGE'2 :?CUldD I-C;.3?. O LIGST ,

OC"??Tif, oh al.,

(Skagi;; ITuclear PcWar 2rojc.;t, ,

Unitr, 1 ar.d 2)  !,

l Docket Itoa. ST:t 50-522 50-523 '

3 i

C2astic, nachington Place - -

'Ih=ada1, 30 August 1979 14,302 - 15,048 Date - /

pag ,

6 (f

( (202)347 3700

~

ACE FEDERALREPORTERS,INC.

OfficalReporters a 4u North Capitol Street D Washington, D.C. 20001 NATIONWIDE COVEltAGE . DAILY r (p{ 7 l __

lu -

14,002 CF.J55 3 UIGlCCI

'r.ndon al 1 t U:iITED STATES CF A: ERICA

(  !

.!UCLCAR RCCUId. TOR'I CCICIISSIO t

[ In the mattar of:  :

1 PUGET SOUND POWER t: LIGIIT  :

CCli?I.HY, et al.  : Docket tios. 50-522

50-523

(Skagit !!uclear Pcwor Project

Unito 1 and 2) '

i New Federal Building Rocm 3036 915 Second Avenue Seattle, Washington Thursday, 30 August 1979 3

Ecaring in the above-entitled matter was recenvanod, pursuant to adjournr.ent, at 3:00 a.m.

! ECFGnZ:

V3.LEITI!!3 3. D2 ALE, Esq. , Chairman, At.cric Safety and Licensir.g Board.

GUSTAVE A. LIITE!!BEFGER, Member.

, FT,?dC F. I!COPEP., It2mber.

i

!.2E2hP2.!C3S:

On h htl2 of tha Applicanha:

i i 7. TIIEGCOPJ' CI!O213.S!!, Ecq. , and DOUGLAS P. BEIGilLE,

, f Lcq., r.tr.': ins, Coie, Stone, Olsen and Williams, Seattler Ur.::hingten.

l 0.1 L: half of tha lif.C 22Eulatory Staff:

AICIU.3D L. SLLC2, Enq. , 0.nd Dili:EL T. S?!AliSOM, Esq. ,

U. E. 3 cloer Reciulatory ConnisEica, Washington, D.C.

t 1

4 14,803 xl

{

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9 vt12 On- 2:nhalf of Sha?i tonians Concarned about Neelcar Plants: ,

(  !

P.CGER M. LEED, Esq. , and MIC&*WL W. GENDLER, Esq. , j 1411 Fourth Avenca, Saattia, Washington 98101.

3 on behalf of Forelavs on Board and Coalition. for Safe k' ?cwor: .

E.'CC GTACI!ON, Fortland, Orogon.

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14,804

. tecl 3 E 9_ li E E E ?. E WI'MEFDPfQ DIRECT, CEOSS PfMC PECRn9S B_QARD f

h Ji:n La::ar 14,805 14,864 14,876 (Rouumad)

Rusaci 3. Olcon )

Michael E. Coborley) 14,381 14,904 15,002 15,005 Lawrence S. Pack )

J m a M. Ccombs )

OL7 ~ BI'"1 : IDmiTIFIED DECEIVED hibit 223 (Solomon Dros. July 14,842 14,872 Report)

E:ilbit 220- 14,875 1::.:hibit 224 (FLP&L Co.10-K raport) 14,879 14,881 2:6ih!.t 223 (PGE 10-K rapcrt:) 14,879 14,081 L':1!. bin 225 (Pacific Powar 10-K raport)l4,379 14,881

61 bit 227 (Washington Uator Power 10~:: report) 14,880 14,881

.- l (n) v

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

_ . . _ , . . . _ _ . . . . _ _ .._ ._. ~. _

l . 14,8ns

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3

- . Y .a .O C E .E .D .I N G

. . . . . .S.

j CKJsIFtAN DEALE: I halieve we can come to order.

At the end cf th2 last hearing session, the matter I

irl.c .af.re un was cross-examination by the Staff of i SC.'.D 's *vi tnc3.3, !!r. Lazar. And at this point, we turn the 4

9'.0:uinue ever to Mr. Black and his colleague, Mr. Swanson.

?!R. WANSON: Thank you, Mr. Chairman.

i i ~ :Mr.r: c n ,

i e j JIM LAZAR 1

1

' r ealled ac . .71tn:cc on hshalf cf SCAMP, and, havina l l .n n :cvim:.:lv duly swcra, testified further as folicws:

i -

! CRCSS-EXMtINATIOM (Continued) 1 5

l 3*l MR. F.!D.'750N:

1 i r l Eafatring to nage two of vour prefiled testimony, t,

t

.". ::c?: c .n:c:nco af her A, for your answer you indicate the l '

T

iMett h ter for the prnject, and veu name some dates i *': '

hicvah10. I. that contenco, I don't read in that

/t ', .: ying t:;2t ccmone else is saying it's unschievable, ,

1 I

j  : al'c thau'n you aneaking and it's your judgnent that the l j o

.J mie ui.tchi.rtable . is that correct? ,

It' 7.y atstenant that those dates are unachievable.

t i

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- *. "*n. i*.'tr.I don't recall seeinq in your statement i

I

> ' + .1 +

• 112'. ;e cio.13 that you hcd isn engineerinq

~ ;! . Cic7f.m le::so': co nut scr. china in, or do you have  ;

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I

- ' :. W i nc* hr. :htl;: curd?

I

. - - - - - , - , . - . , . , - - ,. -.-.. ,,, _ ,.,, _ ,. ..--,,-.,.,-,..--.-.,,-_,-.-_..--...,-,n..

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

% ... ~-

a, ,

f n

}- '

14 Rn6 [

l . /::;;h2 7. I .len's nnv2 an angincaring background.

1, .

(

Do you ha'rs any er.ploymont with utilities or with j Q cens' ruction projects which uculd qualify you to make an i i

d.nlor.cd prefossional or export judgment on achieving comolation l t i

i 1

dui:::? .

l I

1 A That.statomont is supported by the followina j

• a ~

• i p goc of tr.y t:stiLteny.

te But you jush indicated that, for that statement, f i  !

yr.u *trin't paraphrc.;ing what seneone else was saying, that  ;

i

! ESta un coor c:n stntament, so that apparently is.your own i

i i  :: aclu s t':n. i 1

.1 '2htt'a my cwn conclusion from the studies I've ,

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4 r%30.

1

} O I'm just trying to determinn whether or not you s

a

.r.- ray Sasis fcr forming an c:: pert cpinion, or if that is jr.: . *.ay cpinion.

?

A That: is a conclusion frcm the data which I've i r wic ad.

.l, f

t 0 :nt you don:. have any expert aunlifications that i w..: amohmt cla:mifv vcu c3 an o:cuart in engineering costs, j

< " int ci::V p.'.nnaan1, constrttetion cf major projects?

A Jo, only -in the evaluat: ion of other data. . '

l i

! . ..,..,.. l

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.

t cf . '

hra , you mr.k 2 thu s':ctenant that you t

i . c. re ' ': =da nn :.1]unt:unt for the architact-engineer l 1

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• i i

I._--._-.. ._ _ _ - _ _ . _ . . _ - . _ _ . _ _ _ _ - - -

.I _ _. _ . . _ _ . _ _ . _ _ . _ . _ _ _ _ _ . . . - _ . - - -

i i

14,307 l

., N <.b3 ^rmri-:nac Taich the readol urovides for, the RATID model

('

1 '

l cp;4rently.

1 l ~. 'sc .e .e w.got into this a hit yesterday, but if , l t ,

! t.a r dar to bho RiaiD Rupert, page 32, whera he cives his 1

ragr2aricnal ar.alynis r-2culta, isn't it true that the co-er. ':iaic:.t nhat Mr. Moon wce.16 apply for the es:cerience for

,t

h =.rchitect-ecginaar is ene of the largast ecefficients, j .r.c.4.g it's cns of the m st significant factora in his an a:lzis .

P I see a n3sative co?s#ficient of seven. The only t

c:i 3~ cceffictent I saa that's largar than that is for the -  !

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tnwar. :sn ' ': it err.a that the coefficient that he ann 11es --- '

( 7. 2ha tocr er and thradate of issuance of the c: :'tructica parr.iu, which is 14 t

0 *lm'ra 1cching ct the third regrassion analysis a . ; .ga *2?

j L T*..r.' ' a correct .  ;

4 1

j G 7.nd the data of issucnca, you mean, for CTIS?

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e. , a , .. , 14 . a. . . . .

a. . .. w 2

i.

i  ; I've get 1.4134..

1 1

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~. Tha C2 is :he c.:cnonent. That is the power of j . 10 to , chic.; that needs to be rals md. j 1 -

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cut inn't the coefficient for architr.ch-engineerine ycr . ;f ;.m.: . :- nipidii::.at er.o?

l A n # s the third large.st of four.

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W

.___..._.._.._-_c.... _ . , ~ . - . _ . _ _ . . _ . . . . , _ _ _ , _ . . _ -

o , . . , . . . - , . _

, y 14,808 e

g

,/ -

O wa .. p.: ' m: ;3cin a;:colutcly no credit in your 4

12s. ;. h e .:And ~. Cal ?o:t :his factor?

4

^

r e:cluded that facter becauro the role of the c c:W.r:::-engi. :ar z.pezarn to be r. ore liraited for thic project.

7 Nc/ ;cu tassified yseterday that Bechtc1 was an

..,e'.:.. .,, 1 s 4 4

..., . . f C.,.,..,..c.~,..,

. a -v s . i i. 4 4.*As

s. e. c OT m.C A w. 9 t

Thc .' d:. O *.n G:1poricnced constructor.

. Tir.* c'My nOt 8130 a

:UGriGnced in I;;anaqing and i

y .

4

....s.t

.f m e. u. . 1 ; : . . y g,. - ., g

. . 3, '.i.g . se > ?.

i

! .s. .e ..s. c 1,. ,. .. ,3, Q Jat ; u va g{. ten no credit for this?

. T :::aluded t:hs 'iarichic b,1cause they are not

( .:n ;.a:17 .staf.nti in the cor.Ior.tional conctructor modo.

. >  ? u ': @cy do hata er.psrience in the canacity

. .;uy m .: . ericaniac. t:.it bein. managing and procuring?

s...,.

I O And :ca.:n Mnd applied full credit for architect-

.. c'. nir.e, .:r . ti a r..: 3, ho care: up with a predicted coat for

. :..unan : - i.a .0.N that :an quiha a bit Icver than your

" . .

i l '.. . '_ sur, isn't that corract?

t

.' 'n i.u:0 you, if .rc icok at ncge 42 of his 4

~i .0, . n r. e. M rt table cf projected cost per kilowatt-J P ' 7  :,.

. . . . 7. . :025 icr 'C0 which I underctand'the I

n 31:.- ' . '

., .:muc.i iv L : .N , he cemen up utth c

i. '. . '. ? t - ' unr of $2010, iJ t h a t ff O r r O C h ?

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

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? 1 14,809 arb.Jaghs a che.t namt.uc thcM all the ninnts ware built hv i

r -

N~

the c=_ - built 1,y the som e::perienced architect-engineer.

! O nichef but'd,r, dropping out that experience factor,

nv:

</. u c e c4 up vith a cc::t which is over .4200 more ner kilowatt-;

f hour?

1

. The.t's correct. s

• 1 In fact, on Exhibit 222, it shows that without xch adjusn.2nt it tould he C2231 per kilouatt on a nermit

.t. ':;na d ' n 19 8 G . '

p I e.a . Yoit cre straving nou frc:a the Rand i

t n.f.ycia, is that cc:.rcct?' i r

?. No, E::hihib 222 was taken by Mr. Thomsen directly

( f re...'. th-: nnnd anal ::is.

O ~?at :.Ir. 3and, right in his report says, for a C:!IS issued -- . data of 1990 conos up with a coct per kilo- f i

20 9 teae

..v s- e  ;.

4

.~t E:mibit 222 -Ea# e::cluded the crehitect-engineer,

.n I hic /:. c::cluded the architcct-engineer. Page 44 of the Fr.' ennlynin tscusaa that overy singla one of the light-water i

nctcr rels.n'::3 uculd hr built by the came exnerienced architect-e <:t.r . Th'.c :lant is not being built by its, architect-c.cd ::ince the r.rchitech-engineer which is responsible

._u

.. c e.= en 'c ud prccuramont has not built every light-water

te.r . 2ho 'G S.'.0 ~ikt the CfliCE7? nedel, is a mininun cost

.. . ideal citc.

4 26 m -

-- - - - - - -n- .-,--a . w. ,.w - , - , , p. g- ,, ,.,.-,+7.-,-,-,

14,810

' ' ha Q ion :,.n't canaidct van:,ac,maat ci -- hv an -

.: ;. .rl .nc3d cen rscuer to be at all a factor?

,q ,

a It r> y very ucil contributa.

O And Mr. Moo: certainly applied cuita a bit of cr :o.1': if au cu?: fit 1.1 .'oc only managing and procuring but I

al:.w 'rtilCing?

t..3 p..anc. 3. s .caing , aunt .3y :n s.verienced

.0,

.0 -

-. c. .

. :. c.:n 22n be - thara's a considerablo learning cur m.

J Cut pt gi- e na credit to Bechtel in your analysis?

., .e.,s...

... s

. .... . . ... , .: , ,: .: ,,,, u ,, p 1 u., a. . . .

.....-_...,-a .

2 2.sp f.t , :c.* fact that they're managing and

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A O.'c.a att w.on; of Mr. Mcco deals uith '#no built

-- ....e...

1. ~

n vn se 50:r ei y:ur testimeny, you refer to the fort 2.71 , e aise had c.cna diccussicn en that 7.ssterday.

i I

..a 7 9 :a u ac '.n, y ngn3.rican:

Junp In the average construction ' 1 cc.r : 2i o n 5 0 - plants cer.ing on-line starting on around 1975

e. ...-:.., .2.... . s, a ,u. w. . . . .- .- u, ,

c-. .

I

r. i .' 3 :.1, i'.: : s .- vary .T.1ceth r.its of increasa, as

f. .

n.:t rc g a; n ce cce: 4, .02.an.:

a,or a cinp,e linear

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s c -: 1. ':c -: um ' .-:72-1973 it -ics. ped up t -/o c.cnthc

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I l 14,811 4

e t'

.:c/n-57 0  :'h n tha nt::t year it nettiall" went down 1.1 i

T.onthc.

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q .'. 'les. l 1

sj f O Than all of a sudden it junced up almost 12 months,

.. . ,. :, .> i. c r

.... . . iw. . * .'

i .

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.?. Yen.

• i

. O 3. nit than it jumped up, well, over 12 months the j u:t ';;;,r. i;; that carrect?

4 I. I(17h t.

I O ticw, have you givan -- donc any analysis to I n.. mir o ' .h effset th2re night have been in the average .

crnst:ructica dure. tion as a result of plant stretching out i (-

cchadtlee houcuse of the arcpoff in demand for electricity l i L l ftlic. tin:t :he oil c:abargo with respect to this chart? l

},

T. I did not re-evIluate the data base of any cf i r 1

cb :c::2 = cahafulo atudi2s which I reviewed.

s, O Co y u don't know whether or not that is a fact, I nu, if co, uhat affeci; that would havo on this chart?

A To,. I timild asecc.o that that effect uould be

! i:11 ~. 2 r to -ia effant that we era now experiencing with demand l t Mc.sta drcppiig cff.

1

^

r Yc.* ra prcGicting that the Applicants in this case ,

. ci? : . :. J 2 :. : :ac-u cut thair cchedule because of demand i

i s..,

i 7

l Well I :.orid predict that the Applicants do not i

i J

a

. . . . , . . - . . . . - - - - - - . . . _ . . . , , , , . . . - . - - . - , , . , - . . . -,,,n.- , . . - - , , , . . __..m,,,,,,,,e.,, _ . , .,-r-r- n,_-w,.,, ,,,,n,,wn,m,,.w.

14,812 1

. .s - '

-= ;ni s -rn ' . t it all hecrisa of the delund forecast 1

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..~. ....,

a. - - . . . l I

I (7

C '%11 Z 8n not t.are ' c vant to get into a need for

c ar ..

.n r.:n; ion nu thi.: ti ae . But the point ic, though, you h: :2 ;:t con.;idsrad that to th2 extent that's a factor in the ir rwyert tho.:gh?

A ':o I did not '.tcr their data hace.

A 12.::: to inik . little hit mora about the 1;;; z:Crt 'i:.n at this hima. It's bean a uhile since I've

,ul ;ic cc ?. rec, b It .*Ir. Meon ucos a regreccive analysia,

.. ...  : .. ....,......,c.,

.,. nL. . ..e.,

c, . ..r c :.

f g

'1

. And iar.'t a regrassion analysis basically the

^

_;c.., :nt of a dep ndent varichia which is predicted by the

-- . , -.'.ch is aqr.a1 *:.c a linear ccmbination of some in-

~.

. 3.70 nrir.3'.cr plus I aunpera,. cena random error, is that

. . . . ~ ..m.o.

,. .- .w , .,

.n. .a.m... e.u..

'. Yd y .; natin tc the co af ficients of these

. 200- vient 7 . -i .bl as , zu .r. :Mc h.c dcac, from data which

.' - ' '. a c. 3 -squc.ci :.a chi:h Jr.dicts the dependant variable, is

/

a a.

, 2 ., s .

...n.,- .

'c. g..e VaalditV. cr .cnAS 2

aDDrC3ch

.. JU . U O u .3. . " ~ ~ UIM l

I i

14,813 5

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t /:n.22 f.,...s ca t'.ta rcrr:ctn:r of the nsdal, does it not? In s

! m:-:ur - true i'.' hh2 Jedal is not specified correctly the I 3 ca.v-lusion uculd be in arror?

\'m) ,

A The conclusions vould have a higher probability  !

4 -

.:e ;aing in error as the accurney cf the mcdel declines.

i 0 nut if the model isn't correct then I guass it

. uld juct be coincidenca if the cenclusions happen to be

.t Coll, if the modal isn't correct, you could include t

tha c d t of poopic t'ho rode up to the too of the Space I

".ylla as eno of d.s 1:dcpendtnt va-iables, and it would either 1.

II have a pacit!va corralation or a negative corrolation. It l a

l .-:ul'. ver/ litoly have no real haaring, but it would still 2

cor.uribute to tha r.:'.curac" of che model. For that reason, you c . ;- en hold the nc:J:3.- Of variables dotm to au small a number rible: .

I Q Okn?.

.' ell 1:t's assicto a medel, any model is correct, 4

7.

. m.: 9 th conclucions could still be incorrece if the

c nll

:d independent varir.b1ce, are related or dependent,

.:. a ' : *:hst i

true? In other worda. if no no longer have truly i

1::da;- n-I nt var! 'ilcc?

L y.t n .

a cha r.

.' That va.11d detract frca tha accuracy of the model.

! 1

. _ . . _ . _ _ _ _ . , _ . ._.__,u-., .._.. ,.2.--.,- _ ._ _ ,_,_ _ . . . - _ - , , , _ . .

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

d 4

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14,014 4

l f.

s r;L./ac d'? -

0::ty . In .7tc:1 a casa, if the ccofficients of the 3-  ;

i I

iniv:n.* ant nri:.blos -- if you have a situation where the  ;

i. p in ; pendent vari.' bloc tr.:ly aren' t independent but are, in fact, t Sp:ndent, than the ccafficienta of these independent variablec

c;1dn't .prarant the .cffect of individual changes in these  !

arinL1.as, would tJxy, since the change in any. variable would -

,w:. Lo ar ;:cint:4 with 2.c chango in come or possibly all cf 4

I

- . Mr e> en'. lad inds :r.ndent variables? ,

I n can jcn let ma have that gitastion again?

O I:n juct trying to understand this siiiuation.

If 1.: turnc out that the so-callad regression 4

j c.nr.1fais, again ac-called independent variables, instead turns j

\

.c :.o 5 2 a n an:U.ycic of de. pendent variables, then the co-afir'.anta -f th.ac, again, so-called independent variables I

cJ.." .' t re .11y off set the trus changes of those independent '

4 cc. Z :1 c ., ~<

.aant they wouldn' t be accuratsly represented in c'c rccult." sinez, I assrm.a then, if :: hey are dependent j ca coh cthor. then a change in c:rf variable would also be

3 /~..cd tich a charga in other ec-called independent

1 i^

. - . ~a. . .-a a

t 4

. Ucil ~ja., thu ucs of a nathenatical model is only

=- -

- ua . -

sta which 1.r fod into it. It would bc i

. -: : - r.1.v; '.r. t /: on tha hasic cf a regression ths location

c. ..; "nf.h 11cci u; on th.? indeptndant varichlos. But 1

_ . ent -- .1.ly t? :.5 apprce ch teculd ha meaningloss, attempting v

b

- . . . . e -

. r . - - - . ,-- ,._.__.-4.-.-_,.--,.4._ , . . , _ . , , . , _

, _ . ~ - . . - . , . _ , , , . . . . ...,,,._,m...-,,,ee

__. __ . . . . . . _ . . _ . . . ~ . .

. . = .?

L-e , o.1 s  %*

..s- . ' d' .** -*< '

<e ., ,/ ._ .. .

. . ......t...'l... -. . *....#..s.*. . sa 6 .2. 'se# .. *1 . w v' . . F. .. . J J'L '49 . .'. / s C .I i

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.  : .'; r. r : rc-l..'ir .: . '. I- t.A, ths 1..idccend :nt variable , ' and there-  !

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'm: . 3.t fc e.: ispr.c riktb roplicatio4.

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f '. ;u: b inpor'hant; thing ic to ascure that the i sm . :... ..

2. . ~ . . ~

. .e . e . c . ..i H t,.. t .. . ., . 1 ot. 3. , e. .

~ -, < .

it$(; o, s. . .

. is rj M:q.

IMr Mr. 200::, en pc.g2 31 of hic ant.Nfsic, doesn' t i

s

' . 6e #r. ths tabt to::cxd th;a bottoa, he indicates that the CPES .

i

~

c _J2l/.icat.in?f.catcc that plant ccst increr.nc at a rate of s'.'. 2 2 ': 0140 pr.r ':ilYe.Ett par year over the tiit,sspan of his ar.a.ly cirf is that correct'?

s .. . . ,

L Yhab'c the. primary conclusion of their' coat

. . . _ ;s.

C .nd he alco concluded on paga 30, neward.the 1 . . O. . - I t h. p ag,1. that the to.nperal ccet incrance: continued

', in en appr:::im.t:17 lin n.ar fashica,. is that correct?

~

A Ap.in, that's the prit?.ary conclusion of his

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14,816

~

7 -b/;.gs12 .. .creau in enrna of pare:enteges par year, isn' t that right?

l b3 A The cecond derivative would be negative. You

.1 ,

'" veuld b.vic rate costs increasing and decreasing -

u  ;

.i Q For exc=pla, if you were to 1cok at Mooz' chart on p::ge 44 whera he predicts - and again, we're talking in  ;

' '" n e ' abatract hora -- but where he predicts - vell, let's say for a CP iss'ted in 1900, hs predicts a cost per kilowatt of l

l $2019. A 9140 increaso ac a percentage of that $2019 is l-cerewhero in the neighborhood of 7 percent.  !

I A I've dono that arithmetic. Between 75 and 80, ,

, s  !

I thcre is a coIcpound annual growth rate of 8'.6 percent. 1 Bot-acn 80 and 85, there's a ccepound growth rate of  ;

i 5.1 percent. Eetween 85 and 90, there'c a compound growth rate 4

of 4.7 porcent, all in real dollars. The compound over the t endre period, 75-90, is 5.5 percent. All of those, of .

course, in 1976 constant dollars.  : '

i Q Cker. The overall one was --?  !

1 A 6.47. ,

, l Q That's a long way frcm 20 percent increase, i isn't it? i A Thif: in a constant dellar increase.

O Picht. .

( __ E'.;b C.4 parcent, you uce 16 percent, is that

, "mrrect. in cae of your analysoc?

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14,817

,a A n encalating the Moor. estimato, I used an I r . ) ..rS/ac.M3 o

s-S corcent inflation factor.

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14,318

, -. u ns/-n. O But en paga 8, I believe, of your testimony you I

it '

considered n 16 percent cost for inflation. Now in escalating

i'

1 oruard the HPPSS-3 and 5 --  ;

J

'l No; this is the WPPSS-5 cost.

A i

I 0 Can you explain how you arrived at that 16 per-cent?

~ - l: - [

i A The 16 percent ic the midpoint of the inflation i

. , f f

-ate of 19 i:arcont testified to by Mr. Eugene Ackridge of ,

i Thcedoro DErry and Associates before a joint session of the *

,i I

Nachincton State Ecuse and Senata Energy and Utility l t

f 1

Cczmi>;c or..  !

O So the Ecoz Report doesn't support that rate, ,

( , then? .

t i A That assumption comes from a different source.

4 1 l 2 So you're kind of taking bits and pieces, soma f

' ase coat from Ico : and rates of inflation from other sources i.- that? ,

ti.,

A In this particular situation I've taken,the f

. s , ,

JUPSS animate for WPPSS-5 and escalated it at the midpoint o C t'c e 4.nflation rates hstimated by the management study of

~. DP 5 s .

~

! And that does result in a total project ,

t _.

! n[. of nurly 9 billion dollars? -

O I j'J7t vant te nahe sure, then: the Mooz Report i

0. A r ' u -- 1:7.s not used, nor does it support that particular

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14,819  :

I -s\  !

, \w Mn3/*.62 analytic? l i ) '

A The Moo: Report is done in constant dollar

- teres, and for that reason I assumed an 8 percent rate of ,

.(

i nflation in escalating the cost.

l G. Gottingback to our discussion of Mooz, then, and irpcrtance of insuring that variables truly are independent

' hen ycu're doing your regression analysis, the Mooz Report doesn't considor the possibility that in an historical data bare in which the coefficient -- and, again, we're talking nou abcut the incronental cost of $140 per kilowatt; his

, cnzlysis really doesn't concidar the possibility Ehat this ccefficient may well be related to other variables such as j N--

q () cita and location, does it?

j A Ws, it does. That's the entire point of a

! hi;nly multiple regression analysis.

1 0 ?bil let's look at page 37 of the Mooz Report. -

15 On E:tb paca Mr. Econ notes the regression analysis indicates a cost for ecoling tcwors at about $90 per kilowatt; is that corrtet? .

i' A Right. f i.

O  !?e also indicates that.that oost is considerably Tors than the truo cost of the tower, doesn't he?

( _) I '

I. He :ays the tower may cost substantially less.

g'"x  :

0 'hil I'r. again referring to the top of page 37 thors he. says, "The regression indicates that this cost is ,

a

" , ,m,,,e,

1 14,820 4

- f .3  :.F e.h y90. p.2r *:ilewcht, uhich is understood to be substantial-:

( -

- (. 1 ly more than uhat a cooling tower should cost." i Is thct correct? I I

g >

\

A Yes.  ;

O roes he say that?

t.

A Yes. But he goes on to say in the last sentence l I ,

cf th:t paragraph that the towers may cost substantially l

l . ac. He is not offering hi:nself as an expert on the cost i-l t

of cooling teuers, only on the relationship between a cooling towar cnd ccentual project cost based upon the 39-plant data

. i ba r.3. '

i 0 New let's refer to the sentence Icft out between .'

.t t t these two. Dossn't he say that the correct interpretation ,

t c:: the tower ccefficient -- meaning the cooling tower  ;

4 l coeffic!.cnt -- i:s not that the cooling towers cost about SCO por kilov.'att but that the. cost of plants that have i

cooling towers are, on average, S90 per kilowatt higher than !,

thCC.3 that (o not? i Us then goes en to cay, A question that would be rcrth tddressing in future analysis is exactly how i da plantu cith cooling towers differ from ple.nts without th . a.

[sv} -

' hcu, gatting back to the sentance that ycu O) Jcrred to 1.2 indice.tes that although the tover itself

'z-f ast etbotantially less chan S90 per kilowatt there may 1

(

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

14,821 WRO/ub3 i bo other coincident characteristics of these plants that

.N -

cause the cost to total $90 por kilowatt.

U 2 !! It sounds to me as though Mr. Mooz is indicating 4 that there is a possibility that he hasn't explored that O. .. .

the cost of the tower may well be dependent on other factorst d?a 1

. 3Dp icn't that correct?

y I! A Noh it has nothing to do with the cost of the 2:

bE teuer. It has to do with the fact that a plant which

generically requires a cooling tower has characterisk as which contributs to an increace of $90 per kilowatt in con-r

struction costs.

2r O Tlat's your interpretation?

,_,, Qoesn't Mr. Mooz raise the. question.that.-- T. guess

(

i

,;,. he's caying it's a question worth addressing in some future

g analysis, mecning that he didn't do its Just what is the relationship of ecoling tovers to plants?

g The cooling tower itself may cost substantially g; less than $90 per kilowatt; that there may be other coincident

- characteristics of these plants that cause the cost to total L 090.

~ .j ;

A I would assume etat among those variables, among these influences would be the fact that cooling tower plants f] -

tend to be in arcas where seawater is not available for l x _,

cooling, tond to be inland, and tend to require probably i j i

.  : ro ecoling capacity. That's an enginecring analysis that l

' l l

l

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

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

14,822 m

)

/ '

' 1b1 E'a act cualifial to sat in cement by any means.

benb3 0 Okay. But Mr. Mooc did not pursue that in his I

analysis, did he? i s  ; j.

.1 We, ha did not. He concluded that the basis of  :

i E 4 a 30-plant data base, the plants which had cooling towers g coch $30 por kilowatt more to build.

O Dut he alro ctated that he understood that the 1

$90 pnr kilowatt is stQatantially more than what a cooling tower should cost. And then he went on to indicate that an i

ir.tirecting ques:-ion to cddress in future' analysis is to find out if this truly is related to other costs. i S ,

\

g So isn't the fact that Mr. Mooz -- or Mr. Mooz is '

( ,

i indf.ccuing the possibilitf that thin may well be an independent varinble?

A No, it's an independent variabic which is serving for pro:q for a whole hest of influences on plant cests  ;

which nra apparently unique to plants with cooling towers.

Q But it's clear that Mr. Mcc has indicated .

that he dcean't think 390 is a true cost for the tower, and tion Sc 1.envc3 cpan the quection that there may be nther ,

i l

co'.:-cir.caz claracteristics of the plants that cause it to i J; . r tt figtre, ,

~/0 0 , that variable -- hois only used very fev O

b vs.71 9'a." in order to r.nintain the integrity of the medel.

I Ard :rru hncu. ha has not got a variable for a nunher of miles

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w 14,823 C'

})3,,gb:

1. 2iFi"V' h' 0 "* " ' h"" ^ ""#1 D1* # # **U""" d*7" *" th* '

cret in which the plant is located. He has used the cooling  !

t t'

j tower variable as one of his r.tajor variables, and it is i u

' i unquestionably serving as a proxy for cthor influences which, ,

I as hs states very clearly, the cost of plants that have. cooling toucra are on average $90 per kilowatt higher than those I

thnt do not.

• I.

IF the !!RC Dhaff uanted to do an ovaluation of I

cxte':ly how plaats with cooling towers differ from plants l 1

uithont them, I ::culd bs interested in icoking at .that study. '

O 2ut basad'on hic statements, his cualifiers, you ,

s i

caan t stata that Mr. Moon has concluded that these are truly }

7

-- th:t this is truly an independent variable,.then, can you? !

I A ?co, it is.

)

i 0 In other words, you disagree with Mr. Mooz, then?

A I disagreo vith you. I think that Mr. Mooz has made i: clear that the cooling.' tower variable is independent i

cf detc of issuanca of the ccnstruction permit, it is indepen-Cant of the si=c of the plant, and it's independent of whether er act it's a Dnbcock-Hilcox plant, and it's independent of tia ice:tf.cnof .ha-plant.

O Despito the fcct that Mr. Moor in his text indicates

L'ra .

.rj h : cthar coincident characteristics of the plant q . int cr.u?:0 .ho coct to be $907

.; It is independent of the other independent and of

l 14,824 l

• I s /

.ah 'rA 0 the dagandent variable.

O He didn't say that. I read he is saying the ,

1 l

true cost he understands to be less than S90, it's a sub-ject to be pursund at'sema futura dato as to what other factors  ;

ni ttt cause that to got up to $90 and thnt there may be other l l  :

coincident circ:acteristics in the plants that cause the cost +

t:. tutel $90.  !

1 l  !

f ycu don't read that to be a hedge against the i

'.nd:pendence of that variable?  !

t I

A The only conccrn of independence is whether the -

t varichle is independent frca the other independent variables. .

n t Q night, but I don't neo'any words in here saying

{

, ii s --

thr t that is truly independent. He says there may be other  :

enircident chare.cteristics, he dcasn't know what they are, i

doen ha7 i i

A No. t

! Q And yet you are willing to go beyond what 5 M r . :'.c o : is villing to and claim and testify today that the .

towcr factor is a truly independent variable?

A It is indcpondent of the other independent '

varit.bles being uned. >

{ CI!!.I.TTAU DEALE: Mr. Swanson, I think the differ-

-.cc ':.;;waan you and the eitness is interpretation of what

I: . 'c.:z says ic prohty clear, that is, you disagree. And W t :T. Mcoz has caid is spelled out pretty cicarly. You have

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

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14,825 i

c/ .l5' hoca randing it. And ths two of you have drawn different

, interpretations. j i I question whether the pursuit of the difference ,

is going to, you know, advance the cauco here. t j The natter is clear. You are different, and you i

both e plained your rsesons. And the subject natter of 1

-:r. '-:ooz is spelled out.

MR. SUAUSOII: I sense this might be a good time te movo on to another subject.

f I

CliAIRMAN DEALE: I suggest you move on. l  ;

l BY MR. SidA?iSON: i i

i T i Q Let's refer to page nine of your prefiled

( t testinony new where you have reproduced some proposed budgets ,

't i

4 for the UPPSS projects.  ;

A Thoce budgets were adopted July 27. '

i

O Referring to Table 2.

J

.1 2..20 Let'c ccmparo -- ws11 let me back up a second.

t

If vo're gcing to proj2ct a -- well I guess you, at one point, a u g J e r t y.* a 16 percent rate of escalation was an appropriate i

ra h to use, 12 that correct?

.s Th.r:: was the midpoint of the range offered bv the r.n:1" . who ucr: cod on the management audit of WPPSS.

G 0::a'/ . And I ass:me thoy project this to continue,

\

V it la "Se just going to go up to, cay, the early'1980's and u;nn stop, they're projecting that that is going to continue ot?

a -

. - - . . - . . .. .- ~ - - -

14,826 M. .

~.;b/ vjb5 A Reir stalysic van historical, that had been the

,i l i

hictorical range of coat oscalation for nuclear projects.

1 That obviously includ:.ra on a historical basis cost inflation

~

related to the econ my as a whole, together with that unique -

l tc large constructions projects and that unique to the nuclear; pot:ar industry.

Q Ghay. nud ycu uced the 16 percent projected ,

-fze~ccrd to the projcated acr.tpletica data of the Skagit project, in that correct? 1986-1988, I guess?

• A Using that rate applied to the Skagit project,  ;

,i I cra.c up with anprotimately a $9 billion project cost.

i F l t

(x q Okay. So ve would expect that 16 percent rate  !

i

+

4

'o c::iut during the time that the WPPSS projects are coming

i

or.-line in 1981 to 1986, if you are correct?  !

A I havs seen no signs of mitigation in inflation.

e Q okay. Let's take the date of the earliest of ,

i the WPPS3 projects to be completed, which is 1981 for WPPSS 2.; t They have a coct per kilowatt of $1668, is that correct?

I.

A Thtt'c correct.

l 0 Let's take the dato of the last unit to come on

'o get the largest span,ITPPSS 5, t;hich is supposed to come on l

in 1955 That has a coct per kilowatt of $2220, is that i

i .

aa ::c c' ?

. Ysa.

Q N :: I don't know if you have a calculator with you,

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c. .x. .?e t;.a e t.wn i f:0 p.:..anta s.nd ycu , c,ra tc 2.lgure out T

cxqcuni rate cC ccch occ:-lation botitzen 19El and 19G6 9

" t:c u '.d..' t g r.:

_. r.. e.nf .D. ora naar 15 percent, you ,.culd actur.llr l i

- <A c abcu t 5 . 9 parc ent . Docs that Cound reasonchla?

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r .' . S aifd re:-neu bat'. 2 .n UPPSS 2 cnd WPSS 5 the difference ,

1 I i

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. 1. 0,oo 3 m- ,.,. . ., e i._ 2 ay 0 1 1 1.e-  ; 8 C. . A i

cut "i'ch '. rat? of around 5.7 percent, decs that cound i

. orble 10 you?

l t A lic, I don't think it's ranconable because it 1

.. >cr.3 tia f act that NPTSS prcject two ic naarly

. finished l .

c.. ici'~. ica in r:arly over .iith. Once the coment han

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. . . . . " . , ut a~, i'1a_ . .#. 'a- .#.n'... ...a. s'-u ^w n M.'.$ c c.~>'. o "- ,

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s x.2cr 0;o in alnact finished. And t?.c WFPSS Managing .

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, G 'Tell let'c t:%2 Tdi:53 1. 2 *:as just taking that

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4 11,828

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(N 4

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<!c ,

- c v.0 in the cost of WPPSS 1.

O Lut this chart certainly dcesn't cupport your

+

j

+ 1G percent cost escalation, does it? ,

> s }

t

}

3 A The escalation rate for edch of those projects ,

! t r

l i

has rr.nged frcm 19 to 27 percont. i t

i O But you just testified that you expected that }-

15 percent, at least in your analysis, you projected that  :

t!.at vculd continue on up to.1986-1938. Yet if we look at .

r the t!;ne period of the projects comir.g on-lina here, we have i 4

1 cn oscalttion rata which is much, much less than 16 percent.

A Ue have NFPSS' officially adopted budget which

' the nnunging directcr has indicated vill be upward revised s" ,

tia.in, which a r' ember of the Executive Constittee, Mr. Robert  ;

(

i

^rrre.7, has indicattd 1111 probably have to be revised to >

cellect costs half again ac high as those currently estimated

~

i 220 rs all is acne.

I have given their current budget estimatec. j Their current budgot estinates have been revised and rerevised 5 cr:5. re.rnvised to raficct ever-increasing costs of building

-:.c ce proj ects. ,

e O Eut that forras a basic -- these facts, not come Y.ur2 cpeculation as to what IJPPSS might do -- but taking

.1

- rign: 2 s that form bhc basic of ycur calculation uhere

\ - -

.? n.co! t ac,t of tha Ektgit Plante and r.v point is,

'? s - tr':n tha:: figures, I don't see that they support a I

I i

L -

r 14,829 i

( ..f c T 13 parcant ecst eccalation. He just came up with the widest

! raagc betuarn tiro projecta, HPPSS 2 and UPPSS 5, a period of '

i clrici: Jive years, and vu como up with an average compounded }

6*

m .

i i

ccst escalation rate of a little under 6 percent. i i  !

A' I nodlck agrae with you that the cost for WPPSS 5 t

vill considerably ,areced $2220 uben all is done. Most of the

~

t.sNalttionhnscireadytakenplaceforWPPSS2. Much of the occalctica ic yet te como for HPPSS 5.

r ..

s 9 But yat there is still only a difference -- if

$ ic,h of the ascalation is yet to cone for WPPSS 5, we still

]

hnJa only a 6 percant occalation projected cut to 1986; w ~

i:n't that =crrect?

i

(., A Using their current budget estimates, the t

aschlatica rato is lower than that which thair analysts '

c~caluated tha perfomance of tho industry ac $ whole.

0 Okay.

Now I gueas you testified yesterda'/ that the cycrd cost bcdgot changes for the WPPSS projecte r that you '

did ret ~:now the details of that differencer in other words, ,

i rou did not %ncu hcw much of the change in budget wac caused 1

:.1 920'1:tiv., how much wan cauced by schedule changas or how .uch nay ha c used by other changes in the project, the

(.

v da:.gn, -h:32ver, is thct correct?

O q

. a m.t . a c:rrsac.

l  %

l '

Q In other werCO, yca don't know how much of this

- -= , _ --

m. _ ._ _ . u . - . _ _ . _ . - _ ._,_ _...,.._,

14,830

,ry

, t  !

\ Jh/ cg59 asenlation of tha WPPSC projects might have been caused by the O

4 fact that WPPSS actually changcd the order of a couple of its unita necessitating a number of changes. You don't know how +

uuch of the cost might have been occasioned for ifPPSS 3 and 5 in a delay of getting a 401 certificate, you just don't know i

uhat effect those might have, is that correct?

A No, the Sarry roaort went into a number of those. .

and found that regulatory changes were racponsible for about

• 10 parcant of the increaco. One cause of increase, of course, I '

in they renegotiated their contractc en their pressure vessels.

! O But you don't know.to what e:: tent any of the m '

factors that vent into the WPPSS cost escalation might also i

-%( -

be applicable to, say, the Skcgit Plant?

A No, this in simply an evaluation of the data >

appIicable to the fiva units now being built in this region.

t O Okay.

! How one of the things that you did uns to take i

the UPPSS 5 cost per kilowatt and you escalated it, and I gucer you used the 16 percent, is that corrcet, and added three mero years to acca up with a sugscstod cost for Skagit?

A On page 8 I used a 16 porcent rata. However, on page 1 7- 10 Incc:d a 13 percent rato,. "n.eling that was a *.~ittle more .

v

' conservative.

7 0 Okay, but to ccca up with your cost'of $3.9 billien, you tcok the I!PPSC 5 cost end escalated it'for three years 1

. w a

m- n - -- --n.-,.

14,831

)

fb/agbl0 at a 16 porcent rata, and that'c how you ccma up uith your cost per kilowatt of $3465, or a total project cost of

. $8.') billion, is that correct?

,t ..

I j A That's correct.

Q Now if you escalated it at, say, 5.9 percent which is what wa just determined to be the cost escalation batween the first WPPSS projact and the last project to come

! on --

A Me never catablishad that. You made thati suggaction and I rebutted that statement. ,

O E:<cuca ne, I'm a little confused. You agreed thera was about a 1G percent difference escalation between V, ,

s- the cost per ~ kilowatt of the first unit coming on-line and the last unit, or uc can take any other combination you want and I think you'11 find the numbers are even lower, though, for thoso.

CHAIRMAli DIJALE:  !!r. Swanson, in the escalation 4

rate column in 27 percent after WPPSS 1, and WPPSG 5, the ascalation rate is 21 parcent.--

i MP SUAli2Oli: I think they're relating to different i factors. >

THE IIIT?iESS: One could go the other direction, Mr. Svancon.

i y BY MR. SUAITSOII:

l Q Sut I tras asking the questionand I was asking

---

,ep- ---- yy---, .,,-g- - -

,--y-w+ y *r , ..---y-- - - +

r- - y -ww-9

i 14,832  ;

,(

/m i .

1 wrb/agbil if you took 5.6 cr 6 porcent or whatever and you escalated  ;

i  !?

2 l

the cost of *TPPSS 'S forward thraa years instead of using i

'j 16 percent, you'd get a number that would be considerably

lowar then $34G5 per kilowatt, wouldn't you?

4 i A Yes.

.1

. Q Thank you.

Now, let's Icok at page 14 of your testimony g<

where you say that it's a general rule of investment that  :

4 25 percent of any project must be funded from internally-generated funds. 17 hat's the bacis of that general rule? .

1

i. .

A That was what I was taught in my undergraduate 1

g ccurses in investment and finance.

Q Can you givo a source? ,

1 A I don't oven remember the textbook. I do

renenber the profeccor. It was -- I qualified that as i indicating that the utility industry has been regarded as ,

low-risk and can get by with 15 percent,'which is substantiated, l'

i among other sources that I've been exposed to, by Mr. Beighle's testimony in the last rate caso before the MITC. .

~

O Eo your 25 parcent rule doesn't apply, then, to  !

t the Skagit project, is that correct? -

A Well, I recently was -- I read an article in the l C'_

pe.11_ Street ceurnal indiciting that the utility industry is

( no icngar br:ing regarded as ac icu-rish an it had been pre-viously, and that utilities building nuclear projects will

>,m,.,---.-..-w. -, -w -. .r-.. -- w- , - . - . ..--.. -

w,---e

14,833 i

( ~)

%gb12 have to fund 25 parcent internally, so that the 25 percent 3

rulo may well apply to the Skagit project.

t

. ; . d1D Q I thought you just said that utilities in general

\\ 2 1C don't require 25 parcont, I thought you just said there are other sources uhich support the figure of -- some figure icw r than 25 percent.

A The tastimony spaahs for itself. It says i i

I hictorically tha utility industry has baan regarded as low-rish and has been able to finance projects with as little as 15 porcent internal funding.

O Are you aware of how Standard and Peorc' evaluates

\

(,

-J utility bonds generally? '

r A I have not reviewed their methodology. j ,

Q Are you auare that Standard and Poors doas not csh any minimum percentage of internally-generated cash in svaluating bonding, that thoro's no bottom-line percentage?

A That would be one factor that would he considered i

among many.

Q I gucas there are quite a few factors, aren't there, 2

when you considor the risk or whatever of a utility offering?

A I read a list of prioritized factors that were 3 censidered which licted the regulatory environment as the

/-

primary consideration, internal cash generation and fuel mix

/(, ,)Y as othe.r prinary conciderationc.

O Would they also, Standard and Poors also consider i

- - , - . _ _ _ . , - --, , _ , . , , , _ . , - . -c_-- ., . ___ _

4 l

4 14,834 4

--b/agbl3

bond indentura, acect protection, fina:cial resources,

)

4 manage:nent, futura earning p.r. tor? . l i

l

A Sure.

. U '

Q Sc the percent of internally-generated funds is

-just one factor?

A I do think a naa utility could finance with  ;

i lower internal funds than a By, utility, for example, other '

, thin;n equal.

O So a utility could use external sources of financing if they ; ore able to mact their dividend require-

cente and still be concidered healthy, is that correct? l t, l A If they could get the external financing with ,

i ,

i +

r inadequate internal cash generation.

endBloom Z:andonf1 :c

! i i

I l

i l

l I

l l

l

v 4

i

14,835

,x fic UnD >

( ?E.L/ Val 1

\ Q 1 cu, let' .3 move en to page 16 of your testimony, where you're talking aheut the fallout from the Three Mile ,

! t Isl::nd incident.

i

! Under direct exauination you indicated, or you 9

, discusnud throa utilities that had a ban rating or below that

?

had floated heads since the THI incident.

I guass you wero leaving out Public Servica.of i

'I

'=rce IIcmpshire, the fourth one that Mr. Gittle::an mentioned?

i y A They were apparcatly in the preferred market, not in the bcnd market. So they would not be one of those I I .

refarred to.

[ Q h' ell, perhaps you didn't refer to them, but they

( '

4 m j did - -

f .

I I. I know nothing about their issuance. If it were i

' in t21e preferred carket it would not have applied to my

] analysis. I have not made any estimates of the cost of I

prefarred.

~ '

Q~ And as I-understand it you don't dis.tinguish -- or

'r

'l ycu do distinguish -- er.cuse ma -- betueen a utility that 4

i k

l actually has a nuclear power plant operating from a utility i ,

] t;t?.t has substantial invest! tent in nuclear pcuer plants.

1 1 rzan if it truly in a substantial investment in nuclear power

f. 1 i

v plantc, you v:ould dictinguich betusen the two?

0 '

, ( L. That distinguichr. ant was made in ny study I

! prasantied to the iR!TC, in which I simply worked from a list i

s

.2

m. -m. - .,- , - ,. . , , , . , , _ .__.._~__.--.a..,..m,_ ., _ , _ _ . . . . ,.-_,,_w%,.,._~.v. , ,, .,r-,.m,.,.

=_ -

v al 2 14,836 g

(

p dividad by nuclear dap-andent and non-nuclear dependent. That

(

list was basad on thoac with five percent or mora of their pcwcr coming frcn nuclear scurces as being nuclear dependent.

s I have, in evaluating the three bond issues that  :

Mr. Gittlemen pointhd out, I did note that Georgia Power and  !

Louisiana Power End Light, while being not -- Louisiana Power ;

and Light in not prasently nuclear dependent, but they are sponsoro of a project. Gecrgia Power apparently is new rogarded as nuclear dependent, 10 percent of their power cordng from nuclear sources.

O In other worcis, you would' discount those issuances s i

) hat'ing any meaning, despite the fact that those utilities ,

V  !

l may be heavily into nuclear investments?  !

A Those issues cold at 11 percent and 10.9 percent, respectively, and I think that they have a great deal of relevance to this proceeding.

Q Dut they sold cut, didn't they? The utilities

. rcra able to get the financing they needed?

A At those interest rates they were.

, , Q Okay.

Now, under your criteria PGE would be the only ec-07.lled nn: lear utility,'is that right, of the four a

Arplic2nts in this project?

p

(

- v A Wall, under the study I pres 2nted to the UTC, 7GE wculd be the cnly one that would appear in the list of

wel 3 14,837 O \ .

\

\/ nuclear dependent. Puget and Portland ars both sponsors of O .

s the~ projects and, therefore, would have the most difficulty J

, , .in financing.

J .

l 0 Unit a recond. Ian ' t - 4 i

Pacific has'attremandously diversified rate base,

. A '.

and probably would not, as indicated by their recent bond i

1 sale. I 4

! Q I'm having a little trouble understanding.

On the I caahandyoudistinguishbetweenwhetherornotautilityhas ,

five percent of its capacity from nuclear, and on that basis you night give leca cradence to the fact that some nuclear

[ ,\}

a dependent utilities have been to the bond markets since TMI; ,

v .

,l but on the other hand you're saying that Puget and Washington ,

Water would have difficulty because they're --

A No, Puget and Portland uculd have difficulty.

Facific and Water Power are not very heavily invested. The only nucloar investment in Watar Power is five percent of liPPSS-3 and 10 percent of Skagit.

Q But you can't have it both ways. Yesterday you wora saying you discounted the fact that three utilities that are heavily invested in nuc h . , you discounted them bacav: they're not so-calle? ..C 3e dependent, and now C you're including Fuget in the category of utilities that v) , uculd have difficulty, even though it's not nuclear dependent, and -- L k

3 y'g_~=_

, . _f l ,,w - -- -,~ r -

-- - ~ ~ ' "~~ * '

wel i 14,838 i

(m a Even with their current projects of construction, i Pacific would not be a nucicar dapendent utility.

! Loniciana Power & Light will not be a nuclear  ;

dependent utility.

And Georgia Power will not be a nuclear dependent 1

utility.  !

f 1

Compared to the 40 percent dependence that Mr. ,

) i Gitticunn indicated fcr Puget, haced upon their construction i

progran --

I Yes, but your critaria depends upon having nuclear O

capacity. So according to your criteria Puget won't come O i into that category until after they've already built the

( %

Skagit plants and already financed them, isn't that correct? ,

t I A Under the criteria used by Critical Mass in putting together the list that I used in my study to the

, UTC, Fuget would not be a nuclear dependent utility.

i DR. HOOPER: Excuse me, Mr. Swanson', can I f interimpt here?

l  !!R._ 5'il?diSol!: Cartainly, p.

j DR. HOOPER: The witness keeps using this term, i

t i "nuciv.r dependent." I don't think I heard him define what i

.i hc naana. l

/C. l 1 v '

l

'j :. Can you tall to really what you mean when you

) cay nuclear dependent? Is this your classificatica, or I s/

-] is it a classification that sonehody else has given you?

1 p

\

i

-__---_-_L____ e.-,. . _..,__.._c. , ~ . . .

.,, w, . . , ,

.c wel 5 14,839 s / Tim UITNESS: It's definitely an unclear classifica-

't t

tion.

} DR. IiCOPER: Then would you tell me your specific

'i a meaning so I can understand this dialogue here?

T!E WITNESS: The list that I used before the UTC defines nuclear dependent as five parcent or more --  !

' l DR. HCOPER: Is this five percent or more figure {

their only basis for --

THE WITNESS: That's their cnly basis.

! My osm preferrcd evaluation of nuclear dependent i

would be a utility in which the nucloar capacity exceeded

. tha reserve capacity, so that if they were to lose all of

. .) s-e j their nuclear capacity they wouldn't be in a fix. i I .

DR. HCOPER: Thank you very much.  ;

i 3Y MR. SWJISON:

i Q Teo you aware of the recent Solonon Brothers stock research recorr.andations on utilities stocks?

A (Pc.use. )

Q Let ne be more specific.

Aro you aware of the fact that as of the end of

{

l June of this year, anyway, Solomon Drothers was listing some i 1 I

! better vaiuo electric utility stocks, and that scne of the i

s* t.

i l utilition on the lint wercs haavily nuclear dependent under f ycur & finition of fiva percent, and that in fact two of

'O '

thena utilitiss were 40 porcent dependent on nuclear as of l

1 l

l

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

^

tzel 6 -

14,840 O '

\ -- 19 */ 3 ? ,

d A I'u act familiar with the Solomon Brothers evalua-i tion. I an familica- with that of Dean Witter and Goldnan O Sacha, which indicated that in their understanding it was their feeling that the selling prec3nre which had hit the nuclear-dependent utilities had been so heavy that they rogarded them cs under value.

There was one report which I read,.I beliove from i i

1 Marrill Lynch, which in fact was specifically reconmiending l GPU, uhen GPU was at around 7, saying that, wait a minute, they've lost ev2n mora than their investrant in the plant. .

h LJ They should bounce bai:k to about 10. That turned out to be g correct. They did bounce bach. They've been hovering between 9-1/2, 10-1/4 now. for a couple of conths.

_l 0 Wa.ll, leaving GPU aside, are you aware of the i general performance of utilitiec that are nuclear dependent  !

I in recent months?

A Generally thcir prico decline since the accident .

I has exceeded the price decline of non-nuclear utilities.  :

O Are you aware in this Solomon Brothers report, evaluation of 17 utilities uhich were forecast at 30 percent or greater nuclear generation in 1979 have continued to i <

slightly out-perform the inductry?

p 3 No, I'n aucre of a couple of studies that have (w

4 shan exactly the opposite trend, that the nuclear utilitics

- - .y - -.. .

14,841 wel 7 h

havo uncar-por ccmad the averago.

O I'm talking about now after the rabound after the TliI incident. l lO a 2in. STACHCH: I'm wondering if Mr. Swanson is j

' planning to make this study which ha is quoting available .

' for th2 record? .

1*: I t

IIR. SWNISO21: I'd be glad to. Uc don't have i

extra copics ami, but perhapc we could have copies made and diatribute it when we get back to Washington.

I'm referring to a Solomon Brothers report of l 3

[ Jaly of this year. Perhaps we should offer an exhibit

'?

[ nunbar no'.3, for convenience, and copies could be distributed.

U  !

l I'm not sure what our next number is. ,

i CHAIRMAU DEALE: Is that all right, Mr. Stachon?

E MR. STACHOM: Fine, THE WITHESS: I c:a not familiar with the Solomon i

report. I do have a Paine, Webor, Mitchell, Hutchins '

i report, which showed that the Standard & Poor's 22 electric

} ,

utilitics fell 6 porcent since the accident, conpared with a decline of tuc~ tenths of one percent for the S&P 400.

nut the 12 nuclear groups fall 7.9 percent.

s Carclina Pcwcr a Light fall 15-1/2 percent.

g LY .MR. SNMTSOll:

\

O Je.d thic is what dnte? ,

A This ic May 16. l l

l 1

l

- i

~:_... , , , - - - _ - ,. - , , ,_

14,842 i wal 3 s 0 Mny. *': see.

And you don't know how thagr've done

()

since Uny, other i.han what I've just suggested?

A Nc I hrXen't --they may have made up some of their i

de cir.o . ,

Ci!IJ.RM?-lI DEALE: We'll mark that document you  :

referred to,. It Swcason as m:hibit 223 for identification.

9 (The document referred to was marked for identification as E:hibit 223.)

, BY MR. SWANSOU:

O Lat's refor to page 27 of your testimony, where w -

~c '

you indicata that'"The regulatory system provides no incentives, s

l.- ) for cfficient manage: rent." I Do you make that statement because regulatory ceraissions are r. ora than willing to grant the rate increases l which, I suppose, prenote inefficiency? Is that correct?

... A Mo they're required by law to provide a return o

to rate base. .

t' O A reasonable return?

, A Reasonabih return, to investment in utility plant, e

used and uceful.

1

' In other words, you would maintain, then, that C

C basef on thic statement, regulatory conr.issions are more than willing te grant the reasonable rate of 2 turn the utility b

c n s e rl.e .!.o remain financially viable?

4 w

g 14,843 i

i D) A Chay have historically granted that required to (O meet the cccts of the used and useful plant. I guess scrae i,

cf the 1e.ndmark cases have established they are obligated to -

't C'# i' provide that return only under conditions of prudent manage-t rcent.  !

i O I see. Are you familiar with the Commission's ,

regulations dealing with financial qualifications, 1 i

^

epecificali.y 10 CFR 5033 f.?

f A I'm not. l O Eut yet you're offering testimony suggesting that i the Applicants hava not met the Ccmmission?s regulations l C currently? ,!

(] '

A No, I'n offering testimony indicating that they are not financially qualified to construct and operate the Skagic Nuclear Projects.

Q So you're not rendering any opinion as to whether or not they ::d.ght have complied with the regulations? t

.1 That is the responsibility of this Licensing .

Board.

1 " Q I'm asking if you'ra offering testimony in that recard?

/,,

A I'm offering tachimony to the effect that they V

can't afford it.

Q You are not offering testimony with respect to L

Uhether or nct they've complied, then? I'm just trying to

a.ie m,-- e -

= w-- amuramil-in--i--s-gwee' ==% ~w... e -, - e,mmu-9_.m.w, e.e e..q, e---a +eh. .,- w 14,844 Nel 10 y- g0t that annucr. t A As I said, making that determination is the 1

i ,.

responsibility of the Board. ,

O Is the answer no? I'm just asking you personally i

if you are. t A I indicated I'm not familiar with thom regulations any need to, render i and I'm not qualified to, nor have I I

jucgnant on thcae regulaticns. That will be determined by the panel.

Q I sco. I think that's a good note to end on. I have no further quastions.

)

s CHAIR!'AN DEALE: Fine, Mr. Swanson. ,

~_ /, Let's see, we have, I believe, Mr. Stachon ner.t.

THE WITHESS: Mr. Chairman, I have a little difficulty having an exhibit as a part of his e:: amination i that I haven't had a chance to review and respond to.

MR. SWZd; SON: I!r. Chairman, we weren't planning i on offering it. Just as the Intervenors and I suppose the .

, A7plicants and other people hava donc in this proceeding lots of time, we'va cross-e::amined on documents that we hadn't intended to int cluco.

I ass junt asking him if he was familiar with h this raport, and tW.t was>all I intended to do. Mr. Stachon ir.dient2d en intarast in having it raceived as an exhibit, w

r.o we're .zilling to comply with t. hat request.

wol 11 14,845

/

f^h 4

,/ CHAI"dG1! D3 ALE: Mr. Stachon, .that's your disposi-tien? i IE. STACH0!!: Well, I think lir. Swanson's cross- ,

er. amination uent c little farther than whether or not Mr.  ;

Lazar had any farciliarity with that document. I thought I 1 1 <

hece:d ILr. Svanson quote that doctscent rather freely, and I f

l

think in order to help facilitate the record, that that i docmmt shot 0.6 he in.  !

i CHAIRMAli DEALE: We have no objections to putting >

it in. Mr. Lazar here -- Mr. Gendler, you're the attorney l

for the witnoca. Ehat's your disposition in the matter?

' [m t

Im. GENDL3R: Ithinkitwouldhavebaonappropriate$

l to have chown the docunent to Mr. Lazar. I was unaware that j l I

! he was unfamiliar with it. Perhaps mistakenly I thought I had earlier heard referencca to the Solcmon report.

f

! CilAIIU4A27 CSALE: Yea, there had been. ,

i IG. G2:iDLEn: 2nd that's why I let it pass.

i

! CHAIN:mit DEALE: Yes. Well, I think your racclicction is corrcct. Someone at so.Te time mada a reference to the colonen report. I think it was in examinatiot.

I of .r. Gitticnnn. So it una not unnatural, I believe, that Int. Sw.nson would have t'alked about the Solcmon report, and i

I dca'h bolieve dat he had any intention of putting the O

, I m.; tar into evidance. Tha question na rnised by Mr. Stachon.

LJ He cinply said he thought it ought to be in evidence. There r

9

wel 12 14,846 f% ,

(

( w.,s 1cta of conversation going back and forth about this report, and we would lika to have a feel for what we're

.i . i talkinc about.

~

Fron our standpoint I think Mr. Stachon raised a fair point. I don't know whether Mr. Ln=ar would have any e

,j ~

chango in his tastimony. He indicated ha wasn't awara of the report, I believe.

,i i P

! MA. GENDTER: Well, the problem

• is if we had been l zzsa: e at the tirte that the diccussion cara up that he

] i

!, wasn't aware, he could have been offered the ' report at that l

time. I think he should ho given the opportunity to at least exanino the report and determine if his testimony ,

, s changes, i

CHAIW4NT DEATE

We'ro not trying to indicate I

whr.c might have bson done. We're faced with the problem that i

eu testirony has been given. The report has been referred to several tiren, not only in connection uith this witnesa ,

but also in connection with the examination of Mr. Gittleman.

1 Mr. Stachon sitt. ply said he wouldlike to have the report introduced into evidence, and Mr. Swansen hadn't '

plannett to do this b2foro. Ho's quite willing to do so.

,.  : 09 ycu're raising another question, and maybs Mr. Svanan r.i<jht have shown tho ::eport to Mr. Lazar, but -

BT. . GEnDLER: Without setting back to what night hcva teen,. then, 1st me suggest a colution. I would like to

- , --.-....-m.-- , .,,,--.---.-m-. , , .,-v, , , , , , , , , , - - - - , ,

,.,e.g-m,,..en-.- .. ,, --

i.Z _. _._ _ _ --

wel 13 14r847:

apand a few minutoc during Mr. Stachon's enanination of Mr.

\

Lazar reviewing the report myself, and then :r.aybe have a

! noment to ccnfor with the witness on the report, and perhaps b' '

! detel.nine if any redirect is appropriate on the basis of the

, rescrt.

.: i

] CIIAIPliAU DEALE: That's all right. Mr. Swanson,- ,

I i

can you make the report available to councel?

i i Mil. SENSON: Certainly.

] (Cocucant handed to Mr. Gendler.)

1

] CIIAIPdITCT DEALE: Ucw we'll have cross-examination by 11. Stachen of f tr. Lazar.

\

l i

EY MR. STACIION:

Q Mr. Lanar, whether or not the Applicants have complied with Part 50, 10 CFR, regarding qualification call:: for a legal conclusion, dcca it not?

A Coma again?

O Whether or not the Applicants have met the i

, Cornission's regulatiens calla for a legal conclusion, does I'

it not?

A Yes.

Q Ycu're not an attorney, are you?

CI:f.~I'JC.H DEALE: Uall -- go ahead, I'm just T

rcru ring ~~ th: thrust of your quaction, we're talking about financial qualificationn and now we're gatting into legal

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

14,848 ,

\ i

'p-<il 14 c0.1clucienc.

4 y .

IM . S G CHO!?: Well the basis for ny question is 4

that '.thether or not the Applicants have -- at least in my mind, u- .

waether the 1,pplicants have met the Commission's regulations 4

l calls for a legal conclusion and one that is not appropriate [

i

-; for the witnsas to make.

CIIAIIUGIT DEALE:: There's a requiruuent -here that the Applicant caet cortain requiron:ents that are sp<alled out in the regulc.tions, and the witness is offering evidence ,

i that under his viewpoint they do not meet these particular i

requiranants. i n i.

I h on the other hand, other witnesses advance the (a/

, , proposition that they do meet the requirements. The judgment i

)

as to whether the-1 do or do not I believe rests with us, and  :

~

, not with any of the uitnoases. i The witnesses, though, are in a perfect position l to .:ay I think they are or I think they aren't. -

MR. STACUCM: Well, again, it is a matter of ,

I judgment. All right. I'll move on.

BY IIR. STAC110N:

Q Mr. Luar, there was scmo criticism yesterday

. rajarding your uco of a redel using a linear cost and t c) 0f:cdule r.21ationship. Now, are you avara of any other liacar antrapolaticnn used;in the utility industry?

. ii Pricely linear extrapolation which has been used

. _ z ,.  : - - - _ - _ _ _ _ - . - _ _ _ _ _ _ .  :- ._ -

14,349 ual 15 O

k )T in this precaeding, of ccursa, is the West Group forecast, b ,

uhile a couple of the utilitics which contribute to the West Group forecasa use an econometric model. I guass Portland and Puget havo mde their contributions through econometric models, although thoco ncdels themselves have, in turn, been ,

criticinad. l I

Ilost of the utilities which contribute to the West Group forecnnt, the publicly-owned utilities, rural coopera-tivar and PUD's, municipalc, use straight linear trending in detsraining their future requirements. And that is a consider--

able part of the basis of the criticism of the West Group forecast. '

i The indication in the respondent's -- or in the

?

4 Applicants' prefiled testimony is that their rate increase recucot will be at a compound rato of 12 percent for ~Unter-P ater, 11.7 percent, for Pugot,. or 9.9 percent for Portland, and gives the impressicn that that is something of a linear relationship. But in fact, the fact that Portland has applied for a 21 percent incroace, Puget most recently applied for a 23 parcent and received a 15 percent rate

', incrensa, indicates tht those relationships, although they're

,. sort of indicated to bc linear si the testimony, so far appaan to ha front loaded.

O t So that, again, is a mis-use of an apparent linear C

trend.

~'

wel 16 14,050 3

b MR. LINZNEERGEn: E:<cuse ne, Mr. Stachon.

U May I havo your definition of " front leaded" as you've used it here? .

J THE WITNESS: Front loaded would mean that whilo '

you hava an 11.7 parcent compound growth rate over 11 years, m2aning at the end of that period your rates will be 3-1/2 tinca what they are neu, the rata hikos in the early period arc mora than 11.7 percent, and presumably tailing off in the latar periods.

end i73L 1 IG. LINE:iBERGER: Thank you.

E'1 IG. STACHON:

1 O Now, thera was also some discussion about melded rate atructuren. Are there any other regions of the country or Conaissions that uso a rate structura other than a melded?

A There's baen a considerable trend tow?.rds a T.elding of rate structures in recent years. The State of Vermont, I think, was probably a pioneer in that field.

i Ver:nont has 150 magawr.tta of contract hydro at 8 mills, a vary small percent of their capability.

The State cwnc that hydro contract, and has sublet it to a.ll of the investor-owned utilities except: one, I guess, sbrvingilortant,withtheunderstandingthatthatsavings v

is ce he passad through the raco structure.: '

! ,A

.i

(,,) For central 57crmont, Public Service reflects that.

Tha first 200 kilowatt hours are sold at 2.7 cents, and all i

.~ . :a . . .-. .-. ,_ .-,,_ - , .:L, - --

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

14,051

vel 17 r

i

\

Edditiensi ara cold at 7.2 cents.

O' "wnusue: Valloy Anthority has do-celded their f ,

rnta structures in a cinitar fashion. They have identified a

tha quantity of firn hydro capability that they have,

dedicated that to their residentini clans, provida that power to the residential class at hydro rates, allow those custoicars to buy as nuch power as they want above that base lina at whativer the market recuiros. .

i They do have a fuoi adjustment charge, so that som tir.as uhan their nuclear plants are running and during tha ahculdcr seascn3 the cost above 500 may be very slightly highor. In the peak periods t1 hen they're having to burn oil k- that fuel adjnatment could ha rauch, much higher.

Euu becausa the first 500 are coming from hydro, tl:ey do not apply a fuel adjuntt:ent charge. So citizens in tha "onnes:ca Valley rsgion have a roanonable assurance over an extended perica of time of being able to get that power 4

at continuing letr coat.

i.

i I california hts applied lifeline rates to most of I l their utilities.

D2. EX pen: Do you kncu, in connection with what you'ro saying, whethar ALCOA gets their -- whnt prica do they i

9:.y?

Cl2 !.TNI:53: ALCor,, cs I u".duratand -- wall, think ALCOI. owns soma of their own dans, and they .get that i

i .

?

. . . . . - , - . _ _ _ . _ . . . . - _ _~ _ _ . , . _ , __ .-- , ,. . - -

14,852 voi 18 O

pc;rar at that rr.ta. But TVA chargas the aluminun industry, in general, au I understand it, from corrtunicatiens with l Ecnnaville, 2.5 centa per hilcuatt hour, i

h' ,

DR. IIOOPER: They get the same as the residential i

' ~

prica? -

THE ICTNESS: No, it's somewhat higher than the i

j hydro price that tha residential class gets, which is about

, 2 cants a kilowatt hour, in spita of the ccenomias of scale in trensniscion to the aluminu:a inductry.

DR. !ICOPER: All right. I juct we.nted to be suro i

s what we vare talking about hers.

I THC UITUESS: In th3 rcquirements, of ?URPA, the M Public Utilitics Rogulctory Policies Act, r3 quires that A ,

t cvary Otc.te cor. aission and every non-ragulated utility con 3idor ostablinhing lifeline rates, which assantially do 1

1

tha anA thing an de-r.ciding, particularly in a regicn lika 4

1

't the !!ortluisst, there tre have a considerable be.se of low-cost 1

i pctar. And any utility or cottxiasion which choonas not to I

j 1 tpinent lifclins raton, nunt make a raport to ths Secretary

.i I of Energy on why they chose not to implument that type of rr.tc structure.

So thare'n a clear bias in tha tir.tional Energy C' J Act la favor of rata structurcs that protect low-cost .

i rorcurco: fron being r.aldad with hipar-coct roaourcos. -

5 CHAIR'!AN DEALE: Itr. Stachen, I would suggest that

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

li,853 wi 19 i

! ;ou gr.ncrato ycur questicas in art.as where this witneca has

O '

a pari:icular cc:rpatonce or exportisa.

' This was a very

ge.neral question, that semebody from, well, a national b

a , organization which has studied utilities, and studied f I i utility ratos, might very well cone forward with an expert  !

l

opinien.

i *:

l l I pornonally question whether the witness -- I i

t .

- i knca ha's willing -~ but I ; question whether he is fully ')

. ,h qualified to answar the question, and give the answer which

il i

{ y he has given, cons'idaring he's' talking about half' .a dozen h

i[ utilitica all cvar the countryside, and it's on a subject 1

ii . I y

I which admittedly is a difficult subject. '

i n' c" I'm not saying that this will or will not have any raforence to tha subject at hand, but I would like to ,

O i l [ feel that the quantioning of the witness night stay with the b

P te7timony which he has givon, and not go so far afield as N

• l , to prenpt him to give answora which raise the question which f I have just raised, which is: Is he fully qualified to give 4

1

the answera that he just gave?

I

! HR. STACECH: Hell, there was acme discussion n

i retardey aSo 2t tha use of melded rate struutura.

i i I; CH:nli"AN DEALE: All right, go ahead.

E DT MP.. STACHON:

l t G Kr. Icar, you junt recantly r3forred to Puget'n l :sutend cor.gound price locroaco, annual prico incransa, of

(

! i i  !

14,354 sg123

/

k- 11.7 percent threngh 1990. You just talked chout the front O

loading capact. ,

i Uould you readjust this figure? ,

- i G

• Well, that assumption.of an 11.7 percent increase

• A

! was based upon the budget estimate which the Applicant had, which the data I have precentad indicatas is unachievable.

It's also based upon their financing asstanptions, l uhich appear to be alco a little on tha optimistic side, and l their cetimated return to equity, which also is presently l

authori cd at 13, a.d they've estimated that at 12.5 over tine.

i '

But that la a melded return to equity, and dcas j

(y not represent the incremantal cost I would expect. The costs j a: tac <:iated with a now generating plant trould, of courso, be 1

much hie;her than that.

So all of thoco things contribute to -- if they are

! , to build the plant, they would require considerably more

}'  !

ratu reliof than they have indicated hare. They've indicated 1

< 11.7. 15 to 16 porcant annual ccepounded growth rate is, I think, morc reprcramtativo of the range that would be i

required,moaningthattheirratesh.n1990wouldbe4-1/2 4

4 tinan oa. 5 tit:s au high as they are today.

U, l Q Cr.n you turn to Tablo 2.7 in the Applicants' tue ':irany?

r a Uhat's the ntnbar at the bottom?

I

• -e - - - - - , - - . - - , , . . - -,_---~._.,,n.. v,.~.-.--- . . _ , . . , - , , _ . - . - . . .

14,855 ml 21

\

\ C Mirsar 10 in che botton right-hand sida.

A .El right.

1 O Ucw, tlto column, "long-tem debt intarcst rata,"

("

and the colt $r.n right below that, "short-term debt interest rate," over on the right-hand sido, PGE is showing intarast ratua for both long and short torn debt to deprociate i

concidarably frca 1979 to 1990, and I was wondering if there cac any basis in tha Applie.nnts' teatimony to substantiate dat?

A .ul the Applicants havn indicated that we're at

, a Uch. The Staff uitncca indicated that wo are at a peak.

My can analysis is that wo may or may not be at a peak, and

' prudance and concervai

ism uould dictato that today's. interest rnta be taken as the nid point.

I Ginco the cradit crunch we had a couple of years ago, I halieva Portland has bonds outstanding at almost 12 percant. They've got coms at 11.675 or 11.875 out that vore

~.

f inausd during that credit crunch.

I I I would think that prudence would dictato that F

4:hy'u rate be taken as tha mid point, and that they make r.n a amu ption that thingc r.ny got bottor, and they may get 3 verce.

.i ai  :

o In en n of long-tern debt, Portland's cwn O wtirt..:ny hado: t th Util.ity Commf.ssion indic;ter; that 10-1/2 t 11 ;a:: cont in.deratacan what they will hava to pay. Yet i

t'

14,856 l 721 c . '

t in this testi.T.O.rf thef have used 10-1/2 percent as the most

. v that they would hava to pay.

, In the ecse of the short-terza dabt rate, they've

?

shcun a m::iraum of 12.1. The prime rato for IM rated ,

utilitica is new at 12--1/4 for chort-term borrowing.  ;

2resumably a Daa ninus co.v.pany would have to pay considerably .

I in 3::cosa of the prime rate, probably in the neighborhood of i

, 13 percent for ahert-term monsy.

O on page 17 of your testimony you quote the testinony of 212. :!obbs of Portland General Electric regarding their pending request for a rato increase, and it seems that j tir. IIchbs alludes to the increase in yield ac an increase in perceived riskines regarding the Three Mile Island accident. f Is it your opinion that the increase is due to '

a high paried of inflation, or is it due to riskiness i

regarding nuclear ccmpanies?

A Well, a portion of it is due to both. The tastimony of 2!r. Itchbs and the financial analyst who '

'1GE.isted hin, their consultant, Dr. Brigham from Florida, both indicatud that the nuclear dependenco of Portland was n siga.*.ficant fc.ctor in the high interest ratas they.would

. hava to pay. That obviously reintes to the difference a

tchwe.n tha intercat rataa that they would have to pay and 9.o in :arest ::ates that a corparably situated non-nuclear dopendant utility would hava to pay. And that can a:nount to

14,857 nal ?.3 m

(

k_, as much cs 100 basic points.

1 In the caso of the Washington Public Power Supply '.

~

- System their fedorally-guaranteed bonds, which giva them the k

[ quality of ossentially a risk-free investment, are yielding roughly 6-1/2 percent, while their non-guaranteed bcnds sold t

• yestarday at 7.7.

• I 0 IIou icportant ic carnings per share as a rneasure i

of.the Sinancial intsgrity of a company?

A A company can usually veather a year or two years 4

of peor carnings per share, but if a consistent pattern '

develops invastor confidence ic going to ha shaken. I 4

i Ucually ons bad year can be lived with, and if a j d i j second bad year comoc up often you'll see a note to the ,'

?[

j annual report saying that the return this year reflects a .

changa in acccenting principles, and they seem to change

[ acecunting principles in order to maintain the apparent I

i carnings per share, if they have a couple of bad years in a

/

rou.

4 l

t After a ccuple of bad years in a row, than they're *

{l us; tally recognized ca being in trouble.

i liR. PCIGI!LE: Mr. Chairaan, I wondor', is this h

l I really cross, or is it radirect? As a party that has the i

' v ,

, ' nauu interecus es the party sponsoring this witnecs, I really e

fool he thia ic ccm what of an abuce of cross-examination, I

anf. it ought to be over in thu redirect area rather than in a j D

,-.y --

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

j*

14,858 wel 2<1 i

~ its cro;c aren.

j ll C:!AIman DEEE: I appreciato your point, Mr.

i Beichle. j ,

i x Fr. Stachon, do you understand what Mr. Beighle  ;

h i 1

is pointing cut? In other words, this is essentially the work of Mr. Gandler, rather than -- because it's his witness. This s' .

l-

! is redirect.

l . Cn cross-axanination you question the witness with raapect to statenants that he mada perhaps in his direct

+

tastimony, or in reply to scmebody else's cross-examination. .

There is this question of whether much of this is really (

l l l

radirect testimony. .

i

.I I fool, too, that wo're, let us say, getting out of Mr. La:ar's araa of -- not authority, but the area of

, his encarience. ITnon we ask so may questions, the length of 1

which -- I'm sure Mr. La=ar is quite pleased to give the answers, but the natura of the questions and the area of 1

Mr. iazar's specinity and his experience, I'm questioning ,

! whether it raans much.

There's a limit as to, you know, how long we can got Mr. L2::nr's opinions. The value of Mr.' Lazar's

- . atatcronts in torts of opinions, I think you should think

, d

aScut too.

Uuc, be that as it may, this point of !!r. Beighle ,

I, iz that this is a littic bit outside of the concept of a

14,859 ,

vel 25 cros P-xe.;inntica. But va will, lot us say, givo you that as i;

an onplanation, and let you go forward.

i! .

!!R. STAciICU I appraciate that. I would only 1,

[

e i cctremit, Mr. Chairrian, that, of course, thers are similar

( interasta batwoon curselves and SCANP, but -  ;

y e U CinIPNJ1 DEAIC: We understand that. This is one I -

i

't; of tho reasons - you know, we're trying to recognize reality i .

i hhara, too. That is, the two of you do have similar intarests, and wa recognite that, and we're not trying to pretend that i

tharo ucran't any.

- f 1 1

Go ahead.

HR. STACnoN: Un do havo a contention in this [

. i, 1 '. '

t araa, and I'm trying to protect our interests.

CIIAI:U1M DEALE: We're not trying to put any clat03 on you, as it woro, or rcotrainta. We're trying to i l  !  :

outlina a ganoral cet of ground rules which wo try to pursue , l 1 ..

j.  : with a dagrao of raaacnableness.

.I d

! c'S But it secus to mo that it called for, I believe, 1

That is,

~

j the kind of stat ment that Mr. Baighle put forward.

c r.'t wa junt stay c little hit with the cross, and lot SCANP j l h: dia any redire:ct? And also, he raised a quaation of  ;

I t

,-- ] punhing the witness for his opinions about matters, and his 1  %

of f i t.;:n: about ter.thors sometimos go's into areas uhore at

( 1 ..r. thorn's aona qusttien ac to just to what extant la he que..ifiad, if you 'till, to givo opinions that significant 9

tici 2:1 1.4,360  ;

1

. i

\

weicft': chould 1:0 ctt.iched to.

b

, UR. STt.GC'i: I think the previona quantion, H

regr.rding the inportanco of earninga por shara, as an O cc .ncaict X would contend that Mr. Iazar is well qualified.

CHAInnN D3 ALE: Go ahead. 17o havo, I think, 1::dicated 00:33 cuggesticna, and it's your turn to proceed.

MP.. UTIsC C ON : Okay. Fine. .

!W .MR. STAGON:

, O Mr. Lazar, Mr. Gittleman testified yestorday that

.3 tho ability to mako dividend payments was crucial to the

" I

..ki?.ity to finance, and I'm wondering if you're familiar with e wh a'c PGE's c::pc.-lenca nas in 1970 regarding the ability to

(, pay dividendc?

A I hr.va leched at their Annual Report, I believe

cnt i, ad[2. I hAV$,a copy of it here with uo.

, ,.y l E

,y (Pauno.) .

In 1970, thers uns a slight accounting change e.ccruing their estinc. tad unbilled revenuas, which basically td.en .t.ha ciu;terar usaga uince their last billing, if they 5:re?s'e boon billed prior to the end of the year, and censiders th..: c.s a roicaun during the calendar year. That can help >

you on; quito a bit for ona year because in the previous year, G "

." ecurcc, you had the revanus whora you bill nomebody for g

a

) &;r.;a: 10th ue Janutry 10th in January and recolvo payment, i

ec i-hat. during ':*tr.t one year you can nort of stretch out your

14,061 a c. l */.u.:: a littic b4.t and he.vc c '.cnt;c: than 365-day year.

2 '# t:cl2s In 1977, their carnings par.uhare wero considerably lo. u than 9. air dividends, and in 1978 they woro almost

! O' '

equil. So rate.ined earnings in '77 would have been negative, ,

l

. in 1"73 vould hr.vo been basically 2,oro, two cents por con'm:n chara. ,

, i .

) L10 0 0 **c?l';'3 l '

I t

i l l V

6

~.,-,,,_w

J 14,862 i l q im2.';tb1 O If a ccmpcny's main cource of financing is tha

,i g 31c':a f1=

! Lardan sale of cc

tmon stock, how does that affect the possibility

'I On futurc earninga per chare? i

!O

, A Nell you never get into a situation in all l

l-

• {'

i prehchility where your main scurce of financing is common atcek. Ta2 applicants have all indicated financing  ;

1 cppro:limately 33 percant with comt..cn stock,15 percent ,1 a

f' preferrad (ni 50 parcant long term dobt.

9

The only problem with common stock issues is, J

{ if they're selling balcu book value, as Mr. Gittleman indi-l; cctad, you're diluting the existing stockholders' equity, i

rend every time you have a common stock sale your existing i C I

• ' oc.chollera 1cce mancy. In a situation where you're selling '

helc;t book value prudsnt practice would tend to reverse tha 4

1

rn.iiticae.1 Averch-Johnson effect and move you S.oward trying I

.a nini..; ice ycur capital onponditures. But as long as

' -4 '-les regard ceiling below bcok value as a transient i ,

4 j situation which is going to improve because interest rates 4 2 i

wi?.1 go dean and averything will be better in the future, 1

j , .:ho krend to unximize inves':nent will probably continue l any.r vi .

Q Oxay.  !

Can you cive us some idea as to what another I

'J c '.ika l?77, ni.ha the drought ".yce cituotion and its

! cffect en Portised Gonoral Electric's carninga, would have

. _ . _ _ . . _ . . _ ,_ , _ . ~ . _ _ .

. . . . _.. j 14,863

' 'Jafub 2.

ca PCC'n finnncial r,rojections cc they have submitted in this i

1, prce sding? i' il

!3 tiell it is not mada clear in their testimony  ;

A .

1[ . -

t 1 what assumption of water conditions they heve made in i f

j E

• i . evaluatine thnir revenues. In a good water year, which ,

{ i

'77 of course was not, they have considerable revenues from '

i l

saconddry rover scleo. And, in fact, in 1978 Portland sold -

i i

1.2 billion kilowatt hours for rescle, chare as in '77, a j  ;

4 .

j had watur y2ar, they cold 44 million kilowatt hours for } ,

f resals.

j So the sclos for recale can boost ravenue quita j -r 1

i

concidere.bly. j i

i t

{ (f If they had assumed a critical water year then i i

M131r testiacuy preparos them fdr bad water. But if they 1

i -

l h 1 2:c=0rl average or above average rovenue conditions, tha ability to finance to meet their ccverage ratios,to meet l th?ir dividends and interest payments would be considerably i-

iapaired in ths evant of another serious water year or a

! 42er: nth critical period, an hoopencd in 1928 and '32, 1

i

.thich is the asni:mocicn uced in the demhnd fore ^ casts.

1 i MR. STACdO!!: That'a all I have.

i j , cfDIMat4 LEAL 3: Thtnk you, Mr. Stachon. r

i I V, l It'3 F.*TNP'3 turn

:c';? to go for'>ard with i.

j  :': i.?c.c :: .

12. GEMDLER: I would ask if we could take a brief I

l

%..-,- . - , . . . - .: ,,- . :.. . ,_ -.-,--.-,a,.;.,..-.--- . _ = . . . _

14,864 O

rec:ss for coveral purposer: ona is to give the witness the i, .. ') T.E ntb 3 i); oppcrtunity to c::anino the Salomon report. The other is t' .

so that I might call Mr. Leed and advise him that since

i a

rediroch uill he brief, if there is any at all, and the panel is cching on next cad he is going to hold up SCAN?'s end on D.at sccro, I'd like to get ahold of him.

4 CIIATRM?l! DEALE: You're saying this would be a ,

o,

~

l convenient tire for a bronk? Fine.

, MR. GENDIER: It would be convenient for us, l yas, Mr. Chairman.

1 5

211AIPlGl! DEALE: Fine. We'll have a fifteen-1 l t-inuto recass at ;;his time.

4 .

j (Recess) i J

CHAIIGWi DEALE: Please come to order.

5.G5d  ? fell, Mr. Gendler, you're on center stage.

f- .

I IIR. GENDLER: Okay.

1

In:Un  ;- P.ED.~ RECT E WiINATION

/

i Di NR. GENDLER:

Q I:r. I.2::ar, could I refer you to Table 5 of your i

tes:1.cny, whic's ic cn paga -- it's between pages 13 and 14.

i O.m13 you e::ple.in . this table to the Daard, please?

l A This is a table which I compiled from the combina-l i: ion cf 'h:

1.770 k*ashington Public Pouer Supply System budget, l

, Cr". me - rniled ceplican::'s testimcay in this proceed, and

! fren rasponses of the thres Washington applicants to the

. _ _ _ _ .-___ _ . . ____ . _._. _ . r. _. .

I 14,865 A

! _. /nh4 :itchington Uti.7.itiac and Trancportation Cormission in v .,

14

2 Cause U-7005.

l I comparad the autimated construction expendi-i v

? turas -~

!!R. 3EIGI!L2: I'm going to object to this I cr2ct.io.1'ch thin point. There nas no croac-examination on ,

i , .

l l this te.ble on cross-oxcmination. I don't think this is l preper redirect.

CHAIR.UN DEALE: Well, Mr. Gendler, what do i you hava to say? That's right; nobody ever referred to this 5 ble althar, I holieve, on the direct or the cross, other j- than thab it is in here ao part of the direct testimony. '

5

!!R. G3NDLER: The table relates to the WPPSS coachruction pregram which has been referred to extensively i

hotid u direct cnd en crocs. And the question is an attempt to clat'ify soma points that wore brought out about the TMS5 Ocasi:ruction program.

112.. DEIGULE: My response to that would ba ,that 4

if ha warts to do that ho ought to go back to the table

. ':he.c has the 'JPPSS construction nurbors on it, and look at 4

it .Jather 62in thia table. And that's back on pags 9.

Tha crcas wcz over the UPPSS budgeh and the 6 .

' / iced and.gne

- cnd was not over the compariaca shown on i 1 T:Jols 5. Th:re was!nr/cr a cucction on cross by any of the partiac on hble 5. , ,

I I

I T -r T'- w -.F -

y- g- -w---1--Sr-'Tw-y p ww--' --wW,y-W ev-T- t-Mp- g tv+- N3+=e-W==*-"que- e"er-g---==ve myMrw-- g,-f,p---

14,866 t' %

i t

), . >,0 b 3 C'I.. ' RIO.N DEAM : I juct want to identify: Table 5

. s  :

l relates to a cenpa7 ison.of the contributions of the companies '

1 involved in tha Puget r.atter; is this correct? i e

RR. GEEDM2: Yes. Looking more closely at the i

table, it also cpoaks about the reported contributions to .

+

'.,  ::crtain proc 2adings, etnd that was a matter that was explored .

i quite explicity on direct and cross.

CH1tIRMTdi DEALE: Reported contributions to. . . .

I1R. SEIGULE: I don't believe that's a correct f

j c ta 23r.en ':. I don't believe that matter was explored on

!' s U CrO!3. .

i CHAIPJGM DEALE: I agree that the focus of the t

( cro 0, c; I understand it, Mr. Gandler and Mr. Beighle, '

w really on page 9. Mcv the extent to which page 9 calls i

nto plcy Table 5 for clarification of what Table 2 on pcyo 9 is all about, why, I would assume that this would be a fair aubject for redirect.

, But, on the other side, if there isn't any relatienthip, or a cignificant relationship that would answer f

ant bra that wedo raised on cross with respect to Table 2,-

l 'th2a ve fist into a probicri of why bring up table 5.

i this uculd have been basically a matter, I suppose; i

l  %/

'cr tr.u diract astimony. +

/^\

(v) Cr.n ycn acke the hook-up between Table 2 on pc p 9 about which there wad considerable cross-examination?

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

t 14,867 l

r

\ .

As :.' /*.'b 6 M2. C2;iD'.3ft: Table 2 focuses on escalation ,

t r r. t.30- :. thc.y relato to the complation datos of the plant, f i

i

nd 31.so npon the cost per hilouatt hour. l ,

O' . CIIAIRMAN DE.2LE:'

4 The original budget and the l r

i  !

reviced budgit; yes. .t i

MR. GE7DLER: Now it's my understanding that ,

l relevant to this is is some questions about the nuclear ,

t Fr.ps:dency of occh nuility, andcit uns brought out that some I

c;t. spor.sorh and soma are participants in projects. And I  :

i do heliove it uns brought out that these utilitios are j i

p'trticipants in the WPPSS projacts, and I'm quito certain T '

that that was brought out in this testimony. l I

So I think Tablo 3, which develops further the l

relationchip of theco utilitics to the WPPSS construction  !

I t

pr:5;rca in relevant to Tabic 2 in that sense. And I think it it: relev:nt to just about everything that has been dis- ,

cussed in tor:ta of whether thesa utilities are capable of conducting a construction program which includes not only t;ra Shagit plant but also their involvement in this other p rogrc.c.

CHAIPMTd! DUALE: This is reported contributions

.,s to i.M GS' trcnatruction. . . .

C (Tha Board conferring.)

) GT.I!?JJi DEALE: Un all know frcm cur previous v

siirony that the applicants have about a 20 billion dollar

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

14,86R 1

q

) i l  ??/Of.:r? cens truction progran, and that this program, the Skagit i \

4

, program, is, cay, 2.5 to 4 billion dollars. This identifies 4i  :

the contributora of anothar construction program in which '

i < i,

.s ,

.[ Puget is invoired. And, Gosh, I don' t ces the relationship, Mr. Gs.adler, co far as raising this now as a matter of l.

redirect. I feel that your redirect ought to follow what P

the creas has ir.dicated. ,

R:diract chould follow what the crcss has develop 2d. .

The quastien whether Puget has underestimated or evarestimated its obligations in some other construction s i

. progrsn really has not been a question that anybody has ,

s  !

d2vtloped en cross. And the direct e:: amination, or the t,

~

direct icstir..,ny has pretty clearly stated as to how he feals.

~

I think it is a little out of bounds to come

)

up cad ecvelop this thought on cross. It's already there 6.n3 rdcody has raised a question about it, the relationship bat iaen that hable and the table on page 9 which certainly 1a; birn the subject of cross. I feel that you have at least failed to convince anyone on the Board that you have i

cree O. gcM. r21stienship bet. teen the two to warrant starting ,

1 y

IrM recu testiuony en Tablo 5.  ;

O l 5 let's go forward, and whatever obje.ctions you l

. : c.1 2o take to the ruling, that's quite all right.

1

t 14,869 (m I  !!R. GI2 IDLER: I would assuno, then, that that hKU/wb8

(. ,

'j i 2j ruling also encompasses testimony which went to discropan des

. i

'l<

3. 1 l

in what Puget and other/ utilities submitted to various

, O 4l sudicias dedies, inc1= dine this aoard, and the washinston 5 Utilities and Transportation commission. Because that subject l'

Gi is also addresced in Table 5, and it was addressed elsewhere 7i in the testimony.

I e

G' CEAIRKAN DEALE: I'd say you go ahead without 3,. cching accumptiens. We're just saying that Table 5, you H

I to ,1 ucntad to start off and use Table 5 as a basis for your -- for i

11 , a certainpart of your redirect examination. We're just saying

17. o[ ycu nay not use Table 5.

!3 < Now you go ahead and make an assumption, you're 14 ' assuning this ruling covers one thing or another, or something tr 'i clse. I can't answer that. I think if you go ahead with

t gI your questionn we'll see what happens.

g? I'n not going to say it does or it doesn't encom-13 pass this. We'ra talking about this Table 5 and an examina-H 4 3 '!

. tion which you want to initiate about this whole subject of 11 20 :{ Table 5, and wa're just saying that that is outside of

i a -

g ] redirect.

!i n]p Now if you think it covers something else-- I I, 3j donc want to.rpeculate what it might cover. So you can go d

'l ehend and ach your questions, and we will carry on from there.

73 3 I rust say, too, that sometimes the concern with il d

D 4

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

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

1 i

4 Fi i  !! 14,870

i. .'n

. a./ub9 d. objections involvoc,so:netines it appears, mora time to

.1 -

0 ::l handle than the subjcet is worth. But so be it from l I

' 2' Tabic 5. I ,

i ~ Q- 4 [I .

Carry on and we'll see what else comes up.  ;

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14,871 t

>Ich/agP- 3Y lt'.. GRMDLER :

(

O Mr. Lazar, ic it your tostimony that the Applicants

, cnur.ot cdequately financa the Skagit projects?

l l A 'le s , it is.

l t

O Would you then concludo that they are unable r

to finance any future gensrating projects?  ;.

A No, they have the capability to obtain a signifi-4 ec.nt arennt of fic.nncing, hut not sufficient to finance the Chr. Tit proh cts. <

MR. GENDL3R: That'll be all the questions I ,

hava.

CHAIRMRU DEALE: Let's nea, there was another C nrther that you had. You were going to look over the Solomon t

7.ict awl the question -- you and Mr. Stachon were going to hava scre conversation, and than you were going to talk with Mr. Lazar about Mr. Stachon's proposal that we intreduce the Scice.cn list into e/idence, or has that been washed out?

MR. GENDLER: I made sure that Mr. Lazar had a ecpy cf it.

CiAI7:G.M DEALE: Yes, he does.

MR. GENDLER: Re didn't indicato any pressing r

r.s d hc a&ixesc any c2 it. I don't know if he has any comments -

or ~h2: ccu.

CECGiAI Dr.LE: If a ,7ars n has no pressing need to anh nny ccia. ente, uhy then we'd suggest that, you know,

_ __ f

i. I I

14,872 .

4

} ,~' ' 91'

. u L 1d 1ia ; ... ce . . l i! C .  !

, 3c this da cinply a questica where wa~ro accono-4 l ,,

I> !,

i; 4 cating nr. Stachen hdia, so wo introduce it into evidence as '

t ' i.

i! e_, .3, .: v.. .e. .:, . ,

, e

'v (Whereupon, the docursent .

I .

! previous 1v mar 2ded for '

l

,' - c:

1 identification as ,

1.

i, Exhs.. . 02..t :.23 wan receivec.

i in en. ,nence.,,

1 i d i

'R. GEliDI2R: On that point, though, I would lika 20 as'.?!r. Lanar r. quection. ,

CHAIPPJai DEALE: What ic it? > -; -

,3

/ MR. GZ'!bLER: I would like to ask hira if reading ,

ti. Scicnon nyert caucas him to change any of his conclusions?  ;

i ,

i CF. AIR:Wi DEATE: That's all right, sura.

i. IC.. GEtiDIZR: And if so, why, and if not, why not.

CEU2?i?u! DEALE:

~

1 Fine. Fair cnough. It's part cf ycur redirect and it cartainly has been a nubject of '

i cre ;;c-e::amina tien .

4 I

,1 New Ii , La::ar, you are free to speak briefly on  ;

t'- JoPrca lict of stechs which you ncu have and about which f

t yc ? hurn h2r;n i..htrrofated to scmc extent.

4

~ T IE UITtFr!2: Tb2 Sc'.r.cn study arci-iden a couple i

mi ud:1,c ,hich ar2.c::uren;'.y supportiva of ny oravio".s 1

If ha : li:-- ;.y. Ona .inta the 100 largest utilitics by thair vield i

1 1

1 f

. . . , , , . _ . . - - - . , . _ - , - . _ . . , , . . _ , . ....__-.._,_,,-.m . . . . .- ~ . - . _ . . - . . . . . . ,

- -= - _ ._ - -

14,973

(~x

\

w- /:.gb3a and i re: hig:uct ricid to Icwest yield.

The 12 top yielding utilities are all. utilities uith nucion: projects either operational or under construction.

./ ,

That is, the invcstors have been moro reluctant to invest in thera acmpanio.s. The 12. utilities nesting the most invester resiste.nce h::.va heen -- all have nucicar projects aither operating or undar cenatruction.

gha 10 1cwert yiciding utilitics, these which are

! C M t nttractivc to investors,' three of those have nuclear P

facilitice cperating or under construction, savan have no nucle.ar facilitica either cperating or under construction, t O -

Tharo's also a tablo ranking these same 100

( i a C largest utilities by their market-to-book ratio. Of the 12 ,

i utilities with the highest market-to-book ratio - pardon me, 11 u~c ilities, 'the highest market-to-bcek ratio, those that cxn colling above boch value, three of them -- pardon me, fo.ir of then, cf the 11, have nuclear facilities under cenetructica and ncne of them have nuclear facilities operating. TMt in, the market-to-book ratic of no utility with an c: crating nuclear plant is shewn as solling above bc c k '. alua.

p of the 10 with the lowest mar}et-to-book ratio, U

cM : which are selline the r.ost below book value, eight have s

i e j m.;lnr 72 jects operating or under constructicn. That V

ir.cludea Cent 21 Vermont Public Service which, as I understand .

14,874

(.

. ' .;b ' 3. t r :to c han

-<)..'.ghl3 A ' Wit:msa Cobtriey) Yes, it is. 0 And Mr. Pack, your qualifications are page 31, the certe question.  ; t %d A (Witness Pack) 'les, there's a title changer .! t " Senior Cost Analyst" should be Supervisor of Economic Anclysis.

O Is that a recent changa in your title?

9 A Yes. . Q What is that again? f A Supervisor of 11conomic Analysis. Q And Mr. Cocubs, page 32 and 33, are those pages s

trua and correct?

N  : $ A (Witness Coombs) Yes, they are. O All right. ?iow, referring to the testimony in chief, as you vill observa, starting on page si:c, there is a section la.taled for each of the four Applicant companies. And of l ccursc that's folloued by a general conclusion and preceded ' 4 L'I ccmo general introductory testimony. Than the attachments 4 are a scries cf tabulations, starting with nage four of the j attacPae.nts and going on throus the tables, there are, 4 of courre, tables pertaining to each of the ecmpanies C.

renrctely.

to I';t cinply gcing to ask each of you uhether the inforantion pertaining to your company in this testimony 4 ,7 ,5.' -.wm. ,__.--.v. , y,-.e-, . ..- - b.,-, 14,894 (-~ t Pri/ceabid and tha gonoral port and the ccnclusienc are in accord with -- ara true and corraut. . - Befere doing that, though, I would like to ask ( i . . , i s -f ' I .hether any of you wish to make any corrections in any part t of tha tactimeny, and I would start with Mr. Olson. i A (Hitnocs Olcon) Yes, I would. I have two minor i i typerraphice.1 errors I tJould like to correct.  ! On enge nine of the Puget Power section, that  ! is a table, and at the very top of the page: " Interest i C vorm?e,." the 1979 and '90 Projected Ranga, the figure 2.1 chsuid be 2.2. O All right. P.nd the next one? i _ A And on page five of the attachments which are  ; nuTh3re.S in the lower right-hand corner with a felt-tip pen, there'c a correction at the top of the page under item two, cccc;cund Growth Rates. The kilouatt-hour sales shown as 3.32 chould he 5.23. That was a transposition. With th0Sa two corrections, the balance of the castincny is correct. O Thank you. Mr. Coberlay, de you have an/ corrections you ' vi7h to naker . A (UitnecI Coherley) I have no corrections. O ( 0 And is it true and correct to the best of your b21ief? i l .=. . .-. - - . - . . . 14,385 1 geh,' ig:;.lE A 'los, it is. - V  ! - Q And do you adopt it as your testimony in this * . r I f proceeding? OJ r IL I do, i t

Q And you do also, Mr. Olsen? l A (Witness Olson) Yes, I do.

O :Ir. Pack, do you have any corrections to make? t l i l A (Ifitnacs Pack) Yes, I have two corrections. l Tha c^/rcr page, page one, my legal first name is Larry, I \ nct Lawrence.  ! l 0 okay, i i  ! A And in the attachments, on page 13, item G, i ! ( it should read: . t i l "...for nortgage hond indenture  ; 1 r-i purpocos the coverage range is between 2.1 t j . and 2.5." That 'ta: a typo. i .O Any others? I i A That's it. l . O And with those corrections, is this testimony i truc and correct to the host of your halief? l N

Yea.

3 And do you cdopt it as your testimony in this proceedine;? v A YGs. 1 4

• 4

-e--=> a b - - - , =w'---w = *'~-' ' ~ * " " " ' ' ' ' " " ' ' ' " * * ' ' ~ ' " " # '~ ~' ' ' s 14,886 leqM.S Q Mr. Cecmbs, do you have any corrections you wish i, 1 1- V; . to makc? t A (Uitness Ccombs) I have no corrections. I

i; O And is it true and correct to the best of your  !

balief? } - 3 i 4 r

L A Yes, it is. .

.>i Q And do ycu adept it ac your testimony in this  !

I f 1 procacding? ., ! 5 ! A I do. . ' r MR. TIICMSEU: It . Chairrnn, ue ask that the ,. , prafilad testimony previously identified be received in . i c'idance c.nd be included in the transcript as if read.  ! i < i i , 3 (. CHAIICAU TZEE: It is so ordered. i t (The docu:r.ent folletts:) ' i I I l =l I I

1

I i

f 4 l I ,, .cN$ N , m---- . ~ - ,, . , ,,,_,,,,,n., ._.n, en,,...._ [, ,. ,_,nne.,_,,,, ,_,,,.-,.,N,,m.ll ,,$,.v. m - _ . . _ - _ _ _ . . 5 l l l w r 1 j UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD J In the Matter of ) PUGET SOUND POWER & LIGHT ) Docket Nos. 50-522 COMPANY, et al. ) 50-523 ) (Skagit Nuclear Power Project, ) June 1, 1979 Units 1 and 2) ) APPLICANTS' TESTIMONY ON FINANCIAL QUALIFICATIONS This testimony has been prepared jointly by the following, whose statements of qualifications are attached: Russel E. Olson, Treasurer, i Puget Sound Power & Light Company i s Michael E. Coberley, Manager, Revenue Requirements, Portland General Electric Company Lawrence S. Pack, Senior Cost Analyst, Pacific Power & Light Company James M. Coombs, Vice President - Finance, The Washington Water Power Company Also attached are the following tables: l s i . - . - - . _ . _ ~ . . _ . _ . _ _ _ _ . _- ._ _ _ ._ __ __ ___ ..__ -._.._ _ .. i Table No. Subiect

l. Project cost estimate.

2. Sources of funds with underlying I

assumptions. l

3. New construction.

4. Historical financial capability and financial statistics.

, BACKGROUND l The Skagit Nuclear Power Project, Units 1 and 2, will con-sist of two nuclear-fueled electrical generating units, each

with a net electrical output of approximately 1,288 megawatts.

The facility will be operated by Puget Sound Power & Light Com- , , pany (Puget), the sponsor of the facility, and it will be ! jointly owned by Puget and three other investor-owned utili-i ties, Portland General Electric Company (PGE), Pacific Power & Light Company (Pacific), and The Washington Water Power Company (WNP). Their ownership shares will be as follows: ] Puget 40% PGE 30% I Pacific 20% i 4 WWP 10% i i Unit 1 is currently scheduled to commence commercial opera-tion in the fall of 1986 and Unit 2 in the fall of 1988. This i schedule assumes issuance of the LWA or construction permits by September 1979. - - _. . _ _ - . - =-- --. . .- 4 The most recent cost estimate for the facility and related 'f fuel cycle costs (the first cores) is set forth in Table 1 attached, which also includes a schedule reconciling this esti-mate with the estimate set forth in Section 20.2 of the SER (Supp. No. 1) . Puget, PGE, Pacific and WWP (the Applicants) are regulated public utilities engaged in the production and sale of an es-sential commodity, electric energy. They have the obligation to provide prudently for the existing and anticipated electric loads in their service territories; at the same time, they must rely upon the state and federal regulatory agencies for appro-val of rate levels necessary to satisfy the financial require- ! ments of this service obligation. The principles underlying this regulatory system are well established and include the rule that "[a] public utility is entitled to such rates as will permit it to earn a return l . . . . reasonably sufficient to assure confidence in the financial soundness of the utility, and should be adequate, f under efficient and economical management, to mair.tain and sup-port its credit and enable it to raise the money necessary for i the proper discharge of its public duties." Bluefield Water  ; Works & Improvement Co. v. Public Service Commission of W. Va., i 262 U.S. 679, 692-93 (1923); see also, FPC v. Hope Natural Gas, i 320 U.S. 591 (1944). i s l l k O The operation of this regulatory system to provide to Ap-plicants the rate relief needed to allow financing of necessary generation, transmission and distribution facilities has been demonstrated; Applicants have successfully operated and per-formed their responsibilities within this regulatory environ-ment for decades. The more detailed individual company reviews of rate relief and financing in recent years (below) demon-strate that each company has successfully undertaken major financings and has received rate relief critical to such financings. In the process, each company has (1) successfully met normal restrictions on external financing, which are generally applicable to all and which are standard in the in- ) dustry, and (2) maintained required capitalization ratios. These restrictions and requirements include tests, imposed by investors, which must be met before the company may issue debt and preferred stock securities. Because these tests provide margins of earnings coverage in excess of interest or dividend requirements, investors are protected and historically have been more receptive to the securities of Applicants than they would have been otherwise. These coverage tests have existed in general form for decades and are the accepted norm in the utility industry. Whenever Applicants have anticipated that their ability to issue future series of debt or preferred securities would be ~ limited because of these investor-imposed restrictions, they i have requested, and have been granted, revenues sufficient to meet or exceed all financing tests. Similarly, they anticipate j a continuing ability to obtain rate relief adequate to enable the financing of new projects while continuing to meet, without violating, any applicable financial restrictions. Further, while short-term borrowing arrangements have reasonably short lives, Applicants have historically been successful in renew-ing, expanding and supplementing them as required. With specific regard to future financial ability to'obtain l required construction funds, Applicants have prepared a fore-cast of sources of funds for planned and estimated construction requirements covering the 1979-1990 period (Tables 2 and 3 at-

tached). These forecasts must be regarded as point estimates of probable financial scenarios. They are not demonstrations of what the future will be but, more properly, a view of what the companies might reasonably expect. These projections por-tray the financing of construction expenditures -- including I

those for the Skagit facility -- as a reasonable undertaking l within the companies' financial parameters and constraints. Under forecast asrumptions, all required financial tests will be met, as is shown in the individual company discussions which  ! follow. !O 1 . l ~ r l / - U}x. - PUGET SOUND POWER & LIGHT COMPANY i Table 4 attached sumnarizes the historical ability of Puget l . I

f. '

to fund construction requirements of significance during the most racent 6 years. During this. period, Puget financed ap-proximately $606 million of electric plant construction require'ments and during the same period accomplished approxi-mately $43,2-million of external long-term financing. Puget h alsowasa[ lowe ~ dover $51millioninincreasedannualelectric

revenu.es during this 6-year period, based upon certain annual test periods. During this period, Puget increased its year-end average equity-capitalization ratio to about 49 percent.

More detailed financial statistics for the past 3 years are also given in Table 4. As to the issuance of first mortgage bonds, the earnings ! coverage provisions of-the mortgage covering Puget's bonds require that for the issuance of additional bonds, earnings before income taxes must equal at least two times pro forma annual interest charges on all outstanding bonds, including the bonds in the prospective bond issue. Also, Puget's mortgage indenture provides that bonds issued thereunder may only be t authorized to the extent of 60 percent of the value of property additions provided as security. Inasmuch as Puget's target long-term debt ratio o$ capitalization is about 49 percent, ! this fundable property restriction is not unduly restrictive. 4. l l w t 't Jl . Puget's Restated Articles of Incorporation, as amended, provide that before the Company can issue additional preferred stock, gross income available for tid payment of interest must at least equal one-and-one-half times the sum of (1) the annual interest charges on all debt, and (2) the annual dividend requirements on all outstanding and to-be-issued shares of pre-ferred stock. The Restated Articles of Incorporation further require that Puget cannot issue or assume any unsecured indebtedness with a term of over one year if the total of such unsecured indebted-ness exceeds 15 percent of (1) the total principal amount of secured indebtedness outstanding, and (2) the capital and sur- . plus of Puget. I In addition, as an alternative to issuing more debt or pre- , ferred stock, Puget can sell new common stock. Since January 1, 1973, Puget has sold over $130 million of common stock, with an increase in outstanding shares from 8,750,688 at the end of 1972 to 18,709,105 at the end of 1978. (The 1972 number of 8,750,688 was adjusted from 4,375,344 to account for a stock split of two for one, June 1977.) As a final alternative, if Puget, because of temporarily declining earnings or adverse market conditions, chooses not to issue any of the above permanent securities, Puget has short-term borrowing arrangements which can provide up to $101 i - i ' J . _ _ _ _ - _ _. _ - . . - - _ . - - - - - - - - - ~ . - - - l million in domestic lines of credit and $50 million under Euro-dollar banking facilities. These lines can be used as backup for commercial paper issuance. Puget's recent 1979-1990 financial forecast (Table 2) pro-jects increases in electric rates over the 12-year period; these rate increases provide the foundation for financing of future construction requirements with a target capitalization of about 49 percent long-term debt and 51 percent equity. The projection indicates construction expenditures totaling over $6.8 billion for the period 1979-1990 (including S1.1 billion of Puget's share of Skagit Units 1 and 2), ranging between $180 million and $943 million annually, can be financed employing approximately $5.9 billion of externally supplied capital. Under Puget's forecast assumptions, all required financial tests would be met as is illustrated in the following table: l e q 1 I , - - - - , . - .- - . . . , ..,-n.., , , . , ,e.=.,., n, .- , , , , ,..w-n,-,,ww,.,e.,,ww--..-...., ,-,-,.y,,,..r,-r- l i i 1979-90 Projected Range Requirement Mortgage Indenture: ! Interest Coverage 2.1 - 2.9X 2.0X or more Long-Term Debt Capitalization 49.2% - 50.2% 60% or less , Articles of Incorporation: l Preferred Dividend Coverage 3.7 - 5.7 2.5X or more Preferred Capital Coverage 2.8 - 2.9 1.0X or more ! Interest and Preferred Dividend Coverage 1.5 - 1.8 1.5X or more Unsecured Long-Term Debt Less than .! 1% - 4.1% 15% or less 4 ) 4 PORTLAND GENERAL ELECTRIC COMPANY  ! Table 4 attached summarizes the historical ability of PGE to fund significant construction requirements during the past , 6 years. During this period, PGE financed $1086 million of electric plant construction requirements and during the same i period accomplished $1034 million of external long-term financ- , l ing. PGE'also was allowed over $180 million in increased annual electric revenues during this 6-year period. During this period, PGE maintained an average equity-capitalization , ratio of nearly 47 percent. l k i , ,n , . , , , . - , , , ~ , , . , . - . . , - - - . . . - , - , ,-- ,-n,, , ,, - , . - ,.m,-.---, , , , - - , - , . --,------.,,nnn-,,,,-,-.--_,, 1 I I l More detailed financial statistics for the past 3 years are also given in Table 4. As to the issuance of first mortgage bonds, the earnings coverage provisions of the mortgage covering PGE's bonds require that for the issuance of additional bonds, earnings before income taxes must equal at least two times pro forma annual interest charges on all outstanding bonds, including the bonds in the prospective bond issue. Also, PGE's mortgage in-denture provides that bonds issued thereunder may only be authorized to the extent of 60 percent of the value of property additions provided as security. Inasmuch as PGE's target long-term debt ratio of capitalization is 50 percent, this fundable property restriction is not unduly restrictive. PGE's Articles of Incorporation, as amended, provide that before the Company can issue additional preferred stock, gross income available for the payment of interest must at least , equal one-and-one-half times the sum of the annual interest charges and the annual dividend requirements on all outstanding and to-be-issued shares of preferred stock. In addition, as an alternative to icsuing more debt or pre-ferred stock, PGE can sell new common stock. Since January 1, 1 1973, PGE has sold over $274 million of common stock with an increase from 10,500,000 shares outstanding in 1972 to l 25,995,935 shares outstanding as of 1978. O i i . I i Despite this increase of 148 percent in outstanding shares, PGE has been able to market new shares of common stock at a price near or in excess of book value. As a final alternative, PGE has short-term borrowing arrangements which can provide up to $150 million in short-term

capital and has a construction financing agreement which can i

provide up to $125 million for the financing of the Boardman Coal Plant. i PGE's 1979-1990 financial forecast (Table 2) projects an i increase in electric rates over the 12-year period; these rate  ! increases provide the foundation for financing of future con-struction requirements with a target capitalization of , 50 percent long-term debt and 50 percent equity. The projection indicates construction expenditures totaling over $4 billion (including $878 million of PGE's share of Skagit Units 1 and 2), and ranging between $214 million and 1 S532 million annually, can be financed by employing approxi-mately $2.5 billion of externally supplied capital. Under PGE's forecast assumptions, all required financial tests will be met, as is illustrated in the following table: 1 i l i . 1 lO l 1979-1990 Projected Range Requirement Mortgage Indenture: Interest Coverage 2.2 - 4.1X 2.0X or more Long-Term Debt Capitalization 48.1% - 57.1% 60% or less Articles of Incorporation: Interest and Preferred Dividend Coverage 1.3 - 2.2X* 1.5X or more

• PGE does not plan to issue preferred stock in 1979 because interest and preferred dividend coverage for that period is forecast for 1.2 - 1.4. After 1979, the preferred coverage is forecast above the required 1.5.

PACIFIC POWER & LIGHT COMPANY Table 4 attached summarizes the historical ability of Pacific to fund construction requirements of significance dur-ing the most recent 6 years. During this period, Pacific financed nearly $1.3 billion of electric plant construction requirements and during the same period accomplished over $1.0 billion of external long-term financing. Pacific also was al-lowed $133 million in increased annual electric revenues during this 6-year period. During this period, Pacific maintained an equity-capitalization ratio of over 42 percent or greater. More detailed financial statistics for the past 3 years are also given in Table 4. i - .=- - - As to the issuance for first mortgage bonds, the earnings coverage provisions of the mortgage covering Pacific's bonds ' N require that for the issuance of additional bonds, available earnings before income taxes must equal at least two times pro forma annual interest charges on such outstanding and to-be-issued bonds. Also, Pacific's mortgage indenture pro-vides that bonds issued thereunder may only be authorized to theextentof60percentof}hevalueofpropertyadditions provided as security. Inasmuch as Pacific's target long-term debt ratio of capitalization is 5 percent, this fundable pro- ! perty restriction is not unduly restrictive. Pacific's Restated Articles of Incorporation, as amended, provide that before the Company can issue additional preferred stock, gross income available for the payment of interest must at least equal one-and-one-half times the sum of the annual interes,t charges and the annual dividend requirements on all outstanding and to-be-issued shares of preferred stock. Also, 4 before additional shares of preferred stock can be issued, net

income available for the payment of dividends must be at least equal to twice the annual dividend requirements of all out-standing and to-be-issued shares of preferred stock. 1 The Restated Articles of Incorporation further state that 1

Pacific's total unsecured indebtedness cannot exceed 30 percent of (1) the total principal amount of secured indebtedness out-standing, and (2) the capital and surplus of Pacific.  ? , l \- -. - . _~ _ - - - - - - - - - - - - - - - ~ - - - - l In addition, as an alternative to issuing more debt or pre-ferred stock, Pacific can sell new common stock. Since ,N January 1, 1973, Pacific has sold over $363 million of common stock, with an increase in outstanding shares from 18,918,781 1 4 at the end of 1972 to 37,407,993 at the end of 1978. Despite this increase in excess of 97 percent in outstand-ing shares, Pacific usually has been able to market new shares of common at a price near or in excess of book value. As a final alternative, if Pacific, because of temporarily declining earnings or adverse market conditions, chooses not to i issue any of the above permanent securities, Pacific has short-term borrowing arrangements which can provide up to $229 1 ( million in short-term capital. These short-term facilities are also diverse, with Pacific having the capacity to borrow $75 million under a European banking facility. Pacific's 1979-1989 financial forecast (Table 2) projects an increase in electric rates over the 11-year period; these rate increases provide the foundation for financing of future construction requirements with a target capitalization of 54 percent long-term debt and 46 percent equity. The projection indicates construction expenditures (exclud- , ing AFDC) totaling over $6.9 billion (including $586 million for Pacific's share of Skagit Units 1 and 2), and ranging between $269 million and $1,193 million annually, can be f l i ll l 'l \ , financed employing approximately $7.4 billion of externally supplied capital. 'N Under Pacific's forecast assumptions, all required j 7 j financial tests would be met as is illustrated in the following ] table: l i 1979-89 Proiected Range Requirement i a ! Mortgage Indenture: Interest Coverage 2.1 - 2.5X 2.0X or more i ! Long-Term Debt Capitalization 53.0% - 56.8% 60% or less ' i l Articles of Incorporation: 4 Preferred Dividend Coverage 5.7 - 7.2X 2.0X or more i Interest and Preferred Dividend Coverage 1.7 - 1.9X 1.5X or more j Unsecured Debt as a  ! Percent of Capitalization Less than 5% 30% or less l THE WASHINGTON WATER POWER COMPANY l Table 4, page 4, summarizes the historical ability of Water l Power to fund its electric construction expenditures for the past six years, 1973-1978, inclusive. During this period, Water Power financed $218 million of such expenditures and ac- ) complished $153 million of long-term external financing. Water ! Power was allowed $20 million of additional annual electric revenues by its various regulatory commissions during the 1 j period. Water Power increased its total equity capitalization 4 \ l } . 4 j l ratio from 34 percent in 1974 to 45 percent in 1978 in recogni-tion of increased business risk as Water Power moved from being "s a 100 percent hydro-resource electric utility in 1975 to a

utility with increasing amounts of thermal generation.

Additional financial statistics for the past three years are shown on Table 4, Item 2h. i As to the issuance of Water Power First Mortgage Bonds, interest coverage provisions of its mortgage require that j defined annual earnings before income taxes must equal at least i two times pro forma mortgage bond annual interest requirements ] for its outstanding and to-be-issued mortgage bonds. Water ! Power's mortgage also requires that bonds issued thereunder are limited to 60 percent of bondable property (cost or fair value, whichever is less) as security for the bonds. Inasmuch as Water Power's debt capitalization ratio target is 50 percent, this bondable property requirement is not unduly restrictive. Water Power's Restated Articles of Incorporation, as amended, provide that before the Company can issue additional Preferred Stock without a vote by holders of all outstanding i preferred shares, net income available for the payment of dividends for a period of 12 consecutive months within the past

15 months immediately preceding a new preferred issue must be at least equal to 1-1/2 times the preferred dividend require-ment, including the new issue.

i 4 l 1 4 1 O In addition, as an alternative to issuing additional debt or Preferred Stock, Water Power may sell new Common Stock. '~ 4 Since January 1, 1973, Water Power has sold over $53 million of , t Common Stock with outstanding shares increasing from 6.5 million shares at the end of 1972 to 9.0 million shares at the end of 1978. Despite this significant increase of 38 percent in outstanding shares in six years, Water Power was able to successfully market new common through public sales. There were four such sales of common during this period at per share prices to the public of approximately book value at the time of issue. ) Water Power has $110 million principal amount of revolving bank credit lines consisting of a $50 million six-year line that matures on December 31, 1984 and a $60 million line that . matures on February 1, 1980. These bank arrangments are usually available to meet construction expenditures until the borrowings reach an amount that justifies a public sale of long-term securities to repay such borrowings. However, such arrangements also provide financial flexibility during times of adverse money markets or through any significant decline in corporate earnings. Water Power's 1979-1988 financial forecast (Table 2) ] projects an increase in electric rates over the 10-year period; these assumed rate increases would provide adequate earnings to l I \ maintain a financially viable company during this major con-struction period. During this forecast period, Water Power believes its target capitalization of 50 percent long-term debt

and 50 per cent equity is a financially prudent goal.

The forecast for the 10-year period indicates construction expenditures (excluding AFDC) aggregating $1.8 billion, includ-ing $280 million for Water Power's share of Skagit Units 1 and l 2. Annual construction expenditures are expected to range from 1 $65 million to $300 million. Of the $1.8 billion construction program, external financing requirements are estimated at $1.6

billion with the balance from internally-generated cash.

l Under Water Power's forecast assumptions, all required ' i { i financial tests would be met as shown in the following table: l 1979-88 Proiected Range Requirement Mortgage Test: Interest Coverage (pretax) 2.9 - 3.6X (1) 2.0X mortgage bond interest l' Debenture Test: Interest Coverage (pretax) 2.3 - 3.0X (2) 2.0X all interest Long-Term Debt

• Capitalization 49% - 54% Cannot exceed 70%

1 Articles of Incorporation: Preferred

Dividend Coverage 5.9 - 8.2X (3) 1.5X preferred

dividend Interest and Preferred Dividend Coverage 2.0 - 2.1X (4) None Unsecured Debt as a i Percent of Capitalization 2.9 - 8.0% None

O (1) This calculation is expected to produce a slightly greater coverage than shown by the NRC formula as cal-culated on Table 4, Item 2h. (2) This calculation for total interest is slightly dif-ferent than the NRC formula shown on Table 4, Item 2h. (3) Water Power presently plans to issue $30 million of Preferred Stock sometime in the latter half of 1979 and the range shown so reflects this expectation. (4) Water Power has no minimum requirement for coverage of combined interest and preferred dividends (fixed charges). CONCLUSION It is our opinion that Applicants do have reasonable assurance of obtaining the funds necessary to cover the esti-O mated construction costs and related fuel cycle costs of the proposed Skagit Nuclear Power Project, Units 1 and 2. 1 l l l 1 1 . TABLE 1-1 6-1-79 i O SKAGIT UNITS 1 & 2 PROJECT COST ESTIMATE 4 MILLIONS $ , PLANT 2092 2 TRANSMISSION 19 3 . FUEL 155 3 ESCALATION 819 8 ! TOTAL 3086 6

O

NOTES

1 LWA SEPTEMBER, 1979 2 COMMERCIAL OPERATION SEPTEMBER, . 1986 AND SEPTEMBER, 1988 3 BASE ESTIMATE IN JANUARY, 1979 DOLLARS 1 4 ESCALATION AT 7% COMPOUNDED j THROUGH COMPLETION 5 EXCLUDES AFDC i i 1 l 4 / 1 .. TABLE 1-2 6-1-79 O SER

SUMMARY

RECONCILIATION THE CURRENT (6-1-79) PROJECT COST ESTIMATE UPDATE REFLECTS AN INCREASE OF $514 MILLION FROM THE PREVIOUS ESTIMATE UPDATE SUBMITTED TO THE NRC STAFF ON MAY 4, 1978

, (PLN-186) WHICH IS SET FORTH IN SECTION 20 2 0F THE SER (SUPP. NO. 1)

THE INCREASE IS DISTRIBUTED AS FOLLOWS:

O

($ MILLIONS)

SER CURRENT SUPP. NO. 1 ESTIMATE CHANGE PLANT 1831 2 2092 2 261 0

]

I TRANSMISSION 21 7 19 3 (2 4)

FUEL 108 4 155 3 46 9 4

ESCALATION 611 3 819 8 208 5 TOTAL 2572 6 3086 6 514 0 4

COMM. OPER. COMM. OPER. j SCHEDULE 3/85 & 3/87 9/86 & 9/88 18 MOS. l DOLLAR BASE JAN. '78 $ JAN. '79 $ 12 MOS.

2

TABLE 1-3 6-1-79 DETAILED RECONCILIATION 1 PLANT COSTS MILLIONS A. RESTATE BASE ESTIMATE IN JAN. 112 2 1979 DOLLARS B. ADDITIONAL COSTS FOR 18 MONTH 55 3 SCHEDULE DELAY

C. ADDITIONAL SCOPE 16 6 D. ADDITIONAL CONTINGENCY 53 2 E. INCREASE IN PROPERTY TAX 23 7 TOTAL CHANGE 261 0 II. TRANSMISSION A. RESTATE BASE ESTIMATE IN JAN. 15 1979 DOLLARS B. RE-EVALUATION OF SCOPE (3 9)

TOTAL CHANGE (2 4) i III. FUEL-FIRST CORE A. RESTATE BASE ESTIMATE IN JAN. 70 1979 DOLLARS B. RE-EVALUATION OF FUEL ENRICH- 39 9 4

MENT COST CRITERIA TOTAL CHANGE 46 9 IV. ESCALATION A. ESCALATION ON BASE COSTS FOR 101 2 1 ADDITIONAL 6 MONTHS l

, B. ESCALATION ON NEW SCOPE 107 3 TOTAL CHANGE 208 5 TOTAL PROJECT INCREASE $514 0M i 3

TABLE 2-1 i .

PUGET 6/1/79 O

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TABLE 2-2

PUGET

. 6/1/79 1

/

N Puget Sound Power & Light Company l

ASSUMPTIONS FOR SOURCE OF FUNDS FOR SYSTEM WIDE CONSTRUCIION 1979-1990 SKAGIT NUCLEAR PLANT UNITS 1 AND 2

1) Maintain rates sufficient to provide approximately a 12.5% return on average common equity and maintain the Company's ability to finance.

4

2) Compound Growth Rates:

a) KWH sale s . . . . . . . . 5. 3 2 %

b) Reve nues . . . . . . . . . 16 . 83 %

c) Expenses. . . . . . . . . 14. 4 9 %

d) Net interest charges. '. . .20.26%

e) Net income. . . . . . . . 21. 20 %

f) Price per KWH . . . . . . 11.70%

1

3) The following table gives the inflation rates used in projecting future operating and maintenance expenses and construction expenditures for l

all production projects with the exception of those noted below.

1 3

Year Labor Material O&M l h 1979 .000 .000 .000 1980 .090 .067 .079 1981 .091 .065 .078

{ 1982 .084 .061 .072 1983 .081 .060 .070 1984 .079 .058 .068

1985 .077 .055 .066

• 1986 .077 .055 .066 1987 .078 .056 .067 1988 .078 .057 .067 1989 .079 .056 .068 1990 -

.079 .058 .068 t

Construction expenditures for Skagit #1 and #2, Colstrip #3 and #4, and Pehble Springs #1 and #2 are inflated at a 7% rate compounded annually, while WPPSS #3 is inflated with 6% material and 8% labor rates compounded annually.

4) Preferred dividend rate on new issues is 9.0%.

1 l I

)

i

, l

4

GN4BLE 2-3 PUGET 6/1/79 O 5) Interest rates used in forecast: 1 Notes payable (short-term):

Banks Loans 9.00% prime rate Approximate 10.73%-10.56% effective rate at 75%

utilization Commercial paper 11.85% to 7.0%

Long-term debt 10.25% to 9.0%

6) Target Capital Structure:

1979-90

Notes payable (short term) 5.1%

! Long-term debt 46.8%

!' Preferred stock 12.8%

Common stock 35.3%

7) Market / book:

Market Value - The dividend is set to be approximately equal to 8.5%

of book value. The market price is calculated from the dividend by.

dividing .08 into it, yielding a market / book of approximately 1.

The market price shown below is 1979 1980 1981 1982 Market / book 17.30/18.44 19.10/18.59 10.50/19.60 21.12/20.69 Ratio .938 1.027 1.046 1.021 e

1983 1984 1985 1986 22.14/21.99 23.36/22.83 24.56/23.92 26.01/25.32 1.007 1.023 1.027 1.027 1987 1988 1989 1990 27.25/26.40 28.35/27.47 29.57/28.71 30.90/30.00 1.032 1.032 1.030 1.030

8) Common dividend payout ratio for the 12 years averages .677.

i k

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

TJUBLE 2-4

. PUGET 6/1/79

\ 9) Target dilution rate for additional common stock is set in the 15%

range in any given year. Average dilution rate for the 12 years is

12.12 %. ,

10) In line with the 1975 Tax Reduction Act (Sec. 402 of P.L. 94-12) the following investment tax credit assumptions are incorporated in the projections.

a) Investment tax credit rate is 10%.

b) Progress payments on constructed property is treated as creditable investment in the year made for Colstrip 3 and 4, Skagit Units 1 and 2, Pebble Springs Units 1 and 2, and 1990 through 2000 projected nuclear plants.*

j c) Use of investment tax credit to offset the tax liability is 70% in 1979-80, 80% in 1981, and 90% thereaf ter.

• 1990-2000 plants are not now planned, however, the Company's long-range forecast indicates the need for additional base load generation in the 1990-2000 pe riod. For the purpose of this study

i. it has been assumed that typical nuclear generation units will be constructed to meet the projected need even though the type, size, and location of such units has not been determined.

11) AFDC (Allowance for Funds Used During Construction) Rates:

T&D--transmission, distribution, and general plant.

$ Production- generation plant & related station and transmission facilities, i Year T&D Production 1979 .1002 .090 1980 .099 .090 1981 .098 .090 1982 .099 .090 1983 .101 .090 1984 .102 .090

, 1985 .101 .090

1986 .101 .090 1987 .102 .090 1988 .103 .090 1989 .103 .090 1990 .104 .090

12) Nuclear fuel will be purchased and initial fuel core loads are included in construction expenditure esticates of nuclear plants.

f l

??'

. TABLE 2-5

, PUGET 6/1/79 l

1

13) Power Supply:

a. System resources are based on an average of the 40 water years included in the 1978 west group forecast.

b. Purchased hydro power costs debt service requirements are as prescribed in the project owners official statement.

c. Secondary (non-firm) sales are made either within or outside the -

I Northwest Power Pool and are based on relative levels of surplus.

i Revenues derived fron sales are primarily based on established BPA i rates or other agreements as applicable.

d. Wheeling charges are based on:

1) Required capacity to move purchased power to Puget's system.

1 2) BPA established rates.

I l e. Purchased power expense includes an accrual starting on January 1,

] 1979, for Rock Island debt service based on an estimated total i annual debt service of $19,291,365. The amount accrued from January 1 to July 1,1979 is amortized over the life of the contract.

__- 14) Indenture and SEC fixed charge coverages:

4 1979 1980 1981 1982 1983 1984 1985 1986 1987 Indenture 2.21 2.48 2.45 2.37 2.40 2.30 2.30 2.22 2.50 SEC 2.29 2.36 2.29 2.27 2.44 2.46 2.58 2.43 2.52 1988 1989 1990 2.50 2.80 2.59 2.53 2.65 2. 48

15) Fihancing for the 1980 and 1981 combustion turbines will be accomplished thru an operating lease.

Expenditures incurred during construction of Colstrip #3 and #4 are financed with a construction trust. At the end of the construction period the plants will be leased by Puget.

l .s l

! d

TABLE 2-6 PGE i 6/1/79 i

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7

i TABLE 2-7 PGE 6/1/79 N

Page 1 of 2 1

INFUT AS$UMPTIONS FOR SOURCES OF FUNOS STATEMENT FOR SKACIT NUCLEAR PLANT lees Numerical value Rate of retura on average common stock equity 12.84 Freferred stock dividend rate (1) 10.00:

Long-tern debt interest rate (l) 10.5 (1979) to 8.6% (1990)

Short-tern debt interest race 12.11 (1979)"to 8.1 (1990)

Market / book ratio with respect to the 0.909/1.0 os 12/31/78 projected common stock offerings (2) 1.091/1.0 os 12/31/86 Common stock dividend pay-out ratio 93.43 (1979) to 67.31 (1990)

Crowth races (3):

a) kWh sales 4.08:

i i b) Revenues (4) 14.34:

c) Expenses 13.41:

d) Interest charsee 9.50:

e) Net income 13.93:

Resultant SEC and indenture coverages over the period of construction (5):

Year Indenture $tc 1979 2.2 2.0 1980 2.9 2.6 1981 3.2 2.8 1982 2.7 2.7 1983 2.7 2.6

' 1984 2.6 2.4 1985 2.8 2.4 1986 3.4 2.7 l 1987 3.6 2.8 j 1984 4.0 3.1 4.0 3.4 1989 1990 4.1 3.4 e

/0

TABLE 2-8 PGE 6/1/79 t

Page 2 of 2 (1) Applies to new issues.

(2) The market / book ratio is not an independent input; it is the product of other forecasts and therefore varies over the range shows.

(3) Each elenest of revenue and expense is individually analysed ' '

and forecasted so that no single growth rate is used in their development. The values given summarize the results of all of the detailed analysis for the period December 31, 1979 to December 31, 1990 on an annually compounded rate of growth basis.

(4) Includes forecasted race of increase in average sales price of 9.9%. Reemining growth rate is attributed to increased unit sales.

e-(5) Indenture - December 31, covering earnings divided by December 31 annualized interest requirements of the company's first mortgage bonds.

SEC - December 31, covering earnings divided by December 31 annualized fixed charges. Fixed charges include interest on all long-ters debt, interest on short-tera debt, in te re s t factor in the long-tere combustion turbine leases, one-third annual rentals under long-tern leases and amortization of debt discount and expense.

J I

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TABLE 2-10

ATTACHMENT FOR ITEM NO. PACIFIC 6/1/79 Applicant: Pacific Power & Light Company Subject Nuclear Plants: Pebble Springs Units 1 and 2: Skagit Units 1 and 2 PREPARATION ASSUMPTIONS FOR SOURCES OF FUNDS FOR SYSTEM-WIDE CONSTRUCTION EXPENDITURES DURING CONSTRUCTION PERIOD OF SUBJECT NUCLEAR PLANTS

.~

a. Overall untility rates of return of approximately 9.77. with an implicitly assumed utility return on average common equity of approximately 14.37..

b. Average preferred stock dividend rate for new issues of 9.47.

i c. Average long-term debt interest rate for new issues of'9.47. and a short- '

l term debt interest rate of 8.07.. ~~

) d. Target market / book ratio whereby Pacific Power projects sales of additional shares of couunon stock at a ratio of not less than 1.0.

! e. Common stock dividend payout ratios ranging between 527. and 857..

l f. Target capital structure composed of 547. long-term debt, 107. perferred 1

stock and 367. coannon equity.

g. Resultant interest coverages for SEC test purposes range between 2.0 and 2.3, while for mortgage bond indenture purposes the coverage range is l

4 between 2.0 and 2.3.

x 4

h. Growth rates as follows:

! Kuh Sales 5.607

]

Revenues (utility 13.247 (inclusive of projected rate relief)

Expenses (utility) 13.077.

Interest Charges 15.977.

) Net Income 18.977.

l- May 10, 1979 i

4 1

a f

l U

% g e

k t

n .

Attacheent for itse lie. 2.e '

The Weehtesten Water rever Company.$heef t Datte 1 & 2 Fra Forse sources et runde for Eyetee-Wide Constructlen Espeadttures and Capital Structure Dettag rested of Cometructica of Subject IIaclear rever Float (i m ten. .: setIore) e <=h t er ==r t ==r *- =r P' ==e spe t t a= Y tata_ a f mv 1960 ~ 981 Le2 n8] 1981 g lesi s 1987 19a8 EzTraNAL FINAkCING: $ 44 $ 53 4 58 $ 58 $ 64 $ 75 $ 78

$ 3 $ H $ 37 25 25 25 25 .

Courwa stock 30 25 25 30 resterred stock Long-term debt: 7 ( 3) 3 ( 1) 5 10 24 ( 16) 31 5 190 120 Mates payette 90 60 40 95 150 60 80 Mortgese bonde Oth1r fundo (describe) E 3 M T M M 3 T Total Esternal runde 7 T ,

62 70 85 tot 123 13F INTDMALLY CENDATED CA$ll: 24 32 44 52 3et tacces 12 14 16 18 28 Lese 6 7 9 10 3 55 64 74 treterred dividende 26 29 35 41 48 19 22 41 42 Cosswa divide,ade 14 17 17 23 30 6 4 Il 32tsteed eerstess 8 9 13 18 18 12 Detstred somes 4 6 9 9 55 23 25 27 24 lausecuent tem credit-deferred 12 13 15 16 19 4 g sepreciation and seertitetton 2 7 ( 2) 4 3

( 9) ( 11) ( 1) 43 51 54 Change la working capital .

20 23 19 28 8 14 7 Lees Af DC 5

7 3 7 3 7 3 3 7 Total laternal Funde 3 8 2d I lU Il$1 IM I111 IM Idl$ IIII IM IM TOTAL TUNDS

$ 47 $ 53 $ 52 4 49 $ 27 $ 17 $ 6 CONSTsuCTICII ENFENDITURES:

souclear power plants $ 28 $ 21 3 34 85 106 170 260 283 221 93 th IM 44 M

99 N

102 M N M N $ M M Total Cometructies Espenditures IJ IJ Id 0.8E I.M IJ Il

! Subject leuclear Float IJ IJ I.12 i

ETNER CAFITAL BEQUIRDEZNTS: $ $ 20 $ $ . $ $ $ 50 $ 15 sidemption et naturtag bonde $

I 1 1 6 1 1* I I I 1 y

Arquietties of beads for elektag funde 10 8 5 3

atticellaneous requiremente (detett)

$2 6

$2 6

$] $3 $3 $] $] $] $] $]

Total Capital Bequiremente 531 491 491 SQL 511 491 i

CAPITAL STRUCTURE (1) 541 531 541 531 Long-tere debt 11 9 11 11 Il to 10 9 Il 9 resferred stock 1 1 1

4 o 1

• N >M i

He N M t1 4 31 M so

'If DJ '

til4ANCE der!. OI S Dt:h) -

- %H 5-22 79 MH

1. 3

TABLE 2-12 WATER POWER 6/1/79

THE WASiiINGTON WATER POWER COMPANY 2.a

,

(a)- Return on Common Equity

12.75-13.25% Earned on Average Equity (b) Preferred Stock Dividend Rate: *).5% - 19 79 i

9.0% - 1980 -

'8.75% - 1981-1988 (c) -[L:ng-Term Debt Interest Rate: 9.25%.- 1979 i

S.75% - 1980 8.50% - 1981-1988 Short-Term Interest Rate: 10. 75% - 19 79 .

. 7.75% - 1980 7.25% - 1981-1988

_s. ,

(d) Market / Book Ratio: Average 105%

, (e) Common Stock Dividend Payout Ratio: 65-70%

Assumes payout ratio.co continue at historic average payout levels l- throughout the period.

i f

(f) Target Capital Structure: 50% Total Debt

• 10% Preferred 40% Common (g) Interest Coverages: (Times) 1979 7.3x 19 80 2.5 1981 2.5 1982 2.6 1983 2.8 1984 3.0 is 1985 3.0 1986 2.8 j 1987 2.9 1988 2.9 l (h) Annual Growth Ratest s (General Business) l

1. Kwhr Sales Average 4%

2. Price Per Kuhr> Average 12%

l Electric revenues included in the Forecast are a result of general business kilowatthour sale trends and include elements of rate relief

which are programmed throughout the Forecast as needed.

6 9

^

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] '

N q w ,

1

• AllACletirT FOR liEM 100. 2.g.

Puget Sound Pe.er & tight Campany I LIST OF CENEAATING UNii5. TAANSMl5580N. 085tRitufical AND GENEAA4 PLANT PtJ ::KC .*.::2 0:71*ta.T:2 TO?. *T!:TP.t"fl2:2 Cucit: C*4IT :.:::ITS I A*:2 : CCCTAuCTIO; PERIOS ***

($N THOUSANDS OF 00tLAA5) f.

t Percent Total

' Puget Project Completion Power Capacity jj]1 ,1,280 J28_1 J281 J28J ,1,284, J291 J286, J28J, J2lg, J28j jj2g 04te lh.mership best Ecleer hPr55 #3 $ 13.286 $ 10.384 8 11.102 8 7.647 $ 6.175 8 2,969 12-84 5 1.240 51agle kl 33,619 71.420 72.784 98.577 117.540 68.589 8 56,897 8 27.248 8 3.681** $ 2,838** 8 2.500** 9-86 40 1.284 Pet,ble Springs #1 2.329 6.778 27.958 34.947 41.301 44.054 42.437 31.053 8 7.201 4-87 21.18 1.260

[

Skagit At l,968 12.200 52.253 73.842 135.166 119,528 79.504 69.239 22.133 9-88 to 4.288

. Pebble springs #2 141 24 2.656 20.217 29.680 58.985 53.818 50.995 35.015 27.138 16.123 4-89 23.5 1.260 1930 Projected Plant * . 7.570 6,594 .13.393 32.600 38.675 42,383 55.591 59.198 40.598 57.475 42.068 12-90 20 1,200 1991 Projected Plant

• 2.839 . 5.039 6,996 14,197 34.498 40.802 44.714 58.711 62.572 42.872 60,883 12-Si to I.200 3 1993 Projected Plant

• 1.Sil 208 5,667 7.846 15.849 38,391 45.457 49.980 65.*548 69.909 7-93 20 1.200 1994 Projected Plant

• 3 603 I, 3.400 5.996 8.280 16.722 40.544 48.048 52.705 69.354 8-54 20 1,200 I 1995 Projected Plant

• 3.399 7.192 82.651 87.474 35.321 85.548 801.477 111.524 8-95 40 l.200

• 1997 Projected Plant

• 3,794 8,005 14.094 19,51l 39.43l 95,768 8-97 40 1,200 1999 Projected Plant

• 3.l?2 6,703 II.799 16.353 7-99 30 1.200 2000 Projected Plant *

• 7,079 12,483 , 7-2000 38 1,200

$68)-!:*rt;IE2 - f,*5: -

. Completed 50 700 Colstrip 3 3.461 42,508 45.670 40.814 19.359 7-83 25 700 l'

Celstrip 4 ,

4.093 7.545 20.843 18,524 22.087 27.043 m

5-84 25 700 1980 Cambustion Turbine 2,386 36 10-80 800 879 I 838I CoeustIon Turblae 586 16 10-81 100 179 l Sub-Total Generation 8 66.100 8 151.588 8206.311 l 297.479 8369,177 $ 43 1.006 8 396.439 6369.692 8 367.952 4 365.765 $ 397.347 3 480.850 Atot 16.801 26.551 42.587 65.985 90.337 .813.880 143.526 164.755 138,316 148.996 125.668 155.8.C9 02farred Ta.es M _Loji 1.678 8 206 1.cos e 2.411 I gl 6 8 73.473 it.tno _4a.41 _._j n yi T4eaI $ 1,[h2 8 jf,0 a lil l J59 1of 8IY b 8MOA1L 8 L l ML315 5 5(b02l i1Z2 lu 8 Jil.1M i1Qill, 8 2680,11 Ceneration 8 66.100 $158.581 $206.393 4297,479 8369.477 $431,006 $ 396.439 8369.692 6 367.952 8 365.765 8 197.347 8480,850

- Nclear fuel (Reloads) 9.932 4.540 1.795 38.062 10.219 47.786 48.846 95.654 102.007 myg Fujer Transelssion 328 2.658 15,412 20.317 7.347 2.147 5.278 1.014 2.779 525 TC0 86.883 137,147 167,492 ga

" 99.429 116.424 150.215 191.404 213.546 225.679 253.833 284,215 329.292 go General Plant 76.863 75.994 .26.363 77.955 30.507 16.458 18J11 .70.577 27.457 25.123 77.989 31.730 Tatal Construction tr3 t-*

frpenditures Na t-3 tr3 8

5 JQ9J3.Z $ 279.662 $ 1121 3 i92.030 $ M $ 618.69R 8649.354 811.6.648 8 664 651 $ M S M $ S53 173 e ta i

H

• • c fi t line Items insi wie.ss sue.sar uion solt*.ad s it.II4.J sames s,f plant and Initial fuel seas. (cacsuees arp6 and associated tan itens shonen belene),

e* Decanissioning costs of first core load.

• These plants are not now planned, however, the Company's long-range forecast Indicates the need for additional bass load generation In the 1990-2000 period.

g for the purpose of this study it has been assumed that I,200 ene generation units telli be constructed to aset EM PrQected need even though the type, sise, ' j and location of such units has not been determined.

• J .

en e TABLE 3-2 1- PGE 3- .

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• Q,g en e fe S e emte 9

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• 2d PACIFIC ,

6/1/79 m ..:. .a t. .a .a .a a a e a a a a y .. .a .a. . . e o. ~ o o.

- ~ - ~ ~ ~ . . 3 3 2 - . - -

1.I.

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.1 WATER POWER,

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TABLE 4-1 PUGET 6/1/79 s

PUGET SOUND POWER & LIGHT COMPANY  !

HISTORICAL FINANCIAL CAPABILITY g ' Millions of Dollars l 1973 1974 1975 1976 1977 1978 Total Electric Construction l Expenditures $ 59 $ 94 S106 $ 99 $107 $141 $606 External Financing First Mortgage Bonds 0 60 30 40 0 65 195 PC Bonds 20 0 0 0 7 0 27 Preferred 15 0 15 22 28 0 80 Common 0 13 18 26 35 38 130 Total 35 73 63 88 70 103 432 Annual Electric Revenue 1[

Increase Awards 0 23 0 28 0 0 51 Year-End Equity Ratio (percent) 44 41 42 45 50 49 1/A 1979 award amounts to an increase of $32.6 million based on a 1977 test year.

l

z <3

TABLE 4-2 PGE 6/1/79 t

PORTLAND GENERAL ELECTRIC COMPANY HISTORICAL FINANCIAL CAPABILITY r Millions of Dollars 1973 1974 1975 1976 1977 1978 Total Electric Construction Expenditures $148 $128 S176 $168 $197 S269 $1086 External Long-Term Financing 92 87 183 213 248 211 1034 l Annudl Electric Revenue Increase 26 13 37 37 33 34 180 Year-End Equity Ratio (percent) 45 49 47 48 46 46 l

1 l

l l

l l

~

D/

E _ - ---- - .-- . - - -- - - - . - - --. _ .

TABLE 4-3 PACIFIC 6/1/79 i

t PACIFIC POWER & LIGHT COMPANY

, HISTORICAL FINANCIAL CAPABILITY l' Millions of Dollars 1973 1974 1975 1976 1977 1978 Total Electric Construction '

Expenditures $166 $238 $248 $219 $219 $229 $1319 External Long-Term Financing 55 188 228 212 219 113 1015  :

Annual Electric Revenue Increase Awards 0 32 22 30 42 7 133 i

j Year-End Equity Ratio (percent) 43 42 47 45 45 47

~

I l

i

)

l r

2L

TiiE WASilINGTON .L~ JJER COMPANY f

Ilistorical Financial Capability l

l l

Millions of Dollars 1973 1974 1975 1976 1977 1978 Total j Electric Construction Expenditures (1) $22 $23 $28 $41 $47 $57 $218 External Financing: i First Mortgage Bonds 20 25 30 75

PC Bonds Preferred' Stock 25 25 Connon Stock (2) 5 1 8 16 23 53 Total 25 1 33 46 48 153

$ Annual Electric Revenue:

j Increase Awards 4 3 2 11 20 (3) 4 Year-end Equity Ratio (percent) 35 34 36 38 39 45 i

l i

1

(1) Includes AFUDC.

i l (2) Common Stock includes amounts from sales to public and employees.

i j (3) Includes rate relief granted by the Washington, Idaho and FERC Jurisdictions.

$h>

H 8 to 1

i w

• Q b

] OI

Finance Dept.

REM:db gA I :n l 5-29-79 N

)W 4

TABLE 4-5 PUGET 6/1/79 J

ATTACHMENT FOR ITEM NO. 2h FINANCIAL STATISTICS 12 months ended 2/28/79 12/31/78 12/31/77 12/31/76 (dollars in millions)

Earnings available to common equity 5 37.4 5 36.4 3 26.7. - S 24.9 Average common equity 5319.7 $312.1 3257.3 5226.9 Rate of return on average common equity 11.684 11.664 10.364 11.211 Times total interest earned before FIT:

Gross income (both including and excluding AFDC) + current and deferred FIT t total interest charges + ,

amortization of debt discount and expense - Including AFDC 2.60 2.62 2.43 2.49 Excluding AFDC 2.27 2.30 2.19 2.23 Times long-term interest earned before FIT:

Gross income (both including and excluding AFDC) + current and deferred FIT t long-term interest charges +

amortization of debt discount and expense - Including AFDC 2.88 2.89 2.61 2.72 Excluding AFDC 2.51 2.54 2.35 2.44 Bond ratings (end of period)

Standard and Poor's BBB BBB BBB BBB Moody's Baa Baa Baa Baa Times interest and preferred dividends earned after FIT:

Gross income (both including and excluding AFDC) e tocar interest caarges + amortizaton of debt discount and expense + preferred dividends.

Including AFDC 1.83 1.83 1.69 1.71 Excluding AFDC 1.56 1.57 1.50 1.51 AFUDC S 12.1 S11.2 3 7.7 5 7.4 Net income after preferred dividends S 37.4 536.4 5 26.7 3 24.9a* i 4 32.6% 30.951 28.7% 29.754 j Market price of common S 16.375 516.750 5 17.000 $15.438* l Book value of common. S 18.62 518.63 S 18.363 317.985*  !

Market-book ratio (and of period) .88 .90 .93 .86 i

) <

i Earnings avail, for common less AFDC +

! depreciation and amortization, deferred i taxes, and invest. tax credit adjust. -

deferred. S 57.1 556.2 S 53.4 $ 55.7'*

i Common dividends S 26.0 524.4 S 18.6 5 15.2 Ratio 2.2 2.3 2.9 3.7**

Short-term debt Bank loans S 3 1.0 5 5 18.0 Commercial paper S 4.5 531.3 S 26.0 5 6.9 J

2 '1'

TABLE 4-6 PUGET 6/1/79 12 months ended 2/28/1979 12/31/1978 12/31/1977 12/31/1976 (dollars in millions)

Capitalization

( Amou.it & Percent)

Long-term deot 5471.3 48.75 3471.6 51.5% $405.7 50.54 $400.6 55.14 Preferred stock 146.0 15.1 96.5 10.5 99.0 12.3 84.4 11.6 Comunon equity 350.1 36.2 348.6 38.0 298.8 37.2 242.2 33.3 31I.2.a.i 18.9.a$,% S E 1.99 14 SE Mn SE Et .

• Adjusted for comparative purposes to reflect the effect of a 2-for-1 common stock split in June, 1977.

• • Af ter a not extraordinary income of 56,530,000 from*the cumulative effect of a change in accounting policy.

I A

w

- 2f

TABLE 4-7 ATTACE'4CliT 10R , d4 ;0. 2.h. PGE fit'AfiCI AL SI ATISTICS 6/1/79 m 12 months' I I cr.d ed 1978 1977 1975 b (ooliars gn m i GoW .

Earnings avcilable to common equity S 42.5 S 23.3 $ 40.2 Average com en c;uity- S459.6 S401.3 $332.4 f(ate of return on average comon equity 9.24%- ,, ,

5.81% 12.09 Times total interest earned before FIT:

Gross incor.a (both including and excluding AFOC) + current and deferred FIT < total interest charges + a.mortization _ of debt discount and expense 1.98 1.80 2.24 Times long-term interest earned before FIT: "-

Gross incoma (both including and excluding AFOC) + current and deferred FIT + long-term interest charges + amortization of debt discount and expense 2.33 2.01 2.59 Bond ratings (end of period)

Standard and Poor's BBB- BBB- BBB-Moody's Baa Baa Baa Times interest and preferred dividends earned C')

Gross income (both including and excludinc <

AFDC) + total interest charges + amortization i of debt discount and expense + preferred i dividends. 1.64 1.44 1.79 r

AFUDC S 28.6 S 17.5 $ 15.4 Net income after preferred dividends S 42.5 S 23.3 $ 40.2i-E 67.3% 75.1% 38.3%

is Market price of comen $16.75 S 19.375 $ 20.37 Book value of ccmmn $18.42 S 18.45 $.18.94 Market-book ratio (end of period)* 90.9% 105.0% 107.6%

Earnings avail, for common less AFDC +

depreciation and amortization, deferred ~

taxes, and invest. tax credit adjust.-

deferred. $ 53.1 Comon dividends S 59.3 S 57.7 I S 42.5 S 36.4 S 30.0 Ratio 139.5% 145.9%

192.32 ,

Short-term debt Bank loans S 45.0 $ 10.0

. Comercial paper S 71.0 S 19.8

.-. _0_ (m Capitalization (Amount & Percent)

Long-tern debt i

$735,119 53.8% $656.7 53.7% $540.8 52.4:

Preferred stock S151,500 11.1% S154.5 12.6% S130.5 12.6:

Comon cquity $478,759 35.1% $410.3 33.7% S361.1 35.0

• If subsidiary company, use parent's data.

2 ,

l

l PACIFIC POWER & LIGHT COMPANY TABI2 4-8  !

PACIFIC FINANCIAL SIATISTICS l 6/1/79 l l

O I 12 Months Ended

. December 31 1978 1977 1976 (Dollars in Millions)

Earnings available to common equity 88.6 74.6- 74.5 Average common equity 738.4 664.3 595.4

- Rate of return on average common - ' '

equity 12.00% 11.23% 12.52%

Times total interest earned before FIT:

Cross income (incl. AFDC) + current and deferred FIT -@ total interest l charges + amortization of debt dis- 2.60 2.28 2.36 count and expense .

Times long-term interest earned before FIT:

Gross income (incl. AFDC) + current and deferred FIT "r long-term interest charges + amortization of debt discount and expense -

2.63 2.33 2.49 Bond ratings (end of period)

Standard and Poor's BBB+ BBB+ BBB+

Moody-s , Baa Baa Baa Times in:erest and preferred dividends earned after FIT:

Gross income (incl. AFDC) - total interest charges + amortization of debt discount and expense + preferred '

dividends 1.87 1.83 1.92 AFUDC 27.3 15.0 19.5 Net income after preferred dividends 88.6 74.6 74.5 AFDUC as a % of earningsavailable 30.8 20.1 26.2 to Common Market price of common 19.75 21.25 24.125 Book value of common 20.80 20.24 19.73 4 Market-book ratio (end of period) .95 1.05 1.22 Earnings avail for common less AFDC +

, depreciation and amortization, deferred taxes, and invest. tax credit adjust.-deferred 144.6 116.9 102.8 Common dividends 66.8 60.9 52.4 Ratio 2.16 1.92 1.96 Short-term debt Bank loans 6.0 None None Commercial paper 13.5 None None Capitalization S  % $  % $  %

_ Long-term debt 1126.5 52.8 1,282.3 59.2 1,073.5 57.7 f- Preferred stock 227.2 10.7 187.2 8.6 157.2 8.4

[ Common Equity '. 778.2 36.5 698.7 32.2 629.9 33.9

\s .

f

[ ,.-

k THE WASHINCT*

Attachne ER COHFANY No. 2.h l )* **

b -- >

,/

Fi n ~ s. 1stica 12 Honthe Ended

• 3/31/79 1978 1977 1976

( M lars in Hillions) h Earnings available to consson equity $. 27 26

• 19 22 Average common equity $ 205 198 179 164 Rate of return on average cosanon equity 1 13.2 13.1 10.6 i 13.4 Times total interest earned before FIT:

• Cross income (both including and excluding AFDC) + current and deferred "1T e total

, interest charges + amortization of debt X 2.99 2.99 2.05 2.73 discount and expense X 2.76 2.78 1.89 2.63'

. Times long-term interest earned before FIT Cross income (both including and excluding AFDC) + current and deferred TIT e long-

' term interest charges + amortization of X 3.20 3.20 2.11 2.86 debt discount and expense X 2.96 2.98 1.94 2.75 Bond ratings (and of period)

Standard and Poor's A A A

. Hoody's A A A A A 8

Times interest and preferred dividende earned after FIT:

Cross income (both including and excluding Not Applicable AFDC) e total interest charges + amortization of debt discount and expense + preferred X 2.24 No Preferred Stock 2.20 Outstanding dividenJs X 2.04 -

2.02 AFDC $ 4 4 3 2*

Net income af ter preferred dividends $ , 27 26 19 22

%  % ,15.8 14.8 15.6 7.6 Harket price of common (end of period) $ 22.78 21.75' 22.00 Book value of common (end of period) 25.375

$ 24.56 23.88 22.92 22.17 Harket-book ratio (end of period) .93 .91 .97 1.14 Earnings avail, for conwaon less AFDC +

depreciation and amortization, deferred

• taxes, and invest. tax credit adjust. -

deferred $. 38 37 - 29 31 Conunon dividends $ 17 16 m :C 8 Ratio .45 14 12 M>

43 .48

• .39 gh Short-term debt

• J%M Bank loans $ 22 to 15 28 43 **

Commercial piper $ h Capitalization (Amount & Percent) 3/31/79 1978

. Long-term debt 1977 1976 N 301 55.01 295 55.2% 281 60.8% 289 62.11 Q* Preferred stock Common equity 25 4.6%' 25 4.6% 221 40.4% 214 40.2% 181 39.22 176 37.9%

l Attachment 1 '

6/1/79 1

l l

Statement of Qualifications RUSSEL E. OLSON Puget Sound Power & Light Company NAME: Russel E. Olson PRESENT POSITION: Treasurer - responsible for cash management, financial reporting, financial planning, the raising of short-term capital requirements, including the nego-tiation for and administration of bank credit lines and, together with.the Vice President-Finance, raising the long-term capital requirements of the Company.

EDUCATION: University of Washington - BA in Accounting (1959);

University of Washington - Executive Development Program

, (1968); Irving Trust - Public Utility Financial Seminar (1975); Pacific Lutheran University - graduate work in finance (1974- ).

PROFESSIONAL AFFILIATIONS: Financial Executives Institute, North-O EXPERIENCE:

west Electric Light & Power Association.

Puget Sound Power & Light Company - various positions in Accounting Department (1959-1961); Coopers & Lybrand -

Auditor (1961-1962) ; Puget Sound Power & Light Company -

Special Accountant, Taxes (1962-1965); Puget Western, Inc.

(a land development subsidiary) - Special Accountant (1965-1968); Assistant Vice President (1968-1969); Puget Sound

• Power & Light Company - Budget Supervisor (1969-1970);

Financial Planning Supervisor (1970-1972); Manager, Financial Planning (1972-1974); Assistant Treasurer (1974-1977); Treasurer (1977- ).

! 27

Attachmant 2 6/1/79 T

~.)

Statement of Qualifications

, MICHAEL E. COBERLY Portland General Electric Company I

i I graduated with high honors from Augustana College in Rock Island, Illinois, in 1968 with a Bachelor of Arts degree in Business Administration. My undergraduate degree included a heavy emphasis on accounting and economics. In December 1976, I com-pleted my MBA at the University of Iowa. My graduate education emphasized economic development. I am currently pursuing certifi-cation as a chartered financial analyst.

I have been associated with the utility industry for 11 years.

In 1968, I joined Iowa Illinois Gas and Electric Company. During the nine years that I worked for the Company, I held four position.

I was budget accountant for a year and was responsible for prepara-tion of data used in preparing the operating budget, construction budget, and 20-year forecast. I prepared data for analysis of budget variances. For three years, I worked as an electronic data O processing auditor designing audit procedures and conducting audits to assure proper control of data processing systems. For two years, I worked as budgeting and forecasting supervisor. In this position, I was responsible for the Company's budgeting and forecasting activities, including the preparation and analysis of construction and operating budgets, financial projections, and long-range forecasts.

During the last three years that I was with Iowa Illinois Gas and Electric Company, I was system development supervisor responsible for the development and maintenance of major accounting computer systems.

' In May of 1977, I joined Portland General Electric Company as senior financial analyst. It was my responsibility to integrate financial plans, regulatory strategies, and construction programs with projections of load and expense to produce corporate financial plans and alternatives. I was responsible for financial analysis of specific projects and planning alternatives. On December 1 of 1978, i

I became the branch manager of revenue requirements. It is my pri-mary function to perform economic and financial analyses, engineering economic studies, and to provide instruction in the area of engineering economics. It is also part of my responsibility to identify and analyze economic concerns facing the Company in the near- to midterm.

I am a member in good standing of the Financial Management Association and the Portland Society of Financial Analysts.

Jo

j Attachmant 3 6/1/79 Statement of Qualifications I

LARRY S. PACK Pacific Power & Light Company PRESENT POSITION: Senior Cost Analyst - responsible for analytical activities involving economic and financial problems l including but not linited to cost control, review sig-nificant contract activity, and negotiate and consummate lease transactions.

EDUCATION: University of Washington - BA in Business (Quantitative Methods) - 1972 University of Utah - MBA (Finance) - 1974 Certified Public Accountant - State of Washington - 1976 to Present EXPERIENCE: Prior to joining Pacific Power & Light in August, 1978, I worked for the Boeing Commercial Airplane Company for approximately five years in various financial areas. My last position at Boeing was Supervisor of Financial Planning and Budget Reporting and was primarily responsible for business analysis and financial forecasting.

31

Attachmsnt 4 6/1/79 (v Statement of Qualifications JAMES M. COOMBS The Washington Water Power Company l.

PRESENT RESPONSIBILITIES:

a. Chief Financial Officer. Direct financial planning and determine financing recommendations that will provide all necessary funds for WWP and its five subsidiaries. Pro-vide administrative supervision to the Financial Super-visor on finance, budget and forecast matters,

b. Chief Accounting Officer. Provide general supervision to the Treasurer on accounting matters including records, reports and interpretations for WWP and its five sub-sidiaries,

c. Provide general supervision to the Controller in rate, regulatory, and audit matters.

d. Serve as a corporate liaison officer for Board Audit Com-mittee with independent accountants.

EDUCATION:

a. Formal accounting education through International Account-ants Society.

b. Executive courses or seminars at University of Idaho, Harvard Business School, Irving Trust Financial Seminars, and EEI Hershey Graduate Management Course.

PROFESSIONAL AFFILIATIONS:

a. American Gas Association (1) Budgeting Sub-Committee - 1966

b. Edison Electric Institute (1) Accounting Division (a) Chairman , 1976-77 (b) Vice Chairman - 1975-76 (c) Member Executive Committee since 1970 (2) Finance Division (a) Member Executive Committee

c. National Association of Accountants 1

(1) Member 1969-1971

d. Pacific Coast Gas Association (1) 1974 Administrative Executive Committee Chairman j (2) 1973 Administrative Executive Committee Vice Chairman t

(3) 1972 Administrative Services General Chairman (4) 1971 Administrative Services Vice Chairman (5) 1970 Spring Conference Sponsor - Parallel Accounting Sessions (6) Member Administrative Services Executive Committee since 1969 Ji2.

e. Northwest Electric Light & Power Association .

(1) 1962 Accounting Session - General Accounting Chairman (2) Member since 1953 EXPERIENCE:

a. Employed by The Washington Water Power Company since July 1937 (includes 4 years' military service during World War II)

b. Positions held with the Company (1) Vice President - Finance - 1 year 4

(2) Vice President - Finance & Treasurer - 3 years (3) Treasurer - 5 years

(4) Assistant Treasurer - 8 years (5) Special Accounting Supervisor - 7 years (6) Statistics and Research Accountant - 2 years (7) Various Clerical Positions and Military Service Leave - 16 years O

i l

l l

33

UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of )

)

PUGET SOUND POWER & LIGHT COMPANY,) DOCKET NOS.

et al. )

) 50-522 (Skagit Nuclear Power Project, ) 50-523 Units 1 and 2) )

) -

CERTIFICATE OF SERVICE I hereby certify that the following:

APPLICANTS' TESTIMONY ON FINANCIAL QUALIFICATIONS in the above-captioned proceeding have been served upon the persons shown on the attached list by depositing copies thereof in the United States mail on June 1, 1979 with proper postage affixed for first class mail.

DATED: June 1, 1979 5

F. Theodore Thomsen 4k n Counsel for Puget Sound Power &

Light Company 1900 Washington Building Seattle, Washington 98101 N-./

Dato: June 1, 1979 Valcntina B. Deale, Chairman

~

Robert C. Schofield, Director s Atomic Safety and Licensing Board Skagit County Planning Department 3001 Connecticut Avenue, N.W. 218 County Administration Building s,,2ashington, D. C. 20036 Mount Vernon, WA 98273 Dr. Frank F. Hooper, Member Richard M. Sandvik, Esq.

i Atomic Safety.and Licensing Boa'rd Assistant Attorney General School of Natural Resources 500 Pacific Building

-"niversity of Michigan 520 S.W. Yamhill in Arbor, MI 48109 Portland, OR 97204 '

Gustave A. Linenberger, Member Roger M. Leed, Esq.

Atomic Safety and Licensing Bcard Room 610 U.S. Nuclear Regulatory Commission 1411 Fourth Avenue Building Washington, D. C. 20555 Seattle, WA 98101 Alan S. Rosenthal, Chairman CFSP and FOB Atomic Safety and Licensing E. Stachon & L. Marbet Appeal Board U.S. Nuclear Regulatory Commission 19142 So. Bakers Ferry Road Boring, OR 97009

' Washington, D. C. 20555 -

Dr. John H. Buck, Member Robert Lowenstein, Esq.

Lowenstein, Newman, Reis, Axelrad Atomic Safety and Licensing & Toll Appeal Board 1025 Connecticut Avenue, N.W.

U.S. Nuclear Regulatory Commission Washington, D. C. 20036 Washington, D. C. 20555 g Warren Hastings, Esq.

ichael C. Farrar, Member Associate Corporate Counsel k /'omic Safety and Licensing m

Portland General Electric Company ppeal Board U.S. Nuclear Regulatory Commission 121 S.W. Salmon Street Portland, OR 97204 i

Washington, D. C. 20555 1

Docketing and Service Section' Richard D. Bach, Esq.

Rives, Bonyhadi, Drummond & Smith Office of the Secretary U.S. Nuclear Regulatory Commission 1400 Public Service Building Washington, D. C. 920 S.W. 6th Avenue 20555 Portland, OR 97204

(original and 20 copies) i Richard L.' Black,.Esq. Canadian Consulate General Donald Martens, Consul Counsel for NRC Staff U.S. Nuclear Regulatory Commission 412 Plaza 600 Office of the Executive Legal 6th and Stewart Street

' Seattle, WA 98101 Director Washington, D. C. 20555 i

Nicholas D. Lewis, Chairman Energy Facility Site Evaluation l Council 1 East Fifth Avenue lmpia, WA 98504 Thomas F. Carr, Esq.

'Isistant Attorney General l ( ,lmple of Justice Olympia, WA 98504 5/16/79

14,837

,m

.-..,a

.. . MR. THQISE?h I think I would now like to turn the i"I/agh"' '

m ttor ovar to Mr. Deighlc. 1Te may have a few supplemental ,

e

<g direct cuestions.

- - li-l/ "

t CIIAU,VM LEALE: Pine. Mr. BeigMe. l BY Ita. DEIGIILE: ,'

Q My first supplemental direct question refers back to the number you just changed, the transposition, Mr. Olson, -

en pnge five cf the appendi:: and the kilowatt-hour growth rate of 5.23 porcant.  !

A (Uitness Olson) Yec.

i 0 And a comparicoh has been made by Mr. Lazar i

betwaen that forecasted grouth rate I T in the financial plan d  !

, and the 4.8 porcent growth rate that Puget currently shows in tha 1979 Uast Group which was furnished as of the end of f

t 1:173 and which is now in e::hibit in this case. .

i Uculd you explain the reason for the difference butycan the 5.23 percent compound growth rate in kilowatt-hon: males in the financial plan and tho 4.8 that was in the 1:79 Ifest Grcup?

A ?cs. She 5.23 percent figure is a result of a nrr far-1:act that vac prepared in April of 1979 as a result cl le d thnt - cro e::perienced far above previous forecasts t

Q^

in tho early part of 1979 and tha latter part of 1978. The e\ J 4.0 fimerb of ccurse, uns put together in the latter part of 1970, withou'- knowledge of the actual growth experience in ,

-- - ~ ~ ~ ~ . -- -

- ~ ~ - - - - - - * * - - ~ ~ ~ - ~ ~ ~ '

_ _ 3 _

14,808 s

\s tha scrly part of '79.

., ."'"\.

~-

b/. r 0  ;

Furthar the 4.3 percent figure is an estimate of leads, which are haced on a water-year basis and include

']) i 1cenes, for instance in estimation of load growth. The 5.23,.

of .:curce, is ::ilountt-hour cales, which are sales to customeris f

t/.iich are alca based on a calendar-year basis.

It's conceivable, for instance, that if loads l c:nid ba st a lowcr leval but with l'ess losses ccourring than

• era f.

  rccasted and cale: could be higher than the relative

! 'narance in loads to sales. So thece are all things that i

~

I enuld acccunt for the difference.

i ,

s Q l'cu're saying that load experience at the end  !

t of 1973 cnd early-1979 caused the revised forecast. What was '

that lead caperienco you were referring to? ,

.: . ir ^ A Wall I have it in terms of an increase for the first ci:: r:caths of 1979. And that would, I think, show the I

gro??th.

t.

tilowatt-hours billed to customers for the first ci:t ranths of 1979 increased 13.3 porcent over the corresponding paried a 'rsar ago. And kilowatt-hcur sales for the 12 months s: ding .Tunc 30, 1379 increaced 13.4 percent over the camparable:

1

^ ,

':-:xn.th geriod of the prior year.  !

ss 1 0 And in usc ac c result of this experience over

\

net Trintor anson that led the cor.pany to revice its kilcus':t-hour sc1cc forecast in April of this year?

l

14,899 s

p/wb2 A 700

\

)

._. I probably should add that our recent experience  !

l shet n cuatemor grouth erperiencing considerable increases. i

{j The custcmer g: owth in terms of number of customers on our .

1-i a

systen incroacc A 6.G percont for the period June '79, or frc:t Jtine '79 cvsr June of '78, as well as the usage per i .,

1 residential cuctomer had an increase of 8.3 percent for the 12 months ending June of '79 over the comparable period of '

i

'70.

O In I r. Lanar's prefiled testimony at page 10, i I

r. Olcon, he hz a a Table 3 -- excuse me, I have the wrong table, it's Tah:.> 4 on page 12.

{

g Do j v u have that table in front of you?

Q {

Is 'les. l I do.  !

O In Elat table ha compares estimates of the cost -

cf S%2. git furr '.3hed by Puget and the other Applicants with

' +

r.nd uithout l'i'l a. And this cost is shown in the table -

, in responsa interrcgatories in the generic rate proceeding hafore the in.Jhington Commission cause used 7805, and in '

hond or stt ..! : prospactuses.

Ihforring to the.colunn without APUDC for the fnur c=. niJ.cc, cculd fou go through thoso estimates and

.m y .

c :pla.in I:y: -ha record why the nunberc differ between the com ,

t y.nin nr . ha: men uhr.t is cho.m, for example, in answerc b intr cgitorio.s en bond prospectuses and the filing in

s 14,900 1

(

I fas: 'hi.a

pe.rticular proceading at this tima.

n A Yes. The number you'ra referring to for Puget, s e ich to the top -- and maybe I'll run down the numbers so {

').

that wo are all talking about the same numbers.

i t

a For Puget, th3 number is 1079, that's in terms  ;

i cf dellarc per~;iilowatt-hour -- per kilowatt, excuse me. j r

i ror Pu:ific, it was 1139. For Water Pcwer, 1087. And for  :

i Tort'.ct:d General, 110G. ', '

i u This latter number was added, I think, by '

i I

suppicmantal tactimony frcnt Portland General?

1. I'm sorry, that's right, it did not appear in t l'

the prefiled but it was added yesterday by supplemental i

testinny.

O And the nirabers befora you read, are those i i

furnifc.d by the fcur Applicants in this particular docket?

A Yes. .

~

0 .bd they arc cli differant?

t A Ycs. ,

I Q Ceuld you cxplain the differences? .

4 A Yes, I hopa sc. ,

The hacic nrmbar is the scue as supplied by

(

% :+, %a spensor of the project, to each of. the participants.

v

, .: ic r 7r. Ent:h of 'ths participants treats certain items c.u n - .:; '.y 1.n tornal..ty .;or thca..r own reporting purposes.

ugat,. for instance, in its number includes the

t 14,901 s

c,' .ch5 fuel'and it ir.c". des property taxes at a louer rate than some of the cther ccep2nies do. That is through its corporate i i

model. Property ta= is estimated as a lumped figuro but takeni o cut when it is .put in the model and the model, through the l

{

consttuction period, adds property taxes automatically at a  ;

pre 0ete= tined rate, and it results in a figure of 1079.

Pacific Power and Light has informed me that  !

they includo in their figure of 1139 fuel, as we do, but 1

thay include their own actimation of property tax, which ,

i 7 understand is a higher estimate for property taxes than we '

une again, a product of their model. They also includa

' ~

trt.ncriiccion cone's in their number, which is not included ,

( in Puget's nnnbor.  !

g And I understand through the workings of their i financial ncdal they compound inflation monthly which, for '

c:rtupla, in the first year, gives us 7.22 percent effect I

na c;poced to a 7 percent offect, that accounts for their l

higher nunber.  ?

I have been infermed by Washington Water Power i

that their nunbar of 1079 includes fuel -- ercuse me, 1087. -

include 3 fuel and transmiccion, but not preparty taxes, s as .C :.r.iidrstand it.

And fcr Portland General, we are slightly w

p 2.1-d. Tha naher t,as rotd into the roccrd by Mr. Lazar, so it is his numbar they were working from and not the

14,902 ,

m \

w ; gh ' nat.?? th,?.t Ucs rnpplied frcm Portland. It't: caused thc:n i' c

~

1 littla problzn to reconcile it. It looks as if some pre-vious expenditurar were included in that number. It's a f f

i lieu..e hard to detenaine exactly what it is, but the basic '

i number that they look tt wculd include fuel and property t

I tc::e: as supplied by Puget, but without transmission costs.

So I'm not able to oxplain that one, but it riun' t ?ortlw3's number cad na-fca they could explain that one.

They are pu== led, e.s I understand it, as well..  :

i Q You might supplemnt that comment, Mr. Coberlev, yc'ar inabilit / te reconcile that number that Mr. Lazar  !

(A s

firnished with ycur filing in this causa? i A (Witnoca Coberley) Okay.

1 I

I guccs that, i.orking with the dataithat I have, L.

.nich in hasically tha tables in the testimony and also the f.a.u prorirled by Pu.ict, I can reconcile my numbers back to r

2n pu's numberc, which comes back to I think 1198 per kw. l t'

Chc 1101 I'L: nct sura of the source, and consequently I i

i c?.n't really zero in on what may or may not be there.

That's really all I have at this point.

Q An I understand your explanation, Mr. Olson, h uinally ec.ch of the npplicants has used cost figures pro-U lSu by Furnt, anf that the only difference in the ecst O

(w ?igur.:s 2n reported in 'tha cause the diffcrence betusen that tr.cnnt and th3 cost figures reported hera are the way that

- - - - - ~

i 14,903 l

(

\,m / 9 4.c M

) '

- eith2r tha corper:he medal handles certain items, or inclusion'

( )

.~ j '  ;.

or c::clucien of transr.icsion costs or items of that type,  :

i but that the bacic eatinato is identical in all four cases, is that corrcct?

A (iiitness Olson) That's my understanding, and i o

l' I hnvc boon co informed by all the other companies.

Q Ncti are there any of the other numbers shown on ,

that far right column trithout APUDC that you wish to address j ycurcelf to? '

A Well I do havo some information on some of the ,

other nir.thers, particularly in the Water Power'soction where i w

there is actually four numbers shown, a 1087, a 1021, a 938 f and a 923.

The 1087 is the number that we have discussed,  ;

which includes fuel and transmission costs. The 1021 is the  ;

I nunhar that dcce not include fcel and transmission costs. t 4 i

'"he 93^ number is based on Water Pcwer's sunk costs but not  ;

1 Puget's and cycludes fuel and transmission costs. The 923 i ~1 nu:Cor stas ':ut tc;tather at the end of 1977 using old -

ccm B uction cost estimatos and doe's include transmission ar'd fuel costs.

i

__ I guess the thing I trant to point out is that O nha :im 2rrass in which theco nimiers are plucked out of *

(Am v: 4.cas documenta und just put down gives an apples-and-oranges Omparicon and has absolutely no relevance to the hearing or I

__ __ _ .- T-

i s ,

14,904

/m *

\

h(- m e] a n 0 \ th real construction nmabcrs that are part of this haaring.

MR. 3EIGHT.E : That concludes my supplemental 7

direct,andthepanoldsnowavailableforcross-examination. ,

3 t

s.

CHAIRIG.E DETaLE: Very good.

~

Mr. Black and Pr. Ihmnson. '

\

MR. SMrdSON: Yes, I think probably just one b qVOStiCD.

CROSS-E C'JIINATION  !

s l L7 MR. SWANSON:

Q I don't care if one person wants to speak for ,

t, th? n ueli.'.n'anc;cring this question or however they wish '.

's l te cddresa it.

s s s We've had testimony in this proceeding about .

.lifferent actinnhas as to the projected costs for the Skagit .

Ecci'.ity, cnd :: would li'co .you to assume for the purpose of d.in cuestion that Ehe tosts for tha facility become higher icy scme uny,'t.ccifica s, emount than that which you have assumed i i

l in the cour:2 and use of funds statement.  !

cw I ;;ould like to ask you what meacures you wculd have available to necure additional funds should it beamm necessary a'ceve that reported in the source and use of '

• ~

• m aa n st-~.t= tent.

4 Is G!itness Olson) First of all, I guess it should

;'ointed cub ti'.at the source and use of funds statement is

'e

~

9 c M 't estimrta, based upon specific assumptions as to cost,

, 3

, 4s 8,

$ 4 N 'h

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

r ,7_ . _ _ _ . . _ . . _ _ . _ _ _ _ . _ _ -. - ~ - - - - - - - - --- - - - - - - - - ~ -

, 14,905 1

t; ,"agh!' as to the finnncing progrert, as to interest rates and so forth.

i All of thess things could chango without seriously impairing cur chility to financa the project, j (9v ,

Now,trith specific reference to an increase in }

i cact ;;c feel that we are of sufficiant financial stature that '

[

i

.re can go to the capital markets to raise the dollars that '

, 'eculd ho rcquirca to complete the project. ,

, Ac costs go up, however, some of the parameters '

-&c.t are a renult of this point estimate would change, such i

i' ca it t.ould require an increase in the rate -- in rates to ,

4 cu tomarc above tihat is shown in this .particular point estimatei.

} -nf 2 -'O l J.

t O

e t

f

1. ~%

l 1

I i

I

, .? '

! l 1

1 l

...,-b-._-,.---,--.

n, . 14,906

. . i..-

f 4. ;, . . . ,- , t

~!, .

% X:" Q Cy going to the capital market, then, you're 1

f, l rM.'.arring to sales of what typas? Stocks, bonds, .something of

he.t nahuro?

O 3 A Ycs. Thah's the raising of funds in the typical 1.

i i

/ nnner that utility cor.panies do through the sale of equity,  ;

f i; '

coar.rn stoch, and preferred stock securities, as well as first mortgara bonde.

i  :

O And do the other Applicants agree that they have

. this var ctility available to then to secura cdditional funds, shculd it becom2 necessary? -

?

A (Uitncos Occubs). Yes, given the parameters that e

)  ;

fir. Olcon outlined. i s/ i,  !

! T.

...- - (Uitnocs Ptak) (Hodding affirmatively.)

I A (Uitnoca Coberley) Yes.

h

!. "R. Sull!SOII: I have no further questions. ,

if i.

~

PE. . OZIIDLER: With the Board's permiscion, Mr. .

Incar will conduct our cross-examination.  ;

i

{ Cf!AIPlifl? DEALE: Nr. Lazar? i t'

BY MR. LAZAR:

[: G I;r. Olcon, you made a change in the forecast that i

l'.

"c.s li.sttd in ycur tactimony. I would refer you to page 40

[

ar.d dl of your 1973 annual report, which I beliove io included e:

ia 4 ' a Ferr.1 10-I'a c:hich the Board has.

/ A (Witnasc Olcon) May I clarify, Mr. Lazar? The l l T/mr.cl Mport, page 41?

I

. I

.e. ..em-w,-- aw-6. a_- -. - -

em -

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

14,907 cal c I

,~ O 40 and 41.

(

A I have it in front of me.

q Q Thers we have a tabic. Half way down the table  ;

v ,

thcre is a colunta entitled, " Total Enargy Sales .to Consumers.7}

Is that column equivalent with the category that i

I yo't hava called "Kilc iatt Hour Salen" in your forecast?

A You Con't ecan column, you mean line?

l . -

G Rcu. -

i i.

A Row. All right. The row entitled, " Total Energy ,

.hlro to Consin.ars" would be a comparable line.

O Yes. I don't knou if you have a calculator ,

i

\ available to you. You may either check or I will ask you to $

b  !

(s accapt, subject to check, that the compound growth rate of Puget over the 1973-1978 period in 5 percent,,5.0. l Is that appro::inately correct? i i

A I'll accept that figure subject to check. You are; again talking in terms of total energy sales to consurters,  !

a and in terms of kilowatt hours.

1 i

I -

Q And a littla further doun there is a row called .

I

"?.verat.;e Rate Poi

• Xilowatt Hour,," Ucw, this deals only with 1

resid.ontici custeners, but there we see over the period i ,

o 197> 73 a 6.0 percant rate of growth in the average rate O p .r hilo'<tatu hour.

O

\s l'c :. tcatirony indicates, based on the budget eatiirates that were originally submitted with this tectimony,

i' 14,908

' 21 3 4

(

~

m 11.7 percent avaraga car. pound rate hika, assuming 7 percent- ,

~~)

inilatica and cartain chher things.

s A Chat's corrnet.

.-2

(

, O Io it correct that you are showing that even  ;

though your rates vill be rising more rapidly than in the

, pact, your sales will also be increasing more rapidly than in the past?

f 1

A If your r.unbers arc correct -- and I've accepted i i

thin, cubject to check -- then, yes. i,

(

Q If the budget eatinatcc had to be revised upward,  ;

i thct 'rould cc.uce rctec to increase when the projecta come on  !

line, is that correct *? '

A Ic would have that effect, yes,

.f O IInvc you acaux.ed in your ccurces and use of funds '

I t'a inclusien of conctruction work in progress as a source i

+

.i-cf :: avenue?

j A In Puget's caso -- I can't speak on this point to i t'

the other cotepanics, bacause I'm sure the Oregon companies i

3 '

, haven't, actually, becauce of the situation they find

.f.ti_elvan in. Uc have, in our financial projections, I

t 18 rum 2d cr.struction vork in progress, but only to the extent s

I. co.: allo: fad, which is the substantial offcet. So it leaves c littls clip in ccnstruction work in prograss, and that is

[  :: := cd cur acc':=gtion, yes.

\ l i2 So you h:.vc not assuned an increase above the 1

--_t- .. y..,__,- _ ,. , , , , , .

,~ -

~

,~~

.a

' ~ - -

14,909 N.

s ,

currant offcat in CMI5?

A No.

Q I:ac Pugat in the past requested an increase in

(~', '

th".t of.5 cat?  !

1  !

A Yes. -

l l

0 to you anticipate requesting an increase in the .

l future? i

. A I can't speak to that. '

I don't have re'sponsibility for rate actions of i

Pugot, and I do not kno! for a fact whether that will or i

vill not be requestad in the future. I just can't say.

O But it is your testimony that Puget is capable

(, cf financing tha projects without an increase in the offset? .

t A Yes. And I feel that if we had no CWIP, we would ha able to finance the projects.

O In your source and use of funds table you show in u.;e perica 1933-24-85 cxtremely low internal fund generation.

CIMIMIAN DEALE: Mr. La::ar, would you identify ,

imat it is you're --

MR. LAZAR: This is page 4 of the attachments.

CIIAIRMAN DEALE: All right, I just wanted to try to follow this.

O '

ID. LA.9AR: Just about the mid point on the page, O

a re- .n':itlad, " Total Intarlal Funds."

C'?AIPl!Mi DEALE: Right. Thank you. l

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

- , . 4 ---7,

- - - - - - ~

p -, ,

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

,m- -

g- - . , . . ,,9y 9 y.- -,,,

14,910 e

. a. .

• UIO.223 OLSOU: ' Iou're roferring to 1984, p:redicultrly? hat's actually the louest year that wo have, i

and it la imi, I will canit, in that particular year.

O~)

t BY 2!R. LhnR:  :

. Q So that if your construction costs in that year,

. . 3

~s rc.fuirar. cuts in that year, varo to increase, there would be 9'

un even greater disparity between tho internal funds genera-l t'.o:. for that year, and the average that you have over the cca structicn perir;d?

A (Wit:ncas Olscn) Not neccacarily.

1 O If you wera required to increase your construction O

• e 'gmditur s, assuming other things equal, assuming nothing $

N i alce. Lere en line, how would internal funds increase to keep g

stap?

A If uu were to increase conatruction expenditures in S.c year 1.M4, cad all other thingc remained equal -- and l'u not cu:: just . hat that :rcans -- we do have the ability c::d the capacity to terrow funds in the short-term capital f

cark=ts, to -

O 'Ihoca vill not bo internally generated funds?

A Thosa are not internally generated funds.

, i

,.. t.: So the rctio of total construction expenditures l

\

U,

~.

.n Mrnall'~ganarated fund.s vouldsincrecse?

, The ratio of 0 int' .: ally-:ca trated f: nc's to canstruction expenditures would

( s e6 . .e Ee

i ,

14,911 s

A Would d'ecrease, yes.

h -

0 So your acvsrage in that year would be even worse i

than what you have just toutified is low?

O A Prosunably, if all things remain equal - and I'm .

nct preparad, really, to make that assumption --

• O Ohings could get bottor or worse. Things could I cht.nge dramatically.

A Things could change. I'm not sure drartatically.

Q Pebble Springs could bs cancelled?

A 05, I suppone anything's a possibility. ,

O I will refer you to Table 5 in my prefiled testimony.

I A Table 5 in your prefiled testimony?

O

,, O In lay prafiled testimony, yes, which compares the i

@203 budgat, as adopted on July 27, with the testimony J/afiled by the Applicants.

A figure for 1984 for the 5 percent share of WPPSS .

lin:abar 3, owned by Puget, is shown by WPPSS to be S8,654,000.  ;

l And as re >roduced from page 16 of your exhibit, Puget has i

only indicated to the Board $2,939,000 worth of expenditures l in that y2ar.

Can you explain that difference?

M2. BisIGHLI:: First of all, does the witness.have v

the iOPSG hui.;ct in front of him?

f" UIT TCS CLSON: I don't have the ifPPSS budget at

.1 e

• ~'

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

vel 7 14,912 b

\ 37 "R. LASAR:

Q ELve ycu reviewed the' PTPPSS budget?

A (Witnesa Olcon) tio , I have not reviewed the WPPSS

. i budget. Z've naver seen the V2PSS budget. j

, O You are responsible for the financial planning for ,

I i Pu pt 2cwar?  !

I A Our construction engineers supply us with the

? .

I cons'nmction dollaro that we h~ ave to raise. They are the ones '

s i -

l

c do the bugo.t reviews, supplying us with the dollars. Andj I dc- dani in the details of WPPSS budgetc. l 1

l MS. BEIGHLE: This says "Prolininary." Do you have

! E f

\~

th2 final WFPGG budget?  !

, MR. LAZAR: That in the budget as adopted, as I bria been inforr.ed by WP2SS.

ME. BEIGHLE: There was a contingancy item in the

u.  ;

! budgut that was proposed of $300 -scae million that was ,

ha , i

+

'I C21ct d in the final budget. Now, is that deleted out of

't

. or .

a

here, cr io it still in here?  ;

HR. LMan: A0 I understand from Joan Wiley at D2Z, ia $300 million contingency iten was adopted in the 2inal b7.dgat, but the invastor-owned utilities requested tr ' ': c:.y uce c f thn'c contingency be reported to them.

E. L.7IGHLS: I don't think that's correct. Do N i

.

n 2 va b fitr.1 budget? This is the praliminary budget.

. jou ?.~.v2 u.:a final budget?

14,913 sml 3 0

(

..x. LAZA".: This is the budget which was given to

{ .

n2 by TEI SS one w.dc ago yesterda' / , which is subsequent to i

M .doption. At that tira I was tolci that this is an  !

I y

n;curato docuacnt to use.

IG. . BEIGHLE: Coos it have a cash flow under the ,

' 'I F300 rillion contingency item? i

(-

Im. LAZAR: It does not. Yes, it does. Within

{

4 the actual accounting of the budget I think they have set ,

acid 2 that through various years.  !

i 1E. DEIGHLE: And what is the date of the final [

1 udget? $

i I

IIR. LAZAR: It wac adopted by the WPPSS Board of [

\

i I k Diractora July 27 in a public hearing in Richland, Washington.=

1 PR. DEIGHLE:

I'11 show it to the witness. ,

(Docur.cnt handed to Witness Olson.) '

~

liITitrSS OLSO:1: Well, without even looking at it,  ;

.: think ny first remark is that if this budget was adopted i July 27 of 19*19 no Ir.atter what infarmation is in there it couldn'u be in t.his profiled testir.ony, because this was filed substantially -- this was filsd, well, prior to June d 1979, so it couldn't relate to a budget that was ,

.dinaliced and accepted subsequent to the date we filed with <

.U:

h.f ' Scard.

s 71 fG. LAZAR:

s .-

0 I recogni::e that, Mr. Olson, but isn't it the

si J 14,914 i

(n inta.:t of y m : cash ficw projections to show the likely

(' ') Oasital requ.i.remants in each year?

.T (91tness Olcon) Yes, but as I pointed out to you i (9

}

Mfora, those forecasts are a point estimate of the best i inferr.ntion available at the tine they were put together, 5

}

of a plc.n that shcws thab each company can finance the -

construction that they see ahead of them through the period cf conntraction c:2 the 3'cagit project.

Now, thero isn't anything anywhere, and I don't

hin:: anyone has the right to ascume, that this is something thr.t's cast in c ncrete that can't be expected to have some -

chaarjea occurring to it. I con't think anyone reasonably k u,; acts that.

l Ucw, there will be changes to some of the numbers.

Soz:e of then will go up and acce of them, I'm sure, will ocsn dora for variouc reacons. But that dcas not affect i

thr- 25ility of ny company or any of the other companies to i

financa the Skagit project.

't g  !

. O Sut it dccc affect the amount of financing which h

is r.L;u:. red? ,

A If the nturber that you've related herc, ic m

- mnnes -- nnd it's larger than the number that we've shown V

e.: t ..ma -- it <till increans our constructicn at any particular t

(J y - :. no, I u!.11 nocopt that.

I could probably add that the magnitude we're

__- ,n 14,915

, i.. v s

le ding at horo, if I ran relt.to to the figure at all, with r

' ') notal ecnstructica 2:<ponditures in 1904 -- and that was the yter "on did refer to, as I recall, Mr. Lazar --

t Q Yes. .'

- 1 A -- of $610 million, you are referring to, I believe,.

an 03 million fiejuro -- and correct me if I'm wrong -- and l-I'm th::uing in rri estimato something around $3 million, so i s

tha 'a a $5 nillicn inersase en a $619 million construction prcgra:n. And I submit that's rather small.

f Q You own five percent of one project at WPPSS, is that correct?

A Yes, h7PSG Number 3. We have five percent.

~  !

0 You own 40 porcent of two projects at Skagit? '

I-. That's correct.

i G .If ths Skagit budgets ware to be revised in the arma r.anr.ar as the WPPE3 budget has been revised, and some 4

c;f theca other projects that you're showing here on your 2

be la were si:silarly revised, couldn't that add up to quite .

a 3 030antial reevcluation? In the WPPSS budget, we're showing concuruction c:qpenditurca for 1984 of approximatoly i

c:3a tic.es that you've shown.

__ Mcv, if all thece became three times what you've i m . Vut r.ffcet*culd that have upon the financial .

.; ,o'n. r a z e n t : and / car ability to financa?

13. U3IGILE: I'n going to object to the question.

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

• k weA 1 i. 14,916 6

g Are you represanting that the budget shows a three times

\m (j _

increase, or just* a cash f1cv change in one year of three I

tir.as?

I O 1 un ta=an: ^ oa=h f1ow cue =e= 1a 1984 of enree -

I times what was reported by Puget on page 16 of their attach-k nant.

• i MR. BEIGIILE: With that clarification, then, I'll I

} withdrau my objcchion. I i

WITliESS OLSON: Would you repeat the question?

SY MR. LASAR: '

Q If all of the cash flow requirements for 1984 were to triple above your present estimates, as the UPPSS-3 e

( '

requirement for 1984 has, what offect would that have upon s

' your financing requirenents, and upon your ability to finance?

A (Uitness Olson) Well, if all items in 1984 tripled, it would put a serious -~ it would create a serious problem I

for financing in that year. And I can't deny that. .

t But I am not at all prepared to accept your thesis I

i.

that these costs will come anywhere close to an increase li'e I-that.

i First of all, while I really can't speak for WPPSS-l l I don't know how they budget -- but I understand that they han como serious problems. We feel very confident with our n  ! hudge':ing process through our architect angincor. We justt

' k ,

i 6.on't feel that we're subjecting the company to the kind l

I l

14,917 wel 12 m

/

( of variances that you're pointing out.

'> 0 The costa of UPPSS-3 have approximately tripled altogether since the project was originally estimated. Why l

Q'a is it that Pug 2t as a participant has been unable to control -

those costs? j

) end WEL 4 A I can't speak to that.

{

MR. LINENBERGER: Mr. Olson, with respect to this

. , last quaation of Iir. I. azar about the increcse in WPPSS-3 1 cocts and Puget's ability or lack of ability to control those, does Puget have any -- e::ercise any project control authority

[ o nr the UPPSS undertaking that you know of, or can you 4

[! cnswer that? i y

j  !

hrIT:IESS OLSON: I believe we do, sir, but I am v ,

y no;; directly involved in any of our construction estimating or construction controlling. It's completely out of my sphere L

of responsibility with the company, and I'm really not

!' equipped to answer that.

.I .

d I beliova that we do have people that scrutinize thcae costa very carefully, but --

MR. LIUENBERGER: Well, I wasn't asking about ncrutinizing, but about whether you had any say in the line directicn of the project that could have some impact on

~

V controlling costa. And if this is outside of your sphere of

d knowledge, any so, don't speculate, k

v ,

UIT!ESS CLSGN: I can say one thing for certain l

6

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

14,918 t

uel 13 i

'( that is not speculation,and 'c hat is the item that Mr. Doighle referrsd to, that ITPSS had attempted to put into the budget e

a $300 r.illion contingancy that the invester-owned utilities  !

h O'~' thought tras totally inappropriate, and we flatly said no. Andf.

I they made sexe accoratodations in that sence.  !

So in.that one instance I know that we did have [

sons control.

i-D..LIN2NBERGER: Thank you.

EY MR. Lkr.hR:

Q Mr. Olscn, what AFD0 rate have you used in making i

the estirates which appear in the sources and use of funds b

table?  !'

i *

, 3  !

("i A (Witness Olcon) 8-1/2 percent is ray recollection.  :

No, wait a minute. Are you talki'ng about the baci ccst antinates, or are you talking about Puget's o .

l ocction in the ropcrt, which would be k page 4?

Q Well, I'n concernod that tharu is a showing of l

AFDC on your source and use of funds table on page 16 of >

tt t b

f yc.:r atcachrant, and that is, if thern are a numbo; of

[' different ICDC rates, perhaps it would be usoful to know all of th2:a.

r.

A Yes. A?EC rates are shown on page 7, which is I

d part of Tabl.! 2. It's page 2, Tabic 2-4. And year by year,

[

i 3

l thc T5D cnd Production AFDC rctsc are layed out, year by i

i

(

j year. And thsy are genor:lly 10 porcant in T&D and 90 percent.

c . , ,,__-.,r.,,. ~ . . ------m . . . , - - .--w,,-.v..w-,---. , e.,,-,g - - -

14,919 ,

nul 14

\'

in production in our ccct estimates. And the G-1/2 I referrad

(- to was an overall estimato for the total plant cost, completely.

e different -- l

(}

Q For 1979 you show a 9 percent AFDC rate, is that I

correct? l l

i A In 1979? i.

Q For production plant?

A That's corroct.

O Whc.t is your current yield on first mortgage bonds maturing after the year 2000 for Puget?

t i

A Well, if you're talking about a coupon rate, they ,

i are two completely different things. j i 0 What I'm trying to get at is what could Puget, in i

your estimation, sell a bond in the market for tomorrow, a first mortgage bond en a nuclear production plant?

A That's a different qucation, and I don't know if I can answer exautly.

But I would think we probably would have to be .'

cozc.rhara around 10-1/2 percent. That would be my guess, and t

it's caly a guess.

1 Q And what is your current ccst -- your current n

authoric-ad rata of return to common equity?

U A To cor. con equity? Authorized at 13 percent.

O Eo your malded cost of capital in in the neighbor-J hoca cf 10 percent? Pardon ma. Your current rato of return s

o m ,. ,,y_ _ . , . - , _ , , _ , _._____,_s , . . . , , - ..n

14,920

(,

.: rata ban in 9.i' percent, is that ccrrect?

\. _)

A cur last ::aho ordar that t.mc handed down on iItrch 0 Of this year did give u. a 9.0 nercent raturn to rate base.

(D s)

O Eut if you vero to nold the cost of new capital, 10-1/2 parcent nortgaga and ::cm cost for equity, what would ycur re sided cont of new capital in today's rarkat be? -

s

?. That's a puraly synculative question,It:. Lazar, l

and ui9aut :rding crro calculations ycu really can't got cny cV!inizivo nmicer.

Now, I think it'c fairly cicar, though, as you I rallect on i. hat a return to rate base is nade up from, and r

N it doca have in there cost rates that include sales of i

i.

praferred stock and honds that ucre sold a nunber of years i

ago at much icwor rates, and ycu've get a weighted average ,

l coat, in effect, that gcos into the calculation, Any time -

i ycu cell new bcnda at a - ate higher than the averago, or i

veightad averagr., cent, it tends to push that weighted average coct upward.

Now, that I can say.

f d Sut on an increr. ental coct basic vouldn't it be l tru.: that the r.eldnd ccat of ccpital would be higher than t

,-,  ! abc hecC reto, and 1cuer than the equity rate, reprocenting V i e

m1d c1 th::n aest con 9cnonta?

O A 2'u not nuro I mderstand your question. Uould 3

'i-

.rcu reput it, plucce?

I t

4 -

._-.y~. ,9- .,,Wwy,9 my, ,9,ya w- .,-- --p,--_

+_w.. - . _ , , . , _ - , y n _

% = .m wi 15 14,921 w 0 I.t ordar to add to tha capitaliastien of the U ccqpiny ycu have to cell you vonld sell a conbination of bcnds that you indicated at 10-1/2 percent, an equity which '

you'r a ctu:rontly authorized 13, and it could go, as tir.

i

3eighle has indicated, higher or lcraer. So the incremental cost of capital wculd be higher than 10-1/2 percent, correct? _

On a nalded basis?  !

i A It co'11d Im. '

Q But you've only shotm a 9 parcent allowance for i

' i the funds used that you've borrowed in today's market. '

A Well, I think you're confucing an AFCC rate with a cost of mency in the cpan market. They're two different

( '

,f things. ,

O '

0 i Well, I've alwaya understood it to represent the ccst of the funds that you use during construction. And if l

the ccIt that you're using during construction are costing 2 acro than 9 percent, perhaps you should be allowing for more i

than 9 percant.

A The rato you sen here in developed and consistent uith all of the nasumptions that we have throughout the m.mdy .

The atu2y assumes a preferred stock rate of 9

c

r n r.5. ~.5 aso:c:an a icag-torn debt rate that ranges from ft O

3 9.:: ntnt to 10-1/4 percent. It assurr.en commercial paper rcngin" fren: 7 percent to 11.85 parcont. It assumes a 9

, - - - - c- -

a e

v. - . - . .. -. -. - - - - - - - ~ ~ .

-3  %.,w- - -. - . *-- y - + - p.------w-----

~

- --*,e .,--.--e y -+- wr - + - ---5m.--.. g.-

~~

I 14,922 i

wel 17

~

percent bank prime rata.

'> s Now, we're looking at and talking about a study

() I that's a 12-year study. I think it's totally inappropriate --

question-and I hope I'm touching en really the thrust of your

() '

but I think it's totally inappropriate to attempt to use a current rate that is naybe higher than we'll experience a year from now, or was experienced a year ago, when we're Because rates will go looking ahead on a 12-year program.

up and they'll come down, they'll go up and they'll come down, !I maybe several tinos during the 12-year construction program. e We're looking at an average rate that we expect will prevail, a reasonable tverage that we expect will 1

("

• prevail over this entire 12-year period.

(

U,, (Witness Coboricy) Mr. Lazar, there's a Federal .

A ,

t "norgy Regulatory Commission accounting order which requires )

I i

tha calculation of this AFDC rate using embedded costs.

So it uould be unrealistic to go to a marginal t I

I cost. It would be really in kind of violation.

I A (Witness 01 son) Well, yes, I was about to bring that up. You're absolutely right. And that's why it's l

flat through horc.

Q So wouldn't it be correct, in determining the incrementcl costs of an incremontal plant, to use the

(])

incremental cost of capital?

f-~s k' '

A Ho. Totally intppropriate, when you're looking 4

4

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

14,923

.wel 18 A

at r I'l-yaar study. Becausa rates will come up and down.

O If I nay, Er. Lazar, you've made quite a point of  :

intcrcat rates and the fact that the prime rate is now 12-1/4  ;

i! and you think it's going to be that forever.

. I'd like to point out a report that I received I

here the other day from chemical Bank, dated the 31st of July, 3 3

1979, admittedly prior to the recent increase in prime, where [

' i thcy're projecting interest rates for a year in advance.

4 I

looking back, they have not been too far wrongs

lcn?.mosteconomistsoreconomicsourcesthatIhave.seensay ,

e t i 1 i Mat wc*re necr a high point, and they do expect it maybe to I

j go higher yet, and then fall off again.

(%_,)

. ,' Now, they're projecting that the Federal Funds rate in September of 1979 will be 10-1/2 percent. Well, I .;  ;

.i 4 i think they've already excocded that slightly, but the point ,,

is that in Septerlcer of 1900, they're predicting the Federal .b Funds rate will ha C-1/2 percent. That's three percentage  ;

l I pointo lower than September of 1979.  ;

So Chemical Bank's aconomists are forecasting a i

I 3 percentage point drop in interest 'rato for next year.

l Ficu, I think it's totally inappropriate to use a

! higher rate for purposes of a study.

C3:  ;

O Yet ycn hava just testified you would think you

• ccid ha.% +., to ps.y chout 10-1/2 percent for long-term debt j ,,

w -

l I

in today's m.rkct, but on pago'6 isn't it correct thab youf 1 i

+

4

_ i-

14,924 val 19 ranga of long--torn debt only want up as high as 10.25 percent?

\_/

A Wall, that's because maybe the range didn't

, consider the peak as high as it is today. But then, by the  ;

same tchen, the trough may be lower than this, too. .

1 I will readily concede that interest rates do go up and thsy do come down, and they fluctuate.

ifcat ue have atterpted to do here - and I think theothercompcniasaswe{1,andpleasacorrect=cifI'm urong -- have attempted to take a saue enat sees =d like a i

reasonable rate to use for a 12-year period. There'll be periods uhan it will ba lower than this. There'll be periods when it'11 ba higher than this. On an average --

\ -

s O But shouldM t the range cover --  ;

MR. DEIGILE: Mr. Chairman, could Mr. Lazar be instructed not to interrupt the witness until he's finished his at:cuars?

CHAIMIXi USALE: Go ahead, Mr. Lazar, and --

9 MR. LAi;7n: I think I'd better let Mr. Olson.

WITHESS OLSON: Well, I will end my answer.

Go ahead.

1 DY MR. LAZAR:

i N

.s Q Shouldn't the range of estimates that you have U

prmented reprecont the rango of financing scenarics which you might face?

A U1itness Olsen) I'm not sure anyone.can accurately l

-_ ..: = __ ... .:- - , = - =..:=_ - - - - -

. - . . . - . . . - - . . - . . . - - . - - - . - - . - ~ . . -

14,925  !

' ul ^0  ;

pradict the ranga. I know that the bankors I talked to a *; 1 b '

6:w :tonths ago didn't think we'd see a 12-1/4 prime either.

i They said 12 nould be the lid. But it's gone to 12-1/4, and .l

},

nou they're 'J2ying it night go to 12-1/2r mayb3 a tad higher a that, bafera it cones down, which expectation has it that it L will come doun tha early part of next year.

i-

? Is it correct that the 11.25 percent commercial Q  ;

" I pE.por rate and 9 parcent bank loan rate are probably a little '

concorvativo in today's -- a little low in today's market?

I.

A The conrarcial paper ranga I think is quite adOquate at the mcment. Wo hava not paid ll.9.i yet. The

{ l l

recent high that we've paid that I'm awara of is 11 percent.

( Eut, again, we're starting into, or are already two quartors into, a recessicn, and interest rates are high f f

[ todcy. i f-  !.1 0 Page G shows ycur book value in 1979 at 18.44. ,

' i Is that ctill approximately correct?  ;

4 ,

A It. ? S a littic higher than that at the moment. l

I l O And the curront market price of Puget? j

A It closed last night on the New York Stock Exchange i .

i ne 15-3/4.

O So you'rc solling considerably below book?

O A We'ra celling e.t about 89 percent of book, roughly.

O So if you vera to finance expansion at the present

14,926 nl 21 -

f)

() ti:r.2 through saluu of comaca equity, you would be diluting l .)

ycur c::isting stockholders' equity?

A I'm sorry to say that's true.

Q Mr. Coharley, I'd like to refer you to pages 30 and 31 of your a mual report, 1978,t.hich is included in the ,

Fora 10- It 's .

A (tfitness coberley) Okay. l 4

Q Patu 30 and 31. -

A Right.

Q In thr.t there is a section.on residential service avarnga por customer. I'm wondering if you could explain ,

['

\

why it ic that Fortland has had declining sales per residential

~

cuatemer in the period since 19727 i.

A Ghay. Over the pariod 1972 through 1978 the cvarag.2 re.sidential usage per customer has declined, r.crording to cur annual report, by 1.4 percent- ,

over the entire period, 1969 through 1978 it has been altrost flat. .

i The rencen for this.decraase would be -- there would be caveral raucons. Two primary reasons. One being

'ste recant publicity and interont in energy conservation, the conce:. ation :rcesuras that our customers have taken. And i' va hava cupported this, in terms of weatherization programs l

J

) and things such ar: thic.

Also in there, I think that our people who do l

~ - - - , -

, ,--.. .-.__.n., . - - - , , , - , , - . . , , . - - . _ -

14,927

.1 ?.2 O*

(

Icc2 prsjectiona uculd say that part of thic weatherization L) reaction was a reaction to price increases.

So thcra ic the elasticity there.

O So scue of it, at least, is due to tha increased rEtes that you've been through? l A Yoc, I would say G at's prob s 4 true.

0 Ocen your curront forecast show an increase or a i

decrr.so in ure per residentini customer?

A Our curraht forecast, my recollection is, shows a reduction in avarage uso por customer for about the next fcur or lite years, and then it does turn around and go h

D bach-up after that period.

That foroccat is based upon an econometric model,

, . and ny understanding in that they begin to factor in some new types of reci~antici uccga after that point in time. So

'dm trend has continued.

Q Mr. Cohsrley, ycur ccmpany owns 10 percent of hM CS Nurber 3. To your knowicdge have there been any

^

attempts by your ccmpany, successful or otherwise, to control the cost overruns in that project'?

A Again, I'm sorry, I can't answer for that. I'm not wacciated with that particular department. So I can't U cr,c 2 to that.

IIy copy of your testimony unforttmately does not occ.n ec lave a copy of your qualifications. How 1cng have you

-- e

14,928 ml 23 s

I t

been with Pmdiend?

W)

( j

[

A I've baon with Portland General Electric 2-1/2

. I 1 years appro:cimately now. j

! On page G of your Form 10-It there's a table which C ,

i 2hous tha eshimated cost per kilowatt for your projects.

] A Ycc.  !

i 1

Q Are those the safte costs which your company i

^

aabmitted to the ASL3 in this proceeding?  ;

i f

a i ' A Yoa, thuy ara.

O Iir. Beighle indicated in his direct that those ostime.tes includod fuel costs, is that correct?

i s A Tha ccat estimates in the ASLB proceeding, this j

( [ preceeding, do include fuel costs. That's correct. l

'i Q That's $1,485 per kilowatt?  !

I '

ch, I stess I'm not sure of the source of that

~

• a nicar, l 0 That ic frcia Mr. Winter's correction of his

-i e

tcctimony, n..d appears in a corrected fom on Tables 2 and 3, i

OMd li37s 6 I DCliGVe -- Tables 3 and 4, I gues3 7 of my tantimony, 4

)

Y 4 s

.s U

{O J

N

. . . . _ , . _ . , _ _ , , . . . . . _ _ _ _ _._.m_,. _ ,_ y- . ., _ _ . . . ,., . . _ . - , , ._.,,.._i_,--, , - ---,--~-.4.-.

- - -91 .

14,929

/

79L/5 '

\ ,C

., A 14G5, is that the figure again, please?

r f

i /

/.30A O Yes.

A Okay. That is again Pugat's number. Now ours would be different because of the different'FDC A rates, no i wa cenpound our carrying costs, cc I cannot ecmpare directly ,

to tha 1405, i MR. THo!"Smi: For the record while we're there, tho 1405 dcas not includa either fuel or trancmission. It's the 3.823 that wa talksd about which is strictly the project co;ta plus escalation plus.AFDC, not including either trans-miccion or fuel.

BY M2. LAZAR:

i

( 0 It's unclear from the 10K whether these estimates include transmission, it is clear that they do not include fuel.

To your knowindge, do they include transmission?

A (Witness Coberley) I don't know that. I do not haow.

. O All righu.

i You give a fairly wide range for the estimated cost cor hilowatt in the 10K but have not to the Board.

Could you explcin uhy that in?

O A Yan. I can. The reason why wa did not give a i

r

(  : c.27, to the Ucard la becauce we usad the construction figures dsvolcped by Shagit for the Shagit projacts and those are

. . - = - .

14,930 ugh- th: ni;nrc: t;hich ke figur:d into cur projection in this 1c proceeding.

i Q lir. Pack, Pacific is a participant in both IO  ;

57PSS 3 and 5, is that correct? j i

n (Witness Pack) Yes.

O You can 10 percent of each project.  ;

A That's correct.

C Can you o>: plain the difference batvaen the estienten that Pacific han provided to the ASI.,n and those i

they providad to the Utilities and Transportation Ccmmission i

and those that appear in the WPPSS 1980 budget?

\

A I can't address the liPPSS 1980 budget.

I O Can you addreas the difference between the $1485 that's Leon provided eto this Board and tha $1744 per kilowatt thich was provided'to the WUTC?

9 A In general I can. At the time that estimate was rnae, we had a very high estimate for property taxes, which has a significant impact and it also includes related transniscion.

Q And that would cause an increase of $260 per

! hil,r:itt?

A ht.ich table are you on?

Q Tabic 5 and Table 4 in my testimony.

j( MR. C:!C:G2N: Pago 12 is Table 4.

12.. TJ3AR: Yes, and Table 5 follows page 13.

_ -- ,. . = = -

.- z. _:-----===--=-_- :----

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

- .. .). 3 i ..

4 1 14,932 ,

t 4

1, I I/r e;ba ah: :cconr2 proj s +. thorn ui.11 ba nora e:q ensive ' thz.n the

~

l C.re':7 -

~

i l

i. n (Uitnass Pack) It gonarally would bo just from

-) t, -

tha puro fact of inflation. 1 l .

l

] Do you know what the schedule difference is I t .

I*

l

..Lf_::cen GPPSS 3 and ,5?  ;

4 .

i.

one year.

I.. .s ' ~

j a j

i.

0 And what's the schedule differenca between -

f  : s

E'xiin 1 and 2?

' J. .

l': ' A Two yours. .

s

,1 t, 1

'l t?ith a longer stagger wouldn' t it contributa

~i ,

1

'l to the ec3ts of the second unit?  ?

., l, 4

(- l A In genrerni, it would have an inflation impact,  !

[ t i

1 4 but ta offcot.that ganara11y the way those estimatas are -

(

I i i

tuilt the ccm on parte to tha plant are generally budgeted f . I in ::te first unit.

O Is that what you have done as a participant in  ;

t

W7?cs 3 and 57 .-

i

~

'l ,

1 A I cr.n't ancwar that, .T don't know MPPSS 3 and 5 '

i

.4a '; te.all . .

a I'm referring ycu to page 11 to your form 10K.

~ w Ccas it shoir ss the outinated cost per kil oa .

u tt for e

V l. c 37 x

. 1

.; A 31779 por hw.

Q And for nnnhor 2? *

)l .

34 2 -,--.-.7.,-.,w-- r ,,_-,,,-,-...m,.y%--.-r..w., .---w,,-m.-e- ,w-,. -,v.-m *-,-,,..r. -

qu.%-+ ., - - ee -me.es. .--- ae--ms.-+%- e.e.g- -p.% .. - - ,es 14}933 ,

b ,

( A $1150 per kv.  :

(]wel/cgb5 y'N; 7' O Quite a bit Icwar, isn't it?

'

• A Yes.

.4 O.s ' '

Q Can you chad any light on why WPPSS has to spend half a billion dollnrs or $400 a kilowatt more for a second unit and the opposite effect seems to be present in the!

Shagit budget.

,. k ( :

,- ~,,

A I wouldn't unnt even to speculate how the WPPSS hudget nur.bor nas put together.

s.

A (Witness Coberley) But again that Skagit ic that the ccitmon has been budgeted to the first unit..

(Witness Pack) Which may or may not be'true

) A f

,( , /

iq,the WPPSS.

I would.think, if I may speculata, that probably l I

the f.cmmon itema on tho WPPSS project were already absorbed  !

j in projects prior to that, 3 and 5. -

! , Q So one would expect the same sort of trend,:the l f t

cama relationchip between tha first and second projects?. 3 A I'm c'aying - what I'm saying is I don't have  ;

i.

. - cll five units laid out, so I can't really see if the relatiota(ip betucon 3 and 5 would hold the same relationship "

.s

' as Shagit Unite 1 and 2 O , :t -

w MR. BSIGHLE: Mr. Chairman, I think Mr. Lazar is

(

ras.lly gatting this record fouled up at this point. One of l

the problans t:ith the UPPSS budget is that there are different ,

i,

( ,

{ I*? - _ _ , - - - , . . ,__ . ,

14,934 c21/cgb6 cwnc s in UPPSS 5 than thcra are en WPPSS 3 and they've had 1 P 3  ;

- to very cerefully divido the cc:xaon facilities an a result of that bacaucc Puget and Untor Power and Portland General are  ? I i

j ,

not in 17PS3S 5 and thay arc in NPPSS 3. And when you have {

i identical participants in two units, it decan't matter how '

you divide the ccamon facility, you can share them all in the '

4 l

- f ecst.cf the fi'ct r unit or you can divide them. But where you 8 i

have different participants in the 'socond unit than you do

, in the first, you've 'got to get thera properly divided for i

' \

budgating cost purpocac because the participants in NPPSS 3  ;

e aren' t going to pay for all the comon facilities and give  ; ,

then to the participanta in MPPSS 5, and so he's getting (j this record totally confuced at thi's point. I think he knows hetter.-  !

Thece witnences don't knott. I know. And I think t

it'c very improper and it really bothers me that F.s, as a witnesa uho has been sworn, is now doing this cross-examining .,

and na had thic problen before on the need  ;

for power area i e

where Mr. Knight had to come back and claar it up and now wa're ye'tting into the TIPPSS thing, and he knows the WPPSS budgat and he hnous the way that operates.

CliT*.IPJmM D".:. ALE: Mr. Lazar, WPPSS 1, 2, 3, 4'and O 5 do not have comon ownern, is that correct?

\

I:R. LAZAR: They do not have identical chares cc:.r.cn awrars. They're acattered all over the map.

_ _ _ ~ . - _ . _ _ - _--e_,

14,935 Crit,II:2.ti DELE: So that what would happen, q),11/avb7

(' ,

cay, in UPPSS 3 night not happen in WP?SS 5 becauco they're I

difforont ounars,  :

MR IAZAR: That's correct. Which is one ,

of the reaacnc I saved these questions for Mr. Pack, because i

hic company owns 10 parcent of cach of them. -l t

CHAIE~t%N DEALE: Yes, but the other 90 percent  !

i ara ovned by differsnt people. -

MR. LAZAR: Right.

l CHAIR:mN DEALE: So there is -- I appreciate what i i

2:r. Saighlo is bringing out, that is that there are different'.

N c mcre here. Now admittedly ve'have one common owner, but ss) ,on a very nincrity basis but we have principal owners who are l l dif.kront. And to treat all three of these as though they

\

\

have the scme ownership in a nanner that lot us say we're talking about Skagit 1 and 2 really is nialeading. It's misle:. ding.  !

. I must say that Mr. Beighle brings out a point .

which, well I don't knotr about my colleagues, but at least I na:r unavare of, that is, with respect to the differences in the cunership of UPPSS.

The cther thing is this: we're talking about O the financial ability capacity of Skagit and its associates -

u to finance the project, and the analogies with WPPSS seem to he pretty tenucus.

(

- ~

14,936 o

/aght Ycu '.uve nude points which directly relate to, u say, chcilenges, if you vill, of the participants, and those challenges can stand up quito independent of any, I think now

") vary venh analcqy with what happen 3d to WPPSS. And we haven't, had one person hrare who can speak well, speak authoritatively chout the WPSS situation. Evidently it's quite a different c'.tuation than Skagit is. 1 Sc perhaps'in your questioning, Mr. Lazar, you n stay with tha initial challenge that you raade, are those ccnticcen's ccmpanics capabla of financing the project at i

hr.d without bringing in on a, I think, tenucus basis coin-9 pcricons with WPPCS which havo questionable validity. l

) i MR. IAZAR: Mr. Chcirman, I would only point out ,

e that the record shows that Pacific has,in their financial ,

er.tinates to this Board, underactinated th1ir cost of parti-cipation,*coupared with the current WPPSS budget by $36 2

nillion, underestinated their cost of participation by  ;

I c1mest $17 nillion. ',

My testimony van directed to showing they've a forestircated the cost of this project and all of that M ute on the ccurce and use of funds table, which in turn h> .c upon the rcta rectirements,which in turn bears upon the V

llevntt-hccr calas r.nd need "or power.  ?

O

, Thot:c things tia tcgether awfully clossly. If S. .y cannot null the power at the prices required , then they

-= *% -ae ,- sae . e. .- --,---..e-- -- . . .*

14,937

,-.1/agn) canno t rsi.::o tha funda to build the project. And I think it's

(-

cxtrenoly 1: prtant to 1cok at all aspects of .their capital

,. plan, including their participation in other projects.

CKT.I?JIMI DEALE: Well if your point is that one or the other of the participating ccr.panies has underestimated firmrea in one case or another, I think you might, you know, '

i point that out, that we're getting into the details of trying to analogize the tt(o projects. And I don't feel that is a inir proposition, particu.larly because the WPPSS projects have different ounars and they can very wall do things '

diffarantly than if the five projects had one owner. The five projects, if they had one owner, t.nuld probably be opernted differenti:'.

Now you've made this point about underestimating, I think that that's, you know, a legitimate point to pursue, thic ic all right. Eut saying because WPPSS did this, Why doesn't Shagit do it or why did the Skagit figures show a contrar/ trend to the WPPSS figures, who cares? The analogy icn't a goed one.

Now if you feel that one company or another has a consistent record of underestimating or overestimating

, or doir-1 sccething that you feel is contrary to their U

r:pretentations, trell, fair enough, bring it out. But'this u c:.n ha done withcub elaborate analogies with another project ofnich isn't conparable.

,. + , _ _ _ ,y., .__y ,- _y r . m_-- .-9 g cgy-, -3.~ - m g ---

7;-

' 14,938 t ,

i t

I agblU tiell, it's noontin:c, so do ve want to pausa and j- 't;) have a break nov.  ; ) '

i . i

'- Let's come back at 1:15. t

!. i t s

l l'

h (Whoreupon, at 12i,00 noon, the hearing in .

I 4

the above-entitled raatter was recessed, to reconvene 3

!  ! i l . at 1:15 p.m., this same dcy.)  !'

i l

+

• i I i s

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'I t

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f I i i  :

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, I i i I i

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, 14,939 1 ij -

4

] NRD/.fbl ..

ATTERNOO?1 SESSION l j

. O l

'3 " ll (1:15 p.m.)

t]  ?

~3! CIMIRMAN DEALE: ,Please come to order.

h ..

'l

~

Wheroupon, 3 ', RUSSEL E. OLSON 3 '

\ MICHAEL E. COBERLEY

i. .

I

LAWRENCE S. TACK -

3 c and

e 3 ji JAMES M. COOHBS ti ON u recursed the stand as witnesses for and on behalf of the il 11 y u

Applicants and, having been previously duly sworn, were 6

. I?. O H

examined and testified further as follows:

i e 13 h CHAIPlGN DEALE: Mr. Lasar, you're handling

4)1 SCANP's cross-examination of the panel. We recognise that 1

,, 15 neither of your attorneys are here. I think we can say

v. -

15h if there areiany objections to your questions which one of n -

1:-

the other parties might raise, why we'll be happy to hold iglj off any ruling on them until your attorneys do come'here,

ii

3 , provided they do come, within a reasonable time.

t 2C ; But to move along with the proceeding, I think it 2: ,

would be well for you to continue on.

i t.

A 13 3 MR. BEIGHLE: We have one preliminary before 1

o Ir, cross resumes. Mr. Olson was asked by'Mr. Lasar to accept subject to chec'c a percentage this morning, a percentage from t 3 i. Puget's annual report. And we are prepared to addres's that.'

b d

k I e

...;u. f1

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

., . 1------ ,, - - - ~ , - - - - - - -

. - . . = . . _ --

n i

3. .

14,940 1

; i I

• RD/ub2 I'm looking at paga 40 of the Puget annual report ,

n

(, ) "j for last year. There is some confusion as to which line c :1 "l

Mr. La::ar was reforring to in his calculations. The one 0

h _ .

that Mr. Olson has uced, which was the -- to compute the I.

j grouth rate for the period, was total energy sales to con-I 6

sumerc. And ho has now nade that calculation, and it does 7 not square with the one Mr. Lazar gave him.

.- O?!, You might respond to that, Mr. Olson.

9 .).l WITNESS OLSON: Well, if it is appropriate, I J

Th will.

II d CHAIRMAN DEALE: Are you on board with this, d

12 [- Mr. Lazar?

I - i t

I3h': MR. LAZAR: Yec, I can keep up with him.

74 CHAIRMAN DEALE: Go ahead, Mr. Olson, please.

4 15 ! ,

WITNESS OLSON: When the point came up I did b

i 15 l say I would accept the number subjcet to check, and I also r

17 ) indicated at that time the line we should be ' talking abou't is V.

!S i the onc that is labeled " Total energy sales to consumers,"

N .

1;[ and that shows the growth from'a figure of 9 billion 320 E^ l!

i:

thousand kilowatt's to 12 billion 208 thousand kilowatts, -

~

2 Ei ,}. and that's.a growth percentage of 5.55 percent. s

~

~ .

'1 '

So I don't agree with the number Mr.' Lazar P

t

. /O 1. ; mentioned.

l.,

E' .I do, however, agree with the average annual 23 9 growth rate in rate par hilowatt hour, and that increased I

t I

. _ ~ . . . ; b .. . ._ ._- . _ , _ . _ _ . . . . . . _ . _ . . _. _ . . . _ _ . _ ._ _

! 14,941 l f

h I.

Ii

.D/wb3 6.8 porcent, which is the number which Mr. Laser used. ,

(j p I night also point out, however, that for the 3 lact two-year period, from 1976 to 1976, the anergy sales t' I t

{) 0I l.

to connurors greu at'a 6.69 percent rate, which is far in .

l 3 {, excasa of the 5.2 parcent that wa have used ih our study.

i Ga !l! CHAIIGIAN DEALE: Mr. Lazar, in light of the modification of his answer to your question, do you want to  !

7 [f

[

0 'i pursue that?

O HR. LAZAR: Just a little bit.

70 l! CROSS-EXAMINATION (Continued) i e'

12 BY MR. LAZAR:

li IS " Q I do sea the difference in our calculations.

O :T Mine was based on the total energy billed to consumers.

IJ pl And if the calculation is made on the basis of total energy h

g sales to consumars, you are correct, Mr. Olson.

gc That 293 million dkilowatt hours that is unbilled,

7 .

n can you crplain who is getting the fr,ee electricity?

I f

i 73 A (Witness Olson) Well there is no free electricity

g j' involved, Mr. Lazar. These are the kilowatt hours that the company delivered and, because of the bi-monthly billing 3[

h cycle, just has not mailed the bill out yet.

i 7.; ! Dut tho kilowatt hours did have to be generated,

~ $ and they waro delivered.

a q v-

O So this would offset against the change in, for 3 e

:tzplo, the Portland GE accounting system where they have kl t

ti n

. . . . . . . .__ .. ._ . . _ . _-4..-__..._.._ .- - - - . . _ . _ . . . . -

. . = .- . =

t 14,942 h

i r /wb4 1 allowed ther. solves a credit in their accounting for unbilled g  !-

sales. This is the sams-- It's a comparable set of electrons  !

!O 5 ]Il 4j A I would not be able to comment at all on n

Portland Gcneral's accounting system.

, Sh

l

'. 09 i Q Mr. Coberley?

(Witness Coberley) Yes; the unbilled revenue 7 A i ti

! adjustment roflects billing the revenues and sales in the

-}

9 month in which they were generated. You don't have December slopping over into January, and so on. You set

!O!!

II them bcck up basically in December, generally.

( .i is Q With that I'm going to--

J CHAIRMAN DEALE: The matter is settled?

13lI. .

i)

ji BY liR. LAZAR:

O I just want to ask why it is that no adjustment ,

3 {i. .

s-of this sort was mado prior to 1976, Mr. Olson. .

a A (Witness Olson) Because in January of 1976

j 'i l

+ 4 l

g $ we adopted the unbilled revenue accounting, as was disclosed b

r in the footnotes to the financial statements.

i Q But in actuality in those previous years there were unbilled deliveries of electricity that are not reflected

~ in this statistical record?

r --

n But the numbers were very small L . A That's true.

3 ,

in those earlier periods, smaller than they have become in more recent periods.

. ..J 1

J lt y -

] 14,943 l ii

'RB/wb5 ?h 0 Wouldn't they just simply track the overall load J 2, ii grot:th?

..) ,

b 31 A Well, they basically would; except that they are I

I) 4h more pronounced in the more recent periods. And I don't 5 . have any figures for those earlier years.

t O For example, in 1975 the 10 billion 141 million 0 'N' 7* kilowatt hours includen some that were delivered in the -

r.

C ',! - previous December but were not billed unti'l January?

ji ,

D1 A I would assume that is probably true.- I have not n

.0 i, ' donc a breakdown of this. -

U Q So actually the '75 and the '74 and the '73

:] .

.; figures do represent a calendar year but not an accounting

3 h '

year?

- it

A In the sense of unbilled, that's true.

P.r.

1 13 4 0 I'm wondering, Mr. Olson, you referred to the new t

I -

forecast recently. Can you make copies of that available e

7 , to tkte parties to this proceeding?

,-;, A I suppose I could.

l

g Q I'd be interested.

e- A I do not hava any copies with me, except for just  !

1 1

my own eno copy. At a break maybe we can find a place where l

we can aeron it.

y, u*

7,3 MR. THOMSEN: We can mail them after the

. hearing, unless you need it right now.

HR. LAZAR: No; I don't think I could work up i'

1 .

l D i l h

._ . . .__...-- ._ _,.. a5 _._._. _ _ _

1

- 1 9

i  :: 14,944, l l

m 1 t  :

NRD/ab6 1 cny questions instantly on it. '

i

I

~

() O lI q

BY MR. LAZAR: I l 2j!: O Mr. Coberley, do you know the original estimated t l g

O

4 j construction cost of the Trojan plant in rough numbers? .

f

! .i E lise A (fitness Coberley) No, I do not, ii I 6 i; O Do you know the eventual construction cost? )

4

? .jfj A Our share was roughly 350 million, I believe.

II Odt O Do you know.if that was-

' A .I'm sorry; that's not construction cost, that's

,c. -l the installed coct. So the 350 million would include our e

O AFUDC also.

12 y Q That's what went into the rate base?

E j ;3 ,'j A That's right, yes.

,.(

4

j} Q My memory is that that plant had very consider-0

g able cost escalation over the original construction estimate; P.

,g ?

is that correct?

7 ,l A I can't confirm that.

, O Are you aware of any nuclear projects that have been completed in the last'few years that were completed at i

,c,,;

.$ or close to their original budget?

A Again, I don't know.

7 y Q Are you familiar with any which are running highar (1 ,. than their original budget?

A That's any plant anywhere, you're saying?

~

. I guess I'm not sure.

O 1

. -t*. . - -

. . . - . L_ ;_ _

I l' I i d 14,945

'I H i 4 w .li .

.' htB/wb7 'l Q Plants that are under construction that you're  !

'l l b 2N n

familiar with. Obviously the Supply System is one that you I

2 would have a chanco for some familiarity with. But if q e h

4ij you are aware of others that- .

f.

5i .

A Through this hearing I'm aware of that, I guess, l

Ci O Mr. Pac!c, I would' like to refer you tid page 12 7' j of this attachmant to your testimany. Half-way down that 1 ,

. ON page is a row entitled " Total internal funds.' I'm wondering il

- 30.i if you could explain to us how it is that Pacific will be

.J MU able to finance a portion of its construction program from 7: [y internally generated funds in the yeans 1982. to 1990 where at

~ it '!y tiiis table shows the internally generated funds as negative. - .

G !! A (Witness Pack) Okay. The main point- Two 1 -. _ _ . 1

,i :O C. ,

main points that should be stressed on this table ares one I

2 !; is the fact that we have earnings that are still retained in lI -

c the subsidiaries' assumption, and that kind of distorts

, / :i tha picture somawhat. Becausefwhen we do finance with common l l -

l tc 'I; stock and prefarred ' stock we finance on a consolidated

2 basis.

l n

, :: f -

The second point: a key assumption that is behind a

E 3: the Sourca and Use of Funds statement is the fact that we U

,;] have ascumsd a icwr:teeinerease assumption, I believe in the

,m Q ,q ,' rcngo of -- a low rate increase range, around 7.6 percent

i. por year.

u. . O I don't know that I got an answer to my question 3, of how you will finance with negative internal funds.

l

'I l 5 b

._w. . . - -

14,946

~ .

i N-ga/ (:b 8 a I guass my response to tiut quaction is, ue can s ~/

still financ2 the project with negative internal funds on a I

ntility bacis.

s

,) ,

Q Sa it is not necessary-- You anti.cipate being able to fincnco basically the entire project with external funds?

A Fight.

O And, in fact, with the negative internal funds, won't part of yont borrowing go to help mest your preferred cud ccmmon dividend requirements?

A Chay. Ocr equity structure is based on a s' .

coasclidated corporata structure, so if you were to add the s ,

earnings that un have assumed will be retained at the cubsidiaries line to the negative total internal fund line ycu vill find there in not one year that is truly 'n egative fr07. a consolidate cc.sh ficw perspective.

Now it may be argued, given our low rate in-crease assunption, that it's possible; yes, maybe the ,

stockholders era going to suffer somewhat. But from a c.mco? idated corporata financing plan we shculd have.no problor. financing.

O I cay need something more explained to me here.

It caems r.o me that if you're retaining these f on:nings in your subsidiaries they're not available to meet

\m your preferrnd and ccamen dividond paymants; is that correct?

, ._ .- - _ _ - . . . ~ _ _ _ . ,- t y --

14,947 0

t

\ sE:G/ub9 A That aasumphion was made hero for -- as an l

@' attempt to split out the utility operation by itself.

O So the utility operaticn will not generate

(")

sufficient internal funds to fund your construction program?

i A Given the conservative assumptions in this I scancrio, Clat's true.

O On the following page ycu indicated an assumed utility return on average common equity of approximately 14.3 percent. Can you explain why it is that Pacific has nasurad a 14.3 percent compared to some of the others? Puget I think has assumad a 12.5 percont; Portland has assumed at (g

-- I-

,2.84, A percent.

~

l i

(~sl A Which line? l t

O On page 13 cf the attachment. It's Line A. f A Yes. And your question is, Why is Pacific's ,

, higher?

O Yes. l A Okay. Part of the problem in looking at returns 4

on tvarage ccamon' equity is that as a company we cannot f

cplit our equity between the subsidiaries, including the -

atilitica; the problem baing, What is your divisor? how do i you eplit ycur stockholders' equity between the utility, i

() tSc- con 1 mining subsidiary and the telephone subsidiary utilitics?

O Aron't talephone utilities censidered lower risk i

__- m r -n

-. ~ . . . - - . . . - .

14,948 :

I w [ I b*

s Nun mont other utilitica?

?%e . s O10 .

\") A I don't think I can answer daat.  :

i O What is ycur presently authorized rate of return j

/~T 4 l k# i' in Washington and in Oregon?

! {

A 13 percent. l 1

In both statec?

1 O A It's 12 to 13.

Q 12 and 13?

i A Thcre is an exhibit.... It is somewhere between, I

like 12-~ 12 or 13. l O The staff in ma::ing their estimate assumed a 6 13 porcent return to equity. Isn't it true that increasing s I

( the return to equity to 14.3 percent would result in a j high ar estimated cost of power than a 13 percent assumption?

i, MR. DEIGHLE: In what time frame? I think the i

quection is ambiguous. It would have to be after the plant [

. started operating and be reflected in the fixede charge rate at that time'. .

BY fir. L7t ZAR- '

i Q I think the filing of Pacific shows a 14 percent retura en equity, and the accuaption of the staff is a 13

.ure:mt rcturn and. they're both dealing with the duration of 3:.c oroject in establishing, in the case of the staff, a 7-s i r_ned cinrge rate. And I guess it is that fixed enarge

\~

rr.co thtt I am. driving 4,t.

l

4 14,949 l

(s-<CED/wbli A (Witness Pack) As a dirset response, yes, a

( j*

14 percent equity allowed vill raise your levalized fiped chargos.  ;

+

" 3r. Coberley, what is Portland's currently Q l I

- authori=ca rate of return?

A (Witness Ccberley) 13.84 percent.

Q The authorized return is 13.84?

A Yes, sir; t

G When was that authorir.ed? j I

A 5 hat vac last increased January 26th, I believe.

2 I'm sorry; that chould have been January 25th or 26th of

! s The ordor that was handed down then would authorize T 1979.

.-sl

- I

!_- a 13.54 percent return on equity. l lr O That also is higher than that assumed by the i

t staff; isn't that correct?

A The authorized one is higher. The one that I used in this projcetion is louer.

O Tha'c 's correct, but the authorized rate of return

• in higher than that used by the Staff?

A Right.

" , fic 0- In your Source and Use of Funds table, which is

10. ? C '.  ;;ge 9 of tho attachment, for 1934 you're showing less than ki) 10 pe.ccent oficur conctructoin expendituras funded internally.

I A 7cs. This wouldn't he unusual for a utility that doesn' t have construction werk in progress in the rate base,

, - -~.,~

- . - - T

14,950

\

G/unl?. "ir. Lazer, because of tha f act that basically an awful lot 5/ ,

of our return at that point in time is AFDC generated. So there's kind of a natural cycle that, ac your construction

(~)

' / balance builds up, your cash flow comes down a little bit.

t overall, the internal funda generation is fairly close to 40 or 50 percent. But you will note this cycle.

Q I don't see it reaching anything resembling that until cfter 1905.

A I think that if ue would compare these line-by-i line that there's a good percentage of the time uhen they i

are fairly close to 15 percent, 15 ranging upwards, 1984

. being the hold point. i 1

('

O I mentioned 1984 because I think with Mr. Olson  ;

l also 1984 was Ehehold point for Puget. I'm a little con- i carnsd that we could get to 1984 and have a situation like i

they had a Seabrcok where they had to .stop work and go out ,

i t

and find some nore acney. -g i

i Do you regard that as a possible risk?

A I think that the cituation is that our bonding

! carability and preferrad issuance capability is such in that

! y2ar that wa would certainly ha able to go out and get bonds i

or proferrad. !?2 vould also have the ccmr.on option.

() j 1

To ride yourself ever in the one-year cituation you could

'} l r217 cn your shcrb term credit.

\s /

j So I think the money is thers.

l i

= =-ez e. * = m - wee

14,951 1

'in3/ub13

~~~/

Q Isn't it correct that Portland floated its last

')

~). band issue out of the United States? I A That's correct.  !

(')

v Q What date was that bond sale made, and what was  !

l the yield at daat time?

6 A The yield -- I don't believe I know the yield. '

It was about a 10 percent issuo. It was in March of '79. i P.nd it wcs a five-year bcnd issue. 1 Q Short tern?

A Short harm. For $50 million.  ;

Q Has Portland been to the bond market for long term financing since the incident at Three Mile Island?

l A

~

No, it has not. l i ,-

Q For preferred?

A Mo, it has not.

, Q For ccmcon? 1 A No. But we havo had no need. I mean, you know, ue wouldn' t go to the external market unless we needed the monsy you know. ~

Q When do you anticipate going back again?

A Well this projection shouc that wo will probably go b ok again in cetobar. Tentatively it's for~ bonds.

(]) Q For bonds.

3 3 Yes,

! CID.IrJR4 DE;.L::: October of this year?

l l

f

' 14,952 w \

\ /:7blo FITG35 COS3RL3Y: Yes, sir.

y

) -

BY MR. LAZAR: 4 1

O Can you possibly e:< plain why you've assumad a l Ic.cor return to equity ths.n Pacific has, even given the lower rating of Portland? ,

2. (Nitness ccborley) Okay. v' hat I did use for a l

return on equity vaa one percentago point lower than authorizeti.

I nsed a 12.34 percant. The reason for doing so was to civo an air of 60nservatisu to the estimate, quito i

frankly.

The situation is that on ave! age over the last

] ten or so years we have earned less than allowed, and I felt f

D that in terms of evaluating the financing impact that this would introduce an air of consorvatism. I i Q Doesn't it tend to c.ake the cost of the construc-  ;

tien project icwer than it wculd if you used the authorized rata of return?

A Ic vill, to the er. tent that we use the return on equity component in our calculation of AFCC.

Q But if in fact you w re able to get your 13.84 r turn to aquity, or tha 14.5 that has been requested, 1;culdn: the antimated rate hikes that you have delineated O hccra ta be ravized upwarf?

/'%

A (w If wn rac2ive a higher return en equity we will

e. .D be fic.ncing nore of these funds internally, more of the h

.e

-ee- ,-e. - .sv e e.eA. -e.. w w Wr"e---i.e .

m, am -e

-a

14,953

('~\/ '

(;-fChrbl5 construction internally. No would hava less nccd to go to  ;

\ ..] \

the er.tcrnal markat.

I kind of havs difficulty, you know, deciding

' whether it would be more or less expensive, I guess. t Q Well if you're financing more of it internally aren't you financing it with 13.84 or 14.5 percent money?  ;

A That's right; yes. l i

O If you financc it externally it'll he lower cost ,

debt? l t

A Well it would be a ccmbination of debt and I equity. ,

-s '

O So that the melded cost of external-

\-- 3

([ financing would bu lower than the cost of internal financing?

3 A. That would. be true. -

i O So that you would in fact, then, reqbEre' higher i

rates if you finance more of the project internally, if you are allowed to receive the rate of return that you've ,

i basn authorized, or that which you've requested?

A Well the situation is, if we receive a 14.5 percent roturn on equity -- and I guess if I wers to run thie particular assrmption back through my forecast I may

~3 cetu.=lly upgrade my bonds in tho forecast and lower the debt U rate. Se ib cculd be cheaper..

, y G It seeras tc me that the debt would be capitalized at the tira the plant went into rate base.

1 14,954

~

g /:.blG '

A I'm corry; I don't understand.

'd Neuldn't the interest on the debt, regardless of O .

t

. 1 its interact rato, ha capitalised?

O A ch, but that is en embedded cost which'would be f*

i affected by any debt issues that you do. So I'm just saying ,

i' that if you want from a Baa to an A that I would then upgrade cur intercat -- lower our interest cost during that period.

O And if the capital cost of the project increased, ,

the nrount of rate relief which you would eventually require would be higher?  !

I l A Ch, yes, that's true.  ;

fs Q And if the int 3 rest rates that you've assumed k I

( ~, for debt and that for equity increased your eventual require- ;

menta for relief would bo higher?

I t i

A That is also true. I thin) the situation is, Scuovar, that va don't ses any reason at this point in time to talk about interest rates at the level that they are l

today. It's reasor:able to assume that they will become ll e

lower over the period, over the 12-year period.  :

O So you're aasuming that the financing situation will inprovo in the future? ,

A I'm assuming that the inflation, I guess, will c3 ate sonowhat.

The way w2- made estimate of our interest rates v

was to tin cur cctimate to the Wharton econometric forecasting:

I

- - . . . - , , - , -L , - - . , - . . , _ . , ..-- -- -- ~ :"

14,955 g d3/wbl7 racdalb satimate of M. rates. We calculated the differential V

between AA and tripic-B. '.

t G How many basis points is that differential in O your analysis?

i t

MR. BEIGHLE: Mr. Chairman, I'm not sure the '

witness had finished his answar. I think he was cut off in l 6

l nid-sentence again.  :

i CHAI MA!T DEALE: Please continue.

WI WESS COSERLEY: And then we used those intorast rates thrcughout the 12-year period. And they vary, but they do come down. They follow basically a scenario  ;

t that says that we vill not stay in this superheated state at

} f U this point in time.

1 BY MR. LAZAR: j i

How masy bas,is points betwen AA Q and triple-B did you assume' in using that model? j A (Witncss Coberley) If you'll bear with me here  ;

for just a moment.

(Pause)

Roughly .7 percant on the interest expense.

O So 70 basis points?

A Right. 1 0 No also did add 50 nore on top of that to reflect em \

cur triple-E-minus rating.

O Fifteen additional?

= _ - - - - - -

..=-_

- _ _ . -_ ._,-,..--_.2:--

14,956 m

, x_/

m 2.DA bl5 A rifty.

O So 120 basis points difference?

I A Roughly, ycs. l

.Q Did you follow the recent bond issue of Pacific i 1

Gas & Electric, which is a double-A rated utility? I I

A lio, I have not.

l 0 In your financial forecast what amount of hydro  ;

i generation did you assums? an average water yaar? a better than averaga? 'a louer than average? critical?

{

s A that we assume is an expected water year, a 39-year avarage in what we've assumed.

(m Q An assuned average.

j

_ In an extremely good water ycar then you would j i

hala more funds available? l A Yes, sir, s O And in a bad, or below average water year things i would be a little worse off?

A Yes. ',

O In a year that's above average do you make up for

' Sa abortfall that you would have in a below average year?

A The concept of averaging. I would say Yes.

The situation is that we have a larger number of C' be: tar water yearu histcrically than bad. But the concept

\ of cn averact says thtt you do.

O Q You make up for it in terms of water?

14,957

_.s ,

\

l/7519 A In terms of -- actually, in terms of cost.

V Q When you sell cecondary pcwer in a good water

?

i year what rates are you able to get for that?

O i

A I don't know.

O When ycu buy power in a low water year, presumablyj than you're buying something other than hydro; is that a reascnable assumption?

A Lot ma clarify something, and that is that our i 39-year averago is a 39-year average for cost, basically, as opposed to a 39-year average of water ficw. That's the  ;

,I uay we make our estimate.  ;

i What I'm saying is that it's an average, a 39-s- m

(_, year average cost.

O If ycu had an extended critical period such as ,

that of '23 to '32, wouldn't that give you three years with I

e::tramely poor internal funds generation?

Ye's, it would.

~

A It's an infrequent occurrence, i

houever. I Q Yet that is the basis of the constructon program?

MR. BEIGHLE: Ia implicit in that the assumption that there will be no rate relief in a three-year period?

I don't think that the record is clear, that the

(

O question is clear, unless the premise is stated on that.

/m\

l t 1 57 MP.. LEZAR:

N/

Q I . suppose the premica assumes no cost adjustment,- j l

. _ _ _ =

14,933 r-^3 3/vb20 cr less than full cost adjustment.

(/!

>- s The impact of a low water

( >6 A (;iitnass Coherley) ,

i t

. year under no cost adjustment would bo to reduce inter:.'al l funds. If you have a cost adjustment, of course, the impact ic vary great. You increase revenues and keep internal

, ,3 p. funds the same.

j , O If you had less than 100 percent flowthrough you uould have loss internal funds, then under the assumption? I l

A Oh, yas, that's true. l l

10.495 O Mr. Olson, is your Source an! Use of Fhhds table done basically the same way?

I s A (Witness Olson) Basically is a fair answer.

t

')-- _

Q IIave you used an average ve ter approach?

A Yes, that's implicit in on" study.  !

r O You used an average amount of water or an average .

anount of revenue based on a 39 year avarage water year? --or i

uhat other assumption?

A Forty water years are used, and the system resources are based on an average cd forty water years as included in the 1978 Mestgroup forecast. ,

t Q Chay. So you're using the average cmount of woater, not the averego revenne from that water?

e

(-) A Well, *we assumed the 40-year averaga water, and

/N '-te 9erived the resources based on that. That's implicit in U our statament.

6 0

-h

- ,- . - - ,, ,__y

14,959

'N'wbC1 Q So that in the good vator years you would be S

I,

s. telling, as ycn did last year, quite a bit of secondary

~

energy, and in a poor water year you might be purchasing C) energy?

[

of A Generally, yes; purchasing or having to run

' higher cost oil-fired turbines, for instance, which we 4 1, typically don't run. i

/ '

Sut in the atuence of rate relief, then, during I

! O those 1cw water yeare, wonid you recover as much from your ,

sacendary power sales of hydro, whatever your filed secondary I rates are, as you would incur in a low water year running

_ higher coct generation or pu;:c;hased power? ,

) .

s .

! A Probably not.

i Q So that actually tie average water year assump-j tion would create a situation in whi.ch you did not have an

/ averaga revenuo? --or, rather, in an average water year you would have an avercge revenua, but :.te highs would not make up for the lows, you would requirc some rate relief?

A I don't think you could craw that conclusion.

! Q Mr. Coombs.

A (Witnc33 Coombs) Yes, sir.

Q You've been around this business a little while, O '

=~-

A gs A little bit.

\'-

0 Can you tall ne a little b:'.t about what happened 4

.-l-

~

, , , - , . , - . l,',-....N.N, c.- ,

...-~,.,,-a ,,.y,..'-..n_7, , ,, ,73', ,, ,-

MRD/wb22 14,960 w

\ ye:sturday befora the Utilities end Transportation commission O in the rate application which you filed?

A Well I tras only there for about an hour, having

() '

been in three other cities before during the day on o'her c E matters, and therefore I don't think I can really speak. f f  !

/ The staff witnes: was on the stand, and I gather  :

1

^

a lot of questioning tras done on the pa::t of the public ,

councel. That's about tha extant of my knowledge of what  ;

occurred yesterday. I i'

'O Are you aware that the staff racommended a reduc-I tica in the request that your compt.ny filed?  ;

i

-s , ; A Yes, I an. But I would say that rarely do the  ;

I Ccamissionert: adcpt the staff's stand on an absolute basis.

k >3 l

=

Q can you tell me when the last time your company  !

I received in a general rate increase application the amount which was requested?

! A Oh, perhaps, on an absolute 100 percent basis, 1974, 1975. ,

O Hr. Pack, can you answer that, on a general rate increase whsn wts the lact time your company received 100 i perannt of what .it asked for?

l A (Uitnezs Pach) There was a rate decrease.

(_s) '

(Laugh ~:ar) f

\

In a California case in 1977; an Oregon case in 1975; en Idaho case in 1976; an Gregon case in 1975.

6

~

. 14,961 s.

A/ub20 0 That's fine.

e . IIave you been to the Oregon Commission sinca 1976

~ N ., uitli~n rats requa.st? i s w.

(O A Yes, we have. ,

. s i s

'O- O ;And I precume you did not get 100 percent of m

}

v.

that? ~

i 1

' \

A We don't know what we're going to get.  !'

s O t Mr. Ccherlo1, I'll run this quesEion the rest ,

'] cf the way doun tho,line.

~

A (Witness Ccberlay) Okay, I don't have the  !

cir.ount of raquests with me, so I guess I'm unable to answer b at this point.

(%

\  !

I uculd speculate that- Your question was, i C -  :

I again? i Q Waen uns the last tir.e you got 100 percent of a gc-neral revente hiko?

5 A . I would speculate that we haven't had 100 percent !

of uhab we asked for in the last seven years; but I'm not  ;

chsolutely certain about that. ,

O 'If you're wrong I'm sure Mr. Beighle can correct  ;

you.

A Seme of the increases have been close to that.

Q , Mr. Olson?

aA (Nitness Olsen) My mer.ory doesn't go back all .

that far, but in 1974 tve got 98 percant of what ua asked for, i

^ * *

- - -_ ___ _ -__ - - 1-_- ___-________-___-_ _ _____ - ____________ - ___.______-_ _:_____**_._

14,962 f\

'%./!ES/wb24 wr.ich is rathar clcss, b And in this last application what parcentage did

. O

. you receivo?

(:)  :

3 A 77 percent of our revised request. l Q Wall hcw is it, than-- This is in the genaral introduction so I guess I will ask it of the panel and let  :

1 i then renpond: f On page 4, the bottom of the page, in your testi-i runy you'vc indicated that you have been granted revenue ,

cufficient to meet or exceed all your financing tests. And we prasume from that that your rate request went beyond the o

icvel needed to exceed your financing tests? j

.) ,

x/ l 1

(j ,1 A If you're looking at me, and if you want me to ,

4 ,

1 5 be first I'll be hcppy to do so.  ;

l I don't think that any company files .a rate '

requect asking for just bare bones, a bare bene coverage of its financing tests, which are coverage tests. We generally l

f would wind up with a result much in excess of a bare bones

' l -

! requirenant simply through the normal attempt to get a

[ r-acunable return on common equity and a reasonable capital i

. ctructure. And we've been successful in doing that.

1 No the fact diat we don't get 100 percent in all '

O , cauce of what wo ach for, you tust underatand there are dis-(

' ( ~

n:jecoments of interpretation,,what should or shouldn'.t be-included in rata basa, what should or shouldn't be ' included 4.

1

14,963

/T k /

g a/;b25 as an operating c::Pensa: thara's just a whole host of other

\.~ ) '

itsms thct the ccmpany and the commission, and the conmtission staff just don't necessarily agree on. And for legitimate O reasons, I might add.

But in no instance has the fact that we have not ,

received 100 percent of what we asked for impaired our l T financing ability. ,

1 Q You also Ludicated a continuing ability to obtain ,

rata relief adequate to enable the financing of new projects. ,

1 Uc looked at your 1984 internal generation, and you admitted i'

that that was low. Can we presume, then, that if Ehat turned out to be too low that you would be able to obtain .

(;) cdditional rato relief in order to continue the projects?

1

)

i A There ic certainly a very good possibility that  :

I we wculd be able to do so, yes.

O Ecw would that be done without the inclusion of ,

additional CNIP?

t A Well there's lots of ways. You can request rates !

I I

without the inclusion of CWIP and increased internal cash ganaration, such as more common equity in your capital struc-ture, a iligher return on common equity, to name just two, Q I would refer you to page 10 of response to an 0s -int rrogatory fron SCANP dated May 30th, 1979, on which there is a ::able cf anticipated rate increases, u

A< Yes, I have that in front of me.

14,964

\

h d23/wb25

.\

Q It shcus a rate increase in July of 1979 of V

eight tenths of 1 parcent. lias that rate increase been inplemented?

l O- i A No, it hasn't. It simply is a printout from the computer. Our financial model indicated we should have that little tiny bit. And I'm surprised even that it's I l

reflected in the interrogatories, because things aren't absolutely to that degree of precision in a forecast.

~'

O When was your last general rate increase? ,

9 A We received the order on March 8th of 1979.

Q Okay. And that was 15.7 percont; is that correct?

i A 15 percent, roughly. It may have been a tad over 1

(-- '

15.

O The nert rate hike that you show here is in April 1980 of 18.5 percent.

' A Yes. That's a two-ycar period, slightly over a two-year period. So it's an average of 9 parcent a year.

Q It seems to me that from Mardt ' 79 to April of l

- 'SO is sonsthing loss, than two years, it's thirteen months.

A I'm corry; thirteen ncnths, you're right.

Q So it's considorably more than that.

A nn 15 percent roughly. I'm sorry; your right.

an anr.uc1 bacis.

h

• Q That's higher than the 11.7 you indicated in your profiled testimony?

1

-_-_ll^----_.---- -, -' - "~ ----N ----~r- - ~ ' ' *"

_ _ _.... . , l f- 14,965

/

A Yes, it is, I grant ycu that.

, ()us/wb27

\

And the ne::t one is 16 percent over about a year  !

i Q

1, l

and a half. So that one is--  :

l j A Seventeen months, to bo precise. And 10 percent  ! 1 i .

I I aVarage. 6 i i

0 10 percent i'

So we have balanced out a little bit.

And then 14 months after that a 21 percent rate increase.

A Which ccmes to about 18 percent.

O And a year later a 20 percent increase.

n i A Yes. That'a ' 04, and the midpoint of the -

4 .

.) program.

j Q Right.

All of thic is based on an inflation rate of 7 porcent per year?

A .That's correct. ,

Q So at least for the first year or so it looks lika they will havs to be upward revised to reflect a higher rats of inflation; is that correct? We're in the middle of a high rata of inflation, a higher rata of inflation tIan

,j.. . 7. t arcent. I would ascune that tha 1980 rata increase that k* l'on will En requesting will e:cceed 18.5 percent based on

, ,s_ -

this table. Is t!1at reasonable?

A Hot necessarily reasonable. I don't know how long i

_ , , , ~_

._. ._ _ _. ~ _

7g 14,966 3/ b20 the precent level of inflation is going to continue, nor t) do I knou precisaly what the rats of it is. But I will i

grant you it is currently in excess of 7 percant. But that doesn't rean that it's going to continue at 7 percent, or at

the higher rate now clear through the end of 1980.  !

-i l' Q IInvc your rates historically over the past ten i

years hept pace with inflation?

A I'm not aura I can-- I think we had a number that the average rato per kilcuatt hour for the period '73

'! through '7G increased at about 6.3 parcant. I think'we d

acreed on that number a noment ago. And I just don't know N j j how closa that is to moating, or if it exceeds inflation: I

,N~- ,

( i just don't know. i Q And also on the same page tof the annual report '

i it shous that between '68 and '73 your rates increased only 1 .

i from 1.2 cents ti1.33 cents, about a 10 porcent increase in l five years. Wculd that period, a 10 percent increase over I

that five years have kept pace with inflation?

8 A No, I would say they wouldn't. '

f And I didn't catch the reference to the time period thtt you mentioned, but-- .

'i s r Q. The table on page 41 of the annual report gives

.] i i data for 'G8 cnd then again cnnually since '73.

'T -  :

s / A If I undarstand the q'iostica, or the implication, t.t lasst, it was about 2 parcent a year. Is that ycur--

14,967 O w A R3/

-j

i29- Q Yes.

A And I would have to cay no, that is ~ not keeping, , j that is definitely not keeping pace with inflation. i i

Q So historically your load growth has at least .

bran based on keeping pace with inflation? --or, pardon me;

.s your rate base? Your load growth has reflected a period in i

which your rates either tracked inflation or fell behind ,

inflction; is that correct?

A Well it's probably true; except that in the l recent five-year period, to the extent that 6.8 percent  !

4 5

cuceeded inflation: I can't ecmment on that, or what the

[ \ '

nunbers are for those five years. I

\a]

L .' O Well the table on page 10-- I'm sure your rates I '

considerably exceeded the 7 percent rate of inflation.

A Yes. Rates in the future for all forms of energy will no doubt exceed tNe rate of inflation in the aconomy generally, O Does the forecasting model you referred to have a factor in it for a reduction in people's use for, say, space haating, if the price of electricity increases?

A Yhe load forecast that is the basis on the study

,,~ has taken into account conservation.

(

k!

s . C Does it take it into acccunt with specific

( j relatienuhip to rate increanas such ac you've indicated in N_/

your rr:sponsa to the interrogatories?

7.-- _

~

s 14,968

)

ds/wh30 A I don't think I know the answer to that.

LJ MR. LAZAR: With the permission of the Board

, I uould like to let Mr. Leed do come cross and then maybe fora up a few nore questions on the basis of what I've heard.

MR. EEIGHLE: I have a problem with two cross- '

e;:aminora. I wcuid think Mr. Lazar ought to finish and

.! i Mr. Lecd ought to do his, and that ought to ha the end of it, 1

ft Chairmn, rather than taking turns.

i CHAIm KT DEALE: Mr. Leed, could you afford to I

have Mr. Lazar wind up beforo you take over?

When thic happened before uith the applicant, the applicant definsd that ena attorney was going to take this part and

\s 4

(_

the other attorney was going to take this part.

Whan Mr. Lazar was introduced to us, you know, we rather thought he was going to conduct the e:camination.

cw va find that you, too, are going to carry on, and neither i uith a definition of scopo.

We'd like to hear what you have to say on that.

Eccause we assume, you knou, you can keep this going back and forth between you on an indefinite bacis, MR. LEED: Chay. I just thought if Mr. Thomsen and Mr. Doighle could both questicn Mr. Lazar,that--

O_

CUAIRMAM DFALE: And they did. Of course they 0 di d .

(v) And I asctw.cd that your colleague wculd point this out to you. And then I pointed out that when they did Mr. Thomsen

~ *

, . _ _ _.___~~

l 1

14,969 definad the area he uns going to ask questions about, and then h}61/%31 L

he. defined the P.ccc which IIr. Beighle was going to ask ques-tions cbcut. So there really wasrit much of a problem there, especially in view of the fact that Mr. Thomsen defined his area of intorest in quite limited terms.  !

?

So I do think,there is quite a distinction between what they have done and, apparently, what is being proposed here.

Mr. Leed, do you want to have a small recess so you and your colleague can decide how we are going to do  ;

c

• his?

MR. LEED: Yes, Mr. Chairman, we'd appreciate  ;

that. .

I CHAIRMAN DEALE: Fine. We'11 take a brief racess at this time.

(Recoss)

O i

_ ~ ' , "

["''~ - . _

fla WRD 14,970 TWL/ tral 1 ,

f)\

C-1 C'IAIPEAli )EALE: All right, genticman, please come t j to or* * '

i (q

,)

IG. Ii2ED: . Mr. Lazar will continue questioning.

{'

. CIIAIPmli DEALE:, To the end' '

i

'liR. LEED: Of course, Mr. Chairman. l 2a. LALE: It's a queEtion of whether the prcccedings cnd befora the participants end.

I (Laughter.) l CHAIRMAIT DEALE: It's tempting to make a comrtent i or two about tha'-

. I All right,.Mr. Lazar, carry on. I 1

I EY MR. LAZAR:

Q Mr. Pack,1c it correct that the company sponsored 1

generating plants of Pacific are proceeding on schedule?

A (Hitness Pack) I have to say generally, yes.

O But the facilities that you are participating in which are sponsored by others of the Applicants, colstrip 3 t

l -nnd 4 and Skagit and WPPSS and Pebble Springs, are all behind cchedule, is that correct? ,

f f A I can't really answer that in detail.

O Did the Uyandotte plant come on line as planned?

s A I balisvs it did, yes.

O--  :'

O So t'ta projects that you're building yourcelf are g providit:g a more reliable contribution to your power supply 4

i tha:1 those you ara participating in?

s

____1

14,971 h%.) MR. LEIG!EE: I Uculd object to the form of the ques tion. The word "re~.inble" I think is argumentative.

CIIAIPJtiti DEALE: Tihat was your question? You can

< k.

i rephrase it, I'm cure, to satisfy both of you.

?Lo.. L A::?d1: I'11 just reph::ase it. ,

DY MP.. LA"AR:  !

f O So it's correct that the projects that your company ic building can b3 orpected to add to your company's pcrer stipply on schedule?

A (Ifitness Pack) Yes.

Q And so far the projects that you are participating n

in with other ccr.panies cannot?

(b A They hava had schedule slides, yes, {

i

O Do you believe that your ccmpany can finance the Skagit project and your other participations as shown in your f profiled testincny without Ci?IP7

A Pacific Power & Light? Yec.

I i G You can financo the projects withcut construction i <;ork in progress?

i I

l A Yea.

Q You are confident, assured, that even with the revicions thni- have centinued to be made in the cost of .the projcets, thatethey're not beyond the feasibility of your i

j j cwn financing capability?

~

A That's correct.

I i

-n.. -

ws1 3 14,972

(/

i Q Mr. Coombs, do you lielieve that your company can t

finance tha projects in which you are participating without i

the inclucien of construction work in progress in rate base?

O .A (uitness Coonths) Yes. But that doesn't mean to i'

i say that we don't believe in cenueruction work in progress in rate base, and without AFUDC offset. [

Q And you beliove that you should be entitled to 100 percent CHIP?

A I didn't say 100 percent. I ca d CWIP in rate ,

i base.

Q Could you explain to me what the difference

[ beteec 1 that and 100 parcent CHIP is?

f

] ,

A I think you'd have to take it project by project, ,

i and Gee what stage it was in at the time, and what relation-  !

i ship to net incone AFUDC is to total earned income is the inportant aspect of the financial viability.

Q But you do believe you could finance the projects I

Without CUI?? l A If it was necessary. But we're going to be able to check each one at the time as ue go through all these ya n.ra .

O Mr. Ceberley, do you feel you are ascured of having %e financing required for this project without CWIP?

O 5 (u (Nitness coberley) The assumptions hera do not hava conarruction work in progress in rate base. The

,,.y

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

9

..m y 14,973 8

tO!zir ny sh.nts that we can.

Q Okay. I'12. refer you to page 13 of the 1978 i

ME Ar.nual Report, the cecond coltuu from the right, at the .

.! very botten.  !

, It states:

l

"This legislation"~

! A I'm sorry. Page 137

• e

~!

Q Page 13. -

A Okay. Waat column agai:7, please, so I can zero 1

Ln? t

,, O The second from the right. ,' I

.t .

n)' A ,

All right. -

i l

%. O  !

V The last paragraph !!a that column says:  !

I 9

"This legislation t/ould give PGE and other .'

geex.?ating t2tilities as1urance that the cost of 6' ,

.I,.

7.onstruction and operahien of new thermal plants ,

would he recovered."

l That leads me to believe that without that I logislation you have a

• ack of that as surance. Ic your tastiItony that even u/Ahout the legislation ycu have that ,

z. Surance?

e q .A Okay. I guess I don't understand the question.

d .

T:.a quantion is

t. hat widtout this legislation wo still have >

[]

t /

che r.ac".ranca? Ilas that tha question?

0 I'm acking you.if you have that assurt.nce even

.I

- . . .---a*v ~~ '

~~]"'*~"""*~~~ '2

. . . - - - - - . - - -..\

I i

?:el G 14,974 1 l

\ withcut the legislation'

.I u A Yes. I think that the testimony before this group

.i fI 1

h Q

indicates that we are capable of building those plants, and

l it does not assume - and I'd like to clarify, I guess, this 1egislatica refers to the Pacific Northwest Electric Power Planning and Conservation Act?

O Yes.

j A So, we do not have a regional plan in our

{

projections. And we still have the capability of financing.  ;

t I

O So this legislation vould give you an assurance i

that you aircady feel you have?

A Well, I guess that's a little difficult to j answer. A dagree of assurance,perhaps.

l I have a problem with the word " assurance." I j guess it would certainly n:ake 'it easier.

O So by degree of assurance, do you mean that you have more doubt about being cble to finance the project without the legislation, and less doubt with the legislation?

A 1;o. I guess . . . I have a problem with the  ;

1 word "assuranco," quite frankly. ,

i i

O So you would write and annual report differently?

A If it's ever my job. .

O The heading on that colun.n states: " Passage of I m

Ragional Plan 'lital to Customara and Shareholders." Can you e:' plain to me how it is vital to the shareholders of your i 0

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

m

i 14,975 wel 5

[

(

company?

I

,d  !

! A No, I can't.

,b Q The word vital" coltes from the Latin word which aof i

i neans life. I'm a little concerned that if this is the thing ,

~

which will keep life in your shareholders, that perhaps some .l i explanation of the acsurancas that this would provide, and

^

~

l the assurances that you would be lacking without it, is  !

probably due. <

A I think that that's an awfully literal interpreta-tion of the word.

I personally don't believe it's vital, based upon

] the testimony here. l y/

v Q So, once again, you would write the annual report t

l i

i difforontly if it vero your job?  :

i  !

I i

A I think that the tastimony shows that, you know, t

that we can do thic financing without the regional plan.

l Q Would you prefsr to have the regional plan, though?

A I think we vould prefer it, yes. And for a lot of reaucas.

Q Would one of those reasons be the assurance that the cost of cenatruction and operation of the thermal planto uca?.d he recovere.d?

p

! A I guacs *.'n not curo that that cscurance is even

\ t in the bill. I mean I don't know that it's e:cplicitly stated.

i

' i

( *f I

~

14,976 '

Ws1 7  :

I O

'\ I really have difficulty answering the question.

6

'1 O

I'm sorry, If I had scnu familiarity with the bill, perhaps i  !

I could do it. I'm sorry. j 0 MR. BEIGHLE: I guess I have a problem with the I

i line of questions. I think implicit in the question is a

. representation by Mr. Lasar that there's any kind of an .

automatic or truaranteed purchase of the output of the Skagit Nuclear plant in tha Ragional Power legislation, and as it

~

passed the Senate there is not. ,

i In fact, there could be a substantial delay, and therc's no assurance that the Regional Power output: from Skagit would ever be purchased.

V '

O I don't know if he is aware of the provisions of ,

i that bill, and if ha is, I think the line of questioning is .

misicading, And if he isn't, I think ha cught to read the bill and than do his questioning. I think he's really ,

creating a confusing record at this point. ,

CHAIR:WI DEA 2: Mr. Lazar, at this point the

bill is not in evir'ence. I don't know the bill, personally.

1 I fon't knew the extent to which my colleaguas know of the I

bill.

But the point that you made here I think is a Icgit-ir. ate one. In other words, you're saying: Is this O)

(

%j ingislation criticci to the financial viability of the plant?

And in .'.ight of the language hora in PGE's report, the witness i

1 am ===+-N s Whw me _

• ire -*# + "*

• nel C 1 ,977 caid that he didn't think that the legislation was essential, that he perscnally would have written this differently. ,

Now, bayond that, without let us say getting into th an exercise of what this legislation covers, I think we're

. reaching a little bit. .

i l But this is recognizing the point which you made:

I

.' t Is this legislation a critical mattsr? Is PGE dependent  !.

upon this loginlation for' a successful participation in this financial progran? .

The witnese said he didn't think so, and he 4

personally uculd have written this up diffarently.

I think this in about as far as I believe we can

\ , I

'O; go with this, without hcving everybody know what the '

' i legislation is all about. '

And believe me when I say this, when you're asking what* the ctatus of legislation is, it. changes and it changes und it enanges as .it goes through from the IIouse to i

t- h the Senate, and at various Ccemitteen. And cne person might be talking abcut one variation or the legislation, and *

'; r othar, another.

So I would suggest that this inquiry about the p logislatien he called off, at least to the point you've

( '

21rcJ.dy nade. I really don't know what the legislation means.

!' I HR. LAIAR: Reading it probably wouldn't help.

kv (Laughter. )

t

. ~ . , . - - - ,. .. +e-m-- -,. ..  % . . +w...s.- er - m-

14,978

. i wal 9

/m ) <

(

CFJ.IRMIdt DEALE: Well, all right, thank you.

MR. LAZAR: It would probably be meaningless to I

introduce it into evidence. I have a couple ccpies with '

(..'

me, and could do that, if it were desired.

'4y concern, Mr. Chairman, is the annual report to I

_ i, the stccidioldars, which. in my caso is appended to the Form F ,

10-K of the Securities and Exchange Commission, stresses it is vital. And we don?t have testimony contradicting that,

that it is not vital.

And I've got at least one additional question I  ;

e s 1 (tould like to pursue. l CHAIRMAM DEALE: This is quite all right. But,

\

b

• as I say, let's try to avoid the details of what this legislation is about. You have a pretty good statement right '

I i

j befora you that };ascage is vital.  !

Go ahead.

BY MR. LAZAR: .

i I Q Mr. Coberley, do you have a copy with you of the l I'.

l  :  !

! connon stock prospectus of PGE dated February 27, 19797 i i

l ', A' (; fitness Coberley) Yes, I do.

" O cn page 18 of that, in the third paragraph, under i

/ ,~ " Proposals for Reallecation of Federal Power," the closing contc:1 a says:

"It in balieved that this regional guarantee 4

trould materially improve the credit rating and

} .

n, n ,---e - - - . - , , -

14,979 wel 10 s

aarketability of securities issued to provide funds

~t w) funds for construction of such plants."

i b I read that as indicating that PGF, feels a need O .

to it: prove the marketability of their securities.

i Do you 4

agree with that statemant? '

' f A Yes, I would agree with that statement.  !

1 Your securities are not presently as marketable Q

as would be desirable?

A That's right. I think that's right. I think the 6

conpany would like to improve their bond rating. So I bO11cve that is a true statelis.t..

I'd also add, however, that the evidence in this V

f s, testinony indicates that we can finance it without this ~

t plan.

l O So your securities arc adequately marketable, aven without the plan?

, A Yes. Again, as you realize, it's a matter of I.

coat, too. Tmd an upgraded security is a lower cost security, v.hich in nico for overybody concerned, I guess.

{ Q Mr. Olson, would you regard the passage of this legislation as vital to the financing of Puget's portion of h -

i the project?

! A I don't think it's vital at all, but I think if 3

%./

) '

t'..e bill vero to pass it would aid financing becausa it does

, j..

make it cheaper, as P.r. Coberley pointed out. We would be .

l i

, - , _ - . - - . . , , ,en ,,,.w.-.. , _

.  % -w--

14,980 uci 11

[m re.rk-9.ing AAA securitics at a much lower cost than the

\p ,l i

'v cur 2nt Daa cecurities, for instance, and that's a benefit

.i

>l to customer and stockholder alike.  ; ,

ll  !'

l The customer is the one who would really benefit, those that wculd ultimately receive the power from the plants, because the plants would be substantially lecs costly, and l I

it uould benefit the rate payer immensely if the bill  ;

1 i

ha?pened.  :

We have not forecasted the passage of the bill in cur procentation at all. What you see here is the ability to finance the plants abcont any regional bill. I t

But I must agree that were the bill to pass, it

_- f ' uculd benefit overyone in the region, particularly the

' ragion?s customers. i I

O Eut it is your testinony that Puget can finance *

ita entire generating program in the absence of passage of

• 8

! the bill? -

2 ,

A Of course. We've not assumed it. That's what

wa've been testifying to for some three hours here.

-l 0 And that includes not only Skagit and Pebble Springa and UPPSS-3, but also the other eight projected l I

nuclear plants which appear in the prefiled testimony?

4 A Uhich appear in the prefiled testimony. The prefiled testincny, of courso, covers the total period of twelve years, through 1990, and during that time frame other e e. =m.*m _ *s._- .

~ n .m.-- ,e a,.. -

14,981 v.1 12

'y'j plants that are predicted to coiae in cervice well beyond

i d '

Sharit ara showing up in that plan.

i So it'a a total plan for the conpany for that

(

l?.-year period.

l

. Q And if you ran into cost overruns on some of these other projecta similar to what's happened to your participation, i

in the Supply Syctem Projact Number 3, would you still be able

~

to finance those projects?

A We're not looking for cost overruns of the ,

raagrsitude that wa've seen in WPPSS, for the reasons that wa discussed before lunch. .

Q So that if those coct overruns were to occur, you i

()-

~ ,

fec1 then that maybe you might not be able to finance all j j of thece projects?  !

A That's not what I said at all.

I thinh I said that, if you recall , that any ccot overruns impact on the ccmpany to the e:: tent that they must raise more funds to cover those cost overruns, to 4

finance.these coat ovorruns, which does raise the parameters thct are built into this particular study.

It veuld cost the ratopnycr more money. We'd .

A hava to raina rates beyond what is projected in here.

I think I cico mentioned that as well as the g otOtr.

N

, O Let me ach my previous question again, and try and 4

t e

. , . - - -aw....r .=.g%,e - ..r , ,. ,. -.. - .

14,982

/al 13 q

) get a yes or no, or :aaybe an answer from you.

~

V 4

Is you ran into cost overrunn on these other projects similar to those that you have run into in your  :

th participation in Supply System Number 3 project', would you

l he able to financ

t those projects absent the Regional Power bill? i l

A I think I've answered that question twice, quite adequataly, Mr. Lazar.

The ansuor is yes. We feel we can finance. And wa aren't c:<pecting the kinds of cost overruns that occus., red in TDPSS.

. It's not a yes or no answer. It can't be.

N i

j Q Mr. Pach, do you feel that your company can finance its portion, absent the passage of a Regional Power bill?

A (Tlitness Pack) Definitely, t

Q So you don't regard it in any way as being vital?  ;

A (Shaking head negatively.)

MR. LAZAR: Dces one of thesa (shaking head) get l

I in the reccrd?

4 WI"niESS PACK: Ho.

BY MR. LA"AR: .

O So you can't need thc assurances that would come

-? ca pasange of Phe Regional Power bill?

A (Witness Pach) No.

.,.v.--.w-+

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

- =--

14,983 ital 14 ,

C

, ( Q Uculd you prafer to finance through that method,

< O rather than that shich you've , presented here?

i 1, i

. . A Definitely, yes. .

Q Mr. Coombs, does your company require passage of i  !

a regional pcwer bill in order to finance its participation, in the projects that you've listed in your prefiled testimony?'

.i A (Mitness Ccombs) No. 1 Q It is not vital to your shareholdars?  !

i A

Ilo.

l

MR. LAZAR: I have no further questions.  !

CIIAIRMAU DEALE: Thank you. ,

i Mr. Stachon? -

MR. STACIION: Thank'you, Mr. Chairman.

BY MR. STACIICH:

Q Mr. Coberley, Table 2-6 was prepared by yourself, in thct correct? It's on page 9 of the attachment.

A (Uitnesc Coherley) Yes, prepared under my  ;

supervision.

, Q Okay. The initials, ICT at tha bottom represent the individual who prepared it under your direction?

A Yes, that's right.

f .Q Uho 1:ould that be?

A That vnuld be Keith White.

O g O Ifa works in ita Ravenue Requirement Departmont?

s A Yes, he does.

F-

-__m - -- . ..

7-. - + ~ ~ ~ . ~ . , .

14,984 val 15 C

( 0 Ncw, I take it you5 re responsibla for the input V accu:ngtions that appear in the next two pages, that go into -

i the figures in this table?  !

' O '

A Okay. The input assumptions in some cases are l

i the responsibility of other people within the corporation. ,

t In terms of suggesting assumptions and asserbling

' h ascumptions and making sure that they're coherent and i

censistant, that's my responsibility.

l The point I'm making is that sena of these are End WEL 7 reviewed by peop'e who would be more directly involved. j i Q Okay. I notice a rather substantial decline in

intorsst rates as an input ascunption out into 1990, and I

. i

,{' wonderad what that was based on?

A Okay. It was based upon a decliding inflation. ,

1 T; tat'c just about it, in its entirety. I previously

( enplained that wo had tied our intore.it rates to an i

cconometric forecasting model, this Wharton model. So there

! are probably como other elements taken into consideration  !

I I i 4 in the Whs.rlon model in the forecasting of the AAA interest ratos.

I i Put inflation would be the primary factor.

I g- ., O Can you describe the -- was it the Wharten model?

A I can give a description of it. Okay, let ne . ..

. hoar with nca juct a minuto, hero.

This is a model that is used within the company to 4

t I

r

.-. - ~

.L 4 , *J U 3 l Wel 16' .

/" N

( ganarate some a::cgenous variables which do go into our load I

)

rorecasting medels. It is a product of Wharton Econometric r!

l

!}I Forecasting Ascociates, and it is described as a large-scale lj h -

computer macroeconomic model with input-output to make

-)

i detailed 1cng-run simulations of the U. S. economy. ,

It's tables and tables of numbers.

I

" When was that model prepared?

Q I CHAIRMAN DEALE: Excuse me. I just wanted to get an identification herc. Thic Wharton model, is this i

associated with tha trnarton Business School, at the Univar-

. city of Pennsylvania?

WITHESS COLERLEY: Yes, it is. ,

\

i-

[ t I don't kno;r the dato of its origin. It's >

, conething which is updated annually.

BY MR. STACHON:

0 And thtt is the 878 version of the model that you used?

A (Mitness Coberley) It could be the '77 version, e

i I would guess it was the '70 version, but I'm uncertain.

Since we prepared these ostimates in April of this year, I baliove it la a '78 version of the model.

e I might alco add that the decline in interest

rates hac previously been tactified to. In other ucrds, the c

pectations of other econonist -- I'va forgottan the name t

l V} l of the document that was presented earlier -- also indicate--

I

14,986 .

wel 17 i

O  !

) the we.ekly acenenic package frca chemical Bank -- also l indicatac a drcline.

I

, Q Dut that una prepared in Ju3.y of this year, correct,; ~

^, O ,

and that was not used as a basis for your calculation? 4 l'

A July 31st of 1979. It does verify that it is not t

i

unreasonable to e

<pect the interest rates to go down.

O Any other documents along this line that you used to arrive at your input figures regarding interest rates?

A Noe Q Okay.

I tranted to make sure I understood sor.ething that i you said earlier in response to a question by Mr. Lazar.

{

/

b He asked about what would happen if you used the return on equity figurcs, say, of 14-1/2 percent, which is what the company presently is requesting before the Public

! Utility Ccmmission, and I thought I heard you say that what f u

that uould do to chango your calculations would be to I

? incroace your bond rating and, therefore, lower your debt.

I i Is that a fair characterization? I i

A It's a logical conclusion. Increasing your return on equity to 14-i/2 percent would be a better financial ,

indicator and, concequently, a poccibility for upgrading of your hendo and reduction of your interest.

O s j Q It's not a cartainty, though, is it?

l v A Mo, it is not a certainty. .

o k

vol la 14,987

\

d Q So if ycu got the 14-1/2, if the Commissioner

.)

authori 7.d 14-1/2 percent that the company is. currently 4 1

, ragucating, thero is no certainty that PGE's bond rating will improve?  !

t A No, there's no certainty that it would. It would i

! be a utep in thu right direction.

, Q Iun't it trus that one of the factors relating ,

to the comper!'s requestad 14-1/2 percent is the increased percaived rishiness relative to the Three Mile Island i

accident?

\,

A Mo, I don't believe that is true. There are a i nwbar of reasons for it, one of which was labeled " Nuclear

/

(

s Rish," but it uns onc of six or seven reasons for the I

suggestad increase in return en equity over the presently i

authori=cd. i Q Okay. So, whila it may be a reality that the raturn on equity will be greator than that assumsd for the purposes of those tables, and therefore increasing costs >

i without a cartainty that -- vell, to the extent that your bcnd rating nay not improve, even with an increased rate of r.nurn, or return on equity, that could increase the cost c3 accumad in theca tablos, could it not?

V]

A Irc you asking that if wa would adjust one of

O

(- '

the arre.pbienc upward, without r:aking any cenpensating i

I l

adjuctncats which could cccur, whether or not that'would  ; f I

@9/)

1. + k>%%h IMAGE EVALUATION

[4 #

4f k/f7p \},f [/// TEST TARGET (MT-3) (([//fKNNY f(,e

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l.0 Ee M

't [3 E

i 52 e=

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150mm #

4 6"

1. 8 4(f>,,zzzzf? < 4 v;

+k)9 b IMAGE EVALUATION (([//f 4'#

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, p %+h g/ TEST TARGET (MT-3)  %

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l 14,988  ;

l wel 19 '

' {

I g cau:a a differenca in the results in these tables?

U Q Yas. i f

A 'I think that's trus, yes.

{ ~

Q,~ ,

Q Okay. You would characterine your sourcos of j ,

funds in the table as being a raasonable estimate of the f i

i II-year period, 1979 through 19907 y

A Yes, I would.

C Out it's possible that thinga cculd be a lot worse financially for the company?

• I .

A I guess anything's possible.  !

i O I wonder if you could look at page 30 and 31 of PGE's annual report.

U A Okay, I'm there.

Q tio had a pretty bad year in 1977, didn't we?

A Are we locking -- e::cuse me -- was it page 30 and ,

.i 31?

2 Yes. 5 t

• 6 A Are we focusing on any particular line?  !

Q Actually the line, " Earnings per share." l

• A Okay. l f

Q I*n sorry. Can we refer to page 19? That will bring tr. ora into focun what I am going to ask.

A All right. I'm corry. I've forgotten your q'.13ction ncw.

\

! O Okay. 1977 was a pratty bad year, wasn't it, for i

e

.w-,

.,-r --.w.~.. -

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-n ,,,r-...,s,,- .,,,.,-,,,--,,,,,-~,--,+ey---y ,---n-v ,,-,.,,,,,,p ,,m,--

14,909

2 vsl N Fcutland Canaral Electric?

8

< Q,.) A There ara, in the 1977 results, the shock of the ,

, d cught, and it was not good. l 6l i

h  ; O It decreased PGE's not inccete over 1976 by almost

• 19 percent, didn't it? Would f ou accept that figure subject

{

E

. to chech? '

. , . I

i ., 5 A .Okay. Yes, I will accept that figure subject to y  :

check.

4 O And it had a rather (tamatic effect on the  ;

i carninga por shara, did it not? I '

. .e t A Yes, it did. i Again, I'd like to po.'.nt cut that this is a one-

) tine shock event, and it's really kind of difficulty to ,

l cxtrapolate thic type of thing out c.ver 12 years. I would ,

n i say, in fact, it's unreasonable tc e:n rnpolate this kind of thing out over 12 years.

O Uell, you'rs aware of how your l'ower Planning  ;

Diapartncnt makes projectionc regarding the availability of

[ .

hydro povar in relation to resources out inte '

. he future?

A 39 year average costs are we tanI.ag about? When icu cny pcwsr planning, I:n not with you, I ;uess.

a-Q I'm talking about for the purpoems of planning p resc trcon out into the futuro.

t

• A Okay. If this is the installa : Ltn of plant, okay, i .

, _y , ,, , , .-, ,..y _ . , _ .,-m,,. , , . - ...,,y

-- ._..a i 14,990 tec1 21 ,

' \,

. yen. I have cera a'!areness of that.

Q Okay. Do thay usa the critical water assumption?

e' t

~

J A Yes, tha~v do.

}

O And the critical uator assumption for that  ;

i purposa has inheront in it an element of conservatism, does l 1

't' '

it not?

r' i

'[ A Cohnervatism along what linen? I'm sorry.

l O conservatism alcng the linos of how much power l j thora vill be availabic from the dans.

'I A Okay, I understand you. Yes.

? .

1 Q Would you cgree that that type of conservatism i i

2 '

i:n't built into th's financial tables?

_) '3 t A No, I wou.'_d not.

a[

r 4

' h 0 Would ne':7 i i i il A no.

'~

O Can you elaborate why you do not feel that way?

' f' t e ,

A Yec.  !

7 We had irdicated acrlier when Mr. Lazar questioned

r T te:ch of us as to the basis for our powar cost estimates, and.

i.

l

} I went to indice.to chain that ours is based upon a 39-year of n/cr go coct, which factora in the bcd years and the good S

Cv if g

yca:s, through an avoraging technique.

i! So inheront in those estimates ara' water years

( ouch as the ono we'v3 es:perienced, 6here it is reflected is in tho rev:nuca, chay?

l.

i

14,991 l

! Val 22 -

l f

Q Tbil, the effect of a year like 1977 scraewhere in u cno of thecc yaars in the tchio could have a pretty substantial; eff.cct, could it not?

0  ; A A subut_ntial effect on what?

f t ~I .

! O Cn not incom, for instance?

l

{ 7. Okcy. So at this poinh in time what you're saying -

'] j-is that if w:h, instead of using an averaging technique, if i i

i wo just discretely hit one of thesit years with a bad water I

year, cr.d th.m offsat - and the othar years had better than

^ 4'  !

average wate:: nad consequrmtly inerensed the internal funds j gaa. oration -- :htt in that year whero the bad water year Icccurred,tha.: would have an impcot an net income. l.

' i.

.i I (ucss what I'm trying to say is that if we're i

i going to dav:nta trem the averaging ti:hnique, then we would ,

i.

also have to adjust other years' power mosts, so that there vould bc 2nt:0 pcuar costs. Okay?  !

What that would do, in the y mrs where you had i I

lovar p /sr coctc, would be lower the revanue requirement,

'e2 okay?

t- i In a year uhere you had extrem.'.y bad power costs, then * . tar ravenues trould jump up. But en uvarage what you c, 'l Noult 'jat is instand of an average situaticn, you would get 4 j j ccn dich waro higher cnd cosa which were .touer.<

O b  ;

] . ,

Wall, uhat it, thero that would ko.ep you from 4

unf :q a critical water assumption throughou': your forecast i

6~ <

I.

= - - - 9, -+yym-.,,- e e g-yei y , +. .m,,ep,,ean- - gw. "T'w 9*WP9****MNM"' T-*TM'MW""W'N9 -'T "--T"@="rFWe=-w' --'T-W'"-9'5 "8F

wol 23 14,992 O

/ for ev2ry year, and thus --

A It's unroalistic. It just doesn't happen. It i

decon't happen evary single year. l f 'I O Uell, see! my probics is, if you're telling me ,

I it'c unrealistic for financial planning purposes, I'm not l jI i '

,i sura why it would be realistic for the purposes of project-2 ing recourcas?

~

A Wall, thero's a differenca, thst difference being .

at if you do not plan your resources on the basis of {

t critical water, and you have a critical water year, that -

l r:9 = Esnts a covera energy shortage to this area. {

Ycu nre just physically not going to have the j

pwj capability to produce the energy.

Well, it also creates a severs shortage of i O

I earning , does it not?  !

i.

A And that'n factored in hero on an avarage basis.

The other thing is that we'ro assuming here that it would irpact earnings. A botter assumption may be that ,

it would i:: pact revenues, chay?

Eut thara vould be recovery of those higher costs .

in ECV2nuC3.

Q

~

, 0 The ccupany is still, in 1979, achieving the ,

i ': crn.o earning: that it did in 1976, isn't it?

s That was

] A Let z.o got back to that page again.

pass 19?

l

i uc1 24 14,993 i

O Paga 19.

A Ho, it has not. 1978 is an improvement over 1977.

t

' O How about tho first six months of 19797

' O .  !'

A I guecs I would have to . . . I don't know that I i

hava that with : e at this point in time. l l

? - Do you maan just - ara you just catsparing the  !

I '

first and sacend qu:c:ters of '78 to the first and second ,

t c,r.artars of '79?

{

cnd ~4 L G Q Yes, thi,': would be the comparison I'm making. f A I don't have quartarly estimates. I can tell you f that for the 12 :utaths ended June of '79 that it's about I

$1.00 conpared t.1 $1.39 for th.e same period in 1978.

s .

'o So on that basis I would say there is an improve- l ment. l Q h S1.39 you're referring to does not take into acccent tha 1.ccounting change that the company instituted in 1970, do! : it?

A :fo, it does not.

Q Eo taking that accott.nting change into effect, .

~

1hich the ccrpany chose to do is 1978, the 12 months ended June 30, 1979 are utill not on nr with the 12 roonths ended

(~'-) Jena 30 of 1978?

s __-

12 No. It would ho $1.37 for the 12 months ended

) Cunc 30, 1979, ccrpared to $1.74 for the 12 raonths ended

'T Ju:.7 7. ) , 1970. Ccning up. Ir. proving.

t

, - . . , . - , . , - ,w , - - - --- .,-.,,.-,...~m.,,-.--4,m -

w-e.

14,994 '

\

'> G And likawice, the ai:: months ended June 30,

() .

] 1979 is not en a par with the si:: :sonths,first half, of I a .

9 Juno 19707

' h '

A I don't have a first and second quarter. I've i

\

only got 12 months to date figurcs. So, I'm sorry, I can't 1  ;

an:ntar that.

1 1

, )

'f MR STAC20N: With the Doard's per:sission, I Would lika to hand the witness the Pogtland General Electric I

1979 Sacend Quarter Report to Stockholders. )

1-(tocurent handed to Witness Coberley.)

f

[ D'1 ICR. STAC!!ON:

g a O How, with that docu:nent are you able to answer U  !; the quaction?

8 A Yes, I am.

i For the fir t two quarters of 1979 tho earnings pur share arc $1.12 comparad to the first two quarters of ,

',' 1979 they cro -- whoops, am I.on the wrong line here?

Ch, okay. They were $1.02 for the first six months of 1973. Ncu, that does not factor in tha accounting i

chance. .If you factor in the accounting change, in 1979 ..

it's $1.12, end 1978 la $1.36, which is not -- the first O) 31:c t*onths of 1979 aro not up to the first six months of

' 'l 1970. '

O And either of the 12 imnths endad June 30, either '

1979 or 1970, actually are nowhore close to ths earnings that

.- , - -- --We

14,995 4

ust 2G l '.

'NJ I

'(u) ucra cttained by the company in 1976, is that correct?  ;

A Dy quarter, again? Because I don't havo - ,

I j

h Q lio, 1976, year end. .

A ilo, but I think we hava a little difficulty cc= paring yaar-end figurea, because we end up factoring out the heating sales at the end of the period.

lI :l I

i

! I hesitato to make that kind of cross-time l  !

' cc=paricon, quito frankly. .

O Is it cafe to assume that '79 earnings will not >

Or can you not make that -  !

be up to '76 carnings?  !

4 i

j A Up to '76 earnings? f l

g Q Yes,

A Let me have a :ninute, please.

I

- I think our current projection is that they will be bottor than '78.  !

1 Let me icok again here at '76.

U (Pauco.)

And they may not be as good as 1976. So probably -

imprevad over '78.

O You say they r.ay not be as good 'as '767 4 A I can't 50 certain at this point. .

4 C*)

Q .oso t the cor.psny have a projection?

A The projection is here. Yes. There is a project.icn hora in our fi2ing.

0 What's thu projection here?

4 14,996 '.

,...t ey

• t I! O>

\'

l A II.: ha.u :.:t inccs , $65,927. Thai:'s cn Table 2-6.

t '

on an ,aarainga por charo bania, they tray not he

. t ca goed ao '76. i O ihn not incomo will bc hir.iher, acccrding to this

.: I. <

!j; i '

grajection.

s

4 ii* 2m. LI?=ir22Gra:

l Mr. S tachon, wi^.h your indulgonce,l <

thic ic hothering Cr; c'acnt this dincussien, ced I'd like for

72. Ocharley to hnlp rn out hara. l I that;ght I heard you cay, Mr. Ccharley, tha first i

I sin nenid : ,2 870 [ar charo earninga wcro $1.12. Aa I l ,

! 00 calling ycc carrzctly? .

. WIT.iUSS CGEEFJ,0Y: Yes, cir, that is correct.

i

~ i HR. LIMF.1DEbER: Atinittadly this is ballpar'cing i

thine;c, but hcir grocaly off : night I bo to take that $1.12, .

j "citirly it by 2, and got $2.04, cnd cc:tparc $2.24 for '79

! t d.rh $2. 27 f-: r ' 7 "j ? Is that a ridiculous way to look at it, i,

'I c:: not?

l' i

UI M CS CCEdnLEY: I hecitato to gross a figure

[

1.'.h'a thee., Lacausa car projectien; are genorn11y with no:no i

I hax11cdg.S of tho lect ni:: Incnths.

!* 10. L 27.nSET.G:R: Okay. But if th2 last half of 2

p &a ;* car rc1:oaterl the first hal2 cf the yar.r, it looks to as t

1 4

s a3 Cic';g'n fren, the nu:fara you' to given that you trould ho I

cl W I'.~ , #d') '76 3 0".* C h 2 r fj P a :*n i n g S , t'a1033 Z'rt miO'.UldS.r3tanda D:7 h:N yott 2002 bCoka.

i 9

. 14,997 i ual 28- i 1 j s

4 UIT1rdss cc3ERL.TI: That's about right.

G.

D.. LIlmt:BERGER: Okay. I'm sorry, Mr. Stachon. ';

,  ?

I just wanted to get that point cleared up to make sure what  ;

O I was hearing.

+

Wa", fis I, .i

• l

~

l I

i t

4 m.-

• 9 O

j i

=%m wg 14,990 21:.ra > r 'c .

. chf '.1"bl Et !R. STACHCN:

(_)22 0 If wu take the first six months of 1973 'and make tro,-and double th?. first cix conths of '78 the way we did, .

i O.  :.duittedly with car.o hoaitation,for 1979. we ecme up with k  : figure of $2.72 for '78.

MR. 3EIGIILE: I'm going to object to that, l 4

because I think the first six months of '70, when I look l

chia financici ctatement, at a one-time 35C.a. share addition

reni:illed ravenucs that will never again appear and didn't

uar in any previonc year and you can't double that. I  ;

'S irou're going to doublo anything, you have to double ,

t i

th; carnings per sharo for the first six months without that ,

' i cna-cine ncn-recurring 350 a share. I i

!'a. STAClio? : That's fair enough. j i

BY MR. STACECN: 4 Q If we dcuble it without tha one-tima 35c I

ad j uan ' mont, no still ccmo up uith over $2, do we not? l f

A (Witncan Coborley) For 1970, yes. 1978 has

. .cao a"ditioaal pcwer costs in the last half of the year p..ich vould a:ake that typo of grossing up inadequato at tP.'s noint in t!.uc.

CF1.ITdD?i DI:ALI:s Mr. Stachon, let the figures L)

. c- . for thtmuelvru. "f sesaebody wants to double the figures, 2: . a. If coachody wante to take a quarter figure and multiply in by ~ cur, un11 that's all right, but that's the person'a .

14,999 A

I

,L7 (agb2 huninnsn. And I don't think wa need to get involved in i a multiplying those figures by two, four or whatnot, you know, i

f, they speak for thenssivos.

{

1 Ma. STACI ON: I just w:nted to clarify.

l t

C:IAIPJtAM DEALE: That's all right.

i You have an accounting adjustment that was -

MR. STACRCM That was inappropriate, shall we l ny.

l' t

BY MR. STACHON:

i O Mr. Coberley, is it safe to assume that the ,

impact of the drouriht in 1977 is still being felt, as far as the financial aspect on the Company?

s_ -

A (171tness Cobarley) I think the -- the drought t

in '777 l

0 To conc cttent it is still impacting the Company's carnings? I l l

! A No, that shouldn't impact the Company's earnings .

k in '73 and '79, those were costs incurred in '77, they are l reflected in tha dollar line. That is an impact of the drcught, I guess, that you see there. >

O tiell is it sa"a to characterize 1978 as a recovery

()) parica from tihn '77 figures?

tm. BEIGnLS: Your Honor, I've been very patient 4 \

I really think we're beating scae minutae to death on -

earnings per share in last year and this year that really has

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

15,000

i I

M /cgb3 little relev:nco. 3.nd I avoided objecting until new, but it

( _) ,

has been going on for ao long that I must object on the basis of relevanec and natoriality.

1O I MR. STAC! ION: ITell Mr. Chairman, I think the pointr I'

i I'm trying to make is that there's a possibility that the

{ financial figuras as projected in the table may -- ..

4 CHAIPdQN DEALE: Which table now? t MR. S?ACHOM: In Tablo 2.6. - may he impacted i t g:catly by a year sinilar to 1977, and that the impact may l l

bo greator than just in ene year.  !

I CHAIPRAN DEALE: Your point is that the drought '

~A) of '77 has had inpacts in '78, and perhaps in '79 too?

MR. STACHON And I don't see any reflection for that in the Ccapany's Table 2.6. 4 i

4 CHAIR!!AN DEALE: Help me just a minute. What is i the paga?

t MR. STACHO!!: Page nine. ,

t 4

CILTIMIAM DEALE: liow as I understand it, the ,

witness is saying that thore has been no impact, the drought i

cf '77 has had no impact on, nay, the '78 or '79 figures to data. I believe this is what he has said.

() Mov, what you're suggesting io -- would you t

c::icnt me on what you are reaching for on thic table on

• v pr.?t nano?

MR. STACHOti: My point is that the company, in my i

i

(

15,001

\ \

/~'s l

' (Ns' ~

b/agb4 cpinion--er at least I'n trying to find out if the drought

-)

had encugh impact that the Company is still recovering il from that.

CD -

CHAIRMAN DEALS: I see.

{ MR. STACHCN: And if that's the case, should an

, occurrence like that happen some time during one of the -

i

~

years projected in this table, than it could throw into a ,

I -

different sort of light the figures in the table. r -

CHAIRMAN DEhLE: And I believe what the witness i

is saying is this drought in '77 and the impact of that has  !

t i

bacn c:tponded, there has been no effect in the '78 figures or

• l

( tho '79 figures. j b '

Now let us sugg9r.t that there was a drought in

. - '. ~

s

.ono of these years, is your point? j

• e- r .:

! MR. STACHON: I think the witness testified to '

s e that. But I think I rephrased my question and that that qucstion wasn't ansrered. That was the point at which '

fr. Ecighle objected.

CHAIR 11AN DEALE: Let us carry on with the questions, Mr. Stachon.

BY MR STACEON:

() 0 In it cafo to say that the Company was recovering l

in 1970 frcatha effects of tha drought in 19777 g

l s_,/ 3 (Uitnacc Cobaricy) I would say that within the 1975 Tiguroc, thoro are no diract impacts from the 1977 drought.

i'

15,002 2;

L;h/rc;b5

( So, cines '70 was not a drought year and the '73 figures do

] not r.anifest drcught conditions, I guess you can say it was I

recevering. Det I would say there is no direct impact. The

=f

'77 porcr cocts havo th2 drought costs in them. That is why  ?

t  !

i' -

thera is a dollar line in 1977. l

. t'

, y Going now to that year, there are no residual i pmier costs or anything like that to carry forward. .

I 0 Okay. Let's try it this way:

,i One of the input assumptions for your Table 2.6 I

~

is an annual inercaco in net income, 13.93 percent.

i A No, that is not an input, that is a result figure.

I hope that in indicated there. 1 l

O No, it is not. PhD title is " Input Assumpticns."

A There should be a note -- i e

! O I see, note three on th9 following page explains 4

the t, doon it not?

A Right. 'lec, sir, so it is not an input assumption, i

it is a resulting figuro.

{

O That clears that up for :ac.

MR. STACHCN That's all I havo. t CHAII!AN DEALE: Thank you, Ifr. Stachon.

( ]) l Mr. Thonsen or Mr. Doighle?

j HR. BEIGIIL2: I had a couple of qu3stions.

j PSDIRECT E7h'tINATION BY PR. UZIGHLE: '

O Hr. Coombe, in rouponn? to a question on CUIP'in

15,003 1

4

..L sh6 rate bacc, indicated that althcugh the financial projections

( ~'

t included in thin record did not include a larger allowance, i

that thay cortcinly were going to, in the future as the need arose, put in for a higher allowance. Do you recall that ,

answer?  ;

A (Witncos Olson) Yes, I do.

}

! l' 0 What is Puget's position, your position, on that particular question? i A Uo think construction work in progress is very i

helpful te the company and we would, in future rate cases, ,

contend for a law er allowance than we got as well. l Q Would this be conditioned on need at the time?

y<' ,

. A Probably. '

f.

Q Butisthefinancingdo-ablewithoutanabditionall alicwanca with construction work in progress in the rate base?

A Yec, it is. I testified that our present '

financial projections do include the method which is largely offect in the laat rate case, 8/10ths of 1 percent return i on the rato baco, on construction work in progress in rate '

baco,that are in thoce figures and were allowed in our last -

rato cas:. And as tho need arose, we could ask for a larger partien of CMIP. .

But I also testified earlier, I believe, that ,

na uculd to ablo to finance these projects without CWIP in rate baca. Thoro would be other changen, but it's a

' 15,004

(~

\s_/wrh?agb7 t.

do-abic prograr '

' (;) '

Q Thera have baon many questions about the 1977 e I i water year. Do you recall the 1973 water year, which I recalli I ()

i was the worot of record?

', A Well I recall a water year being a lot worse than !

i

~

-- c poor water y:ar prior to '77. 1 Q Do you have before you Pugot's Annual Report? j

', A Yea, I do.  !

Q Did Pugot, for example, in 1977, did it require ,

i l

any emergency rata relief or anything of that type to get  ;

through the lov water year?

) A No, it did not, j

>_s/

t) 0 Uhat happoned to its earnings? (

l A Well the earnings per chare went down slightly

)

fren the carnings par chare of the prior year. ,

Q Frora 192 a share to 1887 i

A 192 to 138 a chare.  !

I f

I might point out that's on page 38 of the 6 Annual Repo-'

i Q Mr. cobaricy, in your ten-year summary, you '

faclude on pago 31 of your Annual naport, a ten-year earnings

(}) por chsre utsenry doun naar the bottom of the pace.

A (Witnose Cobarley) What page again, please?

s Q Page 31 of your Annucl Report. '

I notico that in the last -- 1973 your earnings

. 15,005

-s -

-b/agb8 dropped 7C a share frca the year before, in 1972 they were ,

211, the follouing year they were 204 and then in 1974 they .

i vont back up to 217 a share. [

( l A Yes. 5 i  !

, O Apparontly you weren't impacted quite as much I i'

in that particular drought period as you were in this recent period? ,

i A Yes, I think that's evident.

O Mr. Coberley, the Wharton modol, is that a l l

nationally-known econometric taodel for the U.S. economy?

A Yes, it is.

Q It's based at the Wharton School of Finance i

\_ .

i

(_ - end mado available for people at a charge, is it? '

i A Yec. ,

!!R. BEICHLE: That's the only redirect I have.

CHAIni1A!T DEALE: Fine. ,

fir. Linenberger?

EXAMI!iATION DY THE BOARD BY !!R. LIITENBERGER:

O Gentleraen, parhaps you can -- well, I'll ask Mr. 01:en. Explain the difference in definition, if there is

(]) one, hetween construction work in progresa and AFDC.

Conceptually how'do they differ, or do they?

T A (Witnoac 01 con) Moll yes, they do, and very cubstantially. Construction work in progress is allowing

, 15,006

\ /

b /agb9 plant: such as Skagit or any other major plant that is under it construction into a company's rate basa to allow an earnings

( return on the invostment in that construction work in progress; hO When that is allcwed, there is no AFDC typically allowed, t

thernforo, the earnings that a coupany receives are cash t

l' earnin73 that it can use to invest in an additional plant or  ;

i dollare that it does not hcVe to go out into th3 capital ,

i. narkets and raisc for its construction progra:n.

AFDC, en the other hand, is simply an accounting 1

cntry that in used to charge or build up the capital invest-acat in plant with an offsat to income. So it's a book-kauping credit incomo that maintains a company's carnings N l

,t i

\

w por charc eccentially at the lovel they would he at if the I

ccmpc.ny tmre not involved in a construction program. But it does not gonarata any cash at all, it is phantom earnings, I gucas, and it goca to the fact that security analysts that look at a company tend to put less weight on the 7.FDC portion of onrningc than they do on cash earnings of a coc1pany. So tha quality of carnings gets into the question.

O nov there has been mentioned several times in the inst day or to about offasta to this allowance. What i ic %:: aignificanco of this?

I, Hall, in,the Company'n laat couplo of rate cason,

• w tare allovad -- as unro, I think, Pacific Pouer and Light r.d I holicyc Unshington "fator Power, ar well -- from tho l

I 15,007 l

'd i;

t

\s urb /agb10 Wachington Cc=uission a partial return for construction work ,

l,  ;

in pregress.

The construction work in progress was allowed f

() in rate base but imputad into operating earnings or, as the j

}

t

,1 way the rate caso uorks, as an offset or a reduction to the l lj t j

' actual earnings allowed the Campany -- was an operating '

ince=e offcat, which largely took the CHIP away and left I

just a siiver.

I In our last rate case, we were allowed to earn t 2.220 ct the rata of 9.3 percent on rate base. And AFDC offset I was calculated at 9 percent, which left a little sliver of i

j 8/10ths of 1 porcont that represented real cash earnings t

)  !

to the Ccmpany.

O So this offset offectively reduces the cash l

generated from this construction work in progress enloked's  :

I in the rate base? i 1

A Yes, it does.

f Maybe Mr. Coombs can expand en this.

O That's been encugh for my understanding of it l I

l at this timo, and I'm not trying to make a distinction amongst*I the companica here, I just wanted to have an understanding i

of thoso termn.

, ())) I ur.nt to make sure I'n right.

A Is that your understanding, Mr. Coombs?

's ,j A (Ultncas Cocabs) I would like to offer one

. I call it lay: tan's term, and that is whather you are l

i

, 15,008 1

'(_)/agbil parmittad work in progress in rate base with no offset,

. v--

}; which as !!r. olson deceribed produces cash, it really en the ilj' ArCCC 10 a defernent off into the future and it adds to that ,

l

plant cecount in which it can ba earned ctn after It goes in- t I

.  ;

service. So it's truly a deforment of a financial obligation : ,

i

)

1 l and what has to be not immediately by other means and, i l

1 ,,

2 '

thorofore, it's c recognition that someday you've got to r l l i i '

1 pyc for it. Noir it's a question of when. .

)

anel<c i

]

i j .

l i t t j ._

J  ! i

( .

t g l 4 4 l

I I i

l j

1 j I CD s.

1 I

i ,

j 1

..cy- , , - _ . , _ _ , _ . , _ . 7._,,,_....-.,__ ,_...,._-.__.,..r, _ , _ _ _ , _ _ . . . _ , , . _ .

.e w -e j

j) 15,009 i

O TS2/wb1 O on page 2 of applicants' combined testimony -

page 3; pardon me -- the last full paragraph begins with a .

t characteridhEion of tha regulatory system under which you O ' cparate, and indicates that it includes the rule that "A I}

public utility is entitled to such rates as will permit I

, i it to earn a return rea:sonab1'/ sufficient to assure competence I4 an:1 the financial soundnssa of the utility, and should be ,

adequato undcr efficient and economical management to maintain!  ;

I

~

and support its credit and enable it to raise money necessary

. .. i for prcper discharge of its public duties." {

Thero uso a qvsstion raised earlier about whether 0

O ., or not the regulatory climsta in which you operate provides j t U ,' an incentive for efficient and economical management. And L. '

I those words are used here. And the implication seems to ,

i ha that you won't be granted :uch ratas as will permit you ,

to earn the kind of return y.siwant unless there is efficient and economical management.  :

i Well, those are nice sounding words. But to the, extent the.t any of you gentlenan can address this topic, what is there in the real world system that you face' that puto ycur company's manager 2ent to the test of efficiency and econony in deciding whether you get a rate increase?

!!r. 01 con?

A (tiitnons Olsen) Maybe Mr. Coombs should address

. \

this, if you don't mind.

r f

t

. 15,010

) .

V J/wb2 ' O I would just like to ttadcratand how this works.

() '

A (Witness Coor.bc) Well I think that rests in two l I places. The regulatory commienion side is the prime one.

O.

q

. The cocondary cna is the analysis and perceptiornof sub-

i jective judy.cnts on the ;nrt of the financial community as

!}

,i i I I to whether that regulatory commission is parcoiving that or

't

not. ,

I think the demonstration of how often a utility

• i l is in for rate increases, .a recognition of the new ,

l l olomonts that ara coning on and whether they are properly f and, factually recogni!.ed or not, and the indices' as compar-

t. l

[ ing that ccmpany to other companies in the matter of operat- l ing racults where they are competent -- and I emphasise

.  : l

'f,' that lattor point. Because in the utility business and the  :

l mix of resources in thic country, there's vast differences i

batusen companien that may even be the same size as to j custo.ncra but you have the matter of the geographic situa- l tion, of concontration in urban areas versus rural, there's

}

i a myriad of things to avaluato. But, again, there are some -

d

' Our company happens to have the lowest' c:.w. on arocs of ten to.

clectric

! / rat 2 of onypincu in the nation. And it didn't come very ocally. It car.o through tafficiencisc in employment and productivity: for si:ttoen yearu we wont on tho same level of

~

omplaycea, and that calls for terrific incontives.

0 Lot's taho the regulatory commiscion side now for i

i

- .~.;

. 15,011

,! ( O /wb3 the moment. -

, U Does it apply any specific tests with respect to i

I the financial performance and status of the company to assure ;

I itself, or provide answers for itself that the management  ;

!! l

! is perfoming soundly?  !

l

. C5 A I believe for the quantification, what you sug-

\

goat, it's relied en what the staff does in the inquiry in l j their audit work as to the quantification. {

O 'Ihe staff of the regulatory commission? -

i A Yos. And we've had many inquiries along this  ;

linc. f '

i A (Witnnss coberley) I wc' tid also like to add  ;

that the rate of return is only allowed and not guaranteed, l and basically if you don't work to earn it you're not going ,

to get there. l A (Witnacs 01 son) It behooves the company obviously; to run its operations in as tight and as economical manner -

ac possible so that the earnings do develop.

I

I wondor if it would be helpful to quote a couple of a

:corphs from our last rate order, which sort of gives a ,

i i lit':10 bit of the flavor of what the commission feels is--

Actually thiu han been entered as an exhibit in this case.

O I una wondering if that is a portion of this E::hiti.t 2207 lJ ,

A Yon, it is.

f

.. ~ .

J 15,012 1

\ *

$i W P Wh4  !!R. THO) GEN r Ye's . I think he's referring to .

!; V

!! that. '

il i D 11R. OLSON: It is Cause No. U-7821, which is i 4:

O  :.

the Pug 2n Power and Light rata casu. There's a nua:bar of i

'l l .

references in hora, but a couple that kind of stood out to me , ,

ll  ! are on page 16, where, about a third of the way through the  !

j i

! first paragraph on that page the connaission says,

e  :

' "Honover, the likelihood of needed ,

J. ,

i j projecta baing timely corapleted is influenced ' i i

j .' by a utility's ability to raise capital for the  ;

+ '

! i i ,

i j i project and by regulatory bodies creating a climate  !

! i i j .

l uhich is not inhospitable to the finding of such  ;

C' .

nocessn:y construction."

f I f I think this shows that they're aware of the need 4 + i l' for a hospitable ragulatory climate end, indeed, also for

- l i

. . r 1

the conctruction that wa've undertaken. '

And at the bottom, in the last paragraph on that '

j '

cxr.e page, again I would like to quote: *

] 7 "The determination that investment 9 i

in a particular generating project under construc-1

]

I tion is n prudent inveptment is implied in any

{y -

deterninstion thct construction work in progress chould bo included in rate base. In light of i

! tho.72 projections availabic to the commission i s

i i

which build tr.ost closely on the company's actual l

i-

! I

]

f

~ _ . _ __ ._ _. __ . _.___.

15,013 '

1

-Ja/wb5 oparating experience, the commission must conclude k_/ .

that the invastment herein proposed is prudent."

f f

. That is talking about Skagit as well as Pebble j 4

as well as Colstrip, which are the projects that they did  !

I allow construction work in progress. I think that shows a {

l little of the flavor of how,the commission views our under-taking.

Q Mr. Coberley, with a little bit of trepidation I want to go back to a question about this regional plan ,

I we were talking about earlier, not because I want a lot of f

details about the plan but I got the impression frem a 1 1 nu:rbor of you that its passage seemed desirable. And I'm

( missing a point somsuhers here, because amongst the attri-i butes the plan,, as discussed on page 13 of Portland's 1978  !

nnnual report, is the statomont that the plan would provide i '

that BPA -- Bonneville -- would agree to purchase the entire output of the, I am sure it is talking about thermal plants; the antire output of the pinnts at cost for resale to the  ;

region's electric concumers. ,

liow the point that's escaping me here is that if thic plan actablishon that BPA will purchase your entire Q thernti output at cost, how do you generate earnings on that t'.:.crual production? I know I'm missing something fundamental,

. out help na out, would you pleace?

A Yas, sir.

o

15,014 t

I i d KD/wh6 '

The term "at coct" refers to the fully allocated -

.i3 (J

t ccst of a genera, ting plant, and a component of that cost is a return on equity.

O Pair enough.  ;

3 A It's kind of the utility concept of profit. i 6

• t

! MR. EEIGHLE: In the utility business we regard a return en equity, which most people regard as a profit, as  ;

4 a = cat, a cost cf funds.  !

i  !

MR. LEED: So do we consumers, Mr. Beighle. ,

i l (Laughter)

I ,

i 4

DY HR. LIllENBERGER: l I '

Q Now, again, just so that I can follow some of ,

h

, s. .

the figures that have baan used here, a quickie question, i 1-Ir. Olson: I I

I Looking at Puget's Table 2-1 on page 4 of the '

I a

exhibits toitur combined testimony and Table 3-1 on page 16  :

! j of tha same exhibits to the testimony, there was some dis-  :

1  ! , 1 I I cussion there about seme of tjiese numbers, and, in particular,; l; 1 ,

l como discuccion of allowance for funds during construction,  !

1 And just to pick a yaar out of the air, well, 1984 was looked '

{

!  ! n earlier in como cross-exaraination, and the deduction for  !

l ,

! MDC in 1004 in Table 2-1 ic shown to be 116.7 million.

, t;cv when I go over to 1984 in Table 3-1 I see a i

1 slightly difforont nu~.her thara for AFDC. Can you explain why thcro is that difference?

l 1

~,

1

, ,,,-....----,,,-,,--,.---,,,,---,,,,,._n- . . , . . . , , , . . . . ,

15,015 (G)

D--d3/wb7 A -(Mitncas Olson) As a mattar of fact I.can't. I

, U would think they would be tho same. But I observe that--  :

i  !

. And I couldn't tell you which one is the correct one. If I accume the Table 3 number is, correct.it will improve my internal cash ficw.

A (Witness Coberley) The AFDC on Table 3-1 is AFDC on total gancration projects. The AFDC on Table 2  ;

not only includ23 AFDC on generation projects but all con- '

struction, including transmission and distribution. So it i

would be higher. j Q So that's why it's higher. l A Yes. It picks up tha entire construction.

i

(' A (Witness olson) I missed that. I think you're i

i right. i

~I don't have any more questions.

1. MR. LINENDERGER:

CHAIRMAN DEALE: Dr. Hooper?

DR. HOOPER: No quantions. i i

BY CHAIRMAN DEALE:

O I have this general area of interest, and that's tha capacity of the Skagit partners to raise money by selling cor"J"4cn

/ stock, preferred stock and bonds. I uould assume it's a r abter which has been a matter of probably continual dis-cussion with investment bankern and people who assist you in; floating your bonda or colling your stock. And I would like to get como feel for what your financial people outside of i

15,016 m

'N/ cog *-

ycur individual companies say with respect to the Skagit

)

.f project.

ci i I can appreciate the connents which you have  !

l given to us about what the cc:r.missionors hat e said: they think it is good. I ::culd like to get sc.na sence of what the financial people whem you deal with, back East maybe, the First of Boston, or something like that, the financial people, what they havs to say about ascisting each of you in selling your checks or salling bonds. That, it seems to me, is a critical point here in maintaining your ability or c:paciiy to fin.'nce this project, p

(w Cbvicucly none of the companies, say, generate

() encugh internal funds to foot the bill on this particular construction. Correct ce if I'm wrong there. But evidently each company ticuld have to go out and cell stock, or sell bonds, and clearly i:his has been done before. But I would like to got scre feel for what the financial community -- and this would be your financial conmunity -- has to say about the prospects of you celling equity, preferred stock or bonds.

A (Witness Olson) I'll start, and Mr. Coombs I'm sure will have scro commonts on this one.

You're absolutely right, we do concult with our

{'

in'restment cdricors who are, in our case, firmo like Merrill, c Lynch, ?icres, rcnnor and Smith: they are our lead under-uriters and one of the largest firms on Wall Street as you're

15,017 C'T EB bbC "all a* tare, I'm sure. Dean Witter Reynolds, again one of

/

<s ,

e V our investnent bankers.

.md we also utili=e Salomon Brothers

) in the case of sales of first mortgage bonds. And we do ,

() have ocaversations periodically with all of ourinvestment i bankers. i They assure us that there is a big capital market .

.. 1

- ' out there that is viable. They indicate that, barring some I unforoscen collapse of the capital markats, there should be no problem a'c all selling the securities as long as, of course,

tha company maintains its earnings. And it does imply that the company gets fair treatment, fair regulatory treatment.

i I think I've shown that that is certainly a  ;

. possibility with the Washington Commission.

kS l Since the first of 1979 there has been -- and I ,

didn't count them here, but there's a whole page full of bonds from all diffarent types of utility companies that have ,

been issued, and I've got a page and a third of ccmmon stock offerings, again of utilities, and in the case of preferred stocks naybe tto-thirds of a page with probably thirty or  :

I forty efferings that have already come to the market this i

year, up to, cay, the middle of last conth. .

So there is a capital market out there, even '

C::) though it gccc up and down and costs vary depending on what

%J

} the ccencaic situatica is at the moment.

The narket has been willing to accept utility

15,018

(}

\ /

b /n3/wh10

• securitics, both nuclear and non-nuclear.

b -

I had a specific conversation last Friday with I

. ona of the Vica Presidents of Dean Witter Reynoldc whom I O '

called on the telephone to ask a few specific quastions.

On a of the:t I asked specific is, Are Baa companies with nuclear projects having difficulties in the marketplaca? His answer  ;

i i was that the concern after Three Mile Island has disappeared. l I

Ee says it has not been avident in' ,recent dealings. Right after Three Mila Island it did cost a few of the companies that came to market some basis points; that is, the yield was a little higher than theferpected it would be. And he indicated 15 basis points was about the penalty, if you

(. uant to call it that, that was attached to the debt securities : <

l that came to the marketplace right after Three Mile Island.

Ha says that concern has vanished and you're back !

t ,

to what he would consider a normal debt markea at the moment. >

I I talked to him about dilution, because, as was pointed out here earlier in the record, dilution -- the extra i

scles of common stock that dilute the equity, dilution in i

2recce of 13 parcent,is this posing any problems? And I was told that common sto de could be sold with a dilution up to 20 parcont with no effect on the stock. He did indicate that several years ago that was prcbably not possible, but l d at the nurket, though, in recent years has improved: there's a new, larger marketplace out there; there are more salespeople 1

i

. .__i 15,019 .

1 , b )R3/wb11 wcrking at'the brokerage hounes salling more stock all the 3

1 O time; there is an expanding market for utility securities. .

i i

4 l And he pointed out savorcl other companios that have issued  !

l Q '!

' larger amounts of ccmmon stock with no effect. Companies I

Il such as Portland Ganeral Electric and Pacific Power and Light l

' e, are included in a little study he made, along with Utah 4

e Power and Light and San Diego, and some of the western i

utilities who have, over the last five years, averaged--  !

MR. LEUD: I'm just curious, Mr. Chairman, whether.

' the witness is perhaps going a little bit beyond his own I

personal knowic2ge hnre. He seams to be reading from some 9 sort of statenent.

_ f

()

1 WITNESS oLSON: I have a few notas on a personal i

.I telaphene convarsation that I had, and at the moment I'm  ;

looking at a diluti.cn study that was made by Dean Witter '

Reynolds dated August 8,1979, that sh oss for five western 4

ui:ilities that they junt happened to compare: they were pick-4 ing those that had had a large number of common shares sold l

f in these recent fiva years, and the dilution was 17.6 percent l cn average. And their contention is that this has had no i

effect on the marketplace of the stock.

I guess the bottom , lino is that the investment i

4 . esople that at leact I have talked to indicate there is no probicz ceiling th's securitias that will be required in the futurs to finance these plants, again assuming' a continuation i

l l'

15,020

('N]

\

%d."3/ub12 8 j.

of a viable capital market system that is presontly available

.U in this country today.

-l' i

BY CEURNAN DEALE:

l O Mr. Olson, can we relate this to Skagit securities:

f to support the proposed Skagit nuclear power plant? l

, A (Witness Olson) Well, as shcun on Table 3, in this specific case Table 3-1, we are not only financing i

Skagit but we ara financing Colstrip and our five percent i share of WPPSS and some of the others. So we don't sell ,

1 I I securities specifically for a project, we just go to the market periodically as we need the funds to finnnec all our construction as it goes along. And in that regard we are

s. n planning to come to the market this fall, in the latter part t i

.* ;l <

viable c ul mathe . rt watem

.. [ of Hovember, with a common stock offering and, about a week 2 re ca. .uai. ,

. later, with a first mortgage bond offering, both of which ue have aircady discussed with our underwriters, and they ,

sqe absolutely no problem marketing these two issues coming  !

. I up this fall, and ue are presently in what economists call a !

recession.

33 fis 1

0 l J

) '

l l

T '. ?[. .V. 2.I f *' I *. .

s . .: . 1, "

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

15,021

\

3b~ erb /agbl O Mr. Coberley, uhat's ycur experience?

C'

! A (Witness Coberley) I've not had specific c  !

convercations recently with --

() t Q I'm sorry?

{

A I hava not had specific conversations with

{

+

,, inc.ividuals racently regarding the markotability of our l 4

i 4.230 securitico.  !

l The one thing that I would like to offer at this -

point in time is that our Table 4-2 of our testimony shows

-that over the last six years we have financed externally a billion dollars' worth of capital, and almost three-quarters m

of that has been financed in the years '76, '77 and '78 in light of our drought situation, and there has been no I apparent leck of desire to continue to sell our securities.

?.nd, in fact, we are occasionally approached by people like Life who want to arrange non-conventional type things such as sale and leaseback arrangements which would provide sub-stantial capital to the Company.

O Mr. Pack?

A (Witness Pack) I have nothad any conversations on future prospects on financing, but just recently in the

(]) ,last month Pacific Power and Light Ccmpany has placed a 750 million profarred stock issue at what we feel is a very

(, fcverable yield of 9.15 porcent which is, by the way, 60 l basis pointe above our embedded proferred stock, which would i ,

l 1

, 15,022 T'N/r.gb2 ir.dicate that the narhet is at least loching favorably upon J

l Pacific Powar and Light. i i

j Q Mr. Coombs?

c

- l' i

A (Witness Coombs) I will take a little different i

, araa cr dir.onsion to this. As a perspectivo, you asked [

t

, about the financial community and to tie it to Water Power g

specifically.  ;

Before I do, I trould say I think when it comes f

f to financial planning and financial perspectives, that each '

i of those companies is faced with a different situation for a 1

lot of reasons. ,

But in our case, being an all-hydro company from

'~'

1889 until 1975, we have the capability of'having a capital structure of 65 percent debt, no preferred stock, 35 percent i common equity. Also the dimension of our service area, which .

is athree natural resourco economy of mining, timber and agrieniture which gives a stability that scme companies '

don't have the opportunity for. i Alco the, fact that in those particular years  !

the values of energy were a lot different and hydro in the chcrt-term cculd be sold at minimal prices or purchased at l

() ninin21 priccs, and nou we have a different ballgame.

^3

• We tiare informed of that so we moved out of )

1

-' cur hydro mold early on, when our rating agencies pointed thsca things out Your busineus risks are changing. - I e

i 15,023 l l

t.7 ' fagb3 Ue ve made a dramatic shift in threa years to 8

v- ,

~

ao percent debt, five percent preferred and 40 percent common,

't  :

and we re on the way down to a 50 percent debt, 10 percent 8

proferred and 40 percent common just to measure up to these '

I t

kinds of business risks that are faced for us as an electric -

, utility. '

We are able to ride out financing pretty well i

~

with the flexibility of our bank loans. The markets this year ucre such and our small amount of bank loans that we can l i

ride 'till november or May of 1980 with no change but we're  ;

locking at the possibility of a preferred stock issue sometime x

in the latter part of '79 or in the first month or two of 1900, to be followed by a mortgage bond issue to keep our  ;

i cap. structure in lina with what the financial people are I.

telling us and investors are willing to buy.

l Q During the course of testimony in the last day or so, reference was made to the fact that the four companies ,

which you reprecent have a total construction program - a to :al construction program - of about $20 billion. And of that, this Skagit project runs around $3 to $4 billion.

I want to make sure that there's a relationship ,

A V here between the $20 billion and the $3 to $4 billion. Now roughly what is the - se knew what the Puget ' commitment is

\'

to the skagit project, roughly what are the total commitments that Puget has on other construction programs? I'm trying

g - . . . - -

15,024 tirh/agbt. obviously to add up to this roughly $20 billion.

4 A (Witness'Olson) Well is this in terms of the ,

total dollars for thace other projects?

() Q Well again I'm really repeating what the witnesses i

have given us, that is, the total construction projects come to about $20 billion. The Shagit project comes to, say, I' roughly $3 to $4 billion. Uhat are the other ccamitments j in construction that Puget han?  !

It night already be in here in terms of a table.

i If it is, why.... 1 A Well, in terms of total? i

\ i

) Q Yes. l a! \

l

(_/ A We have $G.0 billion over the next -- up to j

\

1990 -- I'm sorry, I thought you wanted it project-by-project, i

and I was looking for that.

O No,.just to get an idea of the total. It's .

I

$6.C billion to 1990?

A Yes.

MR. THOMSEN: Mc's on page eight of the prefiled i

tcctimony where- it is suramarized.

WITHESS.0LSON: It's S6.8 billion for the period J

('; '77 to 1990, which ' includes our share of $1.1 billion for v

Phagit. So cutside of. Skagit, we've got SS.7 billion of r

icht r .

2Y CHAINO.N DEALE:

Q All right.

I

. -- . . . . . ~ . . - .

i 15,025 wrb/agb5 Do you havo comparabic figuros, Mr. Cemberley?

b.w

'i A (Witnesc Comberley) Yes. On page 11, it's in the!

1

>l 1cet phragraph there. Our total construction period, for i h '*19 to 1990, the samo period, is $4 billion, and Skagit is ,

i >

~

l

$878 million or that, just about 20 percent.  :

1 1

A (Witness Pack) Similarly, on page 14, the last j paragraph, and we're only going through 1989, $6.9 billion is the total for construction expenditures including ', +

0536 nillion for our share of Skagit.

A (Witness Coombs) On Washington Water Power Company, we are looking during tha 10-year period ending in i p

g 1988 at $1.8 billion. And of that, Shagit an estimate of i

s

[ $280 million.

O So generally -- I don't have a calculater, and if k

I do have a calculator I don't know how to use it -- roughly ,

Skagit might be 20 percent or more or less with respect {

to the proposed construction of each of your plants? [

i A Curs is somewhat loss. But as a cortposite, that i sounds right. j i

A (Witness Olson)

IN our case, Mr. Chairman, Skegit reprocente about 16 percent of cur construction for ,

P u,

that period.

Q Right. Thank you.

N CPAIE!AN DEAIE: I think those are all the questions I h&VO.

?

~

- . . . . . . . _ _ - _ . _ . . . . . . . . , _ - _ - ~ _ . . - . . - . _ _ . - . _ . , - , , _ . . - . . _ , _ _ _ . _ , _ . . _ . . , _ , . . . . . - - - - - ...__ ~ - -

15,026

/

\~b/agb,.

t Mr. Themsen, Mr. Bei7hle? i I

+/ .

MR. THOMSEN: Nothing further. -

i CHAIRMAN DEALE: Thank you very much, gentlemen.

(The witness panel excused.)

• Mr. Thomsen, I'm looking to you, maybe we're thinking of the same thing. I'm thinking of proposed l .

i findings.  !

MR. THOMSEN: That, and I would also like to have a discussienof the hearing schedule. Mr. Black should be here, particularly for the schedule.  ;

1 CHAIRMAN DEALE: We now have another matter for - t ,

t propcsed findings and conclusions. I L i i

Mr. Thomsen, you're the lead on this, what would '

2; cf 1 mete + g ) . . .; iv4 you suggest, or would you want to think about it in light *

fp 2.) ; d

• i of what we have. Let's review what we have:

' r'  ? v.4 i Geptember 14, October 5 and Octcher 19..

MR. THOMSEN: Yes. Now, we hsve finished financial qualifications this week, and I seem to have a

-a c.

bicnk, have we finished anything else? That's all we've dcne this week, isn't it? No, no, we had floodplain. -

CIIAIR'UON DEALE: And we had floodplain management.

h MR. THOMSEN: So.we could submit floodplain and rinancial qualifications. So we're just talking about proposed h

findings on those tuo cubjects bsing added to the file, and ycu'ra wondering erhon would be a good schedule for those.

1. 9

- - - - _ - - - - - - - - - - ,. , ,. .-c. , - - , . . , , . , , _ . w em

15,027 b'

, C r)b/agh7 s I'm thinking in terms of scrething like a week t

j ,

cr 10 days after the present schedule. But it relates a little '

to another subject I wanted to introduce, and that would be 4 :

the possibility of another short evidentiary session between I

new and geology-saiscology. I don't know whether that's good I 1

or had from the Board's point of view, but I have a list that I

Mr. 31cek and I have talked about about possible things to be done at such a two- or three-day session. [

CHAIldliidl DEALE: Well that's fair onough to discuss it.

MR. THOMSEN: And it's related because if it ware scheduled during thic finding preparation period, it

] kind of impacts that job, and so they got related a little '

bit. And if wa did manage to have one fairly soon and finish some more cubjects, maybe we could, instead of having three sets of findings, maybe get by with two or whatever.

CHAIRMAN DEALE: Right. Well, what are these  ;

subjects?

MR. TIICIiSEN: Three only. One is the matter of er.organcy evacuni-ion, for which the testimony has been pre-i filed. And of course, I knew that depends on the Commission c policy on which Mr. Black is going to report as developments U

cccur.

But I unde stand from the ecuttlebutt, so to speak, O j g

V that they night -- that they vill be considering that early ne::t veck.

i

. .- -. ~.. .- -

. _ . ~ - m 4

I 13,020 l

/

~s t A

M)t eb/agh?, It's ccnceivchle t'ist tha Staff ndght b3 freed up

. , , b

[ to prece.t.its to tin 2y, if so, that's about I would think ,

}

aO .

t:.o dr.ys of wcr.i or a day and a half of hearings that wo cculd hava.

The cacend one, of courua, voeld be the recall cf cur Gunlity ?.nctranco pecple, this time including. our .

f cwly-litrad 2.cmger t ho has not been hired yat but I think will ha v:ry shortly, and that's maybe half a da'y or soinething.

And than the third is the natter of Dr. Gotchy on the cocl-nucioar hsalth effects and Dr. Weiner, I think ,

ECJJS asntioned that they had a possibility that she was t.cing tc naybe address that. Plus, of course, thic mattar I

v of Paden-222 uhich I reccgnino is dependent upon the Board's ruling on the motion.

But if things were to clear and if tie were to got clMranca frca C3.;raissica en ovacuaticn and if the Board unro tr rule en the motion and the result of that were to be the necd for a half-day or a day of tastimony or something, then Me'vc got about thrna - two to four days or something like that, thr:c or four days of avidentiary thinga that we cor.ld de mnybe z.c early cc Ecptember 18, Septembar 25 or the e 700% icilcWirJ. I don't know anything about the Board'c U

c .:h adu!.c .

s

! ( Lut tht.t's that vanted to introducs, to pace j , that for discuccion, :.uybe a three or four day session, f

mnue 15,029

{3 Q /agb9 recognizing that us won't knou until next week or maybe longer whether it's possible. I would agree that if emergency i evacuation can't be presented, since that's a day and a half i

h or two days, the rest of it isn't worth a special session.

I So it necessarily has to be very tentative. .

CIIAIP?AI DEALE: Yes.  !

MR. THOMSEN: That's about as far as I've gotten i 1

in my thinking. j i

CIIAIRMAN DEldI3:  !!ow far have you gotten in your i

thinking, Mr. Black? I i

1 MR. B M Uell, insofar as another session, I

let' say at tho end of Septentber, of course, that really +

%) hingen upon whether the conmission is willing and able to go  :

j forward with some of these issues that may be TMI-related.

}

The other issues that Mr. Thomsen related to, of ,

cc*. tree, we would be willing and able to go forward at that timo, too, depending on'the radon motion outcome. But definitely we're all set to go with coal-nuclear comparison, ,

that testimony has beca profiled. l CHAIPFJJT DEALE: And the only TMI-related issue, J

as I understand it,that ycu have. identified is emergency evacuation?

O MR. 3 LACK: That's correct. And of course, that is a contingent-type issue, tco, because we're not certain right now whether the TMI inpact on evacuation planning will i l

i

-- --. - - - - - - -- - , . , , ,e, ,---.--.,,,,-..,----~,,,,-..,,-r -- an,a - - - ---

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

t 15,030

'cu'el; p * ': lia .: : h!.a ca .anru: tion permit c:-itaria f or rocuation

, i).

pl=ry.inti. So thera is a condition attached to tilat as voll, it :nav or n.V. not bc TMI ralated.

,= ,.m i

l I

t h

l i

t t

I 4

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- - - - y-,-+ w ww-w w e er ewve-r - = me m w a- m e-e,r w - . . ww

15,031 b CiLURI'AN DEALE:

V WRB/wbl But there is no other TMI related issue?

t I; MR. BLAcit: Not that the staff is aware of at this present time. ,

CHAIRMAN DEALE: Mr. Leed, the Board has committed'

?

itself without further receipt of material from the parties 3 to decide the staff's notion before us about radon, and we f have your additionc1 mx:erial which you forwarded to us a ,

I

~

couple of weeks ago, ar..t, depending on that, why, there may or may not be further haarings on this subject. ,

Are there a/ y other things you have in mind?

Tie're trying to get a 1:.at 1 ere, and I don't like to have

' things -- I want to sco .'.f *se have anything and find out if N] ,

I there's something lef t he. itging.

MR. LEED: I : ave a few things to :lention.

First of all, et distributed the rebuttal testi-l nony of Dr. Thce.as Dunn to .111 the parties, and I will ,

j simoly cite that en the roca rd, and to the Board, because I do not enticipate that wn v'111. file a certificate of ser-

vice, but the record will reflect that this has been distri-buted just now.

, Then wo trant to inll staff's attention to the fcat that at the last hoaringt Mr. Carsens asked Dr. Winters i

{,O to sucply a record of CO iCEPT .' odd estimatos in comparison i

c cctucl c:n.pleted plant cost:5. And the reference is I

1 l

15,032 i i

l

., ( t/ub2 paga 13,402. And also asked for yield data for uranium, l I )

f ,

a m'mry of actual operating yields, and that ic requested ,

on 13,418.

O

~

i

, Now, we are--  !:

i CHAIRMAN DdALE: Let me just interrupt you a second. I want to make sure that we're in focus on this.

l' Mr. Black, you're going to move forward on those i

rOquests? l C3 MR. BLACK: I don't recollect those requests at I

the precent time, and I guess I will have to review the record to see if we did make that commitment. But, if we  !

m -

did, we certainly will comply with that.

MR. SWANSON: I might just cention that the first I

roquact related to the track record of the CONCEIT code. Is ,,

that corract?  ?

s MR. LEED: Roughly.  :

MR. SWAUSON: No did submit testimony on that in '

this session. It was a day when you? weren't here. But we  :

gave come ovorall results of the facilities, and the most ,

9 recent study that the staff is aware of anyway, we gave 6

r2culta not only for the plant study but also specifically m fcr EUR'c. ,

k CUAIRMNi DEALE: Well Mr. Lacd has identified thcm in the tran: script. You know whatever coKmitment you've mado. And if you've already made it I'm sure it will be easy F

i l

15,033 O -

i  !

l  ;<h'.D/wb3 to so inform Mr. Leed of that matter.

U Really, I'm interes ted in making sure thab, you know, that the catter will be taken care of, or, if we're 1O ,

not going to do anything about it, why, say so, and we'll try i

i to make some sort of arrangement.

4 i As I understand it, these are simple questions. ,

i n

Go ahead, Mr..Leed.

MR. LEED: The last thing I would like to point ,

out is that Mr. Thomsen has not approached me about setting -

a hearing for the end of September, and it would be appreci-j . . .

ated if we are involved in a scheduling discussion, because i

s 4

. we do have conflicts at one ti:ne or another which could be

_ taken into account.

4 i I would want the applicant to be aware that if a

.t

! l hearing is to go forward at the end of September we would not '

i .

! be inclined to accede to any further requests for continuances with respect to the filing of briefs in matters relating to the Skagit site. An,d I would just want Mr. Thomsen to be  !

c icre of that, bacause we have acceded to several such ,

']

requests on the groundthat in the past it was a favor or a f

ccurtesy so attention can be paid to hearings. But I think

^

a hearing a nonth, if that's going to be the way it's going Q

to go fren hare on cut, we might as well get the briefs in.

MR, TECMSEN: That's a fair comment. I understand that. 4 L

15,034 i )/Wb4 CilAIRMAN DEME: I don't.

b<

U MR. THOF.SEN: Uell, I hear what you're saying, add wee 11 keep that in mind in discussing schedules.

O It dcesn e effece the euegeetion thee I mede

, about having a short session toward the and of September, but  ;

it (.cos cause me to suggest toward the end of September.

l I have a brief due on September 28th that I'm i obviously going to have to fil'e on time, and I intend to do that. So slightly after thct isbatter for me for hearings.

than slightly before it.

CHAIT N DEALE: Well, we want to be realistic, m too. We've got cur problems of scheduling. And I'm not .

U h I altogether sure, you know, how they'll be worked out. i x_ 1 -

I guess p'rimarily, up to now anyway, we're lookingl, .

toward working out arrangements for the geology / seismology, f

and this really begins with the United States Geological ,

Survey study, which is presumably due the first of September.

MR. BLACK: That is still good, so far as I know.

. It's' scheduled for about within the first weer of September. i CHAIEMAN DEMS: Well, you will let us know.

And, of course, you'll let everybody know.

MR. THOMSI:N: Has there been any improvement on what follcws after receipt of that lahter, in tarts of the staff's cchedule?

x MR. 3I.ACX: No. As you may recall, the staff has i

4 e- .,.w- , w- # -g -Qw,-w--i-r v w r2,----r- --

y,y3- , - + . - y- t e -,, .w,-

9 -e - - = --

15,035

' (m x

MT ccmnitted to tha issuanca of its analysis on geology and O .D/wb5

!! seismology the end of September. September 30th, I believe is

- the data. That has not changed. But obviously all efforts O

! 4 will be mcde to cenplete it as quickly as possible.

. MR. THOMSEN: What dces that suggest to the Board in terms of hearing ti::e? '

Or let me maybe put it this L'

l uay: To me that suggesta somothing like the third week in 6 9tcher. But I'm always very ambitious when it comes to cdisdulo.

CHAIFilAN DEALE: I just have to say we have a probicm of Board availability. New we recognize, too, maybe 5

in one of these, if we have to go forward with two, say, two t C additicnal hearings sessions, you may have to be satisfied .

with just two of us.

i I shouldn't say you might have to be satisfied; you might be happy to feel there are only two of us. But, be that as it may, we haven't, you know, worked this all out 4

ourselves. Eut we are going to have all three of us here for the geology and seismology: that's our present planning.

d

I really J.cn't think we can go much beyond that,

!!r. Thomsen. Ue've got to work cut our own thing. And then 7 co much of this hinges on Mr. Black and the Geological w/

Survey. And I roully hate to get worked up with a big plan 1 -

q) "

s on an "if" basis.

, Iri!. T H O M S E N : I do, too. I juct wanted to e:tpone

_ ._m. . . . . _ . .

15,036 q

k i L <FL/wb6 tha consideration. And if wo get the green light thraa j places suddenly, va'll all know what we want to do.

t

, We're back now to tha findings schedule, I guess.

i h- '

i CHAIIUM DEALE: Well, truly, the more we can i

get in the sooner, the better. But, at the came time, we'll

.; gat involved with, say, a series of dates here that r.ight be e

• I confusing.

ife're open to suggestion.

22. THOMSEN: I was just looking at what we have en the platter now. .

r Tha floodplain part of it, following the sort

\

of legal discussion and clarification that we had, it seemed -

g'  ;

q 'o c me the findings night not be very extensive. And I think '

thtt is probably a small work item for all of us compared with fincncial qualificaticns. There we have a fair volume of tauticony. Eut, again, it is not like need fer power or some of those like, say, geology /seismolcgy is going to

'be. And th-fc'c what we have closed at the mcment, subject to the pepej ve just go't which I was just glancing through.

Alt! hough talking about floodplains, it really is Ranney collector, not ficodplain, as I read it. I think it is more e fairly deccribed as further testimony concerning Ranney V l coll 20 torc.

p

\,

u So it ic kind cf a question: do you want a set of findings on the financial qualifications new, or do you

15,037 y P2/uh7 uant that to avait ccmpletion of some additional subjects.

U W're happy to send them in if it would be of help to the Board.

O CHAIRMAN D27LE: It's easy enough for us to say,  ;

i

- you know, get in the proposed findingi. And I generally would;

, prefer that way. But I would like to allow the parties to  ;

?. .

" ' - come up with an idea themselves on hcw to handle that ques- ,

tion, recognizing there will ce others to come, f I uculd b'o hopeftR that .his might be an idea that could be gotten out of the way aefore we get into the i geology and seismology. But yo.t have other commitmants and s *

) Mr. Lead has other commit =cnts.  ;

%)

y -

MR. THOMSEN: I'm wiliing to cccmit to applicant filing those by, let's say, Octobo.r 8th, than proposing the cort of standard schedule for the rtst of it, which is ten day:-- I have to look at my rule b.d. I think it is ten days, ten days, ten days. And whattner else happens after 4

that.

Is that soon enough to to of any help to the Board?

CHAIR A 2 N DEALE: Surely. But I'm locking to the

m. cartics.

~

()

MR. LEED: We'd like a l?.ttle more time. I q know that because I have a trial beg!:tning on the 8th which involves uho Boeing Cotpany and some of the people from y- -,, ,,,-4y -y,, ,-- +- ----v-

w 15,038

\

O)/wb8 LG Mr. Thorason's firm, but not him, are involved in that, b But unfortunately I'm involved in both. So I would be losing i

e i

that uaek.

h .

MR. THOMSEN: Under the rules you would have t

4 I

ten more days. What I'm suggesting is: Applicant, October 8thi '

i and that would bring you to 05tober 18th if you just followed i the ten days under the rule. l i

MR. LEED: I'm saying we would like to have a l

litti.e more time than that, anothe.r week maybe. ,

1 MR. THOMSEN: Well I'm looking at the calendar.

I Do you have a calendar +.l ?re? Ycu'll get ours on the 8th.

MR. LEED: Nor but I would gather another week i

C' would bring us,'to the 25th. j i

MR. THOMSEN: That's right. You got me there. l That's all rf.ght with me.  !

Then the rults wou' d give the staff ten days i

afher that, which would ba-- Hcv much time do you want? ,

MR. BLACK: Well, originally we had agreed to a simultaneous filing dat.s with right of rebuttal.

CI! AIRMAN DTJ.FE: Yes.

MR. BLACK: I thought that originally we had said that all proposed findings would be -- well, the Staff's nnd SCANP's would be dut on the came date, and we would have additional ten days, or uhatever is provided by the rules, 9

for any rebuttal findings that we needed. I mean, both

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

i i 15,039

'( J /eb(J the applicant and tha staff would have the right to rebuttal

0 findings.  ! l l

CHAIRMAN DEALE: You're suggesting following the  !

' acme path. Or are you?

, ; MR. BLACK: It doesn't really matter as long as  !

" we preserve our right to have rebuttal findings. It doesn't e

1 4 matter whether we go with SCANP's October 25th date and then  !

.t i have tan more days. But I believe that we'll be in a i " position to file the majority of our findings by the end of  :

1 4

, Octcher in any event; in which case I think maybe what we  !

will do is-- l b

t h CHAIRMAN DEALE: October 25th would be... i i-l v

't MR. BLACK: Hould be SCANP.

c Why don'i we do it this way: Why doesn't the j i

staff keep its usual filing date provided by the rules,  ;

i which is -- what?

!G. THOM3EN: Ten days after intervenors. i MR. BLACK: Ten days after intervenors. And if we could get any findings to the Board at an earlier date t

than that which we feel are fairly complete, we will do so.

But otherwise we will hava one date for a filing, and that s d would bc November 4th, I believe.

I b '

i MR. THO"SEU: Twenty-five plus ten ought to be the 4th, uhich is a Sundcy, however.

MR. BLACK: So that uould be the 5th.

1 e

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

15,040 O

i So that would encompass all findings plus t

-f/wbl0

, (:s) rebuttal findings. But we will get any findings that we  ;

i have ecmpleted to the Board as they become completed before i i O L that dato. It won't come in piecemeal, but if we have a j l

substantial block of findings done, we may do so.  ;

! CHAIRMAN DEALE: Your statement does not come

, through with the usual clarity.

I i We start off with proposed findings by applicant j i

en October the Sth. We would have staff findings October the ,

• i lath, SCAtlP's findings October 25th. l MR. BLACK: No. Forget the staff filing on '

October 18th. He have a filing date of November 5th now, '

3 -

pursuant to this schedule. '

, And that would include all our findings plus rebuttal findings.  !

I CILTIRMAN DEALE: All right. So you have one I

filing.

t MR. BLACK: One filing date.  ;

CHAIRMAN DEALE: All right.  ;

l MR. THOMSEN: The only thing that remains is--

l CHAIRMAN DEALE: But the applicant also would -

have a reply en Novomber the 5th.

MR. BLACK: Correct.

O CIIAIRMAN DEALE: Is that correct?

MR. THOMSEN: Hell that's up for grabs, I guess.

\

Uc cortnInly want the opportunity to reply.

?

m 15,041

)

i3/wbil CHAIRMM DEALE: And the staff would have their

) '

{ prcposed findings in on October the 25th.

MR. THOMSEN: I see. Sure. That seems fine. I O~ i We wouldn't have the opportunity to reply to the staff, j but, you know, if something creates a need for that we will ,

! reply specially. We can reply to SCMiP's findings: that's .

the main reply: probably by November 5th. ,

CHAIICIAN DEALE: Now do you want to reply to-- I don't know. ,

1 MR. THOMSEN:  !!ormally Mr. Black does such a good job I dcn't have muchto say in reply to his. But sometimes i

,  :- he nuhes a mistahs, s 5 l

. CHAIRN.!i DEALE: Well, wo'll tentatively work it j i

out that way. Applicant, proposed findings on financial l r

qualifications, October the 8th; SCANP's proposed findings, October the 25th. ,

MR. BLACK: That date should also encompass F.O.B. as well.

i MR STACHON: I've been working under that ccannption.

MR. BLACK: And all other parties, too, thst uich to file findings: the State of Washington, Skagit Co tnty, the Stato of OrOgen.

O C!!AIFlR'T DEALE: That's a good point.

MR. STACEON: I Vould just liko to connents this

'I l

1

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

i i 15,042

/wb12 schedule, I'm uendering uhether thic schedula encompasses the j

\j ascus:ption that wo will not have a mini-hearing sometime in this period.

O CuA1RsAn DsAnn

I don't think we can as. e l anything. .'

, MR. STACHCN: I think the one thing we can assume

' i is that a hearing some time in this period would impact on  !

our ability to submit findings under this schedule.

CHAIRMAN DEALE: Yes, we recognize that.

MR. TEOMSMJ: I think what wa do then when that happans - youhtcw, that's good cause for taking a look at i

x it, j

i CHAIPJLMi DEALE: Then you scream.  ;

IIR. THOMSEN: Yes, we scream. I CHAIRMAN DEALE: I have found that no one has been hesitant about that.

All right. Ncnf what do we do abcut- 'Diat includas financial qualifications and floodplain management.

MR. THOMSDI: That's fine. _

l CHAIRMA!! DEALE: That includes both of those.

MR. TIIGIISEII: Ncv we have to deal with this I

thing that we just got.

Im. L2ED: I wanted you to be the first to know O what ho had to cav.

MR. TECMSEN: This truly is Rannay collector e

- - , - - - - - - - . , - , , - - , - * ----we-- -w ~ . - - - -

~~,,r- --+---r

- --. ~. . . .- ,

i 15,043 N

\ t9stis.ony. In fact, his nacc was on ths-- We have received

<  % ) 3/t.-b l3 i

O =m.=ehiny f=o,= him on dicoeverr. Ie'e annaev collector noctimony is vhat it is.

O citar a m a oz n os = tr=11 " hat do ** ao with thi=2 2e.. TJCMSEN:. Which we had a hearing on in U whatavar r.onth that was, in July. .

4 I'm suggesting 4 I don't know what to do with it. ,

it'a quitern'drealy.

1 CIIAIR1WI DEP.LE: Yes.

t

! Wall there's cnly one other thirgthat I can

think of, end tltet is-- Iir. Thomsen, you had an objection to tha intorregatories of SCK!P, and you gavo an explanation

\

of year positica both verbally and in writing. And we raised

_ i tha questica thcother day with Mr. Gendler, and he' said SC.W was scing to come forward with an affidavit, as I

, undaratand it, to support this, SCNIP's interrogatories.

im. LESD: Yan,Itc. Chairran, and the affidavit has been prepared and vill be circulated tomorrow. There's

'~

only about ton minutes left today, and the Staff tends to lawa at five, you know.

l Celi!!d:AN OSALE: Woll send it to Wa@lngton, than.

O

%d t .

8.

't t

._ ~ ,.-

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

.- .~. - - - - . _

15,064 I

m' Grb/c.gb1 MR. LEED: Wo do have the affidavit, and our concern in thic:, I think the affidavit requires a response, I think when the Board sees it you will appreciato why I say i

O ,

that. And I'::t prepared to accept representationn from  ;

i Mr. Themeen in a letter, if ho wants to make a response, that i

indicates that the concerns which the affidavit identifies are cenahow not serious - well I shouldn't say not serious, i but proposed dssign changes that the affidavit suggests havs occurred hava not, in fact, occurred. ,

But on the other hand, if these design changes >

have occurred and the affidavit is correct that they occurred ,

s ac carly ac 1976, I think it is incumbent for the Applicant

)

• 1

' to ccme forward with that information because it has a (

discharged to .; -

bearing on the parametern such as heat load l

the river and the important ones. We're not talking about a minor difference, we're talking about a very cignificant difference on an order of magnitude scale. t so if that has occurred, I think it is i

incurhent for the Applicant to come forward with that rather than to, perhaps, try to got a construction permit and then bring it forward and take advantage of the construction permits

(, having been iscued and the shoe being on the other foot, so to speak, the burden being on theco who might be opposing to try to percunde the Ccrcibcion to suspend the permit, which is a very difficult burden to carry.

s 6

.e -g- -wyy-..g -,n y . ,, -.y 3 - - - ,.-e. , . . , . , . - - - - - - ,--,--m-----. - -

15,045

. i I I 3/agb2 , So if by any chance that's the state of affairs, .

2j yem raining it now and I think it is incumbent upon the ,!

i L 3 !! 1 Applicant to be frank about it!.

1 a i

• gloom 4';

Landonf1ws 5 ,.

.li 6 .

., 1  :

3 l -

1 10 <

f f

11 l Of 12Y if il 13 i l

w :s I i,

t>

15 11' e 3

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8 i'

20 :

1 21 il a

l E2 h. .

v as ;j 2!li

.9

l:

L'  !!

4 a f

'. _ . __.._ . . _ _ Lj_ . . .

i

fic WEB USL/nel i h ER. THOM3EN: You wouldn't want to giva us a hint

(.) as to what you'ra talking about?

! 3 CHAIR!!AN DIALE: Well, I was going to say, believe l i

h ,

ca r at thic point wa're not in a position to make any kind of '

l l

4 a judgment. But if you are forwarding an affidavit, your

} affidavit will be circulated among the parties and presumably l N

we would get an answer from Mr. Thomsen, and if the two of f

you can work it out, fine. If not, we'll do our best to  :

cene up with a prorc.pt -- and I hope correct -- decision. l l

All right, do we cee anything else?  ;

HR. DLACK: Is thore any way that we could rule on this testimony that's just proffered? I think it's a v '

. fairly simple matter, f I

' i I'm quite in agreement with Mr. Thomsen, it i dcasn't relato in any way to floodplain testimony, nor to the Executive Order 11980. .It is simply testimony that has i

been advanced in this case before by Mr. Weber. All it  ;

, i does is corroborate Mr. Weber's allegation as to the loss of the Ranney collector sito during a flood.

" I don't think that pertains in any event whatso-ever uith what the floodplain testimony was offered by the i

(V Staff soveral days ago.

i So if it in testimony on Ranney collectors, which y I see it to bo, I think it is subject r.atter not only that's been covered. Mr. Linenberger posed several questions to l

l l .

vel 2 15,047

/m

r. 'Taber abcut this when ha van on the witness atand, and v

i (' W response was obvicusly that even if the Rannoy collector

' 4 cita in losc in the flood, it has no safety significance to h' ,

the plant.

But, as I say, it not only portains to an issue or l .

a matter that has been raised previously, a concern .that's t

, hcen raised previously, but insofar as it's filed this i minute, at this hour, at this lata date, I think it's totally untimely. i CliAIlumN DEALE: Well, I'll tell you. Our ,

dispouition - and I'll allow my colleagues to say otherwise g if they disagreo - is we're not going to stay here and read  ;

w this natter, and ponder the thing. '

We will take it, but we will bear your. views in nind, and we will have the benefit of this in the transcript, and we'll rulo on that too.

Licu, is there anything else?

e (No renponse.) [

Well, that being the case, are there ambiguities ,

left?

!!R. ':'IIOMSEN: As to a short hearing in late

- Septadaer or early October, I tako it if we happen to get a te

'Jreon light from the Ccamiscion, we could cend a telegram or O tr; to have a conference call, and try to regenerate that

(..

iden?

wel 3 15,048 CHAIR!!AN DEALE: No probicm about giving me a i

([. ring. I maan, you kncv, if you feel so. We don't want to stand on ceremony about a thing like that. l h

i MR. THOMSEN: All right.

CHAIRMAN DEALE: Mr. Black, you know that, too.  ;

MR. BLACK

Yes. If we get any word from the ,

-T Com.ission we will arrange a conference call and talk to the P

parties about scheduling of a short hearing, if that's what  ;

t the parties feel. i l

i CHAIR!!AN DEALE: All right. j Well, then, this hearing session is closed, and we appreciate the patience e::ercised by overyona. I C

(Whereupon, at 5:00 p.m., the hearing was i

>. -a  ;

adjourned.) '

m. -

t 2.

t

'F .

I l

n