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| 1169 I
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| l I COMMONWEALTH OF PENNSYLVANIA (O
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| _/ ,i 2! PUBLIC UTILITY COMMISSION J l
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| 3l ------------ ----------x I
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| Pennsylvania Public Utility Commission : '
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| 4l versus Metropolitan Edison Company and : Docket Nos. ,
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| I 5 Pennsylvania Electric Company, Respondents. : I-79080320
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| - 6 -----------------------x 7 Operating agreement among Jersey Central :
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| Power and Light Company, Metropolitan Edison : j 3 Company, Pennsylvania Electric Company and : G-80060098 -
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| GPU Nuclear Corporation. : l 9 :
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| -----------------------x l 10 .
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| Affiliated interest agreement between : j 11 Metropolitan Edison Company and Pennsylvania : G-80070101 ;
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| Electric Company, relating to the proposed :
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| 12 combined management of the two companies. :
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| ! 13 ---------_----__--_----x l 14 Petition of JARI, Incorporated, et al., for :
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| an injunction to enjoin Pennsylvania Electric : P-80100242 !
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| 15 Company and Metropolitan Edison Company, and :
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| for hearings. : ,
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| 16 : ;
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| -----------------------x .
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| l 17 Pages 1169 through 1404 18 Hearing Room 1 North Office Building .
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| IU Harrisburg, Pennsylvania "O Thursday, January 8, 1981
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| 'l
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| ~
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| Met, pursuant to notice, at 9:09 a.m.
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| l no
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| ~'
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| BEFORE : l l
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| l 23 EDWARD CASEY, Administrative Law Judge 24 25
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| $102120 (h}\
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| COMMONWCAt.TH REPORTING COMP ANY 1717' 761 7150
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| Ir62 1169-A I ,
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| t t APPEARANCES: lll.
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| i 2l SAMUEL B. RUSSELL, Esquire i ALAN M. SELTZER, Esquire 3j Ryan, Russell and McConaghy l P.O. Box 699 4 Reading, Pennsylvania 19603 (For Met-Ed and Penelec) 5 DENNIS S. SHILOBOD, Esquire l
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| 6l Strassburger, McKenna, Messer, I Shilobod and Gutnick 7 3101 Grant Building Pittsburgh, Pennsylvania 15219 3 (For JARI, Incorporated) 9 LEE E. MORRISON, Esquire i P.O. Box 3265, NOB to l Harrisburg, Pennsylvania 17120 l (For PUC Administrative Staff) ti l STEVEN A. McCLAREN, Esquire 12 Deputy Chief Counsel g PUC Trial Staff WI 13 ; P.O. Box 3265, NOB Harrisburg, Pennsylvania 17120 14 (For PUC Trial Staff) 15 IRA U. JOLLES, Esquire Berlack, Israels and Liberman 16 : 26 Broadway New York, New York 10004 .,
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| 17 i (For GPU Corporation) is i 19 !i .
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| i 20 , ,
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| 21 i l
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| 22 lll 24 ' ,
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| i i 2a : . , ,
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| i !-
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| b - -- L
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| I !
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| 1r63 l 1170
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| .' i CONTENTS .
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| i l
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| , WITNESS DIRECT CROSS REDIRECT RECROSS 3
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| Chalres Kunkle, Jr. 1173 1218 1255 --
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| I' 1
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| 4 I John W. Burkhard 1191 1218 -- --
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| 5 Richard M. Uzelac 1192 1218 -- --
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| . 6 Iloward Picking 1200 1218 -- --
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| 7 Gerald W. Swatsworth 1203 1218 -- --
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| 3 William A. Verrochi 1260 1286 -- --
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| g Perry Wheaton 1315 1326 -- --
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| i 10 i I
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| John G. Graham 1329 1347 1381 1382 l' l 1385 1386 i' l
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| 11 :
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| ; Frank R. Budetti 1387 1396 -- --
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| 19 l
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| 13 1 EKg.1g[TE _
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| 14 NUMBER . FOR IDENTIFICATION IN EVIDENCE 15
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| ; Met-Ed/Penelec's i 16 Nos. 1 through 14 --
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| 1400 -
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| l
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| : 17 l No. 15 1224 1400 f No. 16 1225 1400
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| ! 19 j No. 17 1234 1400 ;
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| 20 i No. 18 1278 1400 ;
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| 21 3
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| . I I Statements A, B and C --
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| 1400 l 22 l l-JARI's. i 23 l; 1401
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| {} 'Nos. 1 through 6 --
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| ; No. 8 1213 1401 ;
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| 25 : j Statements 1 and 1A --
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| 1401 ,
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| l COMMONWEAL.TH REPORTING COMPANY e717' 7617150 l
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| r1 ,
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| 1171 I
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| i I
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| l E E E E E E E 1 N.11 i
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| T1,S1 2' JUDGE CASEY: I will call the hearing to order.
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| ' l 3i This is the seventh and apparently the final i
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| 4 evidentiary hearing scheduled in the consolidated cases 5 f involving the investigation into the past and present I :
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| 6 management practices of Metropolitan Edison Company and l
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| ' I I l Pennsylvania Electric Company; the operating agreement between l
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| 3 Jersey Central Power and Light Company, tietropolitan Edison l 3
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| Company, Pennsylvania Electric Company and GPU Nuclear 10 Corporation; the affiliated interest agreement between 11 Metropolitan Edison Company and Pennsylvania Electric Company, 12 relating to the proposed combined manacement of the two ggg 13 companies; and finally the petition of JARI, Incorporated, et i I4 al., for an injunction to enjoin Pennsylvania Electric Company, 15 l and Metropolitan Edison Company, and for hearings.
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| The Docket Numbers, of course, are those that "j appear on the captions on the previous transcripts.
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| 18 The appearance sheet which was executed bv counsel
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| " of record yesterday will apply to this hearing, so that there
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| 'o
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| , will be no necessity to sign the appearance sheet.
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| 'l At the close of yesterday's proceedings, we had 22 completed the direct testimony and cross-examination and ,
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| ~3 further cross-examination of JARI's expert witness , Mr. Fra :
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| 'l R. Budetti.
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| 5 The JARI case is still in progress, and Mr. Shilobcd t ~
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| r2 1172 i
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| 1' will tell us who he intends to call this morning on behalf of
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| (}
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| 2 JARI.
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| 3, MR. SHILOBOD: If Your Honor please, first of all, i
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| 4f we are presenting as of cross-examination for the proponents j
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| 6 5i in this case Mr. Uzelac, Mr. Kunkle and Mr. Burkhard.
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| 1 -
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| - 6 These three gentlemen's presence were requested by 7 the Penelec/ Met-Ed group. They were called as of cross-8 examination. I inte rpret this as being part of their case in 9 chief to delay this move until this time with my agreement.
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| 10 Whether or not we put on direct testimony with them 31 afterwards, I am uncertain. However, we will call at least 12 one other individual, Mr. Swatsworth.
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| O 13 May I go off the record, Your Honor?
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| 14 ' JUDGE CASEY: Yes, You may.
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| 15 (Discussion off the record. )
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| 16 JUDGE CASEY: Back on the record.
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| 17 ' All of the prospective witnesses have been sworn.
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| 13 l We will turn it over to Mr. Shilobod to identify them.
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| I I3 I . MR. SHILOBOD: I would like to call first Mr.
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| . 20 . Charles Kunkle.
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| 'l Whereupon,'
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| 22 CHARLES KUNKLE, JR.
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| 23 having been duly sworn, testified as follows:
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| ( -) a 25 l
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| COMMONWEALTH REPORTING COMPANY e717' 7617150
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| r3 ,
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| 1173 ,
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| 1 DIRECT EXAMINATION l 1 ?
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| 2; BY MR. SHILOBOD:
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| 3 Q Please state your name and business address #or the t
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| 4 record. j 5 A Charles Kunkle, Jr; 332 Locust Street, Johnstown, 6i Pennsylvania.
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| 7 Q Mr. Kunkle, are you the Chairman of the Board of I
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| 8 the Johnstown Area Regional Industries, Inc.? t 9 A I am.
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| 10 l Q Are you also the owner of any other businesses in 11 the ll Johnstown area? l 12 A I am the President of two corporations, one caller 13 Laurel Corporation which is a holding company, and one called .
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| 14 Laurel Management.
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| I 15 Laurel Corporation is not an operating company; ,
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| 16 Laurel Corporation owns 100 percent of the stock of Laurel 17 Management and owns a controlling interest in seven other 13 small companies.
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| IS Q Are you a member of the Board of Directors of any 1
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| 0 other corporations or entities?
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| ,1 A I am a member of the Board of Johnstown Savings Bank; 22 and a member of the Board of Miller-Picking Corporation.
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| i
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| ,3
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| ~
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| Q For purposes of clarification, would you state fo
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| ^1 the record what the corporate purposes are of Johnstown Area 25 Regional Industries, Inc., the non-profit corporation?
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| l
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| r4 i 1174 I A The Johnstown Area --
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| 2 MR. SHILOBOD: May I have a moment?
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| 3! JUDGE CASEY: Yes.
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| i 4 (Pause.)
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| 5j THE WITNESS: The Johnstown Regional Industries,
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| . G Incorporated is a non-profit Pennsylvania corporation which i
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| 7 was incorporated to promote and encourage the commercial and 8- industrial development of trade in the Johnstown trading area; 9 to promote and encourage industry and employers to locate in 10 the Johnstown trading area; to promote and encourage the I
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| i 11 ; growth of industry and employers already located in the 1
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| 12 Johnstown trading area; to coordinate and organize the various 13 efforts of other organizations presently in existence or to be I
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| 14 in ai-ding and assisting in the organized in the future 15 carrying out of the purposes of this corporation; to solicit I6 l financial contributions from the general public in the said 17 Johnstown trading area; to aid, assist,-encourage and promote I
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| is the location of industry, the commercial organization or to enpl.oyers of any kind in the Johnstown trading area; to invest 2u and reinvest any funds of the corporation in any industry,
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| 'l
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| ~
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| commercial organization or employer that may be necessary; and 2' -
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| in the judgment of the corporation, to promote, expand and
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| '3
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| ~
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| induce the location of said organizations to the Johnstown O. 24
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| . trading area; and to further do any and all legal acts to 25 carry out, accomplish and attain any of the purposes set forth i
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| COMMONWEALTH REPORTING COMPANY (7175 7G 1 -7150 i
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| I r5 1175
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| ; I I
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| I herein or anything incidental thereto. ggg I
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| 2i BY MR. SHILOBOD:
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| 1 ,
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| 3 Q Is the Johnstown Economic Development Corporation 4 a subsidiary company?
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| 5' A It is, i i
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| l l . 6 Q Is the Johnstown Industrial Development Corporation l
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| 7 a subsidiary of the Johnstown Area Economic Development !
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| 8 Corporation?
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| 9 A It is.
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| 10 Q Is the Johnstown Industrial Park Corpcration also 11 a subsidiary of Johnstown Area Economic Development Corpora- .
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| 12 tion?
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| 33 S:
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| A It is.
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| M Q ~What is the asset value of JARI?
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| 15 l A The asset value of JARI and its subsidiaries is 16 approximately $36 million.
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| 17 Q Could you give us a brief history of JARI, how it 13 came about?
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| "l A In June of 1973, the Bethlehem Steel Corporation
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| 'o made an announcement that they planned to reduce the work
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| ~
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| ,1
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| ~
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| force in the Johnstown plant by 4,000 workers and reduce the ,
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| 92 l payroll by S40 million.
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| ~
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| ^3
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| ~
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| Simultaneously, they said to the business communi /
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| i 94
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| ~
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| that if an organization which encompassed all parts of the U
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| community were designated, they would pay S50,000 to have the JL COMMONWEALTH RCPCRTING COMPANY 717' 761 7150 !
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| r6 1176 l
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| I i
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| i
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| ( ) 1: Urban Land Institute of Washinoton, D.C. come into Johnstown !
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| <_/ .
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| l 1 2l 1
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| to make a study and prepare a report to minimize the economic 3 damage of their reduction in the work force and also to f
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| 4! prepare a plan that would help maximize the possibility of I
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| 5 economic growth for the area.
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| 6 At that time, there were two organizations that I
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| 7 could have been considered. One was the Greater Johnstown a Committee, and the other was the Greater Johnstown Chamber 9
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| of Commerce.
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| 10 But at that particular time, orcanized labor was 11 l not active in either the Chamber nor the Greater Johnstown i
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| I
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| ; 12 ' Committee.
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| ("/
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| N. _
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| 13 Bethlehem, in their offer, indicated their wish that 14 organized ~ 1 abor would become a part of whatever group was 15 designated for the ULI report.
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| 16 Under the leadership of Walter Krebs, the publisher
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| " of the " Tribune Democrat," the Johnstown Area Regional 18 Industries were incorporated and founded.
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| 19 I became the first Chairman of JARI, and the same 20 officers have been in place since that time.
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| 9 1 The Vice-Chairman was Gwynne Dodson, a #ormer 22 President of Pennsylvania Electric. The second Vice-Chairman 33 is Andrew Koban who was the Subregional
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| (^ at that time
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| ~
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| 't
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| ~
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| Director of United Steel Workers and today is Assistant to 5
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| the President, Lloyd McBride, of the Steelworkers.
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| COMMONWEALTH REPORTING COMPANY s717 761 7150
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| r7 .
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| 1177 l
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| l l
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| 1 1 The Secretary is Robert Gleason, Jr. AnotherVicjh I
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| 2l Chairman was Fred Pasaquerilla, President of Crown American Corporation. The Treasurer is Richard Edwards, President of 3l 4 the Johnstown Savings Bank.
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| l Q Approximately how many people are there on the ,
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| 5l
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| . 6 I Board of Directors of JARI?
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| i 7!, A Thirty-two. /
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| l I 8I Q Are they all businessmen and/or industrialists? ;
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| 'd A Well, it is a broader cross-section than that. We 10 l have -- I would say probably 50 percent are businessmen, maybe 11 a little higher than that, and we have various elected ,
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| i 12 officials of the county and the city. Ne have several 13 ! representatives of oraanized labor'. '
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| i 34 I
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| Q 'Could you give the Hearing Examiner -- or the 15 Administrative Law Judge some examples of the major projects 16 that JARI has carried out in the last severcl years?
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| i II Well, the first -- I will start a different way.
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| A I8 One of the points that ULI, the Urban Land Institute, report t
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| 19 made to us, which we found very surprising at the time, was 20 that they said that approximately 80 percent of the growth 2I would have to come from within the existing businesses. l
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| ~
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| 22 We had a great amount of activity in helping the j
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| '3 We were very fortunate in being able to i local businesses.
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| h 94 1
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| ~ q attract, af ter a long period of courtship, the Mideastern
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| ~5 l head office of the Metropolitan Life Insurance Company.
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| 4 m __
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| r8 1178 i
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| 1 They came into our community, and we provided them 2l with 75 acres of land as our contribution. They built a $10
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| +
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| 3i million building with 200,000 feet of of fice space.
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| l 4i They currently employ approximately 450 people. It I
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| 5 is one of the ten regional head offices of Metropolitan Life.
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| . 6 We have succeeded in attracting the National Valve i Company which has had three expansions since it moved into our i
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| t 8l industrial park.
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| 9, Our most recent ccapleted project has been the 10 construction of the Abex Wheel Company which is the largest i
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| 11 wheel plant in the world, a total investment of-about $91 12 million.
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| 13 Of this amount, JARI, through i.ts efforts, provided 14 a little over between S7 million and $7.5 millicn to bring about what 15 we think is an extremely happy business marriage.
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| 16 We have a large industrial park as a result of this 17 operation served by railroad which was installed --
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| ! 18 constructed I guess I should say.
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| I 19 ,
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| Abex takes 192 acres of the park and we have about 20 400 acres remaining.
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| 21 They are currently employing about-400 people.
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| 22 l They have plans to enlarge with two additional plants on the -
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| , 23 . acreage. A site is already prepared, and we are looking.
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| !O ,4 forward to the-day when they will employ'700 people, i
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| 25 Q. Are they going to employ. electric arc furnaces, do f COMMONWEALTH REPORTING COMP ANY - i717 761 7150 1 4
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| r9 ,
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| 1179 ,
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| I I you kncw? ggg.
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| 2{ A They have three electric arc furnaces presently under operation and anticipate the installation of a fourth. l 3f 4 Q ArethereanyotherentitiesinJohnstownthathavef i
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| 5 been encouraged to install electric arc furnaces? l I i
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| . Gl A Bethlehem Steel is in the process of installing ;
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| I . i 7! two very sizeable electric arc furnaces which will have an l 1
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| 1 3 annual capacity of $1.2 million tons of steel, and there !
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| 3! are also electric arc furnaces in the Johnstown works of the i
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| 10 United States Steel Corporation. {
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| l i
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| 11 { Q Is there any move afoot concerning the synthetic .
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| l 12 ' fuels plant in the Johnstown area?
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| O.!
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| I3 A About five weeks ago, the Keystone Project which is ,
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| 14 a consortium of seven companies -- seven organizations, I 15 should say, of which JARI is one. The Keystone Proiect is 16 headed by Westinghouse Corporation and includes Dravo !%
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| 17 Corporation, Air Products, Incorporated, Davey McKee out of d
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| 18 Cleveland, Energy Impacts out of Pittsburgh, Bethlehem Steel to Co rp,o ra tion , and JARI as the original seven members; and as ani i
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| 'O
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| ~
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| ~
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| associate merter, we have ARCO or Atlantic Richfield. :
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| e 91
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| ~
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| We have been granted by the Department of Energy ,
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| I 09~~l S4,850,000 to prepare a feasibility report for the construction
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| '3
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| ~
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| of a plant in the Cambria-Somerset area to convert 18,000 s; 7
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| ~4 i of coal a day into 100,000 barrels of methanole a day.
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| ~s It is a project that Westinghouse, who is the lead g COMMONWEALTH REPORTING COMPANY 4717 761 7150
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| e)
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| '%ed~4) /h RQ+ # ___
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| %;lW, TEST TARGET (MT-3)
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| I.0 16 M LM 5 E3 HE
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| . as -
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| 1.8 l
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| 1.25 1.4 1.6
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| * 6"
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| #4 4%
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| Y>,,D +M tk,,
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| | |
| .e>'Sp>
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| 92Ip' +@$+ 8'q,
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| /////
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| S
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| \\\\ $.-
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| ///// /df#
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| e~ 4
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| #+$' - , - T-TEST TARGET (MT-3)
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| '%'s 1.0 lllm EM W M Bu m zu
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| ==
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| l,l f,
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| * bN l.8 1.25 1.4 1.6
| |
| < c ,
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| 4 b% +<$+
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| 'N
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| *%$s*//?' i, Q<v(
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| r10 ,
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| 1180 l
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| l l
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| [~ ; I of the consortium, proiects to cost about S2.5 hillion, to
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| ,/
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| (
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| 2 employ 2,000 people during construction and ultimately end up 3; employing between 300 and 500 upon completion of the plant.
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| 4 ,i It is the largest -- it will be, if it comes to I
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| 5i fruition, the lar. jest federal project ever constructed in the
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| . 6 [ Ccmmonwealth of Pennsylvania.
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| l :
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| 7 0 Would this project, to your knowledge, have any l.
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| 8l particular needs for electricity?
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| 9 A Westinghouse estimates that their needs for In addition, we 10 l electricity will be 11.4 megawatts per hour.
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| I 11 , will need 18,000 tons of coal a day. This will require 12 additional mines; that will put to work many thousands of s ;
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| 13 l people in the coal mining industry other than the figures 14 that I have quoted concerning the plant itself.
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| I3 Will the mines have any particular needs for Q
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| 16 electricity?
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| 17 A I believe the mines are great consumers of electric I8 power.
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| 10 Q When you consider the electric arc furnaces at 20 Bethlehem and U.S. Steel, Abex and the synthetic fuels plants 2I and the mines that would be associated with them, in your 22 opinion, is Johnstown a major customer of Penelec? The
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| '3
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| ~
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| Johnstown area, is it a major customer of Penelec?
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| 04
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| - i A I would say yes.
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| 3 Q To the best of your knowledge, is it one of the COMMONWEALTH REPORTING COMPANY '717' 761 7*50
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| rl1 1181 i
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| l 1! principal areas of heavy electrical use within the corporatjlh's 2 service area?
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| 3 A I c an' t truly comment on that, except that I can 4 say that without any question, these operations have t
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| 5 tremendouc demand for electrical power. Where it stands in 6 Penelec's operations, have no idea. l l
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| 7 JUDGE CASEY: Excuse me, Mr. Shilobod. You j
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| - 8 mentioned activities in the synthetic fuels. This was 0' converting bituminus coal into methanole; is that correct?
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| 10 MR. SHILOBOD: That's correct. ,
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| 11 il JUDGE CASEY: Is that methanane gas with alcohol? !'
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| l 12 THE WITNESS: It will be a liquid.
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| 13 MR. RUSSELL: A form of alcohol. !
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| i I4 JUDGE CASEY: Is it a form of alcohol?
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| i 15 THE 6.'ITNESS : I believe it is.
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| IG MR. SHILOBOD: It is methane alcohol.
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| 17 JUDGE CASEY: Go ahead.
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| 18 BY MR. SHILOBOD:
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| 10
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| ,Q There was recently another major flood in the 20 Johnstown area; is that correct?
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| 21 We had a flood in July of 1977 and it was A
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| 22 particularly damaging and catastrophic to the community, ana ,
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| i 23 it was particularly discouraging to the activities and the .
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| 24 efforts of JARI.
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| 25 In 1973, when Bethlehem made the announcement, we l e n u u A M tAIE t I _TM _ Q ronD TINII _ coMDANYm717_7G 1,71SQ
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| rl2 1182 .
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| I 6
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| I l l 1 I' had even then a high unemployment rate. Between that and 2 June o f 19 77, in other words, in a four-year period, and based 3l upon state figures in June of 1977, the unemployment rate i e ;
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| 4 in our SMSA, which is Cambria and Somerset Counties, was at l 5 an all time low 4.2 percent, the unemployment.
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| * 6 We were at a record high. We had more people 7 employed than we ever had at any other time;and probably 3
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| more significant than that, between June of 1973 and June 9
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| of 1977, just prior to the flood, the percentage of employed 8 IO l people in.the metal works and basic industries was reduced i
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| f II l' from 24 percent to 20 percent. So, we had achieved a major i
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| 12 ) strive forward in diversifying our area.
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| 13 I I don't mean to indicate by that that JARI was I4 - responsible for all of that, but the economic picture, the !
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| economic atmosphere has become.particularly attractive. i 16 Young people are returning; and for the first time in~probably; I we had an increase in the population of our three decades I8 SMSA. ;
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| i is ! The flood was tremendously damaging to_our economy.
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| l j .
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| i no '
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| Bethlehem sustained huge losses and reduced their work force..j I
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| 21 We lost the biggest department store in the downtown area, -j -
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| 42 plus quite a few other stores that did not reopen after'the
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| ~
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| ~
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| 23 3
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| flood.
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| . v(m1 y- l flany businesses suf fered very significant ' financial i losses, and .we are struggling and 'having a great deal of 'I COMMONWEALTH REPORTING COMP ANY . 47171.761 7150
| |
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| r13 i 1183 1
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| l l
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| ! 'l
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| . ;1 I difficulty even now in recovering from the flood.
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| 2'I Everything prior to the flood had Faen rosy. Since !
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| i i 3 it has become more and more of a struggle.
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| lthen, l 4
| |
| Q Was there a loss of jobs associated with the flood?
| |
| i 5( A The unemployment rate which had been 4.2 in June 6 jumped to somewhere in the fall, I remember, of around 19 7
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| pe rcent . Today our unemployment rate is around 12 percent:
| |
| 8 so that we have not succeeded in getting it anywhere close to j 9 I that.
| |
| 10 l Q Throughout these various functions that JARI has 11 l carried out and promoted, has it ever done anything to 12 ! assist Penelec?
| |
| 13 A Yes. I made two trips to California with the 9: j i
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| i I4 former President of Penelec, J. Franklin Snith. On one of l
| |
| 15 these trips, we were accompanied by Congressman Jack Murtha.
| |
| i 16 We went out to EPRI which is Electric Power Research Institute.
| |
| Q Is that the Electric Power Research Institute?
| |
| 19 A Yes, the Electric Power Research Institute; in an
| |
| 'O
| |
| ~
| |
| effort to try to get EPRI to make a grant for a pilot project ,
| |
| 21 of developing a low btu gas from bituminus coal to be put into:
| |
| l n a
| |
| ~~ i one of Penelec's generating plants at Seward. i'
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| '3
| |
| ~
| |
| In spite of our two trips there and in spite of the
| |
| ) 24 efforts of Congressman Murtha, we did not succeed in ever 25 i getting the grant made.
| |
| CC 4McNWEALTH REPORTING COMPANY (7171 761 7150 -
| |
| | |
| rl4 1384 I
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| i I
| |
| l
| |
| .() 1 The most that we got was an encouragement to file
| |
| * i' 2 an application. The cost of this, as I recall, was about J 3 $250,000, and Penelec and JARI at the time simply decided that that was too big a risk to put out and file the application.
| |
| 5 Q Did you do anything with respect to land for 6 Penelec?
| |
| :s 7 A JARI never did anything with respect to' land. We a of fered to Penelec at one time to make the amount o2 our D financing that was available under Industrial Development 10 Authorities available to Penelec; that they could use our 11 credit which would have helped them in their financing.
| |
| 12 The Redevelopment Authority of Johnsttwn in its (q ./
| |
| 13 efforts to attract Penelec corporate offices to remain in 14 ' Johnstown had a redevelopment project in which they, at_a cost 15 of about $4.33 per square foot, developed slightly under four
| |
| :l IG acres -- I~think it was~ 170,000 square. feet -- and sold it to 17 Penelec for 39 cents a square foot to make this- land available I 18 for the corporate of fices.
| |
| 10 The remainder.of the land, which Penelec has in 29 their corporate parcel, _was bought privately by Penelec. The 21 price ranged 'anywhere from $1.70_ a square foot to S6.90-some 22 per square foot. So, this was not_an activity of ,P ".2, but
| |
| ~
| |
| 23 this was an activity of the City of_Johnstown.
| |
| s I \-)
| |
| ' 24 Q Did JARI do anything with respect to offering.its 25 borrowing capacities to the~ steel ~ companies to encourage-I- COMMONWEALTH REPORTING COMPANY; 17171 761 7150
| |
| | |
| rl5 - 1185 i'
| |
| 1 i
| |
| I their use of electric arc furnaces? ll 2! A We made the same offer to Bethlehem that we did to I l
| |
| Penelec; that they could use our borrowing capacity. {
| |
| 3l
| |
| .I We had some discussions with the general manager
| |
| 'l I
| |
| }
| |
| 5 of the Johnstown plant and some correspondence with the !
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| , 6 Chairman of the Board of Bethlehem Steel about the possibility
| |
| ~' ,
| |
| I I' of JARI constructing, owning and leasing the transformer 8
| |
| I plant that would be required to put power into the Bethlehem Ul!arc:
| |
| furnaces.
| |
| I IU
| |
| !, This never materialized because under the law that i
| |
| 11 I existed at that time and has since changed, I think effective I
| |
| l January 1, 1980 -- and this was 1979 -- under the law that l
| |
| existed at that time, you could not use the IDA money, {
| |
| i l
| |
| 14 ) Industrial Development Authority money if the total cost of is the project exceeded $5 million and it if were -- if this I, i
| |
| I 16 amount of money was being spent in one municipality.
| |
| 17 We did discuss with Bethlehem -- since the total cost I
| |
| 18 of the electri: arc furnaces was over $100 million, we did j la discuss the possibility of putting the transformer plant --
| |
| i
| |
| ~O the arc furnaces are in Franklin Borough. We discussed the j
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| ~l,
| |
| 'l
| |
| ~
| |
| possibility of putting the transformer plant in the Borough of East Conemaugh with JARI owning it and leasing it. I, 23 i Q All right. Mr. Kunkle, without going further on 24 that, let me ask you this: you had indicated a number of l i
| |
| I 25 l occasions where JARI's borrowing capacity had been of fered for!
| |
| @@MMONWGASTH REPoRTIN3 COMPANY f717 761 7150
| |
| | |
| r16 1186 q
| |
| s.
| |
| ~ ') I; Penelec's use. What does that mean? Is that anythir.g of any 2l significance?
| |
| A Well, I think it is simply -- I think it was only 3l 4
| |
| _on one occasion that we 1. de the offer.
| |
| ' il ,
| |
| 5 j Q I am thinking in terms of interest rates. Is that 6;
| |
| of any significance?
| |
| 7 Well, money that you get through an industrial i
| |
| A I
| |
| 8! development authority is usually 2 to 2.5 percent below the i
| |
| i 8!, going rates at that time, at any time. The time that we set i
| |
| 10 ! it forth was when they were talking about enlarging the I
| |
| II l building or putting a new building on their corporate head-i 12 gy quarters.
| |
| t
| |
| ,i .
| |
| We were simply trying to help them in trying to --
| |
| 4I Q 'Let me ask you this: during the activities of JARI, was there any importance to having the actual presence of 16 '
| |
| i corporate of ficers in Johnstown?
| |
| i l 17 A Mr. Verocchi who is a member of the Economic 1
| |
| 18 l Development Corporation Board was extremely helpful on two 19 occasions during the Abex negotiations.
| |
| 90 l ~
| |
| There were two times when those of us who were more
| |
| 'I'
| |
| ~
| |
| active in the negotiations and the development and the work activities between Abex and JARI--when major decisions l 03 concerning electric power and Abex came up, we called Bill; t
| |
| I 24 l i and on each occasion, Bill joined us in a very brief period 25 of time and right there on the spot to resolve it.
| |
| COMMONWEALTH REPoRTl*lG COMPANY 17171 761-7150
| |
| | |
| r17 1187 -
| |
| l 4
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| I i
| |
| i I The one that I rememberrelatedtothelocationoll 2 l! some towers -- the relocation of some towers , I should say, 3
| |
| on the Abex site.
| |
| 4 Q What was the significance of him being in Johnstown ;
| |
| 5l with respect to your activities?
| |
| '3
| |
| * A We got a prompt decision and we got great coopera-I tion, and it was very beneficial in our progress with Abex.
| |
| 8 Q Is it a major economic development activity?
| |
| 9 A Without question. Penelec has been very actively IO l concerned, very helpful.
| |
| II Q As the Chairman of the Board of JARI, did yoi sign I2 the affidavits attached to the petition to intervene and gg[
| |
| I3 the various other petitions that were filed with this
| |
| " Commission? l 15 A I did.
| |
| 16 Q Do you have any position with respect to, number l 17 one, the movement of Penelec headquarters out of Johnstown?
| |
| 18 I i
| |
| A Well, we naturally were unhappy at the thought of 19
| |
| . this, but we also have found it very difficult to understand, i
| |
| 'O because, as we look at it --
| |
| 21 O I am talking about just the movement of the corporate offices without consideration, if you will, to the 23 combination management.
| |
| 211' i A It is our belief that the customers of Penelec are [
| |
| t "5
| |
| ~
| |
| I entitled to a corporate of fice within the service area. i I
| |
| a NWCMMiDO R[iP@RTFfRf6 @@ZPMY (2709 R~)D-7199
| |
| | |
| r18 1188 ;
| |
| 1 Q Why is this important?
| |
| 2 I think it is important in order that we have --
| |
| A 1 i
| |
| 3l I think it increases our chances of having quality services. .
| |
| 4 It increases our chances, I would think, of having more
| |
| . s 3
| |
| reasonable rates.
| |
| 6 We realize that Penelec could locate their corporate 7 offices somewhere othe ,than Johnstown within the service 8
| |
| area, and our position which has been stated several times on ;
| |
| 9 that if Penelec proposes to move their this is simply this: ;
| |
| i 10 corporate offices outside the service area, that we are going Il to be combative.
| |
| 12 On the other hand, if Penelec is going to put their ,
| |
| (' I3 corporate offices within the service area, we are going to be ,
| |
| 94 competitive. ,
| |
| IU We have proven our ability to be competitive by 16 ll the action that was taken in making part of their. site l
| |
| I l available at a very low cost. ,:
| |
| la We simply think over the years that we have 'had good I 19 se rv. ice . We think that they have been a fine utility, and .!,
| |
| l 20 t
| |
| we think that we deserve a continuation of that service.
| |
| ~l Q With the coming of the various electric arc furnaces.
| |
| ,,. il
| |
| ~~
| |
| and the synthetic fuel plants, is their actual presence of any 23 '
| |
| importance to you?
| |
| 24 l A It is not only_ of great importance.- It is almost 25 of prime importance , and that probably dif ferentiates us , I-l COMMONWEALTH REPORTING COMPANY 't7171 761 7150 t ,-- - . . _ ,
| |
| | |
| r19 ,
| |
| 1189
| |
| ' I guess, fromErieorAltoonaorTowandaoranyotherareath$h i
| |
| 2j Penelec serves.
| |
| 3 We are -- our economy has great problems. We have 4 been struggling since the flood. We need every bit of help 5 that we can get.
| |
| 6 With Abcx, U.S. Steel and Bethlehem all having ,
| |
| 4 I 7, electric arc furnaces and with there going to be an increased I
| |
| i .
| |
| 3 demand for electrical power for the additional mines, plus 3 the proposed construction of the syn fuels plant, the power 10 becomes one of the most single important items to underpin our, 11 ' economy.
| |
| 12 Q Doyouhaveanypositiontotheconceptofcombinllg-13 Penelec management with Met-Ed management as one entity as has
| |
| '4 been proposed?
| |
| 15 I A We strongly feel that this is a disservice to the 16 We think it is against the public interest, Penelec customer.
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| I and we find it a little difficult to understand, because we 18 have always had a separate, independent group of corporate 13 o f fice rs .
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| 9
| |
| ~0 We have had an independent corporate structure. We
| |
| ~1 can't understand why we are not entitled to that; and particularly around the Johnstown area with our great
| |
| ~~
| |
| 23 dependence upon power, I guess our feelings are compounded. ggg ,
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| '4
| |
| ~
| |
| Q Is there any concern with the combination with ,
| |
| ~
| |
| Met-Ed specifically?
| |
| _ _ . . . . . . . . . . . . . . . . . _ _ _ _ . . . . _ _ . . . . . ~ .., ,.......
| |
| | |
| r20 ,
| |
| 1190 l
| |
| ()
| |
| 1 A Yes. We question the wisdom of it. Penelec has 2 been the larger; they have more customers; they have greater 1
| |
| 3 revenues; they have a bigger geographical area; they have i
| |
| 4 more employees. I think they are a more vital part of GPU.
| |
| 5 Penelec has been a sound, financially strong utility,.
| |
| . 6 You will read many places where Met-Ed faces-the possibility n
| |
| 7 of bankruptcy. .
| |
| 8 Q Does that give you any concern?
| |
| 9 A It gives us a great deal of concern.
| |
| ; 10 Q Why is that?
| |
| l 11 A Should Mer-Ed go bankrupt and they have a combined l f
| |
| 12 administrative staff -- corporate staff -- Penelec could -
| |
| O 13 possibly face a greater problem.than in being independent.
| |
| I j
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| i 14 ' What we need is a strong, viable,. independent ,
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| l I.
| |
| 15 electric utility, and it is our effort to try to revitalize
| |
| -1 16 our economy. 1 II MR. RUSSELL: If Your Honor-please, I don't'mean to i
| |
| 18 interrupt this unduly, but.I move to strike theftest'imony l' i
| |
| 19 which speculates as to what micht hapoen if Met-Ed were to l 20 go into bankruptcr; it is sheer speculation. ;
| |
| i 2I I believe that the-witness is MR. SHILOBOD: l 22 testifying as to why he has these concerns, and this is one I 23 of the issues that'was raised.by Mr. Russell.
| |
| ' O' 21
| |
| -JUDGE CASEY: The objection is overruled. We will. j-
| |
| ' N 5
| |
| - pe rmit ,the answer, . Mr. Russell . .:
| |
| I k g CoMMoNWEAt.TH REPORTING COMPANY s717, 761 7150
| |
| | |
| r21 1191 ,
| |
| i 1 MR. SHILOBOD: If Your Honor please , rather than lll 2l going on further with this, what I propose to do is simply l
| |
| 3l at this time introduce Mr. Burkhard and Mr. Uzelac and then 4 make them available 'or cross-examination, all three of them l at once as has been requested. Is that permissible?
| |
| , 6 JUDGE CASEY: Is that satisfactory?
| |
| 7 MR. RUSSELL: No problem, a Nhereupon, ,
| |
| 9 JOHN W. BURKHARD l 10 having been duly sworn, testified as follows:
| |
| 11 DIRECT EXAMINATION 12 BY MR. SHILOBOD: g!
| |
| Wi 13 Q Mr. Burkhard, would you state your name end 14 1 business address?
| |
| ' i i
| |
| 15 A John W. Burkhard; my business address is 607 Itain !
| |
| i 16 Street, Johnstown. ;
| |
| 17 Q Mr. Burkhard, are you the President of the Johnstown; la Eucacaic ne velopment Corporation?
| |
| i 19 A That is correct. f I
| |
| 20 What is your position? !
| |
| Q !
| |
| 21 I am the paid chief operating executive for that A
| |
| 22 corporation. ,
| |
| 23 Q Did you also sign the af fidavits attached to the O.
| |
| various petitions that have been filed with this Commission j 25 before this hearing? ,
| |
| @Q2XoRM2flafL57H CXIPRRTW3 MMPANY 1717' 76171PTO
| |
| | |
| r22 1192 I
| |
| t i'
| |
| () 1 A That is correct.
| |
| i 2 Q Did you take that action as an officer-of the 3 Jchnstown Economic Development Corporation?
| |
| 4 A I did.
| |
| 5 Q Do you continue to oppose the proposed' management' 3
| |
| . 6 me rger?
| |
| .\
| |
| ? A That is correct.
| |
| 8 MR. SHILOBOD: I would like to move on to Mr. Uzelac.
| |
| 9 Whereupon, 10 RICHARD M. UZELAC 11 having been duly sworn, testified as follows: l l
| |
| 3 12 { DIRECT EXAM 7..ATION
| |
| . ,.) I 13 BY MR. SHILOBOD:
| |
| 14 0 Would you state your name and ousiness address? ,
| |
| ' 15 A My name is Richard M. Uzelac; 403 Fisher Building, 16 607 Main Street, Johnstown, Pennsylvania.
| |
| 17 g - Mr. Uzelac, are you the-Secretary of the Johnstown 18 Industrial Park, Inc.?
| |
| 1 19 Yes, I am.
| |
| .A J Did you also sign the variour. affidavits that were Q
| |
| 21 attached to these petitions filed before the Commission?
| |
| 22 I did.
| |
| ,A 23
| |
| ~
| |
| MR. SHILOBOD: I have just a few questions'of Mr.
| |
| 24 Uzelac on some items.-
| |
| 25
| |
| ' COMMONWEALTH REPCRTING COMPANY (717' 761 7150 _.
| |
| | |
| r23 1193 4
| |
| l 1 BY MR. SHILOBOD:
| |
| ! i I '
| |
| 21 Q Mr. Uzelac, are you familiar with the public I
| |
| L 3 reaction to the Penelec announcement of its intent to move !
| |
| 4 out of Johnstown? )
| |
| 5 A You couldn't help but be famils.ar with it if you I l 6! lived in Johnstown. It, occurred, of course, in the year 1980,!
| |
| 7 and it was the main topic of discussion for approximately two
| |
| ! I E weeks in Johnstown beyond the main topic of discussion, andit!
| |
| 9li appeared in the " Tribune Democrat" on a daily basis. It took i i
| |
| to the front page coverage which is unusual for the " Tribune" to :
| |
| I !
| |
| 11 i publish stories about local information on the front page. l
| |
| ! i 12 There were pictures, editorials, articles, advert lff l
| |
| 13 ' ments, the full gamit. !
| |
| 1 14 ' As Executive Director of JARI, I was also bombarded 15 with many phone calls from many outraged citizens of the are 16 wondering what JARI's concern would be to try to save jobs in II '
| |
| the Johnstown area.
| |
| la Q You mentioned advertisements in the newspaper. What.
| |
| 19 were.you talking about?
| |
| 20 The " Tribune" ran a special, I believe it was.
| |
| A l
| |
| 21 I would say if it was an advertisemEntt, MR. RUSSELL:
| |
| 22 I think it would speak' for itself. You could put it into I 23 evidence or offer it. jgg
| |
| . 24 The issue itself of the newspaper?
| |
| MR. SHILOBOD:
| |
| 25 MR. RUSSELL: Yes.
| |
| 4
| |
| | |
| r24 1194 3
| |
| I i,
| |
| l MR. SHILOBOD: Yes, if you wish; I would certainly.
| |
| /'~]
| |
| (/
| |
| ii 2 have no objection to that.
| |
| 3' MR. RUSSELL: At least of fer it , so we could take a 4 look at it.
| |
| 5 JUDGE CASEY: Under the best evidence rule, I guess 6
| |
| i the advertisement would establish what you want to say.
| |
| 7 MR. SHILOBOD: ,I don't mean to indicate, Your Honor,! .
| |
| S that it is a single advertisement. I am indicating a volume 9 of pages in a newspaper, one af ter another, of various t
| |
| to I advertisements and businesses petitiong Penelec to stay within 11 ' the Johnstown area.
| |
| .- s 12 '
| |
| l If Mr. Russell intends to evoke the best evidence
| |
| ) !
| |
| 13 rules, I request leave to file that document as a late iled 14 j exhibit in this hearing as JARI Exhibit Number 2.
| |
| 15 MR. RUSSELL: I must confess that that is a less 16 ' than satisfactory arrangement. If he wanted to bring this out, 17 he should have brought the evidence here today tc produce it, 13 to show it so we would have a chance to examine it and see 19 whether it is properly admissible or not.
| |
| 20 MR. SHILOBOD: If Your Honor please, it is not being 21 presented for the contents of the specific advertisement:
| |
| 22 rather, it is merely being presented to show the state of 23 conditions in the Johnstown area.
| |
| 24 JUDGE CASEY: To show the public concern.
| |
| 25 ' MR. SHILOBOD: That i the only reason it is being COMMONWEALTH REPORTING COMPANY 717 761 7?30
| |
| | |
| r25 ;
| |
| 1195 :
| |
| I l
| |
| i l'
| |
| l I
| |
| presented. llh 1
| |
| 2 JUDGE CASEY: Did anybody keep a record or a f, l
| |
| 3' scrapbook; did your organization?
| |
| 4 i
| |
| THE WITNESS: Yes, we have a record, and we have 3 that issue of the " Tribune," in which well over 200 businesses I
| |
| 6l and commercial entities' in the Johnstran area made their 7! feelings known and where they asked Penelec to stay, to l
| |
| reconsider the fact that Penelec had been a good neighbor and 8l: l' 9l that -- l 10 i MR. RUSSELL:
| |
| I thi..k the gentleman is going on overt l j 11 the objection that I have made.
| |
| 12 MR. SHILOBOD: I will go on to -- unless you haveg I3 further objection, I will go on to another subject.
| |
| I4 I ' JUDGE CASEY: It appears as though the material i
| |
| 15 l might be just too voluminous to reproduce and distribute.
| |
| 16 Other than that description of it, MR. SHILOBOD:
| |
| II I see no particular use of it in the record; and if Mr. Russell I8 prefers, I certainly have no objection to putting it in.
| |
| I IU As an exhibit?
| |
| JUDGE CASEY: ,
| |
| ~O l MR. SHILOBOD: As an exhibi,t.
| |
| 'l
| |
| ~
| |
| MR. RUSSELL: The record already has the subject matter spread on it, so I guess we could go on to whatever is 23 next.
| |
| ~
| |
| JUDGE CASEY: First you wanted it and now you don't
| |
| '4 l I
| |
| 25 .
| |
| want it.
| |
| COMMo^TMrfALT@ fMPPSRTING COTPONY v7971 721 7150
| |
| | |
| r26 . 1196 I I
| |
| ()' 1 MR. RUSSELL: I can move to strike the testimony of 2 Mr. Uzelac in the area, but I think we had better get on and 3 finish the hearing today.
| |
| 4 JUDGE CASEY: I.think he just made a broad, general 5 statement that there was such advertising, and he didn't
| |
| . 6 attempt to characterize exactly what it said or what was l A 7l behind it, but suit yourself, if you want it in the record.
| |
| I f
| |
| 8l MR. RUSSELL: As far as we are concerned, you .ay 9 proceed.
| |
| 10 1R. SHILOBOD: I have one other question regarding 11 the news article, and I don't mean to in any way impinge icon 13 Mr. Russell's objection.
| |
| /"]
| |
| %J 13 BY MR. SHILOBOD:
| |
| 14 Mr. Uzelac, you indi'cated that it was unusual for-0 15 the Johnstown " Tribune Democrat" to make local news a front 16 Can you describe.the front page item that was page item.
| |
| II run, specifically with respect to the content or the headlines?
| |
| I8 We l.' . I am not sure that I understand your question.
| |
| A l
| |
| 19 l I can recall one particular morning looking at the front page.
| |
| 20 It was around Super Bowl time, and Super Bowl ime in'1980 I
| |
| 91
| |
| ~
| |
| was important in the Johnstown area because the Steelers were 2 ~''
| |
| involved. .
| |
| 23 f3 I recall seeing a sign on the front of a building
| |
| (-) ,4 that said, "Go Steelers, Penelec Don't Go," things of this 25 nature. There were an awful-lot of articles and headlines COMMONWEALTH REPORTING COMPANY (717' 761 7150
| |
| + ~
| |
| | |
| r27 ,
| |
| 1197 1
| |
| l l
| |
| l !
| |
| I involved.
| |
| Was this activity prior to your move to join in 2ll Q 3 this petition to intervene before the Public Utility Commissiop?
| |
| I 4,i A Some of it was, yes.
| |
| f 5! Q Was there any move by residential consumers of l
| |
| * 6' electricity?
| |
| { cs 7 A Yes; I think probably even a more vivid example of I
| |
| 8 how the community felt was on January 25 of 1980. A bus ,
| |
| 0! caravan to Harrisburg, to the Public Utility Commission was !
| |
| l 10 t sponsored in which between 200 and 300 residents of the l i
| |
| 1: Johnstown area came on a bus trip to appear before the PUC l 12 to express their opinion. gg 13 They brought along with them over 9,000 letters {
| |
| 14 i from various people in the Cambria-Somerset County area, at i
| |
| 15 !
| |
| i least the Penelec District are.a, asking that Penelec reconsider i
| |
| 16 l this corporate merger. t II JUDGE CASEY: Did you say January 5? ;
| |
| 18 THE WITNESS: January 25.
| |
| 19 j . BY MR. SHILOBOD:
| |
| 20 0 Was there any particular aspect of this move that ;
| |
| 21 was of particular concern to the public at the time? j i
| |
| 90
| |
| ~'
| |
| A I think there were -- the way I read it or at least t 1
| |
| 23 the interpretation that I got from some of the people that ggg I 24 , discussed it with me at that time, from the public's stand- ,
| |
| 5 point, an overcrying issue at that time was, of course, the f i
| |
| L -- m
| |
| | |
| r28 1198 i
| |
| i 1
| |
| i 6
| |
| g 7- l
| |
| ( ) !' job loss in Johnstown following the flood and the fact that i l
| |
| 2' so many jobs had already been lost.
| |
| : 3. I think there was a second area, a fear of what 4 Three Mile Island might have to do with this thinking.
| |
| 5l MR. SHILOBOD: I have no ftirther questions of Mr.
| |
| . 6 UZelac. I would present all three of them for Mr. Fussell's 7f cross-examination. .
| |
| l 3l I went somewhat furtrar than I had intended 9 originally. Nevertheless, I think --
| |
| l 10 ! JUDGE CASEY:
| |
| Would you like a five-minute recess I
| |
| 4 11 before you begin cross-examination?
| |
| / 12 MR. RUSSELL: All right.
| |
| 12 i JUDGE CASEY: We will take a five-minute recess.
| |
| 14 (Recess.)
| |
| 15 !
| |
| 16 l l 17 IS ,
| |
| r 19 20 21 22 :
| |
| l, 23 24 l
| |
| 25 '
| |
| [ COMMONWEALT H REPORTING COMPANY e717' 7G17150 ]
| |
| | |
| Irl 1199 T2 1 JUDGE CASEY: Ue will go back on the record at i
| |
| 2, this time. I 3l Mr. Shilobod, do y it have so.mething to put on the 4 record?
| |
| I 5 MR. SHILOBOD: Yes. If Your Honor please, unless
| |
| . 6 Mr. Russell has an objection, I have two other Board nembers
| |
| /\
| |
| 7 of JARI present also. What I would suggest we do is I go 8 anead and introduce them also because they are part and parcel 9 and strong supporters of the action being taken, and then I i 10 can make them all available. f 11 MR. RUSSELL: Is this simply' cumulative? l 12 MR. SHILOBOD: I don't really think so. I don't 13 meally think so. I 14 MR. RUSSELL: Would they be saying anything j i
| |
| 15 different than has already been said? l 16 MR. SHILOBOD: One will. Perhaps the other would ,
| |
| a 17 i
| |
| have something slightly different.
| |
| I8 JUDGE CASEY: The only thing that I can think of, 19 they. may be testifying perhaps from a dif ferent vantage point.!
| |
| 'o We have heard from the Chairman of the Board of JARI and the l
| |
| 'I
| |
| ~
| |
| Executive Director and the Secretary of the Economic Develop-22 raent Corporation.
| |
| n
| |
| ~
| |
| MR. SHILOBOD: The Industrial Development Corpora
| |
| ~
| |
| tion; i L30 the Area Economic Development.
| |
| 5 MR. RUSSELL: I don't want to interpose an
| |
| ! CQMMQNWEALTH RC90RTING COMP ANY #71R 760 79 50
| |
| | |
| Ir2 1200 r
| |
| B 1 objection, but I do want to issue an admonition that the .
| |
| }
| |
| I haven't inter- i 2l reference to hearsay be held to a minimum.
| |
| i 3
| |
| I posed that in various places, but I would like to have them ;
| |
| I l 4 testify as to matters of their own knowledge. ;
| |
| l l
| |
| 5 MR. SHILOBOD: I think that is well-taken.
| |
| ~
| |
| 6 JUDGE CASEY: While they are testifying under oath, A
| |
| 7 and the Executive Direct,or testified that he was contacted 8 in his official capacity regarding certain matters, there 9, is some element of hearsay involved.
| |
| 10 MR. RUSSELL: I have not belabored the point, but 11 , I would like to have that kept in mind as part of the l.
| |
| 'l f- 12 testimony. ;.
| |
| : s. / l' 13 l JUDGE CASEY: All right. We will permit you to l
| |
| 14 identify the two members of the Board of Directors.
| |
| 15 Whereupon, 16 HOWARD PICKING l
| |
| a 17 i'having been duly sworn, i testified as follows:
| |
| IS DIRECT EXAMINATICr i-19 BY MR. SHILOBOD: l
| |
| . I 20 Q Would you state your name for the record, please? l e
| |
| i 21 A My'nameis Howard Picking, Jr. Do you-want my j 22 address? l l
| |
| 23 Yes. .I Q
| |
| ()' 24 A My address is the corner of. Main and Market Street, i t
| |
| 25 ' Savings Bank Plaza, Johnstown, Pennsylvania.
| |
| COMMONWEALTH RCPORTING CoMPANh #717' 761-7150
| |
| - _ . - . - - - , - - - - , _. .. - _ , . _ , . . -_ . . _ . . _ ,_ t.
| |
| | |
| Ir3 1201 *
| |
| , t Q Uould you please state your business positions?
| |
| 2 A I am Chairman of the Board of Trustees of the 3 Johnstown Savings Bank and retired Chairman of the Board of '
| |
| 4 Miller-Picking Corporation. l 5 0 Would you just give us a summary of the areas in I l
| |
| which you have business experience? !
| |
| 6 1 es 7 A Originally I was in the funeral business. I spent a many years in the funeral business, and the banking business; I 9l the manufacturing business. I have also some reasonable ;
| |
| 10 experience in agriculture and farming.
| |
| 11 l Q Are you a member of the Board of Directors of JARI? !
| |
| 12 A I am.
| |
| I 13 i O Do you also actively support the actions taken by i
| |
| JARI in these proceedings?
| |
| 14 j 15 A Yes.
| |
| 16 Q Is there some particular reason that you felt 17 particularly strongly why JARI should take this action?
| |
| 18 A P personally?
| |
| 19 Q Yes.
| |
| 20 A I personally fear for the economic we'll-1 ming of the ;
| |
| 21 Pennuylvania Electric service area and more particularly in i 22 the Johnstown area.
| |
| 23 Q Would you state specifically why?
| |
| , 21 A Basically I think that it would have a great l
| |
| 25 economic impact on the Pennsylvania Electric system to merge COMMONWEALTH REPORTING COMPANY 717 761 7150
| |
| | |
| 1r4 ll !
| |
| h 1202 l
| |
| () 1 or to unify a near bankrupt corporation with a healthy and - !
| |
| 2 viable company.
| |
| 3 0 What does this suggest to you?
| |
| l 4 A As a businessman, I don't think that I would merge j b
| |
| 5 a weak thing with a strong thing.
| |
| . 6 Q Is there something particular about public a
| |
| 7 utilities that concernssyou in this regard?
| |
| 8 A Well, I think I would like to say that I don't 9 believe that it is good business judgment to take a strong to viable company and merge it with one that is in the same-11 category that is a very weak company on the very of bankruptcy without weakening the strong unless there are certain f'}
| |
| A-12 ,
| |
| l 13 advantages to the business.
| |
| 14 Ordinary business might have tax advantages. In i i
| |
| i c- 15 the utility situations, they do not have a tax advantage in l l
| |
| 16 merging, taxwise and so forth. l 17 Secondarily, unless you bring something healthy and 18 new into a bankrupt situation, I don't think that you could .
| |
| 19 do the same thing with the same cast of characters or with l
| |
| 20 the same modus operandi. i l '
| |
| e i
| |
| i 21 l
| |
| I think we have to look at what is generally good, [
| |
| 22 sound business judgment and practices. The stimulus to l I i i 23 business is competitiveness, and in-the utilities you don't j g
| |
| : (^J r- 1 l n4 have that form of stimulus of . competitiveness. !
| |
| l 25 .They are, in a sense, performing their services, :
| |
| l I
| |
| SOMMoNWEA%TH REPORTING 3 COMPANY - 8717* 761-7150
| |
| | |
| 1r5 1203 3
| |
| as we understand it, non-competitively, and so therefore 2 i their management processes and their applications of manage-3, ment effort is directed to establisning a rate structure that 4; can be as reasonable as possible and motivated by profit.
| |
| l 5I I can only see in this situation that this merger 6 would tend to increase the detriment to the Pennsylvania 3
| |
| 7 Electric Company, a viable company of the two in the inter- l I
| |
| g Connection.
| |
| 9 Whereupon, 10 GERALD W. SWATSWORTH 11 having been duly sworn, testified as follows:
| |
| 1, DIRECT EXAMINATION 13 BY MR. SHILOBOD:
| |
| 14 0 .W ould you please sta.te your name and business l
| |
| 15 l address for the record?
| |
| l is ! A I am Gerald M. Swatsworth. I am President and
| |
| : 1 17 I Chief Executive Officer of the Johnstown Bank and Trust is; Company. Our address is 532-534 Main Street, Johnstown.
| |
| 19 Q Would you please state for the record your business 20 activities? '
| |
| 21 A O,f course I am a member of the JARI Board. I am 22 past Chairman of the Greater Johnstown Committee, which is 23 composed of some 63 executive officers of the businesses 24 surrounding the Johnstown community.
| |
| O 25 I am a member of the Executive Committee of the
| |
| } COMMONWEALTH REPORTING COMPANY s717 761 7150
| |
| | |
| l 1r6 1204 ;
| |
| I f
| |
| I,
| |
| ( ~ ') Pennsylvania Bankers Association, and I am Vice-Chairman of' I 2 the Jacob Fend Foundation, and I think that would pretty inuch 3 conclude some of the it m3 that I am active in. ,
| |
| 4 0 Was your bank a creditor of Penelec prior to the !
| |
| 5 TMI accident?
| |
| . 6 A Yes, we were a creditor on an unsecured basis for
| |
| \
| |
| 7 Pennsylvania Electric Company.
| |
| 8 Q Did Penelee have an extended line of credit with l l 9l Sour bank? i i
| |
| i 10 A Yes, they did.
| |
| 11 Q Was that line of credit ever extended to GPU? !
| |
| i !
| |
| f 12 A After the Three Mile Island accident, we had a ,
| |
| _ i 13 number of meetings with the officers of Penelec and GPU, 14 and in order to be able to be helpful to those companies, 15 the idea was that we would all go into a revolving credit l'
| |
| 16 line, and I think most of the banks that were in the lir.es 17 ' originally uith Pennsylvania Electric Company went into the 18 revolver, and I think most of them are in it to this day.
| |
| 19 ; They have taken down some of the funds on that f
| |
| 20 particular type of line of credit, and of course the arrange- l, t
| |
| 21 ments were somewhat different, I might say, whenever we were l 22 with Pennsylvania Electric Company and when we wer i
| |
| 23 with GPU in the revolving line of credit.
| |
| ,s l
| |
| ) i 24 Pennsylvania Electric Company was on unsecured f i
| |
| 25 lines. Whenever we went into the revolving line of credit, j COMMONWEAL.TH REPORTING COMP ANY e717' 7G1-7150
| |
| | |
| 1r7 1205 1 we ended up having some collateral which comprised the stoc 2 of the various companies, Pennsylvania Electric Company, 3 Met-Ed, Jersey Central Service Corporation and GPU, plus l
| |
| 4 some collateral of inventory; so it made some difference, 5' and it was felt, in other words, by the bankers that it was 6 a way of being helpful at that point to GPU in their
| |
| :s 7 difficulties. T 8 Q So GPU gained a line of credit with your bank ,
| |
| 9 i
| |
| ander this revolving credit agreement; is that correct? j i
| |
| 10 A That is correct.
| |
| 11 Q Does the revolving credit agreement impose any ,
| |
| i !
| |
| 12 l restrictions upon Penelec's ability to go elsewhere to 13 i
| |
| borrow funds?
| |
| (It 14 A .Well, there are restrictions and covenants in the i t is agreement which would prohibit that; that is correct.
| |
| 16 Q To your knowledge and based on your dealings with 17 Penelec, were there any such restrictions on Penelec prior 18 to that revolving credit agreement?
| |
| 13 A No. Those were unsecured lines of credit. Now 1
| |
| 20 you have to keep in mind that most of we country bankers 21 work through correspondent banks, and this line of credit 22 is handled by two New York City banks, so we are using their advice on what we are doing.
| |
| 24 Q When your bank decided to go ahead and join in the O l
| |
| 25 revolving credit agreement, was that before or after the COMMONWEALTH REPORTING COMPANY v717 7617150
| |
| | |
| 1r8 1206' !
| |
| t I
| |
| i i announcement of this proposed management combination?
| |
| * l; 0s i 2 A All of that came af ter the announcement of the l l
| |
| 3 management change. I might say that there was a point where t
| |
| 4, we all came down to Three Mile Island and went through that 1
| |
| 5 plant, and at that point we were not familiar with the fact
| |
| . 6 that the management was going to change. That might have 7 been a Tuesday or Wednes. day, and I think that Friday they 8 made the announcement that they were goir.g to ef fect a 9 management change.
| |
| 10 ~Q Did your-bank make a commitment to join in that 11 revolving credit agreement prior to your knowledge that there I
| |
| 12 would be a management change? !
| |
| (G'-) I A No, we did not.
| |
| 13 14 J1R . RUSSELL: Could we have the question read?
| |
| 15 THE WITNESS: To clarify it, at that point, you 16 have to keep in mind that that was the Pennsylvania Electric 17 Company's lines of credit. j 13 MR. SHILOBOD: I think it is a misunderstanding. !
| |
| t i
| |
| 19 MR. RUSSELL: I think there is a misunderstanding. !
| |
| I i
| |
| l 20 Could you clarify that? i i
| |
| 21 J,UDGE CASEY: Can you be a little more-precise-22 about times? I think you have to inform the witness of when 23 the formal. announcement was made-before the Public Utility
| |
| >1 24 Commission that the proposed managemer:t' combination would '
| |
| 25 take place in the future. !
| |
| COMMONWEALTH REPORTING COMPANY s717i-761 7150 i
| |
| _Al. I
| |
| | |
| 1r9 ! 1207 i
| |
| If!
| |
| BY MR. SHILOBOD: ll(:
| |
| 2 Q Do you recall when the public announcement was made 3; that Penelec intended to move out of Johnstown? ,
| |
| 1 4! A It was the Friday after we bankers came down here 5' to Three Mile Island and went through that plant, and it
| |
| , G. Was after that that the announcement was made. It was that I
| |
| i 7i Friday that the announcepent of the merger of the two groups 3
| |
| i would be made.
| |
| l 9 JUDGE CASEY: Do you recall what month or what lo f year, sir? -
| |
| i i
| |
| l 11 THE WITNESS. That was January, I would say.
| |
| l 12 l BY MR. SHILOBOD:
| |
| '3 Q 1980? ',
| |
| i l
| |
| 14 j A -Yes.
| |
| 1 i
| |
| 15 MR. RUSSELL: I want to raise an objection to the 16 form of question as saying that Penelec announced that it i
| |
| 17 was going to move out of Johnstown. That was not any part i
| |
| 18 of the announcement. The announcement was the proposed 19 management combination.
| |
| i 20 i THE WITNESS: That is correct.
| |
| 21 MR. SHILOBOD: I am speaking specifically about l 22 the knowledge that Penelec was moving out' of Johnstown, and i
| |
| 23 ! that is an important issue.
| |
| I k.
| |
| . yl The announcement was not that i
| |
| i MR. RUSSELL:
| |
| i 23 That is my objection.
| |
| Penelec was moving out of Johnstown.
| |
| l CoMMOMZEGLW RfEP9RTING MMP ANY s717 7Q17150
| |
| | |
| 1r10 1208 f.l I
| |
| t l
| |
| 1! JUDGE CASEY : And that may not have coincided l L I i 2i with the January 17th or 18th when the -- 1 3 MR. RUSSELL: It was mid-January roughly of 1980. I i
| |
| 4l JUDGE CASEY: Right, when the management combination 5, was announced before the Commission.
| |
| . 6' BY MR. SHILOBOD:
| |
| l :\
| |
| 7 Q After your bank committed itself to the revolving 8 credit agreement, did you become apprised of any information 1
| |
| 0I about the intent concerning the management entity, Pene'lec, 10 to cause you concern?
| |
| 11 g
| |
| A I can remember so well talking to one of the 12 bankers at New York City who was handling the loan at that i s :
| |
| \''' 13 point. ;
| |
| I4 1U1. RUSSELL: Could you identify who this was and
| |
| . i 13 when it was and where it was?
| |
| l 16 i THE WITNESS: I don' t have those in front of m.e l' 17 I and I can't give you specific dates. If I had known you 18 were going to take this kind of an approach, I would have had 33 l
| |
| that,available. :
| |
| 20 JUDGE CASEY: Well, sir, I think you mentioned i
| |
| 21 that your bank deals with two correspondent banks in New York 22 City; is that correct?
| |
| 3 THE WITNESS: That is correct. We have five 4'
| |
| correspondent banks, but there are two bankers that are m
| |
| ~! handling the line, the revolving credit line.
| |
| COMMCidWEAt.TH REPORTING COMPANY 1717 761 7150 i ,
| |
| | |
| 1r11 I 1209 i
| |
| i I JUDGE CASEY: And you were talking to an officer h l
| |
| 2! of one of those two New York banks?
| |
| 3 THE WITNESS: That is correct.
| |
| 4 JUDGE CASEY: Do you recall which New York bank 5{ it was?
| |
| i 6 THE WITNESS: No, I can't at this point; I am sorry.
| |
| l T 7
| |
| MR. RUSSELL: City Bank and Chemical are the 3' agent and co-agent, if that is any help.
| |
| 9 JUDGE CASEY: City Bank and Chemical; they are i
| |
| 1 10 the agents and co-agents for the consortium of banks?
| |
| II l THE WITNESS: That is correct.
| |
| I2 JUDGE CASEY: Is that thewaytheknowledgeofthqgg 13 ; proposed management combination first came to your attention?
| |
| i I4 It was something told to you by a New York bank executive?
| |
| 15 THE WITNESS: No. There were meetings by the t
| |
| 36 l Pennsylvania Electric group and their GPU officers at their i
| |
| I _' i headquarters in Johnstown, where all of the banks were brought la together and we were adviced and apprised of the situation.
| |
| " BY MR. SHILOBOD:
| |
| i
| |
| 'O
| |
| ~! Q I am going to get directly to the point that I 0 1
| |
| ~1 j wanted to ask you. Do you believe that your bank would 'tave 3, !
| |
| joined in the revolving credit agreement had you known that 31 Penelec was going to move its corporate offices out of g 24 i l Johnstown?
| |
| 25 j
| |
| , A Our approach to this entire situation was that we i .
| |
| COM MON W E ALTH RCPCRTING COMP ANY 717 7G 1 -7 ' 50
| |
| | |
| 1rl2 1210 ,
| |
| l 1
| |
| (_
| |
| ~]
| |
| I felt that we wanted to be as helpful as we could to a fine
| |
| * 1l, 2i corporate customer.
| |
| I 3I Q Which is Penelec?
| |
| 4 A Which is Pennsylvania Electric Company. We have l
| |
| i 5 a fine association. In fact, the former treasurer, Bill !
| |
| . 6 Thomas, was a member of our Board of Directors. They are, I a
| |
| 7 I might tell you, a fine. corporate customer. They are a fine 8 corporate member of our community.
| |
| l 9l' The of ficers of the corporation spend lots of hours i
| |
| 10 in our comm, unity life. I succeeded Bill Verrochi, who is 11 President of the Pennsylvania Electric Company, in the l g, 12 job as Chairman of the Greater Johnstown Committee. We spent
| |
| 'x_) -
| |
| 13 lots of hours together trying to make things happen in i' i
| |
| 14 Johnstown. ,
| |
| i 15 I think that is true with all of their people, and 16 I think it is important to have that kind of a situation in 17 a community, and I even went to Bill, if I can remember 18 correctly, saying we were willing to help with these lines 19 of credit to the very best of our abi_ity; so we are interested 20 in their corporate life, and we are interested in what they 21 are doing in the community.
| |
| 22 One of the things that has me somewhat concerned 23 as an individual -- and I think Mr. Picking indicated that -- ,
| |
| 21 that is that it doesn't seem like the right approach to try 25 to put together one ailing corporation with a very healthy COMMONWEALTH REPOR7f NG COMP ANY 4717 7G1 7150
| |
| | |
| Ir13 1211 ,
| |
| I corporation because it seems to me where we heretofore had ggg 2! a very healthy Pennsylvania Electric Company, we are now !
| |
| 3i going to be restricted as to what they will be able to do :
| |
| if :
| |
| in the form of rates for customers. .
| |
| 5 It certainly seems to me that if the costs are 6 contained by Pennsylvania Electric Company, that not only I
| |
| *\
| |
| 7 would help their customers in that area, but it would tend l l
| |
| 8 to solve that total cost reduction throughout the industry, j 9l and I think that that is important.
| |
| I to j So, as I say, while they are and they have been s I 11 j tremendous individuals and tremendous corporate community-l 12 i minced people, we think, in other words, that one of the g l T 13 l greatest things that we have got to look at is the viability I
| |
| i 14 l of the Pennsylvania Electric Company since we are in that area.
| |
| I 15 0 Would that have been a concern of you in deciding 16 ! whether or not you would have entered into the revolving !
| |
| 17 , credit agreemenc?
| |
| 13 A Sure; certainly.
| |
| i 19 , ,Q Did you know that that was going to happen when 20 you entered into the revolving credit agreement? ,
| |
| t 21 A I guess that I might say that those came sort of 1
| |
| 22 simultaneously, one right after the other.
| |
| 23 Q The revolving credit agreement was dated June 15, !
| |
| ! 24 1979; approximately six months Lerore it happened, it was i
| |
| 23 ; announced.
| |
| COMMONWEALTH REPORTING COMPANY e717 7617150
| |
| | |
| Irl4 !
| |
| 1212 i
| |
| 1 i 1 A I am sorry, but I can' t remember the dates. If ,
| |
| 2 you have to have specific dates, I could give those to you, 3 but I would not want to get caught up in trying to remember 1
| |
| 4 days and dates at this point.
| |
| 5 Q Let me ask you this again. I asked you before, 6 and you didn't answer my question. Had you known that a
| |
| i 7 Penelec was going to move out of Johnstown and merge its ,
| |
| , i 8l management with Met-Ed, would you have recommended joining ,
| |
| ) o in the revolving credit agreement?
| |
| 10 A We were looking seriously at not doing it at that 11 point. We decided that for the best advantage for our 12 corporate customer and our area, that we would do it.
| |
| ()' 13 MR. SMILOBOD: I am going to be introducing this 14 as an exhibit. -
| |
| 15 BY 21R. SHILOBOD:
| |
| ! 16 Q The revolving credit agreement is dated June 15, I
| |
| 17 1979, approximately six to six and one-half months prior to la the announcement -- six.to six and one-half months prior to 19 the public announcement that there was going to be the 20 creation of the combined management agreement.
| |
| 21 A Mr. Shilobod, I have got to'tell you that we have 22 got a stack of papers at-least that thick on.that revolving 23 line of credit, so for me to 'try to remember those, I'm sorry.
| |
| O 24 The only way I can do it is to bring those'filesLand go over i 25 them item by -item.
| |
| CCMMONWEALTH REPORTING COMPANY i717' 761 7150
| |
| | |
| I 1rl5 1213 1 Q Would it be reasonable to presume then --
| |
| J A I'm sorry.
| |
| 2i l
| |
| 3 0 --
| |
| if the agreement was six to six and one-half 4! months before the decision was made to merge the corporate I
| |
| l 5l managements , that you wouldn' t have known at that time that ;
| |
| I 6i the managements were going to be combined?
| |
| I
| |
| ! cg i
| |
| 7 A What is your question again?
| |
| 8 MR. SHILOBOD: If Your Honor please, may I have 9 these marked? They are marked as JARI Exhibit Number 8, the to revolving credit agreement, dated June 15, 1979, which is l .
| |
| 11 a document previously submitted to this Commission as Met-Ed/
| |
| 12 ; Penelec Exhibit Number A-1 in the 308 proceedings.
| |
| l 13 l JUDGE CASEY: Itwillbesomarkedforidentifica&
| |
| 14 , tion.
| |
| 15 l (Whereupon, the document was marked as JARI Exhibit No. 8 to for identification. )
| |
| l 17 MR. SHILOBOD: Mr. Russell, I have only two l
| |
| 18 additional copies to give to the court reporte r . If you wish 19 to have a copy, I will give you one of them.
| |
| 20 MR. RUSSELL: We have a copy of them.
| |
| 21 I have only two copies to give to MR. SHILOBOD:
| |
| 22 the court reporter.
| |
| 23 JUDGE CASEY: You may give those to the court l
| |
| O reporter. They will eventually be returned to us when the w 25 transcripts are submitted.
| |
| COMMONWEAL.TH REPORTING COMPANY e717 7617150
| |
| | |
| ir16 1214
| |
| [v ! MR. SHILOBOD: I'm giving three copies to the -
| |
| 1 2 court reporter.
| |
| 3 BY MR. SHILOBOD:
| |
| 4 Q Mr. Swatsworth, 7 show you what has been marked 3 as JARI Exhibit Number 8. Is that the initial revolving j 6 credit agreement that your bank was a part of, dated June 15, i I 7 !
| |
| 1979? I i
| |
| 8l A In my judgment, I would say that that is correct. !
| |
| 8 And if I advise you that the record shows that ;
| |
| Q l
| |
| 10 the decision to combine management did not come into existence!
| |
| II until January, 1980, approximately six months later, would e i
| |
| r I2 ! it be reasonable to assume that you did not know at that Q)
| |
| I3 time that it was going to happen; that is, when you entered .
| |
| I4 into the revolving credit agreement? ;
| |
| I 13 think that we were fully aware of the revolving A I 16 line of credit. The difference was that -- and I'm sorry II I don' t have the times involved.
| |
| I8 Q But if -
| |
| I8 I think I could truthfully say that A Excuse me.
| |
| 'O
| |
| ~
| |
| the day we were down to Three Mile Island talking with the
| |
| ' l GPU and the Penelec group relative to our lines of credit, we were not aware that they were going to merge the two
| |
| '3 corporations and trove them to Reading, as far as their 24 managementt were concerned.
| |
| ~'
| |
| Q f.' hat is what I am asking you about, and I think you
| |
| ?
| |
| e COMMONWEALTH REPORTING COMPANY s717 761 7150
| |
| | |
| 1rl7 ! 1215 l
| |
| I have given me some contrary answers to my earlier questions.ggg 2' Are you saying that whenever you came and visited 3, the site and committed yourself to the revolving credit i
| |
| 4i agreement, at that time , you did not know that there was 5' going to be a merger of management?
| |
| , s A That is what ! 9 aid. I think you are sort of
| |
| :.\
| |
| 7 confusing the issue in that you are talking about the 8l revolving line of credit, because at that time there was i
| |
| 9l an unsecured line of credit with Pennsylvania Electric i
| |
| 10 Company.
| |
| 11 ; Q I understand that.
| |
| 12 ! A Pennsylvania Electric Campany and the GPU folks I
| |
| i 13 j asked us to come down to Three Mile Island, at which time l
| |
| 14 8 they asked us for additional lines of credit, which we were l
| |
| 15 willing to do.
| |
| 16 Q That you were extending to GPU also?
| |
| 17 A That is correct.
| |
| 18 Q That is what I was asking.
| |
| l 19 .A Then it was that Friday that the announcement was 20 made that the merger of the two corporate entities would be 21 made or managements would be made, and they would be moving 22 to Reading.
| |
| 23 ; It was after that that the revolving line of credi 24 came out in printed form, as you see it there.
| |
| 25 i JUDGE CASEY: That is impossible, Mr. Swatsworth.
| |
| I COMMONWC AL7H REPORTING COMPANY 8717 761 7150
| |
| | |
| l !
| |
| 1r18 l 1216 i
| |
| l 1
| |
| 1
| |
| (~'S 1 MR. SHILOBOD: It may be, Your Honor, that there .
| |
| Le 2 ! might be a different agreement with respect to this.
| |
| 3i JUDGE CASEY: Would you agree that the document ;
| |
| 4 that has been marked for identification as JARI Exhibit Number 5 8, is it -- that that particular document was executed
| |
| , 6 in June of 1979; is that right?
| |
| :.\
| |
| 7 MR. SHILOBOD: ,There is not a list of the signatory 8- banks on that document that was given to me. It only has 9 the signature of the Chemical Bank and the City Bank.
| |
| 10 ! MR. RUSSELL: If it would be of help, I did raise I
| |
| 11 yesterday, in cross-examining Mr. Budetti, that there were
| |
| -s 12 , several amendmants to the revolving credit agreement furnished I
| |
| v
| |
| )
| |
| 13 to Mr. Swatsworth. I think what he probably has in mind 14 were same discussions in connection one of the amendmer cs I
| |
| I' is early in 1980 just before the announaement and not the 16linitialexecutionoftheoriginalcreditagreement.
| |
| I 17 JUDGE CASEY: The original credit agreement, j i
| |
| is although it was signed by City Bank and Chemical Bank, they i
| |
| 19 were, acting as agents for the consortium of banks that were i i
| |
| 20 extending credit. I 21 MR. RUSSELL: All the banks signed it.
| |
| 22 THE WITNESS: That is correct.
| |
| 23 MR. RUSSELL: But I think in fairness to him, l
| |
| ,. i I
| |
| ms '
| |
| o4 Mr. Swatsworth, do you recall executing any amendments to ,
| |
| 25 the credit agreement after the original one was put in place? i COMMONWEALTH REPORTING COMPANY t717 7G17150
| |
| | |
| E i
| |
| Ir19 l 1217 1 T :E WITNESS : Yes.
| |
| 2 i :1R . RUSSELL: Could the occasion that you recall f i
| |
| 3' have been the possible execution of the amendment rather -
| |
| 4 L .n the original?
| |
| 5l THE WITNESS: I must tell you that if you want that; 6 kind of information, I will be glad to supply it. My memory l
| |
| :., 1 7 is not going to provide me with all of this information; I'm i 8 sorry.
| |
| 9I BY MR. SHILOBOD .
| |
| I 10 f Q If I understood your testimony, that documen* ':h a t 11 you signed on the Friday prior to the public announcement 12 of the merger was the document whereby your bank extended g
| |
| 13 l its line of credit to GPU?
| |
| I i I4 A Excuse me, Mr. Shilobod. There was no agreement i
| |
| 15 l signed that day that we were here. Those were commitments l l
| |
| 16 ' that they were seeking from you verbally so that they could I
| |
| I continue to put this together.
| |
| I8 Q The commitment that you gave, though, was prior --
| |
| 19 was to extend the line of credit to GPU; is that correct?
| |
| 'O
| |
| ~
| |
| ; A That is correct. j l
| |
| 'l
| |
| ~ I j MR. SHILOBOD: I have no further questions of this i
| |
| "l witness.
| |
| 1
| |
| '3
| |
| -! JUDGE CASEY: The only thing with this line of g i W
| |
| -j
| |
| '4 testimony, we have in the record that that first revolving
| |
| '5
| |
| ~
| |
| [1 credit agreement was put together in its present form in h CoMMoNWCALTH REPORTING COMPANY +717 761-7150
| |
| | |
| i I r20 1218 !
| |
| i !
| |
| J t
| |
| i ,
| |
| () 1 June o f 1979.
| |
| 2 The first formal announcement of any kind that I 3
| |
| Penelec and Met-Ed would combine their management occurreds 4 in mid-January, as Mr. Russell said, in 1980 ,
| |
| 5 r,we can sSume that the parties who entered into
| |
| . 6 that revolving credit agreement initially were not aware of a
| |
| 7 the proposed management combination because that agreement 8
| |
| occurred some six months be!3re the first announcement was 9
| |
| ; made.
| |
| 10 JJould you agree with that observation, Mr. !
| |
| 11 Swatsworth?
| |
| 12 THE WITNESS:
| |
| O. s 13 That is correct.
| |
| JUDGE CASEY: The witnesses are ready for cross-I4 examination. j t
| |
| 15 MR. SHILOBOD: Yes.
| |
| 16 JUDGE CASEY: Mr. Russell, are you ready?
| |
| \
| |
| II MR. RUSSELL: Yes. ,
| |
| 18 CROSS-EXAMINATION !
| |
| 19
| |
| . MR. RUSSELL: First of all, with respect to Mr.
| |
| "O
| |
| * t j Picking, Mr. Picking, would you describe the proposed manage- ;
| |
| ment combination as you understand it?
| |
| '2 i l
| |
| W7.TNESS PICKING: As I understand the. proposed 1 i
| |
| '3
| |
| ~
| |
| j management combination, it is.that, to put it in my.words, a management merger rather than an actual merger, a management 95
| |
| ~
| |
| combination which supposedly, in our opinion,.has all the. ,
| |
| i l , COMMONWEALTH REPORTING COMPANY ~ #717t 761-7I50
| |
| | |
| 1r21 1219 i
| |
| i 1 ingredients of an actual merger.
| |
| 2 MR. RUSSELL: Mr. Swatsworth, would you descri-u i l
| |
| 1 3 the proposed combination as you understand it? j l
| |
| 4 WITNESS SWATSWORTII: My understanding of the l l
| |
| 5! merger combination would be that it is a da facto type of l,
| |
| 6 merger in that they are going to take certain corporate Tl officers of both corporations and merge them together, have 3, the same separate Board of Directors, but manage Pennsylvania 9 Electric Company and Met-Ed with one set of corporate officers..
| |
| 10 MR. RUSSELL: I believe both Messrs. Picking and 11 l Swatsworth have described Penelec as being in a state of 12 financial health, so I don' t care which one ot you proceeds ;
| |
| 13 Suppose we start with Mr. Picking.
| |
| 14 Could you describe the factual circumstances which 15 lead you to describe Penelec as being financially healthy?
| |
| 16 WITNESS PICAING: I think I would have to go back I ,
| |
| 17 I in my memory a long way and in my experience a long way and l i
| |
| 18 use comparatives, because I happen to be of an age unfor- i i
| |
| 10 tunately to recognize the old associated gas and electric 20 system, the public system, e tce te re. , and their circumstances 21 and conditions back that far and ralate what I perceive ,
| |
| i 22 to be the conditions, fi nancial, operative and otherwise , !
| |
| l 23 today in comparison to that.
| |
| , l 0
| |
| 4l oo, therefore, not having the information about {'
| |
| 23 other utilities' operations throughout the area, I can see a l r
| |
| i~
| |
| ! I l COMMONWEALTH REPORTING COMPANY #717 761 7150
| |
| , 1
| |
| | |
| 1 22 1220 t
| |
| i i great improvement in the services and in the rate t'.ructure -
| |
| ( ./
| |
| 2 of the Pennsylvania Electric system as compared to tl ose 3 operations and those services rendered at that time.
| |
| 4 MR. RUSSELL: Your conclusion then is on a 5 comparative basis with this past rather unhappy circumstances?-
| |
| e 6 WITNESS PICKING: In direct relationship to their .
| |
| t
| |
| :\
| |
| ; position in the community.
| |
| 8 MR. RUSSELL: What would be your view, Mr.
| |
| 9 Swatsworth, as to the factual circumstances that lead you 10 to conclude that Penelec is financially successtal?
| |
| 11 ITNESS SWATSWORTH: Prior to the Three Mile Island 12 accident, Pennsylvania Electric Company, from my association m
| |
| P 13 i with the company. in extending lines of credit, they had 14 gone throughout the various communities where they service --
| |
| 15 provide the service for their customers and had lined up 16 in their individual community banks lines of credit suf ficient 4
| |
| 17 to handle their needs, and they would take those down as 18 they needed it.
| |
| 19 At this particular time -- and they had plenty 20 o f credit available -- at this particular time, they would 21 be unable to do that because of the restrictions of the 22 revolving credit line.
| |
| 23 You see , public utilities are a little bit different m
| |
| / 24 , than any other corporation in that I believe that the public 25 has something to say about what happens, and I guess really CoMMONWE ALTH REPORTING COMP ANY '717' 761-7150
| |
| | |
| 1r23 1221 I
| |
| 1 maybe some of our people around our service areas are gg[
| |
| 2 wondering why Pennsylvania Electric Company can't continue !
| |
| 3 to expand and do some of the things that they originally '
| |
| 4 planned to do, and now in the financial position they are f I
| |
| i 5 in they don' t have the ability to do that.
| |
| s So I would say that they are'not in as good a
| |
| .\
| |
| 7 financial position at the present time as they were I
| |
| : 8. previous to the Three Mile Island. ;
| |
| I I '
| |
| 9' MR. RUSSELL: As a creditor bank, from time to i
| |
| i r 10 l time, Penelec certainly would, would they not, have furnished i l
| |
| * I 11 ! your bani. with financial statements, balance sheets, income 12 statements and so on to support their actions' i
| |
| 13 WITNESS SWATSWORTH: Yes, sir, they certainly do.
| |
| 14 1..l . RUSSELL: So you have had some familiarity ;
| |
| 15 l with those over the years; is that correct?
| |
| i 10 ' WITNESS SWATSWORTH: That is correct.
| |
| 1 17 MR. RUSSELL: I gather that you say that Penelec j 13 is not in as healthy a condition presently as it has been l
| |
| 19 some, times in the past; is that what you just said? ,
| |
| i 20 UITNESS SWATSWORTH: That is correct.
| |
| i 21 MR. RUSSELL: Do you have any knowledge as to ;
| |
| l I
| |
| 22 whether or not Penelec presently has any ability to issue 23 any additional lor.g-term debt bonds or debentures?
| |
| I k
| |
| w1TNESS SWATSWORTH: It is my understanding that 24 l 25 . they would not be able to do that.
| |
| CoMMCNWCAIJH REPORTING COMPANY 4717 701 7150
| |
| | |
| Ir24 1222 i
| |
| i 0
| |
| l 1l MR. RUSSELL: Is it al,o your understanding that x/ '
| |
| 2 they would not be in a position tecause of their financial 3! posture to issue any additional shares of preferred stock?
| |
| l I
| |
| 4 MR. SMILOBOD: Excuse me. When you say " financial 5 posture," are you including their involvement with the f
| |
| . 6 revolving line of credit?
| |
| 7 MR. RUSSELL: The revolving line of credit is 8I part of their financial picture.
| |
| I 9{ Taking Penelec's present financial posture, to l including a,11 of the components, would you have any knowledge 11 ; as to their ability or inability to issue any additional I
| |
| ,m 12 preferred stock?
| |
| ~.
| |
| 13 ' WITNESS SWATSWORTH: I would say that anybody, 6 i4
| |
| ; any corporation, even Penelec, could go ahead and do that.
| |
| I ,
| |
| I5 ' Whether they could market it or not would be another I
| |
| 16 ! situation.
| |
| IIl! t MR. RUSSELL: As you would understand it, Mr.
| |
| 13 >I Swatsworth -- and I am not trying to trap you; I am just l
| |
| 19
| |
| ! trying to get information -- as you understand it, what would l
| |
| 20 '
| |
| be the ef fects on Penelec's financial picture of the ,
| |
| I elimination of this revolving credit agreement, the termination 22 ' of it, and Penelec no longer being a party to it?
| |
| 23
| |
| ,__ WITNESS SWATSWORTII: My overview of all of the GPU i
| |
| 4 and Penelec and its subsidiary companies is that GPU really 25 is a holding company and that concepts sort of exist that COMMONWEALTH REPORTING COMPANY #717 761 7150
| |
| | |
| Ir25 , 1223 l
| |
| i l
| |
| i they have individua11;' wholly-owned subsidiaries, and thatggg 2i Penelec, Metropolitan Edison, Jersey Central and the Service f
| |
| 3 Corporation are, in fact, wholly-owned subsidiaries. If that 4 were removed, I would say that they could continue to operate I
| |
| 3 i
| |
| and get the financing available that would be necessary. -
| |
| 4 6 MR. RUSSELL: You are not awaro of any adverse ,
| |
| . i 7 consequences to Peneled that would flow from the terminaticn a of the revolving credit agreement then, are you?
| |
| 9 WITNESS SWATSWORTH: I am not. !
| |
| 4 10 MR. RUSSELL: Mr. Kunkle, you had me tioned that ,
| |
| . I 11 , you are the Chairman of Laurel Corporation. I 12 i WITNESS KUNKLE: I am President of Laurel i h
| |
| 13 Corporation.
| |
| 14 MR. RUSSELL: And that has a number of subsidiaries, I
| |
| :5 : you indicated, i
| |
| l 16 ! WITNESS KONKLE: Yes.
| |
| i i
| |
| 17 : MR. RUSSELL: Was one of them Laurel Management? -
| |
| 18 WITNESS KUNKLE: Yes, sir. l 13 MR. RUSSELL: What is the nature or the business 1
| |
| 20 l of Laurel Management? '
| |
| i i i
| |
| 23 WITNESS KUNKLE: Laurel Mana'gement has a long-term l.
| |
| 22 contract, a 30-year contract, of which we are now in the !
| |
| l 23 '
| |
| 17th year to operate the greater Johnstown Water Authority.
| |
| 24 j We have agreements with three or four other water hl!
| |
| i 25 i authorities. We own some property, and we are in any <
| |
| ! e l
| |
| CoMMoNWEAi.TH REPORTING COMPANY 4717 761 7150 l-
| |
| | |
| Ir26 1224 l
| |
| 1 business related to water utilities. ,
| |
| 2 (Whereupon, the document was marked as Met-Ed/Penelec Exhibit 3 No. 15 for identification.)
| |
| 4 MR. RUSSELL: Mr. Kunkle, I show you a document 5 which has been mm sed for identification as Met-Ed/Penelec !
| |
| l 6 Exhibit 15. The authenticity of that document has been i !
| |
| 7 admitted, I believe, by Mr. Shilobod. i I, '
| |
| a could you identify what is represe-ited by that
| |
| ; 9 exhibit?
| |
| 10 WITNESS KUNKLE: Thix is a letter that I wrote 11 to Mr. Kuhns. There had been some rumors around town that i
| |
| I 12 Penalec might be moving out, and this was a letter written O2 l 13 ' by me on behalf of JARI trying to --
| |
| 14 MR. SHILOBOD: Excuse me. You are referring to t
| |
| 15 this as a letter following knowledge that there were moving 16 out?
| |
| i 17 WITNESS KUNKLE: I said " rumors."
| |
| 13 MR. RUSSELL: What is the date of the letter?
| |
| ID WITNESS KUNKLE: January 7.
| |
| l ,
| |
| 20 MR. RUSSELL: 1980?
| |
| 21 WITNESS KUNKLE:- Yes, sir..
| |
| l 22 MR. RUSSELL: Proceed.
| |
| l l
| |
| .3 WITNESS KUNKLE: We were simply offering our help.
| |
| i O
| |
| ( k-) 24 We wanted to do everything we could to keep Penelec there.
| |
| I 25 r If there wat ath to the rumors -- zus- I stated in the l
| |
| COMMs ,f; *
| |
| . REPORTING COMPANY #717' 761 7150 L _ - , - , , . . - . ~ . _ . - -
| |
| | |
| tr27 1225 ,
| |
| l 1
| |
| 1; letter, we had always had a great interest in helping local 2 business, and we set forth several ways that we might j 3 l possibly be of assistance to Penelec.
| |
| 4 (Whereupon, the document was marked as Met-Ed/Penelec Exhibit 5, No. 16 for identification.)
| |
| l MR. RUSSELL: i show you an exhibit which is 6l '
| |
| ! s
| |
| ;l marked for identification as Penelec/ Met-Ed Exhibit Number 16, 8' the authenticity of which has also been admitted by Mr.
| |
| i 9' Shilobod.
| |
| t l
| |
| 10 Could you identify what is represented on Exhibit 16?
| |
| 11 : WITNESS KUNKLE: Yes. This is -- do you call 12 this a statement or a memorandum? I don' t know what the Gi 13 , proper word would be.
| |
| i 14 On the night of February 1st down in Newark, New 15 l Jersey, there were I believe five of us present. We met ,
| |
| i 16 with Mr. Verrochi a'nd Mr. Kuhns in Newark after we had ,
| |
| l 17 ! a scheduled meeting in the of fice of Congressman Murtha in i i
| |
| l IS Washington, and due to some plane trouble, Mr. Kuhns was 19 , unable to get to Washington.
| |
| I i 20 ! So we got in our charter plane and went up to l 21 Newark and met in a small restaurant there, and at that i
| |
| i 22 l time we set forth our feelings. :
| |
| l 23 At that time, I would say that it was publicly 21! : announced that Penelec was going to move their corporate O!
| |
| il 25 h offices to Reading.
| |
| t i
| |
| COMMONWEALTH REPORTING COMPANY #717 7G 1 7150 i i
| |
| | |
| 1r28 1226 I
| |
| 1l Ue had already had one meeting, and the people *
| |
| ()''
| |
| 2{ present at the first meeting, which was in Parsipanny, were 3 Bill Verrochi and Mr. Kuhns and Jerry Swatsworth and Mr.
| |
| Pasaquerilla, Congressman Murtha, Senator Coppersmith, and 6
| |
| 5 myself-- 1 think that was tne full contingent --
| |
| in which l 6 we made an appeal, expressed our disappointment, and 2\
| |
| 7 questioned the wisdom of,the move based upon obvious facts a of the Three Mile Island accident, the reported financial 9
| |
| I weakness of Met-Ed, the question of competence of the f i
| |
| I I lo i management. i
| |
| ~~
| |
| i 11 We thought that we had a pretty good case, that if i i
| |
| 12 we were going to merge the two managements, to keep it in
| |
| ( ) l
| |
| 'x > 13 I Johnstown, and we were simply doing everything that we could {
| |
| i 14 to try to encourage their doing this.
| |
| 15 We found out that the odds were pretty much against .
| |
| 16 us at our meeting in Parsippany. We presented this letter, 17 which set forth what our plans would be in opposition to the la proposed plan.
| |
| 19 MR. RUSSELL: And you personally delivered copies 20 of this to both Mr. Kuhns and Mr. Verrochi; is that correct?
| |
| 21 WITNESS KUNKLE: That is correct. ,
| |
| 22 MR. RUSSELL: In paragraph 1 of Exhibit 16, i 23 reference is made to a management audit by the Public s> 24 Utility Commission.
| |
| 25 Was that the management audit to be conducted by COMMONWEALTH REPORTING COMPANY e717, 76 3 7150
| |
| | |
| 1r29 1237 1! Theodore Barry and Associates? g 2 WITNESS KUNKLE: Yes, sir.
| |
| 3l MR. RUSSELL: In the fourth paragraph on Exhibit 16, 4 you make reference to your threatened activities in enlisting 5 the support of various parties in the entire service l 6! territory of Pennsylvania Electric Company; is that correct? ;
| |
| I 7 WITNESS KUNKLb: ,
| |
| Yes. !
| |
| 8 MR. RUSSELL: Did you, in fact, implement that }
| |
| 9 threat?
| |
| 10 l WITNESS KUNKLE: We sent out a letter --
| |
| 11 (Mr. Kunkle and Mr. Burkhard confer. )
| |
| 12 WITNESS KUNKLE: We sent out a letter to all of 13 .
| |
| i the economic development entities, to the Legislators, and 14 Civic Chamberr of Commerce in the Pennsylvania Electric 15 service area, setting forth the proposed Penelec action i
| |
| 16 and setting forth our concern.
| |
| ; 17 MR. RUSSELL: Did you also request that they l
| |
| 18 support your efforts in blocking the management combination?
| |
| 19 l WITNESS KUNKLE:
| |
| ,5 .
| |
| I would like to read exactly 20 what we did request; if I may have a moment, sir.
| |
| 21 (Pause.)
| |
| l 22 l WITNESS KUNKLE: The final paragraph is, "We want l l 23 to acquaint you with our plans and hope that we can count 24 on your support for your ef forts to keep an eye on the quality 25 ! and the cost of electric power approach in the Pennsylvania l
| |
| COMMONWEALTH REPORTING CbMPANY #717' 761-7150
| |
| | |
| 1 1r30 1228 4 i 1
| |
| : Electric Company." . I 2 MR. RUSSELL: You say you sent that out to the 3 elected representatives in the Penelec service territory?
| |
| ; 4 W~.TNESS KUNKLE: State Legislators, economic 5 development corporations, and Chamber of Commerce.
| |
| 6 MR. RUSSELL: Didn't you send it to Representatives
| |
| -:\
| |
| 7 in Congress from the Penelec service territory?
| |
| , s WITNESS KUNKLE: Yes, we did.
| |
| ! MR. RUSSELL:
| |
| 9 And State Senators and State 10 l Representatives in the Penelec service' territory?
| |
| ! I ..
| |
| 11 l WITNESS KUNKLE: Ye s , s ir ,
| |
| MR. RUSSELL: ii 12 Would that have been more than some 13 30 State Representatives?
| |
| 14 WITNESS KUNKLE: That is probably a fair estimate; 15 yes, sir. l l
| |
| ; 16 I MR. RUSSELL: And about a dozen State' Senators?
| |
| l 1
| |
| 17 WITNESS KUNKLE: I would accept that. I don' t have 18 a list. i l 19
| |
| , MR. RUGSELL: Would you accept, subject to check, l 20 seven members of Congress? -
| |
| 21 WITNESS KUNKLE: Yes, sir.
| |
| 22 MR. RUSSELL: Did you make a similar request of l
| |
| 23 labor organizations?
| |
| ; s.
| |
| () 24 WITNESS ~KUNKLE:
| |
| I don' t believe that we did, nc.
| |
| j 25 MR. RUSSELL: .What about the other items on your.
| |
| i c_c-m,m,.o-o co- , , , , . . . , , , < j '
| |
| | |
| 1r31 1229
| |
| { February 1 statement, large users of electric power in the k 2 Penelec service territory?
| |
| 3 WITNESS KUNKLE: To my knowledge, we didn't, no, 4l sir.
| |
| 5 MR. RUSSELL: Mr. Shilobod, do you have available ,
| |
| I l
| |
| * 6 the objections that you filed at Docket G80070101 to the ,
| |
| 4 !
| |
| 7 further disposition with respect to the written agreement :
| |
| I a filed by Met-Ed and Penelec? It is one of the pleadings 9 in this proceeding.
| |
| 10 M
| |
| ..R. SHILOBOD: Yes. .
| |
| 11 MR. RUSSELL: Could you make that available to 12 the witness? ggg 13 MR. SHILOBOD: Certainly. If Your Honor please, -
| |
| 14 would you object if I stood behind the witness in reviewing 15 what is referred to here?
| |
| 16 JUDGE CASEY: I won't object as long as Mr. Russell 17 doesnotob}ect.
| |
| 3 13 (Document handed to Witness Kunkle.)
| |
| 19 MR. RUSSELL: Mr. Shilobod, have you made that 20 written set of objections available to Mr. Kunkle?
| |
| 21 MR. SHILOBOD: Yes.
| |
| 22 MR. RUSSELL: fir . Kunkle, attached to the written 23 forms of objections, there is an Exhibit A; is that correct 24 i WITNESS KUNKLE: Is that the last page you are 25 referring to?
| |
| I .
| |
| n o la u n M ul dl" *_ f T kJ D I" D,' D T f N C f"n (f D 5 M V .717- "'st 1.71 M A
| |
| | |
| m . . <
| |
| Ir32 1230 i !
| |
| l I
| |
| l i' MR. RUSSELL: Exhibit A is the petition of customers 2
| |
| 'f to intervene. It says " Exhibit A" at the bottom of the page.
| |
| l 3; WITNESS KUNKLE: Okay.
| |
| i 4, MR. RUSSELL: If you will turn to the end of the l i 5l petition and the first affidavit, did you swear to the facts
| |
| ~
| |
| i -
| |
| , s ,! set forth in that petition?
| |
| i /\ ,
| |
| 7 7 WITNESS KUNKLE: I did, i
| |
| si MR. RUSSELL:
| |
| Did you swear that the facts set 9I forth are true and correct or are true and correct to the 10 l best of your knowledge, information and belief?
| |
| i i
| |
| 11 ! WITNESS KUNKLE: I did, i
| |
| 1 MR. RUSSELL: And you expected.that JARI would be I i 13 able to prove the same at hearing?
| |
| 4 14 I WITNESS KUNKLE: I did.
| |
| t 15 } MR. RUSSELL: I direct your attention to paragraph 1
| |
| 16 l 10 of that petition.
| |
| i I j 17 l MR. SHILOBOD: May we have it read, Your Honor, i i ,
| |
| 18 l into the record?
| |
| I 19 ) JUDGE CASEY: I would like to know what-it is, I .
| |
| 20 [ even though it is 'in the pleadings.
| |
| 21 MR. RUSSELL: Would you read'the full paragraph?
| |
| 20 I am concerned specifically with the first sentence, but-i 03 read the full paragraph.
| |
| :O 24 I i
| |
| WITNESS KUNKLE: "The decision.'to merge 1 the-Met-Ed/
| |
| i 23 i Penelec management was impulsive and not well-planned as t-COMMONWEALTH REPORTING CCMP ANY s717' 781-7150 J.
| |
| | |
| 1r33 j 1231 i
| |
| i evidenced by the fact that onlyoneortwoweeksbeforethelh 2' public announcement, Penelec was negotiating for the purchase 3 of additional land in Johnstown to expand its headquarters.
| |
| 4! " Prior management audits of the company which 5 recommended the reorganization of the Met-Ed/GPU relationship i
| |
| . 6' did not recommend mergina of the Met-Ed/Penelee management.
| |
| ~\ i 7
| |
| ! The public will be harmed by such impulsive action."
| |
| l 8, MR. RUSSELL: With respect to the first sentence 9 of paragraph 10, as you have read it, were you swearing to 10 that statement as a matter of your own personal knowledge?
| |
| 11 UITNESS KUNKLE: Yes, sir.
| |
| 12 j MR. RUSSELL: In what connection do you have lll 13 l personal knowledge of that?
| |
| l 14 WITNESS KUNKLE: Laurel Management owns a parcel 15 l of land which adjoins the Penelec corporate of fices. It i
| |
| i 16 originally consisted o f two acres. About four or five years
| |
| \ '
| |
| 17 ' ago we sold off approximately 25 percent o f it.
| |
| I 18 We purchased the land in about 1965 or 1966.
| |
| , At I
| |
| 19[that -time, Louis Rottis, who was President of Pennsylvania t
| |
| 00 Electric Company, said to me that if he had known t' :c we 21 did not own. the land prior to that, that he would have bought i
| |
| 22 ' it from Bethlehem Steel. We bought it from Bethlehem Steel:
| |
| 23 and he also said that if we were ever going to make it ggg 24 available, that he would like to know about it.
| |
| 25 During the terms of Mr. Dodson and Mr. Smith as nn
| |
| | |
| 1r34 1232 t
| |
| President of Penelec, we had some conversations and
| |
| (
| |
| i/
| |
| )
| |
| il correspondence --I definitely remember the correspondence !
| |
| 2 3' with Gwynne, Mr. Dodson -- concerning Penelec's possible acquisition, the possible purchase of the land.
| |
| 4l l
| |
| 5, The position of Laurel Management was that the t
| |
| 6 land would serve its best purpose if it was Penelec's.
| |
| :\
| |
| l 7 In the latter part of 19.78, it became apparent that Laurel 8 Management was going to be put out of its office building 9 on Locust Street as part of the redevelopment project. At 10 that time, I contacted Mr. Verrochi and told him that, and li j we discussed if Penelec had any interest in the property, ,
| |
| i l 7- 12 l our thinking beir J that possibly we could put our of fice l
| |
| ; J w/
| |
| 13 and our yard together, and if this ever was going to come l, 14 about, this was the time to do it. :
| |
| i 15 I am not sure about this date, but in about i t
| |
| I I
| |
| 16 November of 1973, Penelec had somebody appraise this i 17 I property, and we had somebody appraise our property, and la Bill and I agreed that we would exchange the appraisals. l i
| |
| 19 Upon receipt of the appraisal prepared for Laurel ;
| |
| i 20 Management, I sens a copy to Bill, and it was $'264,000, as l l
| |
| 21 I recall.
| |
| 22 A short time after that Bill called me and said l
| |
| 23 that he had gotten his, and I think he expressed surprise l
| |
| ~
| |
| 21' at the value of the property, and his appraisal war, as I l 23 recall, $246,000. j l
| |
| CoMMoNWCALTH REPORTING COMPANY v7174 761 7150 i
| |
| | |
| Ir35 1233 l
| |
| 3 I remember making the comment that it looks like 2 i maybe the appraisers got together, and Bill's answer was no, ,
| |
| I 3 that he didn't think that was the case because it was --
| |
| 4, the one weighted the land far more than the building, and i
| |
| I 5: the other weighted the building 2ar more than the land. !
| |
| 9 As we came closer to the time of having to reach i
| |
| . l
| |
| .. t 7 the decision of what we"were going to do, I probably wrote l
| |
| a another letter or two to Bill proposing that they consider l 9 leasing it.
| |
| l 10 j We had a very serious tax problem in selling the land because, number one, the buildings were fully drpreciated!
| |
| 11 l l
| |
| 12 i and written off as a result of the loss in the flood, and 13 if we had sold the property to Penelec, I remember, at a 14 l figure of ,S250,000 or $275,000. -- I forget what the figure 15 ! was; we did our figuring on it -- but the first thing we i
| |
| I 16 ! wculd have to do is pay $83,000 in taxes as a result of the 17 long-te rm gain. We were not interested in doing this.
| |
| 18 7 submitted to Mr. Verrochi late in 1979 -- this 19 ! is the year after the appraisals were made -- a proposal l
| |
| 20 to lease the building, lease the facilities with the right 21 to acquire them at the end for a certain price, and it 22 might have been more than one proposition.
| |
| 23 On January 7 at a meeting of the Greater Johnstown 24 Committee, after the meeting was over, Bill handed to me a O l
| |
| 25 l piece of paper on which was set forth four proposals. The COMMONWEALTH REPORTING COMPANY s7176 701 7150
| |
| | |
| 1r36 1234 !
| |
| I initials in the upper .lefthand corner, as I recall, were --
| |
| ()
| |
| i-4
| |
| , was it Jack Poole?
| |
| 1 3 MR. SHILOBOD: January 7 of what year? ;
| |
| I 4l WITNESS KUNKLE: 1980. He presented, I would say, i
| |
| ! S these four proposals under which he would recommend to lr k
| |
| 6 Mr. Verrochi that the property could be leased.
| |
| ] 7 Several days %fter that, I responded to Bill i
| |
| a saying that the approach that they used in establishing the 9 rental values with the purchase agreement at the end were i
| |
| 10 I
| |
| new to us. We didn't understand their approach and proposed i something else. I believe that was about the 15th. -It 11 l <
| |
| l 12 was somewhere between the 7th and the 15th of January; so l tm l 13 that I know on January 7 they were still interested in !
| |
| l 14 considering the acquisition of_ our property by the mere
| |
| , 15 fact that Bill Verrochi handed me this sheet of paper.
| |
| 16 MR. RUSSELL: If the Examiner please, I have handed l '
| |
| , I 17 the reporter three copies of an exhibit tha+ I ask to have l ]
| |
| is marked for identification as Met-Ed/Penelec Exhibit Number 17.! .
| |
| 19 JUDGE CASEY: All right. It will be so marked as ,
| |
| i 20 Met-Ed/Penelec Exhibit 17.
| |
| i 21 ,
| |
| (Whereupon, the document was marked as Met-Ed/Penelec Exhibit 22 No. 17 for identification.)
| |
| 23 MR. RUSSELL: Would you take a look at Number 17, 24 Mr. Kunkle, and see-if you can identify what area'the plan l
| |
| 25- represents?
| |
| 1 CCMMoNWEALTH REPORTING COMPANY . e717'7617150
| |
| .l'
| |
| | |
| Ir37 1235 1
| |
| WITNESS KUNKLE: It is the lower en3 of their '
| |
| 2I corporate property, and then it becomes our property, and ;
| |
| 3 then it is the property that they have purchased in December ,
| |
| 4 of 1979, what we call the old Acme Building. ;
| |
| I 5 This is renelec. This is us. This is the Burger i
| |
| l 6' Palace, which has since burned. j i
| |
| A 7 MR. SHILOBOD: Excuse me, Mr. Kunkle. You mentioned' 8' that Penelec purchased property in 1979. Is that what i 9
| |
| you said?
| |
| 10 MR. RUSSELL: Yes.
| |
| 1 I
| |
| 'a l MR. SHILOBOD: Which property?
| |
| 12 MR. RUSSELL: The Acme property shown on tde ;
| |
| 13 l extreme righthand side. l I4 WITNESS KUNKLE: Our property is right in between ,
| |
| 15 ! their corporate headquarters -- as a matter of fact, they ,
| |
| I 16 lilease about a quarter of it for parking, a little less than ,
| |
| 1 l
| |
| a quarter. j 8 Is that portion shown in hatched MR. RUSSELL:
| |
| lines?
| |
| l 20 Yes, sir.
| |
| WITECUS KUNKLE: l
| |
| 'I :
| |
| ~
| |
| MR. RUSSELL: It is in the rear of what is listed i
| |
| as the Burger Palace property.
| |
| '3
| |
| ~
| |
| WITNESS KUNKLE: Right.
| |
| ~4 l MR. RUSSELL: And your property, is that the i
| |
| t.
| |
| 25 Southeast corner of Broad and Delaware? !
| |
| CCMMONWEALTH REPcRTING COMPANY 4717; 7G17150 L
| |
| | |
| Ir39 1236 i 1 WITNESS KUNKLE: Correct. ,
| |
| )'
| |
| C.)s -
| |
| 2 MR. SHILOBOD: Excuse me, Mr. Russell. North is 3 not shown on this map. Would I presume that north is at 4 the very top?
| |
| 5 MR. RUSSELL: North would be -- I will ask the 6 witness.
| |
| t a 7 Mr. Kunkle, would north be pointing roughly from 8 the top to the bottom of the page? ,
| |
| D WITNESS KUNKLE: I would say no, sir. This is i
| |
| 10 really the west -- this is the western part of our community. l
| |
| ~11 That is known as the west end, and we are certainly working j i
| |
| 12 out toward the West here.
| |
| 13 MR. RUSSELL: Are the main lines of the Pennsylvania; l 14 Railroad at the top of the page? l 15 WITNESS KUNKLE: Yes. I would say that they would i
| |
| [ 16 rur north and south.
| |
| 17 JUDGE CASEY: Wait a minute. The main line of the L 18 pennsylvania -- Penn Central -- run north end couth?
| |
| i 19 WITNESS KUNKLE: Right.in this area. It: looks like i j
| |
| 20 right-in this particular area. There are a l'ot of curves i
| |
| 21 going around the river though. I 22 JUDGE CASEY: Generally the whole line runs east 23 and west? ;
| |
| (^5 x,) 24 WITNESS KUNKLE: Right. We are just -before a 25' couple of big curves.. '
| |
| l l
| |
| COMMONWEALTH REPORTING COMPANY #7175 761 -7 f 50 l
| |
| | |
| I 1r39 1237 l
| |
| i 1
| |
| ! MR. RUSSELL: Is it correct to say, Mr. Kunkle, i O.
| |
| 2 that discussions and possible negotiations between Penelec I
| |
| 3 and Laurel Management with respect to this property of 4 Laurel Management shown on Exhibit 17 have been going on ,
| |
| i i
| |
| 5 since back into the 1960's?
| |
| 6 WITNESS KUNKLE: Yes, sir.
| |
| 7 MR. RUSSELL: And thus far, no agreement has ever a been reached with respect to the purchase and sale of that 9l property?
| |
| i 10 WITNESS KUNKLE: That is correct.
| |
| 11 MR. RUSSELL: Isn't it a fact that the reason that f l
| |
| 12 ! no agreement has been reached is Laurel Management's k
| |
| 13 i insistence that it be made whole not only for the purchase !
| |
| ! l 14 price, but for the capital gain it would sustain on the sale?
| |
| 15 WITNESS KUNELE: That is a fair statement, yes, i
| |
| MR. RUSSELL: Is it on the basis of the continuing :
| |
| 1G l 17 negotiations as of January of 1980 that you have concluded ;
| |
| 13 that the proposed management combination was impulsive and j i
| |
| I 19 against the public interest as set forth in the first i
| |
| 20 sentence of paragraph 10 of Exhibit A of the document that i 21 Mr. Shilobod has just handed you?
| |
| 22 WITNESS KUNKLE: There is that plus some other !
| |
| 23 facts. Number one, on January / Penelec still indicated some interest in our property. h 4l 25 In Deccmber of 1979 Penelec purchased the property COMMONWEALTH REPORTING COMPANY 717 768-7150 1
| |
| | |
| I 1r40 : 1238 I
| |
| i l
| |
| i that adjoined -- that was next to ours as you come down Broad Street.
| |
| 2l t
| |
| 3 Another reason that I stated that it was impulsive 4 was on the date that we met in Parsippany with Mr. Verrochi 3 and Mr. Kuhns, which my little calendar I've worked back here 1
| |
| 6 --I think it was on the 25th of January. It was the Friday ,
| |
| 7 we flew into Parsippany'-- or flew into somewhere; Newark j l
| |
| I 8 or somewhere, and went out to Parsippany a nd had lunch and 9 met with the two Bills: we had quite a lengthy discussion 10 about the proposed change, who all was invc1ved, and I think 11 that it is fair to say that the plans were unsettled, 12 ; indefinite.
| |
| s 13 I remember raising some names. I asked whether 14 Dick Baker was going to go into Reading, and-I think that i
| |
| 15 Mr. Roddis' answer was that he didn't know.
| |
| l 16 I asked about Poole, and I think that they said 17 that it hadn't been decided. There was one certain change; 13 Ralph Conrad would not be moving; and I think, as I recall, 19 Bill Verrochi said that Mr. Donofrio probably would be.
| |
| 20 The most important thing that came ou't of that L
| |
| i 21 meeting on ,this particul'ar point was Mr. Kuhns' re fe rence -
| |
| '22 to a meeting that'they had had at Parsippany on a Saturday 23 morning, which'he said they talked about this plan, and l( ) 24 they had had some discussion on it. As.best we could judge, 25 .that was on January 12, I believe.
| |
| l COMMONWEAL.TH R, PORTING COMPANY 47171 761 7150 l
| |
| | |
| Ir41 1239 1, We asked at that meeting whether the Booz-Allen- lll 1
| |
| 2 Hamilton Report had recommended this, and the answer was no.
| |
| 3 We asked at the meeting whether the Board had approved it, i
| |
| 4' and the answer was no.
| |
| 5 Very frankly, it seemed to us that it was a decision, 6 that was made in an atmosphere of crisis because of Three 1
| |
| :s 7 Mile Island. It was a decision made possibly because of the ,
| |
| 8 pressure of the hearings before the Public Utility Commission.
| |
| 9l It was a decision that we had difficulty in l
| |
| IO ' understanding because of the obvious strength of Penelec 11 compared to the weakness of Met-Ed. ,
| |
| 12 It was a decision that we felt was going to hurt -
| |
| not only our economy, but our economic development efforts. !
| |
| I3 l !
| |
| I4 MR. RUSSELL: Is it your view that when a proposed I5 I move like this is announced, that if the full listing of I
| |
| 16 i personnel complement is not accompanying the thing, ' hat it II is impulsive?
| |
| 18 i MR. SHILOBOD: If Your Honor please, I believe the ID witn.ess previously testified that there were a number of
| |
| 'O
| |
| ~
| |
| It wasn't just that one item. He indicated that things.
| |
| il that was one of several items, and then he listed others. ,
| |
| I oo
| |
| ~'
| |
| JUDGE CASEY: He did that; I will agree. However, j
| |
| '3 I will permit him to answer the question as it is posed; 9;:
| |
| either yes or no.
| |
| I WITNESS KUNFLE: Would you state it again, please?
| |
| L m CCMMONWEALTH REPORTir.G COMPANY <717' 761 7150 m
| |
| | |
| 1r42 1240 fir. RUSSELL: Is it your view, Mr. Kunkle, that 0
| |
| 1 t
| |
| 'when a proposed management combination such as this is 2l '
| |
| 3 announced, that. if it doesn' t have a full list of all the 4 personnel complement in the proposed new arrangement, that 5 the move is impulsive?
| |
| , G WITNESS KUNKLE: I would say'yeu. ;
| |
| \
| |
| 7 MR. RUSSELL: You referred to the obvious strength 8 of Penelec. What facts do you rely upon in characterizing 9 Penelec as enjoying obvious strength and financial help?
| |
| '10 WITNESS KUNKLE: Well, Bill Verrochi was kind 11 enough each year to send a copy of the GPU and'Penelec 12 annual reports, and I certainly can' t quote any figures ,
| |
| ) 13 but I enjoyed reading them and looking at them, and it 14 was self-evident that Penelec covered a bigger territory.
| |
| 15 It supplied more people. They were a st::onger financial 16 company, and then on top of that we had had by January o'f 17 1980, I guess, about ten months of great media coverage of 18 the problems of Met-Ed and the problems following the Three 19 Mile, Island accident.
| |
| 20 MR. RUSSELL: Is it your understand'ng i that Penelec 21 owns a portion of Three Mile ' Island?
| |
| 22 WITNESS KUNKLE: 25 percent is my understanding. ',
| |
| 23 l MR. RUSSELL: 25 percent?
| |
| 24 WITNESS KUNKLE: Yes.
| |
| 1 25 MR. RUSSELL: Do you have'any understanding as to COMMONWEALTH REPORTING COMPANY 17171 761 7150
| |
| .~
| |
| | |
| Ir43 1241 l
| |
| whether Penelec shares 1
| |
| intheburdensofThreeMileIsland?gg 2 WITNESS KUNKLE: I would think they would have to 1
| |
| 3' as a part-owner, certainly.
| |
| 4 MR. RUSSELL: Do you have any idea whether Penelec 5 is currently in a position to issue any long-term bonds or 6 debentures?
| |
| /\
| |
| 7 WITNESS KUNKLE: I have no opinion cn that.
| |
| I 8l MR. RUSSELL: You don't know about their ability i
| |
| 9; to issue any permanent capital of any form?
| |
| 10 .I WITNESS KUNKLE: I am not knowledgeable on that. ;
| |
| l ..
| |
| 11 MR. RUSSELL: I believe that is all the questions 12 we have with respect to Mr. Kunkle. .
| |
| ) ! +
| |
| 13 i MR. SHILOBOD: I have two redirect questions, but 14 I can wait.
| |
| 15 MR. RUSSELL: I am not finished yet with several 16 others. Would this be an occasion for just a short break?
| |
| 17 JUDGE CASEY: I have a few questions of my own, 18 but we will take a receas now, since you requested it. We 19 will take a five-minute recess.
| |
| 20 (Recess.)
| |
| T3 21 i
| |
| JUDGE CASEY: Ne are back on the record.
| |
| 22 Mr. Shilobod, you said you had a couple of questions i
| |
| 23 Would you like to ask them now, or wou. you on redirect.
| |
| .,4 i k l
| |
| !' hold and permit me to ask?
| |
| l 25 flR . SHILOBOD: I have no objection one way or the COMMONWE ALTH RE PCRTING COMP ANY 4717 761 7150
| |
| | |
| 1r44 1242 l
| |
| (j i other. If you want, I will go ahead with them. There are .
| |
| 2 only about th ree .
| |
| 3 MR. RUSSELL: I had some possible questions for 4 u Mr. Uzelac and Mr. Burkhard, but I think the subject area l
| |
| 5' of the questions have been substantially covered by the i
| |
| . 6l' other witness, so I don't think there is any necessity for
| |
| [
| |
| /.\
| |
| 7! my taking the time to do that.
| |
| I ,
| |
| J So I think that in interest of keeping the day 8l ,
| |
| 9 moving, I wi.1.1 forego those.
| |
| 10 ! JUDGE CASEY: I have just a few; first of Mr.
| |
| 1i 11 ! Swatsworth.
| |
| 1
| |
| ,e 12 f Mr. Swatsworth, you testified that your bank,
| |
| )
| |
| xj !
| |
| 13 ! the bank where you happen to be an officer -- are you i
| |
| l 14 i the President of the bank?
| |
| i i
| |
| 15 ! WITNESS SWATSWORTH: Yes.
| |
| i 16 ! JUDGE CASEY: -- has been an unsecured creditor IT ' of Pennsylvania Electric for some period of time prior to 13 the revolving credit agreement; is that correct?
| |
| ; 13 UITNESS SWATSWORTH: That is correct.
| |
| 20 JUDGE CASEY: How long has that relationship l
| |
| 21 l existed; do you know?
| |
| I I
| |
| 22 WITNESS SWATSWORTH: It has existed for a number l
| |
| ,s 23 { of years.
| |
| L l 24 ' JUDGE CASEY: A number of years?
| |
| 25 l WITNESS SWATSWORTH: Yes.
| |
| COMMONWEALTH REPORTING COMPANY 717' 761 7150
| |
| | |
| Ir45 1243 l.
| |
| 1 JUDGE CASEY: As lona as you can recall since k l
| |
| 2 you have been associated with the bank?
| |
| i 3 WITNESS SWATSUORTH: No, I don't believe that is l
| |
| I 4 correct. Bill Thomas was Treasurer of Pennsylvania Electric 5 Company at the time and had gone around and secured unsecured i
| |
| e 6 lines of credit for many of the country banks, and that l A l 7 is when we all went into the unsecured line for Pennsylvania s Electric Company. .
| |
| 9 When you say it is for a number of years, that is i l !
| |
| 10 ' not correct. !
| |
| l .. i 11 l JUDGE CASEY: You say " unsecured lines of credit."
| |
| l 12 Now that is in the nature of a commitment to extend loans gg( .
| |
| 13 up to a certain amount; is that correct?
| |
| 14 WITNESS SWATSWORTH: Correct. ;
| |
| 15 JUDGE CASEY: And that is unsecurad. What was 16 the line of credit? It might have changed from time to time, 17 but the most current line of credit prior to the revolving 1
| |
| 1 18 , credit agreement? -
| |
| l ;
| |
| I 19 i WITNESS SWATSWORTH: S1 million.
| |
| l -
| |
| 20 JUDGE CASEY: Were there any outstanding loans 21 pending against that line of credit before the revolving 22 credit agreement?
| |
| 23 WITNESS SWATSUORTH: If you understand how a line
| |
| {
| |
| I 24 of credit works, they would come in and take it down when 25 they needed the money, and they would pay it back when they P ^ %t %t P N W F" a t TH 9"P9 9?'Nri "P YP " N Y ' ' ' Hi t ' ' M
| |
| | |
| I 1r46 I 1244 have excess funds. So that happened each-year. They would -
| |
| (},
| |
| 2, come in and take down the line and pay it back.
| |
| 3 L JUDGE CASEY: Is that the total line of credit?
| |
| 4 WITNESS SWATSUORTH: That is correct. They may 5 take any portion, however, of that line.
| |
| . 6 JUDGE CASEY: Would this include long-term as well
| |
| :\
| |
| 7 as short-term borrowing?,
| |
| WITNESS SWATSWORTH: That is not long-term' !
| |
| 8 9 financing. That is short-term financing.
| |
| 10 JUDGE CASEY: What do you mean by "short-term 11 financing"?-
| |
| 12 ! WITNESS SWATEWORTH: It has to be paid back within 7s
| |
| \ '
| |
| ~
| |
| ; 13 one year.
| |
| 14 . JUDGE CASEY: Within one year. Here there any 15 loans outstanding at the time of the revolving credit 16 agreement under the old arrangement, the old line of credit?
| |
| 17 WITNESS SWATSWORTH: Yes. We had $1 million la outstanding, and that was taken care of and paid off by 19 going intn the revolving credit.
| |
| 20 JUDGE CASEY: You said it was taken care of and 21 paid off. .How was it paid off?-
| |
| 22 WITNESS SUATSWORTH: By going into the revolving 23 credit. It was no longer an unsecured loan. It became a
| |
| ; 24 secured' loan based upon the collateralized stock of the l
| |
| 25 various corporations.
| |
| I l l
| |
| * s Ir47 1245 i
| |
| 3 JUDGE CASEY: I take _t your bank never had any ,
| |
| 2! problems with the borrowings of Penelec prior to the 3
| |
| revolving credit agreement?
| |
| i 4
| |
| UITNESS SWATSWORTH: None whatsoever.
| |
| JUDGE CASEY: So even though you were an unsecured 5f i 6, general creditor, that relationship proved to be satisfactory ,
| |
| :\ i 7
| |
| at the time; is that correct? {
| |
| 8 WITNESS SWATSUORTH: That is correct.
| |
| 9 JUDGE CASEY: Oo you feel that being a member of 10 the resolving credit agreement that you are now in a superior it position a a banker because certain common stock has been 12 pledged as collateral in the event of any default?
| |
| 13 l WITNESS SWATSWORTH: I would say that having the llh 14 collateral is certainly a lot better than being in an 15 unsecured position.
| |
| I 16 , JUDGE C.5SEY- The collateral is the stock; is that l
| |
| ! 17 , coi ect?
| |
| I i
| |
| 18ji WITNESS S'JATSWORTH: That is correct.
| |
| 19 . JUCGE CASEY: Does the value of the stock have any 1;
| |
| 20 .! effect or impact on your position as a secured creditor?
| |
| i I
| |
| 21 WITNESS SWATSWORTH: I think all of the banks in i
| |
| 22 ) the revolving, in my point of view, would look at the ,
| |
| 23 ld value that they have and the viability of the corporations, 24 The collateral will only be as good as the ability of thoselll 25 [ corporations to perform.
| |
| l l
| |
| COMMONWEALTH REPORTING COMPANY 717 761 7750
| |
| | |
| j 1r48 1246
| |
| () 1 JUDGE CASEY: Would the current market value of '
| |
| 2 the GPU common stock be involved, the value of the collateral,,,
| |
| 3l of the stock that has been pledged to secure loans or lines I
| |
| 4' of credit?
| |
| 5 WITNESS SWATSWORTH: In an indirect basis, it .
| |
| -l i
| |
| j . 6 would, yes. j
| |
| .)
| |
| 7 JUDGE CASEY: Do you have any reason to be 3 concerned as a banker that if there was.a bankruptcy on i 9 the part of Metropolitan Edison Company -- and, of course, t
| |
| 10 we all understand that it has been suggested that there is not!
| |
| ^
| |
| l i j 11 in fact, at this time a bankruptcy of Met-Ed -- would that 12 concern you uith respect to the shares of common stock that 13 are pledged?' ]~
| |
| t 14 ' WITN 'SS SWATSWORTH: In the present revolving credit, 15 l situation, we have been confronted with this a couple of times 16 by the leading banks, realizing that recently we have even ,
| |
| II taken such things as accounts receivable for some of the is collateral; so yes, it has been discussed,.and it is a 18 concern of all 'of ~ us that a weakening could create a ' real 20 problem.
| |
| 21 Finally, the borrowings:of Penelec JUDGE CASEY.
| |
| 22- ~
| |
| are now restricted by the terms of the revolving credit ,
| |
| 4
| |
| '3
| |
| ~
| |
| agreement.- They have no vehicle outside of the credit 9 agreement'that they can resort tol for either -long or1short-25 term torrowings. Is that your understanding?
| |
| -),
| |
| cOMMoNWEAI TH REPORTING COMPANY 717' 761-7!Su
| |
| | |
| Ir49 1247 1 WITNESS SWATSWORTH: It is my understanding that lll 2r there are covenants and restrictions in the revolving credit i
| |
| 3j agreement that would prohibit that.
| |
| I l
| |
| 4, JUDGE CASEY: Thank you, Mr. Swatsworth.
| |
| i 5l !
| |
| I have one or two for Mr. Kunkle. t i l Mr. Kunkle, when you described your trip to the 6l I :\
| |
| Newark Airport and then to Parsippany for the meeting with j 7l i i
| |
| 8! the two Bills, William Kuhns and Mr. William Verrochi, do !
| |
| 9! you recall whether there was any discussion at that time ,
| |
| I 10 ! by the two corporate of ficials of GPU and Penelec of ,
| |
| l 11 relinquishing title to any real estate in Johnstown, selling :
| |
| t 12 the property that they had or ceasing to use property for
| |
| . I 13 ; corporate offices? Do you recall any discussions of that !
| |
| t .
| |
| I 14 : nature? i i
| |
| 15 j WITNESS KUNKLE: You are questioning about whether ,
| |
| I 16 there was any question about relinquishing any real estate? ,
| |
| I 17 ! JUDGE CASEY: Yes. ;
| |
| 4 ;
| |
| 18 WITNESS KUNKLE: No, sir, I never heard it mentioned.
| |
| i 19 JUDGE CASEY: You took a position against -- I 1
| |
| 20 assume you did in some way, shape or form -- the Penelec ;
| |
| I 21 offices moving out of Johnstown; is that correct?
| |
| 22 WITNESS KUNKLE: Yes, sir. ,
| |
| 23 You mentioned the names of specific JUDGE CASEY:
| |
| G-24 individuals. You inquired if those men with whom you had had i
| |
| 23 ' dealings in the past would be leaving or staying in place COMMONWEALTH REPORTING COMPANY i717* 761 7150
| |
| | |
| Ir50 1248 i,
| |
| l
| |
| ["_; 1 is that right?
| |
| x l l
| |
| 2l WITNESS KUNKLE: Yes, sir.
| |
| 3l JUDGE CASEY: Was Mr. Conrad one of them?
| |
| l WITNESS KUNKLE: Yes.
| |
| $ JUDGE CASEY: What is his position, or what was
| |
| * I 6; '
| |
| his position?
| |
| .\
| |
| 7 UITNESS KUNKLE: I believe he was Vice-President l
| |
| 8i of Generation.
| |
| I 9 JUDGE CASEY: Did he say that Mr. Conrad would to be remaini.ng in Johnstown?
| |
| 11 ' WITNESS KUNKLE: Not only that. He added the
| |
| ,s 12 fact that there would be a new man, a new of ficer -- let's
| |
| 'ts' -
| |
| 13 put it this way; a new top individual, and I think that he 14 was to be an officer either coming from Parsippany or from 15 Reading to augment Mr. Conrad's staff.
| |
| IG JUDGE CASEY: What would the top corporate official 17 be; not who would it be, but what would his title be for the 18 party who would remain behind in Johnstown?
| |
| 19 WITNESS KUNKLE: I think that Ralph Conrad as l I 20 Vice-President of Generation was the top official, as I.
| |
| 21 recall tne conversations that we had.
| |
| 22 JUDGE CASEY: Were you aware that Mr. Verrochi 23 himself had been tapped as President for the new combined l ,
| |
| I )
| |
| 24 management scheme to operate out of Reading?
| |
| 25 Yes, sir.
| |
| WITNESS KUNKLE:
| |
| . (*nMMONWEALTH REPORTING COMPANY #717 7G 1 -7150
| |
| | |
| i 1r51 l 1249 i
| |
| i 1; JUDGE CASEY: He told you that? .
| |
| 2I WITNESS KUNKLE: Yes, sir.
| |
| 3; JUDGE CASEY: And didn't you have any desire to inquire as to how many officers would remain in place; in 4) 5 other words, what structure would be left after the ;
| |
| i sI management combination?
| |
| ! {
| |
| n WITNESS KUNKLE: We discussed that at great length, 7l i I 8l and I think it is fair to say that they had not developed 9l their plan fully, and they hadn't developed their plan to ;
| |
| i 10 the extent that they could tell us that, and I would say j
| |
| 11 this: that they certainly were above board and cooperative i
| |
| 12 l in all of our conversations with them, and we came out of g
| |
| 13 the meeting in Newark, I believe, with the understanding W.
| |
| I 14 ' that it would sort of be a 90-day waiting period until '
| |
| l 15 the Theodore Barry Associates report was developed.
| |
| i 16 We met with representatives of Theodore Barry and 17 f Bill Verrochi and Bill Kuhns up at the Johnstown Airport.
| |
| I 18 ! I believe it was the latter part of June of 1980; and they I
| |
| i 19 set forth some of their thoughts.
| |
| 20 l In the meantime, Mr. Burkhard and I had been --
| |
| i 21 we probably spent three or four hours with Theodore Barry l
| |
| 22 l' representatives presenting our side of the picture.
| |
| 23 Of all of the meetings that I participated in l
| |
| 2i l with Penelec officials, the one at the airport, I think,wadh 25 the most disappointing and discouraging from the standpoint CCMMONWCALTH REPORTING COMPANY #717 761 7?50 L
| |
| | |
| i 1r52 1250 l
| |
| (x_-,)
| |
| i that Theodore Barry seemed to be sort of the leading program
| |
| * 2! in some respects -- in some respects -- for Penelec.
| |
| I 3 I remember saying to - whether it was Verrochi 4 or Kuhns -- that they ought to put Mr. Wicker on the payroll I <
| |
| 5l full-time. ;
| |
| . 6 MR. SHILOBOD: Mr. Wicker was there?
| |
| l :\
| |
| 7 i
| |
| WITNESS KUNKLE: -- Mr. Wicker on the payroll i
| |
| i 8 full-time because he was sort of leading the presentation, 9 and I was resentful of one thing. I think more than one i
| |
| 10 of us at the meeting was resentful of one thing. -
| |
| i 11 In Wicker's recap and expression of their opinion ,
| |
| (m; 12 of the proposed merger of the management, it looked as though
| |
| -s i :
| |
| 13 they had not even heard the three of four hours that we 14 l spent with t' a, and we expressed this and told them that is we were disappointed, and also we had never been given the -
| |
| 1G courtesy of a report or the preliminary copy of the report, 17 and he apologized for that.
| |
| l 18 MR. RUSSELL: What report? ,
| |
| 19 WITNESS KUNKLE: The Theodore Barry report; and 20 he apologized for that and said we would have it the next 21 day, and we don't have it to this day. f 22 So I would li: e to say this; that I have nothing ,
| |
| ~~ 23 but great respect for Penelec and their people. They are !
| |
| 24 fine people, and this is why it is so disappointing for us 25 to see them go on , top of our great economic need for them.
| |
| COMMONWEALTH REPORTING COMPANY + 17* 761 -7150
| |
| | |
| Ir53 1251 i
| |
| 1 That area is struggling. (g)
| |
| I One of the things that has been the crown jewel 2l i
| |
| has been that corporate office, and now when we need them 3l 4 most, it doesn ' t -- now whr- we need them most, we are going 5l to get either a diluted or del. :d corporate leadership.
| |
| I i
| |
| 6; He think we deserve better than that, and we think that the
| |
| ?.\
| |
| 7 public interest of the Penelec service territory deserves l 8 I better than that. !
| |
| 9I JUDGE CASEY: Just one more question. Mr. Russell t
| |
| to asked you whether you thought that a management combination ,
| |
| 11 i plan which was not completely fleshed out on paper was 12 i impulsive action: _a other words, it was just a conceptual l
| |
| 13 l idea, and tP mmpany makes an announcement that they are 14 l going to go ahead with this; and he asked you whether you 15 thought that that was an impulsive action, and you answered 16 i yes; is that correct?
| |
| 17 i WITNESS KUNKLE: Yes, sir.
| |
| 13 JUDGE CASEY: In your judgment as a corporate 19 li executive and Chairman of the Board of JARI, Incorporated, I
| |
| 29 do you feel that before a formal announcement' is made by i
| |
| 21 a corporati.on, there is certain action to be taken, that 22 the plan must be completely filled out; all of the parties i
| |
| 23 ' involved -- that is the corporate executives -- should be .
| |
| I 24 placed and named and so forth? Is that why you answered i
| |
| 25 I that this was an impulsive action? Please explain.
| |
| , h CoMMCNWE ALTH REPORT!NG COMP ANY a717' 7GI-7150
| |
| | |
| Ir54 l 1252 I
| |
| l
| |
| (^
| |
| ~
| |
| \_
| |
| 1l \
| |
| NITNESS KUNKLE: I don't really think that is it. -
| |
| 21 I aopreciate the position that they were in. They were before 3' the Commission at a hearing relating to Met-Ed's recertifica-4, tion, as I recall, and the proper place for them to make 5; whatever announcement they were going to make was before the t
| |
| 6! Public Utility Commission, because I am certain that if they
| |
| :.\
| |
| 7 had made it publicly when they came back to the Commission, aI the Commission would have been disappointed, and so forth.
| |
| 9 I don't think that all the square pegs have to be 3
| |
| I 10 in the square holes, and so forth. That isn't what I meant 11 when I said that I felt that it was impulsive.
| |
| l
| |
| ,7 12 ! As I said before, I think it was made in an 13 l atmosphere of crisis. I think it was made on what they 14 thought was the best interests of the GPU stockholders, the 15 best interests of GPU and Met-Ed, and quite frankly I am 16 8 I could care less about Met-Ed.
| |
| interested in Penelec. I i
| |
| II think that they got a terribly bad break with Three Mile 18 Island, but I don't think that their plan was -- they even 19 admitted that their plan wasn't in full position -- Mr. Kuhns,
| |
| ' O i
| |
| the one who told us at the Saturday morning meeting.
| |
| *1
| |
| ~
| |
| I think that they came up with some kind of a
| |
| ,, l
| |
| ' 1; gimmick to try to impress the Commission. That is my honest
| |
| '3 s
| |
| opinion of what they were trying to do. They were trying 1
| |
| 34 l to impress the Commission. I am.sure that they were in a I
| |
| 's I touch spot, and I appreciate the tough spot.
| |
| COMMONWEALTH REPORTING COMPANY 7175 761-7150
| |
| | |
| I i
| |
| 1r55 l 1253 I
| |
| 1 But, once again, I get back te the fact that gg 2 JARI's sole purpose is jobs, and whether we keep them or 3! create them, jobs is the only thing that we have ever tried ;
| |
| 4 to get in. ;
| |
| 5 When we face the possibility of losing jobs, ;
| |
| , 6 either directly by their moving out or indirectly by their
| |
| :\
| |
| 7 not having the full representation and not having the 8 corporate structure that they have had there for 30 years, 9
| |
| we might be in -- we might suf fer. We suffered several ways.
| |
| 10 Number one, I remember going down to Seward at :
| |
| [
| |
| 11
| |
| * the request of Franklin Smith, who was then President, to I
| |
| i 12 help them in their announcement. They were going to build :
| |
| I 13 5 reward 7. This was a new generating station. This was i 14 probably 1973 or 1974. I have no way right now of finding 15 out. j I
| |
| I IG JUDGE CASEY: Was that coal-fired? ,
| |
| j 17 , WITNESS KUNKLE: Coal-generated, yes. They made i
| |
| 18 ' a big announcement that was great news to us. You just i 19 can't realize what this did to our spirits when they i
| |
| 20 announced that they were going to build a big addition to .
| |
| 1 I
| |
| 21 their corporate headquarters, and this was made somewhere ;
| |
| 1 22 in 1979. I sort of think it was about August or September. j 23 1 I don't'really know. Maybe it was September; a six-story b.
| |
| 2i llbuilding.
| |
| i They even went so far as to start to prepare the 25 site.
| |
| t COMMONWEALTH REPORTING COMPANY 1717 761 7130
| |
| | |
| Ir56 1254 i
| |
| 1 You have got to picture the depression in that community. '
| |
| ! This confounded flood really knocked everything l
| |
| 3 out of that community.
| |
| 4, JUDGE CASEY: I am familiar with the community.
| |
| i 5 WITNESS KUNKLE: Penelec's announcement that they j t
| |
| 6 were going to build this building plus the fact that Abex
| |
| :s 7 was under construction; things were looking up. Things were l
| |
| , i I
| |
| 8 really looking up, and things 'are looking up right now with I I
| |
| 9 the syn fuels plant that we need Penelec. We need the ,
| |
| ; I to best management that they can give us, and we need~ full-time 11 [ management to help us grow.
| |
| I s 12 This syn fuels thing -- I had lunch in Washington .
| |
| .] yesterday with John Sawhill and Jack Murtha and the Vice-i 13 l ,!
| |
| ! i 14 i President of Westinghouse, who-is leading the project, and i
| |
| ! j !~
| |
| 15 all of us were as excited 'as a bunch of kids at Christmas i
| |
| 16 because this is the one thing that can really save that area, l i t
| |
| ~
| |
| ' ~
| |
| 17 ! and if we get the syn fuels plant, that area is saved for i l l
| |
| ' i 18 all time; for all time; and, man alive, not to have a full' i :
| |
| i J' 19 l corporate staff of a power company that has: been our crown - l 20 ;
| |
| jewel, it couldn' t come at a worse time.
| |
| 21 . JUDGE CASEY: What kind of reassurances .did Mr. ,.
| |
| i I
| |
| 22 Verrochi or Mr. Kuhns try to give you, if any, that tSis- l 23 l proposed move would not;have the detrimental effect on the
| |
| ~
| |
| j
| |
| . '~ 24 company's' operations -- that is Penelec -- as well as the 1 :
| |
| l 23 overall economy of the Johnstown area? ~
| |
| i i
| |
| : o. COMMONWEALTH REPORTING COMPANY ' 4717 761-7150
| |
| | |
| 1255 Ir57 f
| |
| i
| |
| ; WITNESS KU:ixLc: I think that Bill, with great O
| |
| : 2. sincerity, said that there wouldn't be any change, that I
| |
| 3i he would be coming out there. He planned to continue to i
| |
| i 4' serve on the Board of the United States National Bank.
| |
| 5,i I don't recall whether he said he was going to i
| |
| 6 continue on the Greater Johnstown Committee. My guess was
| |
| . i eg 7l that he probably thought that way. t i I 3I He certainly indicated that Penelec would be the i I
| |
| 9l fine community citizen that it has always been. We didn't i
| |
| 10 l feel that way. It didn't add up that same way to us because 11 ; we knew the great advantage that we had.
| |
| I 12 When we had a problem with Abex, we called him, l I '
| |
| 13 and he was just as anxious to please Abex as any of the rest 14 ' of us were.
| |
| i 15 ! JUDGE CASZY: I have no further questions of Mr.
| |
| 1G l Kunkle or the other witness. Is there anything or. redirect?
| |
| l
| |
| * i 17 ! MR. SHILOBOD: Just a few items.
| |
| 18j l REDIRECT EXAMINATION 19 ! MR. SHILOBOD: Mr. Kunkle, you indicated on 20 l cross-examination that you were essentially in favor of 21 I having the merged management combination in Johnstown, and 22 I think you indicated that that was in January of 1980.
| |
| 3l Does that continue to be your position?
| |
| '4
| |
| - : WITNESS KUNKLE: As I just said, I have no interest 25 in 21e t-Ed. As the head of JARI, I have no interest in COMMONWEALTH REPORTING COMPANY ' 7 ? *, 76* 7150
| |
| | |
| Ir58 1256 I
| |
| i I Met-Ed. .
| |
| (}
| |
| 2l My position and I think JARI's position is that 3l we feel that we deserve a strong viable corporate structure 4 for Penelec in the Penelec territory.
| |
| 5; As I said be fore , if Penelee is going to put their corporate headquarters somewhere other than Johnstown, then j el
| |
| ! :\ !
| |
| ; we are going to compete.and do everything we can to keep :
| |
| I 8j them in Johnstown.
| |
| l 9; The one way that we know that there is going to to be a viable electric pover utility in Penelec's territory '
| |
| 11 is to have the corpoIate headquarters in that territory.
| |
| , 12 i MR. SHILOBOD: I don't think you understood ry
| |
| ( l 13 question. Has there been any change in your thought i
| |
| 14 ; concerning the approval of placing a merged' management i
| |
| 15 combination in Johnstown?
| |
| 16 { WITNESS KUNKLE: As I said before, I am not j
| |
| 17 ' interested in Met-Ed. I am interested in Penelec. . If they 18 were to turn around and put the combined Met-Ed, Penelec-East i
| |
| 19 and P,enelec-West, which I believe is the most recent 20 terminology, in Johnstown, that doesn't excite me, and I am 21 not going to clap hands. I am interested in the Penelec 22 territory as it'is, 1
| |
| 23 MR. SHILOBOD: Do you now consider the use of
| |
| ( 24 a merged management combination as being detrimental to the 25
| |
| -Johnstown area?
| |
| I CoMMoNWCALTH RCPORTING comp ANY 4717e 761-7150
| |
| ( h
| |
| | |
| l' 1r59 ,
| |
| 1257 I
| |
| i WITNESS KUNKLE: I would think that -- as I said, 2 Laurel Management has -- Laurel Corporation has a group of 3 s ub sidia rie s . One of them is a small machine shop, which is 4, aimed entirely at the mining industry, and we have had a lot 5 l of problems. ,
| |
| I i
| |
| 6 We went out and got additiona'l help because that
| |
| * i
| |
| \ t
| |
| - is the way that we think that we solved the problem. We went ;
| |
| 3 out and called professional help. ,
| |
| 9 ! I don't see how they can solve the Met-Ed problem ,
| |
| i 10 ; by combining. I just don't understand it.
| |
| There
| |
| ~
| |
| 11 MR. SHILOBOD: I have one other question. l i
| |
| 12 was cross-examination of you concerning your involvement 13 , in the sale of land - or negotiation of the sale of land i
| |
| < I i
| |
| 14 to Penelec. ,
| |
| ! i 15 l Is the failure to consumate that sale the reason i
| |
| 16 l i that you have participated in this action?
| |
| J
| |
| ~*
| |
| 17 i WITNESS KUNKLE: Oh, god, no. As Mr. Russell said ,
| |
| i I think that --
| |
| 13 ldl yesterday, it has been going on since 1965.
| |
| 'I ,
| |
| 19 j this is going to sound magnanimous -- but I am a tremencous a '
| |
| 20 'l h admirer of Penelec's , and I realize the value of Penelec r
| |
| l 21 to our area., and that land that adjoins their corporate 22 headquarters should be their land. Proof of that is that i i :
| |
| J 23 ! they now rent one-third of it.
| |
| 'l 24 When we were being redeveloped -- and that is a 25 bad experience and a costly experience -- if there was ever i
| |
| l CCMMcNWCALTH REPORTING CCMPANY <717 7G!-7150
| |
| | |
| l i
| |
| 1r60 l 1258 I
| |
| l t
| |
| 1j a time that we were in a position to make the land available-2l to Penelec, it was then.
| |
| 3' My understanding of it was -- I don't know whether 4l Bill told me this -- or maybe Jack Allison or Mr. Evangelista, i
| |
| 5 who work with Penelec -- that with the new addition that 6; they were planning, which they announced in 1979 -- we have
| |
| :\
| |
| T two small buildings on that property. They were going to 8 use them in some temporary manner and them tear them down 9 and use that land which adjoins for parking. That was my 10 understanding of the purpose. -
| |
| i ..
| |
| 11 , As I said, we have been redeveloped in the mean-12 ~ time. We have totally remodeled the buildings inside. We
| |
| ; 4 w-13 have moved our meter repair department there. We have moved 14 our engineering department down there, and we have taken 15 probably 10 percent or maybe 15 percent of our people out l IG f of the redevelopment office and put it down on this land.
| |
| 17 MR. SHILOBOD: That property does have marketability 13 elsewhere other than Penelec; is that correct?
| |
| 19 MR. RUSSELL: I haven' t objected to this line of 20 leading questions, Your Honor, but I do see that this is 2'
| |
| I think leading and not relevant. A piece of land either has a market or not a market, and I don't see that that has 23
| |
| ,s, any relevancy to this proceeding.
| |
| 4' MR. SHILOBOD: All right. Your Honor, I have no 5
| |
| further questions.
| |
| CoMMONWEALTe4 REPORTING COMPANY e7 t 74 761 -715C
| |
| | |
| F l
| |
| 1r61 1259 il JUDGE CASEY: That settles that.
| |
| lll 2l Does that conclude the questioning, or do you 3; have any other witnesses?
| |
| 4 MR. RUSSELL: I don't think we have any further 5 cross. ;
| |
| I
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| , 6, JUDGE CASEY: Now would be a good time to recess I
| |
| /.\
| |
| 7 for lunch, so we will recess now until 1:15 p.m.
| |
| a, (Whereupon, at 12:00 noon, the hearing was '
| |
| I 9 adjourned, to be reconvened at 1:15 p.m. this same day.)
| |
| 1 10 l 11 ,
| |
| I 4
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| 13 i
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| 15 16 I
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| ~
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| IS 19 I 20 21 ,
| |
| 22 l 1
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| 23 a!
| |
| 25 I regggreim[%NTM) [S[3Ro)Ri?!MLP SGM#PANY i7 t 97 7% 11 -7 i No) t
| |
| | |
| pl l 1260
| |
| () 3 AE .ERNOON SESSION 2 (1:20 a.m.)
| |
| 3 We are back on the record.
| |
| JUDGE CASEY:
| |
| 4 Mr. Russell, you may call your first rebuttal 5
| |
| witness. ,
| |
| l 6
| |
| * MR. RUSSELL: Mr. Verrochi. i A
| |
| 7 Whereupon, 8
| |
| WILLIAM A. VERROCHI 9
| |
| having previously been duly sworn testified further as follows:
| |
| 10 Mr. Verocchi, you were previously
| |
| , UDGE CASEY:
| |
| II
| |
| ! sworn during an earlier set of hearings, and that oath ;
| |
| i I
| |
| (} 13 continues until the case is complete.
| |
| THE WITNESS: Yes.
| |
| DIRECT EXAMIliATION i 15 BY MR. RUSSELL:
| |
| 0 Q Mr. Verrochi, were you in the hearing room this 17 morning and did you hear the testimony that took place in this lb proceeding during this morning?
| |
| 19 A I heard most of it. I was out of the room a-few 20 times making phone calls, but I was here for most of the >
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| 21 , ,
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| hearing. t
| |
| ! Q .I would like to. direct your attention to the 23 l
| |
| S situation that would obtain in the event that the proposed l (~A
| |
| '- 24 management combination were placed into effect, and under-those 25 circumstances what, as you .see it, would be the - ef fect of that l
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| !- COMMONWEALTH REPORTING COMPANY s717 761 7150
| |
| | |
| 1261 jl fis l pl i
| |
| ; I management combination upon employment in the Johnstown are 2 A. We have, in our studies, estimaced that we could ,
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| a 3 carry out the full intent of the proposed combination of 4 management and relocation of top offices, most of the top 5 offices to Reading, with a net job reduction of about 85 in
| |
| , 6 the Johnstown corporate headquarters complex. There would -
| |
| :g -
| |
| 7 still be over 50.0 Penelec. corporate type.. people working in-i a the Johnstown offices.
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| l''
| |
| 9 Q. Has Penelec made any efforts to hold down the
| |
| - 10 number of job losses the combination would cause in the 11 Johnstown area' $
| |
| 12 A. We have, in our. iterative process, which we start 13 as I think I testified earlier, right after the first of the i
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| 14 l year or about the first of 1980 -- we have made several I
| |
| , r 15 estimates as to how many people should remain behind to serve i 16 the needs in the generation division and rates and books and ,
| |
| 17 records and so forth and how many jobs should be located to
| |
| ~
| |
| I 18 Reading, and how many could be abolished in the Johnstown~ t i
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| 19 a r e a,. f I
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| 20 '
| |
| Our earlier studies indicated that were we really 21 starting frcm scratch, the number would be quite a bit higher j n, k'
| |
| ~~
| |
| than the net reduction of 85 people. But in our, discussions "3
| |
| we had with JARI representi:tives, Bill Kuhns and I, we made !
| |
| 7 a point,'without undermining the effectiveness of what we are
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| 'S
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| ~
| |
| proposing to do, to try to minimize the impact of job loss in .
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| COMMONWEALTH REPORTING COMPANY q717t 761 7150
| |
| | |
| 1262 j2 j l
| |
| the Johnstown area. l
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| -) g ,
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| %)
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| * 2 I think the 85 represents an honest effort on ou" 3
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| part to bring that about.
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| 4 g As you would see it, what effect would the propore' '
| |
| 5 management combination have in the foreseeable future over ,
| |
| 6 the level of customer rates of Penelec 'in Johnstown and in thc.
| |
| zg 7
| |
| balance of the service territory?
| |
| 8 A Well, Penelec, as you know, ia currently in a ratn g proceeding trying to get rate increasen which we think are 10 justified and completely necessary. Until any new rates go ii into effect, of course, any economie that would come about
| |
| ,_ 12 would be realized.
| |
| ('# / t 13 We continue to believe quite firmly that what we
| |
| ,4 are proposing to do, the combination, will save at least !
| |
| 15 $18 million a year, both in cost avoidance and cost reduc'. ion; 16 and of that amount, maybe S7 million or $8 million, we estimax ,
| |
| (
| |
| 17 would be to the benefit of the Penelec operation.\
| |
| la So, in essence, when those savings materialize --
| |
| 19 and we fully expect them to be somewhat higher than that -- i i
| |
| 20 the need for subsequent rate increases will be thereby f l
| |
| 21 diminished.. So in a million words what I am saying is the !
| |
| l 22 rates of all of Penelec's customers will; if anything, be 1
| |
| 23' lower over the period of time in the future than they would be
| |
| ,c\
| |
| t ]
| |
| '* " 24 in the absence of this proposed combination of management and 25 consolidation of divisions.
| |
| t COMMONWEALTH REPORTING COMPANY #717' 761 7150 f
| |
| | |
| 1263 j3 0 As you see it, what would be the effect of the proposed combination of management on the level of service, generally, in the Penelec service territory again?
| |
| A. We would expect that, if anything, it would tend to improve our quality of service in all of its aspects; in terms of rates, of course, in terms of' frequency and duration of customer outages th5baghout the Penelec service area. We !
| |
| 1 I
| |
| 8 made real strides in identifying where to get the biggest g
| |
| bang for the buck in this area. And our 1981 goals and to b'jectives and our budgets reflect, I think, sufficient -
| |
| ;g money and attention and resources to carry that effort g forward.
| |
| 33 We would also, of course, continue to try to g improve and to upgrade the ope. rating performance of our large 33 generating stations. Again, this inures to the benefit of 16 our customers in terms of quality of service and in terms of 1
| |
| less need for purchasing of more expensive replacement 33 energy.
| |
| l 19 Again, I am optimistic -- and, of course, the new 20 organizational set-up, strengthening as it does' the division 21 staffs and , division people as well as the mirror imsge of 22 corporate headquarters, will, I think, enhance the quality of 23 service in terms of further requirements on the continuing 24 e f fort to identify priorities and to allocate sufficient O.
| |
| 25 resources to improving the quality of service as measured by 9
| |
| COMMONWE ALTH REPORTING COMPANY o717 761 7150
| |
| | |
| 1264 ,
| |
| i j4 l
| |
| ,'^; 1 voltage losses and power interruptions and the ability to ,
| |
| 't) ;
| |
| 2 connect up new customers and to respond to the requests for i 3 informa tion , guidance and counsel with any new customer, ;
| |
| 4 whether it be residential, commercial or industrial. I think l 5 that in all of those areas --
| |
| 6 One other point, before I get off the" soapbox, is
| |
| :\
| |
| 7 that in terms of response tu customers' inquiries and I
| |
| a customers' complaints, I think the proposed new reorganiza-9 tional set-up of my staff, plus again at the division level, 10 is aimed -- has the input of people who have been involved 11 with that kind of activity. It is aimed at making our 12 response to customer inquiries and customer complaints better.;
| |
| I i ) ~
| |
| '# I think Penelec has a reasonably good record in that regard:
| |
| 13 14 Met-Ed has a much better record, and we hope -- that is one i
| |
| 15 of the benefits we hope to acquire from combining Met-Ed's l 1
| |
| 1 la people with our people in the joint combination. '
| |
| 17 g On the service level, with regard to major indus-l 18 trial levels, what impact would this proposed management ,
| |
| i 19 combination have, as you would see it, briefly?
| |
| I 20 A Here again --
| |
| l 21 MR. SHILOBOD: Your Honor, I am going to raise an 22 objection at this time. I have been sitting here not saying 23 anything, but I don't think that this is rebuttal testimony.
| |
| 24 This is cumulative on the case in chief and, in fact, it is t
| |
| 25 actually contradiction to some of the testimony in the case in!
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| i l
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| COMMONWEALTH REPORTING COMPANY (717' 761 7150 l
| |
| | |
| 1265 j5 ,
| |
| 3 chief. ggg 2l MR. RUSSELL: It is strict rebuttal to what was l
| |
| 3{ said by the JARI witnesses this morning. i JUDGE CASEY: In a sense, Mr. Russell, but I was 4
| |
| i entertaining the same thoughts when I heard the questions and ,
| |
| 5l If it is repeating testimony that was already
| |
| . 6l answers.
| |
| * l,
| |
| ; given during your case in chief, it is not really rebuttal I
| |
| 8 testimony. You're simply reemphasizing your original g position.
| |
| 10 If it is specifically designed and tailored to it j refute or rebut any of these witnesses, what they have said or what any witnesses have said this, morning --
| |
| 12 0
| |
| 13 l MR. RUSSELL: We will endeavor to limit it to that i
| |
| 14! area, but .I think we intended to direct our remarks speci-I i
| |
| fically to what was said this morning; and we will try t o 15 l 1
| |
| is ' make sure that they are all new items said this morning.
| |
| 17 Major industrial customers was one that was specifically dealt is with this morning and that is what this question is directed to.
| |
| 19 ,
| |
| JUDGE CASEY: It might be helpful, although it 20 would probably be somewhat difficult, for you to kind of key 21 the witness into answering testimony given by certain l 22 witnesses. If you would mention the JARI witness by name, if 23 you will, or if you can, and perhaps indicate what that I
| |
| O 24 witness had to say and then ask Mr. Verrochi why he takes a 25 contrary position --
| |
| f-6VMONWf" Af TH AFPn9Pf NG COVP ANY '?t7 791 70*''
| |
| | |
| ; 1266 i
| |
| j6 es. . 1 MR. RUSSELL: I will endeavor to do that. I'm Ql 2
| |
| frankly not quite sure whether it was Mr. Kunkle or Mr. Picking 3
| |
| who made reference to major industrial customers and the l
| |
| 4labilitytoservethem.
| |
| 5
| |
| ! BY MR. RUSSELL:
| |
| 6 G Do you see any impact, positive or adverse, which 7 the proposed combination would have on Penelec's ability to l serve large existing customers as well as large new l 3
| |
| 9 customers, industrial customers, in the Penelec service 10 territory? ,
| |
| 11 A I don't see any negative impacts. I think Charlic -
| |
| 12 Kunkle mentioned, for example, Abex. It is true that on a i :
| |
| k' 12 couple of occasions with a telephone call I happened to be in 14 the office; I was_able to atte.nd meetings with some of my 15 fellow officers who are more familiar than I who were able to 16 resolve problems.
| |
| 17 I'm sure that on other occasions I was called on the-18 telephone and I happened to be out of the office; I might 19 have been somplace else. Here again, that parallels similar 20 telephone calls I might get from Erie involving one of the 21 large industrial customers up there, Hammermill Paper, or in 22 l Towanda involving Proctor and Gambel, Charmin Paper Products.
| |
| 23 ' Really, I don' t believe that the location of me gs '
| |
| ? 24 and most of my fellow offices in Reading will in any way 25 diminish our ability to respond as cooperatively as I was
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| ~
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| CoMMoNWEAt.TH REPORTING COMPANY #717 7G17150
| |
| | |
| 1267 j7 i
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| 1
| |
| ! happy to hear our friends from JARI say in the future as we
| |
| , have in the past. That's our attitude; that's the way we do 3 ! business.
| |
| I I Again, at the risk of going en too long here, we 4
| |
| 5 will continue to have division managers whose job it is to
| |
| ~
| |
| , 6 make sure that all of the needs of the customers' are at least l 7
| |
| understood; and they are\ to marshal whatever support they :
| |
| I need from whatever location. i 8
| |
| 9 JUDGE CASEY: Suppose this new plant, if it ever 10 comes into being, that is supposed to convert bituminous coal it into methanole, liquid methane gas, may have a need for a 12 large quantity of electricity, more than they were using at 13 the start and the highest corporate officer in place in 14 Johnstown .is the Vice-President in charge of generation; how 15 would the executives of that syn fuel plant go about meeting 16 with somebody at Penelec to cover their specific needs?
| |
| 17 THE WITNESS: Again, there are several aspects of 18 that I think worthy of discussion, Your Honor. The first is 19 iD terms of the simple matter of meetings. The local division 20 manager would meet with their representatives. If and as 21 necessary,.a corporate officer or officers would be called l
| |
| 22 into the meetings with the staff of these people.
| |
| 23 I think, however, that the other side of the coin 24 and one of my concerns, is that as new corocrations like Abex 25 come in and add a 30-megawatt load to Penelec's 2100-megawatt COMTONTALTH RMRTIN9 C@MPANY _f717 761716)
| |
| | |
| 0 1268 ,
| |
| i f
| |
| j8 { '
| |
| i
| |
| , 3 1 loacF-we would do our damndest to provide for that and to hav,e
| |
| (-) ; !
| |
| 2; the back-up generation to do it -- is Bethlehem Steel Corpora-3 tion announcing the major addition of about 180 megawatts of 4
| |
| electric furnace demand to go into service, I think, in '82.
| |
| 4 5
| |
| I haven't personally met with Bethlehem Steel ;
| |
| g people, but my officers have and we think we are going to
| |
| + l
| |
| ; ;. have enough capacity in'the future to take care of the needs, -
| |
| i i
| |
| 3 depending on our load growth and our ability to finance. l 1
| |
| 9 So if syn fuel wants to locate a plant in the ;
| |
| i is Johnstown area, which I think would make sense, with our large!
| |
| ti ccmplex of generating stations there, that would simplify the i
| |
| 12 ! process from that point of view. But we sure as heck have
| |
| / )
| |
| 13 i ]togetenoughrateincreasessoonerorlatertobuildthe 14 power plants to provide the energy. Now, whether I am in b !
| |
| l 13 Reading or Johnstown isn' t going to impact on that problem !
| |
| 4 i
| |
| is very much.
| |
| 17 JUDGE CASEY: It is nice of you to add that little 13iiplug, but I am more concerned about what the officials of the -
| |
| 1 h i 19 new industry or of Bethlehem Steel, an existing industry -- ,
| |
| 20 I t I think your answer suggests that they would co'to the chain i i
| |
| i 21 ! of command, so to speak, starting with'the division level ;
| |
| i i 22 '; until their problem is resolved someplace down the line.
| |
| l 23 ! THE WITNESS: JustastheynowdoatTunkhannockand!
| |
| * 1 1
| |
| ,' ? < ,
| |
| 24 1 Erie and Altoona and so forth. I really don't see that that 25 i problem is made more difficult.
| |
| i .
| |
| l CCMMoNWEAL.TH REPORTING COMPANY 1717 761-7150
| |
| | |
| 1269 j9 3
| |
| JUDGE CASEY: Unless those people would like to 2 feel that they would like to start at the top.
| |
| 3 THE WITNESS: Then they'll call me on the phone and i
| |
| I 4
| |
| I'll hop a plane and come in and talk to them.
| |
| 5 JUDGE CASEY: Sorry to interrupt, Mr. Russell.
| |
| 6 I
| |
| MR. RUSSELL: I have one that follow directly in 2
| |
| 7 line with what your thin \ king was.
| |
| i 8i BY MR. RUSSELL.
| |
| i, 9 G Where is your largest industrial customer, 10 Mr. Verrochi?
| |
| 11 A Our largest industrial customer is in Tunkhannock, 12 which is in the northeastern division near Towanda; that is 13 Proctor and Gambel, Charmin Paper Products.
| |
| 9 ,
| |
| 14 G .How far.is Tunkhannock from Johnstown?
| |
| 15 A It is over 200 miles, I would guess; 240 or 250 16 miles -- 240 miles.
| |
| 17 G Has Penelec received any complaints about the IS service rendered to Charmin Paper in Tunkhannock?
| |
| 19 A I would be less than honest if I said we never had 20 any complaints, but I know firsthand that we have excellent 21 relationships with the top management and all levels of 22 management. I think Charmin would testify that they are 23 satisifed with the quality of service and the people servinc 24
| |
| ~O them.
| |
| 25 G With whom does Charmin Paper deal when they have a COMMONWEALTH REPORTING COMPANY 717 761 7150
| |
| | |
| 1270 jl0 7
| |
| ~
| |
| 3 service problem? ,
| |
| I
| |
| (/ i 2
| |
| A Usually it would be with the local division people first; and if they can't handle it, tnen they are supported 3l 4
| |
| by headquarters staff at the headquarters offices, if l l
| |
| 5 necessary.
| |
| l 6 O I think Messrs. Kunkle and Plcking referred to 7
| |
| Penelec as being a "crMwn jewel" of Johnstown and indicated I
| |
| I their great reluctance to see the loss of that " crown jewel."
| |
| 8 9 do you have any comment to make with respect to that i i
| |
| 10 suggestion?
| |
| 11 A I guess I'm honored to be a member of a company that is so designated. There are other equally loved, if 12 l
| |
| ( ~'
| |
| )
| |
| 13 you will, corporations in the Johnstown area. Charlie men- l 14 tioned some new ones: Metropolitan Life Insurance Company; l l
| |
| l 15 the Abex plant, the largest wheel plant in the world.
| |
| i 16 Again, I certainly hope we are able to attract the t i
| |
| That would be another welcome addition. I i; syn fuel plants in.
| |
| j 18 I think that demonstrates that JARI's work in the 19 past and in the future is hopefully going to continue to be ,
| |
| 20 successful in keeping Johnstown an economical'ly viable and 21 healty community.
| |
| l 22 Q. There was some cross-examination this morning of I 23 Mr. Kunkle with respect to the tract of land adjacent to ,
| |
| l
| |
| ' h> 24 Penelec's office building site. Does Penelec still have an ;
| |
| 25 interest in that tract? !
| |
| CoMMoNWEA1.TH REPORTING COMPANY a717 761-7150 ;
| |
| | |
| 1271 jll A
| |
| I{
| |
| We do. Wewouldbuyittomorrowifwecouldagreq 2 on a purchase price which is close to the appraised value of I
| |
| the property. I share Charlie's concern about his tax ef fect, 3l .
| |
| 4l but just as a matter of policy, we try to buy property that we; 5 think that we need now or in the future at something close to l
| |
| I
| |
| * 6i the fair market value.
| |
| I 7i i
| |
| G There was also% a mention of an Acme property just a a little bit further down the street from the Laurel property 9 that was purchased by Penelec. When was that purchased?
| |
| I -
| |
| to A I think we purchased that -- after Three Mile or 11 ' before?
| |
| 12 MR. DONOFRIO: After.
| |
| 13 THE WITNESS: We purchased that after the Three 14 Mile accident.
| |
| 15 ! BY MR. RUSSELL:
| |
| i 16 g What use has Penelec proposed to put that property to?
| |
| IT A Ue' re in the process of -- it is a supermarket; 15 about 16,000 square feet. We're remodeling it and we're going l
| |
| 19 j to house the southern division personnel, some 70 or 80 people.
| |
| 20 We' re going to relocate them from the Johnstown headquarters 21 to the Acme. building, because the Johnstown headqua ' ec and 22 the space we are leasing at General Telephone and Eldeu.'.onics, 23 which is on the other end of our property, is inadequate for 24 even the people who are remaining behind at the corporate i
| |
| 25 headquarters building. We are short of space. This is a step COMMONWEALTH REPORTING COMPANY 717 761 7150
| |
| | |
| 1272 jl2
| |
| ,_ 3 designed to give us more space in the main building and also, l
| |
| ! ! I 2 to kind of divorce the expanded southern division group from i
| |
| 3 being comingled with corpcrate headquarter type people in j i
| |
| 4 the Johnstown 1001 Broad Street building. '
| |
| 5 I think we're hoping to accomplish that remodeling 6 sometime this year and relocate the sodthern division people 7 into it sometime this yOar.
| |
| 8 G Mr. Kunkle mentioned a conversation that you had i
| |
| 9 with him, among others, in Newark on February 1. Have you 10 covered that in your direct testimony? l l
| |
| 11 A I don't remember that I have. l' 12 g Could you comment then on the allegation of i 7_s c''
| |
| '/ 13 Mr. Kunkle that at that point your plans with respect to the 14 management combination were in.a state of disarray? l i
| |
| 15 A. I don't think that I agree that they were in a i i
| |
| 16 state o f disarray. !
| |
| : 1 17 MR. SHILOBOD: I don't think that Mr. Kunkle used [
| |
| 18 the term " disarray." ,
| |
| t 19 MR. RUSSELL: I'm just characterizing it.
| |
| 20 JUDGE CASEY: Let's say that the plans were not ,
| |
| i 21 complete at,that point in time. l
| |
| ; 22 THE WITNESS: I'm sorry. .
| |
| 1 l
| |
| l 23 JUDGE CASEY: That the plans were not complete at j
| |
| (* ;
| |
| _t 24 s' the ti?.to of your meeting with Mr. Kunkle. !
| |
| i 25 THE WITNESS: I would go along with that i
| |
| COMMONWEALTH REPORTING COMPANY #717: 761 7150
| |
| | |
| 1273 jl3 !
| |
| l characterization.
| |
| i Theysureweren'tcompleteinalloftheggg 2; details; but the iterative process that has brought us to i
| |
| 3, where we are today had been in progress for about a month 4 ! prior to that February 1 meeting and we were well along with 5l the basic concept at that time.
| |
| i 6 MR. SHILOBOD: You said February 1. Was that the date?
| |
| ^
| |
| 7'l ,
| |
| 8l THE UITNESS: Yes; that's the meeting.
| |
| 9 JUDGE CASEY: I think that's the first that we have 10 heard the actual date of that meeting. .
| |
| 11 , THE WITNESS: I'm sorry; the meeting at the airport, 12 the Newark Airport, was on February 1. I th(nk the meeting 13 in Parsippany, the first formal meeting with JARI representa-14 tives and Congressmen Murtha and Coppersmith and myself and I
| |
| u ; aill Kuhns, was on the 27th or 28th of January, a few days 16 be fore that February 1 meeting.
| |
| 17 BY MR. RUSSELL:
| |
| 18 l G Was it at the February 1 meeting that Mr. Kunkle 19 handed to you and to Mr. Kuhns the document which has been 20 ,I marked for identification as Penelec Exhibit 16, the one-page -c 21 1 The second document, yes. This was handed to me.
| |
| 22 On the lower left corner it shows 2-1-80 and that is right.
| |
| 23 ! G Did Penelec agree with JARI to postpone the
| |
| ! impleII) 24 l mentation of the proposed management combination until after 25 i Theodore Barry and Associates had made a review of the proposed a COMV WEALTH REPCRTING COMPANY i717 761 7150
| |
| | |
| 1274 jl4 combination? .
| |
| 7 1 1
| |
| 2 A Yes. We agreed, although it was then and continues 3
| |
| to be primarily the product of GPU and Penelec and Met-Ed 4
| |
| key people, the reorganization, the combination, consolidation 5
| |
| -- we agreed at that time, on that date, to do two things:
| |
| . 6 to submit our plan for review by the Theodore Barry team; at
| |
| \
| |
| 7 that time we assumed that they would be able to get on with g it starting in February for about three months; and then l 9 we would be guided by the results of that review. So we did to agree to postpone implementing this proposed combination and
| |
| ! consolidation pending the results of that review, which we ,
| |
| 11 l
| |
| ~ 12 l then estimated would be three months; and we so announced to l )
| |
| a 13 the media that evening when we returned to Johnstowr 14 G .Mr. KunPlti made reference to the announcement by 15 Penelec of a proposed office building addition. When was that 16 announcement made?
| |
| 17 A. I think that was made prior to the Three Mile Island' 18 accident.
| |
| i 19 Q Was that proposed building construction canceled?
| |
| 20 A It was canceled, deferred indefinitely, shortly 21 after the T.hree Mile Island accident.
| |
| 22 g Why?
| |
| 23 A Again, we curtailed all capital expenditures that 24 we possibly could. That was the same time that we deferred 25 the Seward 7 project, for example.
| |
| COMMONWEAL.TH REPcRTING COMPANY 4717 761 7150
| |
| | |
| 1275 i
| |
| jl5 I l
| |
| 3 G Healsomentionedtheannouncmentoftheconstrucjll 2 tion of Seward 7. Was that made before the Three Mile Island
| |
| . 3, accident?
| |
| A. Yes. Seward 7 has been in our load and capacity 4l i 3
| |
| forecast revisions, the GPU systemwide load capacity forecast i
| |
| 6 revisions, I think going as far back as the early ' 70 's. I
| |
| '\
| |
| 7 think we initially hoped to get that -- expected we would s need that unit in the GPU system in 1977 and because of the 9 slowdown of load growth, because of financial restraints and 10 for a varie.ty of reasons , there had been a succession of 11 delays of the Seward 7 in-service date. The ef fective in-12 service date at the time of the Three Mile Island accident gg 13 I believe might have been about 1985, but I am not sure. We 14 have since delayed it to 1987, and we just recently announced 15 another delay until 1989.
| |
| 16 O Mr. Verrochi, I show you an exhibit which has been 17 marked for identification as Penelec Exhibit 9. Can you 13 identify what that represents?
| |
| 19 (Document handed to witness.)
| |
| 20 A Yes. It is an extract from a document which is 21 called the ." General Public Utilities Corporation, Pennsylvania 22 Operations Implementation Plan, Management and Operations 23 Study,d submitted to'the Pennsylvania Public Utility Commis n 24 November 1, 1980. It includes a copy of the transmittal letter 25 da ed November 12, 1980 from Chairman William Kuhns to 1
| |
| l 1 --rum monumc._ce --
| |
| | |
| 1276 jl6 ,
| |
| l I^) 1 John Dial, Director of the Bureau of Audits. It also
| |
| * LJ ;
| |
| 2l includes a Xerox copy of the introduction to that report; andl
| |
| ! l 3 it includes copies of pages 9 through 16 of that report. !
| |
| 4 G What matters relevant to this proceeding are 5
| |
| ! covered in those specific pages?
| |
| l 6 MR. SHILOBOD: Is this rebuttal testimony or is A
| |
| 7 this a continuation of direct case?
| |
| e, MR. RUSSELL: I think'we had this identified some 9 time ago and indicated that this would be rebuttal testimony i
| |
| . l 10 with respect to the TB&A report; that our response to their 11 report would be put in in rebuttal. That is what we're doing.
| |
| 12 MR. SHILOBOD: As rebuttal.
| |
| l 13 MR. RUSSELL: It is not rebutting them. .It is i
| |
| 14 following -up to show what the status of the action is with 1
| |
| 15 respect to the items in their recommendations. i i
| |
| IG MR. SHILOBOD: Now you're asking the witness to !
| |
| t 17 interpret this document. I presume that it speaks for itself.
| |
| 18 :'E . RUSSELL: ''m sure that it does. !
| |
| 19 JUDGE CASEY: 4 hat do the specific portions of the 20 document that you are asking --
| |
| l 21 MR. RUSSELL: It is GPU Nuclear and the management !
| |
| 22 combination. These sections of the pages of the report are 23 the ones relating to this proceeding. l 7,
| |
| f !
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| I 24 JUDGE CASEY: Is this intended to be an update of 23 some kind up to November 1980, developments that occurred I
| |
| i l i l
| |
| coMMONWCALTH REPORTING COMPANY (717 761-7150 l
| |
| | |
| c 1277 jl7 I i i after the completion of the report?
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| 2 11... RUSSELL: The status of the responses to the 3 respective recommendations in that report as it was filed 4 with the Commission.
| |
| I l
| |
| l 5' JUDGE CASEY: You can go ahead with it. This is 6 not going to be rebuttal of anything that the JARI witnesses 7 have testified to.
| |
| 8 MR. RUSSELL: No. This is rebuttal -- consideri/q 9 the rather unusual posture of TB&A in this proceeding, this 10 is in the nature of a response, though not a substantive l 11 l rebuttal, to their testimony.
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| 12 MR. SHILOBOD: May I ask one question of f the 13 record?
| |
| 0 l
| |
| ' 14 JUDGE CASEY: Yes.
| |
| 15 (Discussion off the record.)
| |
| 16 JUDGE CASEY: We ' re back on the record.
| |
| 17 BY MR. RUSSELL:
| |
| 18 G Could you just briefly point out where the data 19 with respect to the GPU Nuclear implementation status and the 20 combined management status appear on these pages, Mr. Verrochi?
| |
| 21 A On page 10, item 10 -- I'm sorry; on page 9, item 22 number 10 -- the format of this is to repeat the recommenda-23 tions made by Theodore Barry and Associates and to describe h
| |
| n4 the re ference page, the position responsible in the GPU systen 23 for carrying this out, the action plan, the status of the l COMMcNWEAt.TH REPORTING COM9 ANY r717 7617 8 50
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| | |
| 1278 )
| |
| I jl8 1
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| ; plan, the scheduled completion date and the comments. .
| |
| 2 Item 10 is to expedite the development of formal 3 roles and functions of the GPU Nuclear Corporation organization 4 That is so much for the Nuclear Corporation.
| |
| 5 I think the next item of interest is -- on page 13,
| |
| . 6 item 16 is to complete the management combination of the A
| |
| 7 Pennsylvania companies;,and that goes through page 13 and 14 8 and 15. Then on page 15, item 17 is take the necessary steps 9 to complete the consolidation of division operations of the i
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| . I 10 Pennsylvania companies.
| |
| i 11 G Thank you, Mr. Verrochi.
| |
| 12 MR. RUSSELL: Your Honor, I have handed the reporter.
| |
| ( ) l l 13 ' three ccpies of a document which I will ask to have marked for!
| |
| 14 identification as Penelec/ Met-Ed Exhibit 18.
| |
| 15 Mr. Shilobod, I believe you have a copy of the 16 " Conservation and Load Management Master Plan," do you not?
| |
| 17 MR. SHILOBOD: Yes.
| |
| ; 18 (Whereupon, the document was marked as Penelec/ Met-Ed Exhibit No. 18 for' 19 , identification.)
| |
| 20 BY MR. RUSSELL:
| |
| 21 g Mr. Verrochi, I show you a document which has been 22 marked.for identification as Penelec/ Met-Ed Exhibit 18 and 23 ask you whether you can identify that exhibit?
| |
| 24 (Document handed to witness.)
| |
| 25 A I can. It is an excerpt of pages 85 and 86 of 'the l COMMONWEALTH REPORTING COMPANY a717 761 7150 -
| |
| | |
| 1279 jl9 l
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| , il l
| |
| Master Plan. lll 2l g What is represented on this exhibit?
| |
| I 3 A It is a table and some text identif i ing or dealing 4 primarily with the Master Plan benefits and costs for six 5 five-year periods, beginning from the time period 1980-85 l .
| |
| e and ending with the time period of the year 2006-2010.
| |
| \
| |
| 7 On there it tries to'show --
| |
| 8 G I'll ask you a few specific questions to abbreviate l
| |
| 9 this. Mr. Budetti has made reference to a S2 billion projected 10 benefits f5 cm this Master Plan. Can you identify where that i
| |
| 11 number can be found on Exhibit 18?
| |
| 12 A Yes. Note number 1 to Table V-1 says that all gg 13 values are expressed as present zalue 1980 dollars. The 14 i capacity benefits- for " .a year period of $1,272.2 billion 15 and tn- e acnefits of $812.3 million total that $2,484.5 1
| |
| 16 billion.
| |
| l 17 Are they gross or net benefits of this projected l G 18 Master Plan?
| |
| 19 ,A They are gross benefits.
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| l 20 What are the net benefits of the projected plan?
| |
| 0 21 The net benefits again are shown as $1,238.0 billion.
| |
| A 22 In the first five-year period covered by the Table G
| |
| 23 V-1 on Exhibit 18, what are the net benefits under the p ro- g 24 jected plan?
| |
| 25 The net benefits for the first five-year period are A
| |
| erwun NWS A f TM E r" An R?tNd ("nMPANY "' ** ?fi t 719 fi
| |
| | |
| i 1280 i
| |
| j20 7 I a neaative value of $246.8 million. '
| |
| k >)
| |
| l 2i G Over what period would this sequence of not benefits 3 be projected to be realized?
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| 4l .
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| A Over the first five years.
| |
| 5; G Of the total table; over what period would these
| |
| . 6' proposed benefits be realized?
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| :s 7 A The $1.238 billion?
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| t 8, G Yes.
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| 9 A That is over a 30-year period.
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| 10 G Are Penelec's present directors of Materials and 11 l of Public Affairs headquartered in Jol.nstown?
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| l
| |
| , 12 l A Yes, they are.
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| NJ \
| |
| Yostr 13 ! MR. SHILOBOD: Excuse me, before you go on.
| |
| 14 Honor, this is one page taken out of this; there are 15 excerpts from two pages of the Master Plan. There are new I
| |
| 16 ; issues that are now being raised; and I think that it will 17 require consideration of the entire plan and not just these 18 certain excerpts.
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| 19 .
| |
| Either I am going to ask that we be permitted to 20 l put the whole plan into the record as an exhibit or that I be 21 permitted to recall Mr. Budetti for further discussion.
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| 22 JUDGE CASEY: How large a document is the Master 1
| |
| 23 Plan?
| |
| , i l 'n./I I' (Document shown to Judge Casey by Mr. Russell.)
| |
| 23 That is why we used the excerpt to MR. RUSSELL:
| |
| CoMMoNWE AL.TH REPORTING COMP ANY 4717 7617t SO
| |
| | |
| \
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| 1281 j21 ,
| |
| I l
| |
| 3 show the table of benefits. ggg 2
| |
| JUDGE CASEY: You would be entitled to call Mr. Budetti in any event on surrebuttal. If you want to focus 3
| |
| in on whether this one-page excerpt, which is PN/ME Exhibit 4
| |
| 3 18, presents a distorted picture of the benefits to be realized, you can certainly make that point from other por-
| |
| . 6 3
| |
| '4\
| |
| 7 tions of the Master Plan if you can.
| |
| 8 MR. RUSSELL: May I proceed?
| |
| 9 JUDGE CASEY: Yes, you may.
| |
| 10 BY MR. RUSSELL:
| |
| it G Mr. Verrochi, under the proposed management combina-tion, would you and the other top management of ficials of 13 Met-Ed and Penelec propose to commute between Reading and 14 Johnstown weekly?-
| |
| 15 A I wouldn't call it commuting, Mr. Russell. We will 16 visit the Johnstown area just as we currently visit other i 17 division and facility locations in our service area is periodically; but I wouldn't call it commuting. We don't l
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| 19 comm,ute now between Johnstown and Erie, for example .
| |
| 20 0 As a matter of information, Mr. Verrochi, what is 21 the approximate distance from Johnstown to the furtherest 22 portion o f Penelec 's service territory?
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| 23 A I recently looked at that, and it is about 265 mi 24 from Johnstown to the northeast corner of our service area in 25 the northeastern division, right beyond Towanda -- I'm sorry,
| |
| ?? 67MA E017198
| |
| | |
| 1282 j j22 I'll have to look at my notes. .
| |
| (}; 1 2 (Uitness perusing documents.)
| |
| 3 It is 225 miles from Johnstown to Manchester in i
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| 4 Uayne County, the northeast corner of our territory.
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| 3 G What is the approximate distance from Reading to
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| . 6 the point in Penelec's territory which is furtherest from
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| :\
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| 7 Reading?
| |
| s A That distance is 265 miles. That is from Reading 9 to the northwest corner of our service area in Erie County j 10 right at the Ohio line on Lake Erie.
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| 11 G What objections to the proposed management.combina-l 12 tion has Penelec received from the Erie area? l CE) '> A To my knowledge, none.
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| i 13 !
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| l 14 G In your opinion, would the difference of 40 miles 15 between 225 and 265 miles just identified represent a signifi ,
| |
| t i
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| 16 l cant difference in your ability to serve customers at that j 17 longer range?
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| 18 A No;.no difference. i l
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| l 19
| |
| ,G At page 7 of Mr. Budetti's prepared testimony he j 20 made the statement that you and the other off'cials i partici- .
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| s 1
| |
| 21 pating in the combined management proposal would move all of l s
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| t
| |
| ' 22 penelec's top management to the task of solving the GPU/ Met-Ed 23' problem; is that what you propose to do under this management l l ) !
| |
| l 24 combination? i i
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| r 25 No, that is not the purpose of the proposal. !
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| f A l
| |
| l COMMcNWEAL.TH REPORTING COMPANY (717 761 7150 l
| |
| | |
| 1283 j23 i I
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| I
| |
| , i G He also makes a statement on page 3 of his direct ggg
| |
| :; testimony that you would reduce the Penelec top management i
| |
| I 3 group under the proposed management combination. Do you 4l agree with that statement?
| |
| I i
| |
| 5 A No, I don't.
| |
| ~
| |
| , 6l @ Why not? Why do you disagree with it?
| |
| t 1 4 71 1 Again, the number of people currently reporting to I
| |
| al me in the Penelec organization include seven of ficers and three l
| |
| 9i non-officers, three or four non-of ficers. In the new set-up, i
| |
| to l as shown by~' one of our exhibits, the organization chart, there t
| |
| it l would be some 16 officers on my staff.
| |
| 12 So in terms of the -- if you want to measure it er the of ficer-per-customer ratio, I think you'll find that 9
| |
| 13 l 14 Penelec customers would have about their present share of 15 l officers' time in the proposed combination.
| |
| 16 g Under the proposed management combination, would 17 your time be diluted and your ability to see the Penelec area 13 is served be impaired?
| |
| 19 1 Again, I don't see that as being one of the conse-20 quences.
| |
| 21 g At page 8 of Mr. Budetti's prepared testimony he ade 22 the statement that the proposed management combination probably 23 will not have the time to ef fect a smooth and orderly tran 0 24 sition. Do you agree with that statement?
| |
| l 25 ' A No, I don't.
| |
| COMMONWEALTH REPORTING COMPANY #717 761 7150
| |
| | |
| 1284 j24 G Why not?
| |
| (^3 l' ,
| |
| LJ 2 A Well, I think you have to look at the present way 3 we operate in Penelec and, I'm sure, to a similar extent in 4
| |
| Met-Ed, and the way that we develop and accommodate the 5 changes in the way we do business, our procedures and so ;
| |
| 6 forth, the way we marshal our forces during emergencies like t
| |
| es 7 the recent strike of 15 weeks and in the post-Johnstown flood ,
| |
| s era, a major breakdown of generating stations. I don't see !
| |
| l 9 that this combination is going to cause us to conduct our 10 business any differently than we have in the past in terms !
| |
| 11 of organization and the way we conduct our daily affairs.
| |
| 12 G At page 9 of his direct testimony Mr. Budetti makes
| |
| /,, s . . *
| |
| ('' j1 a 13
| |
| ! a statement that the potentials for conflict between Penelec ,
| |
| 14 and Met-Ed service areas under. the proposed management com- ,
| |
| t 15 bination could be great. Do you agree with that statement?
| |
| 16 A I don't think they could be great. -
| |
| l 17 4 Could they be slightly less than great?
| |
| i 18 A I would say they would be --
| |
| 19 JUDGE CASEY: I don't think that any answers of 20 that type are going to help this record, Mr. ' Russell. We 21 are talking about something in the abstract, whether it is 22 great or less. I would like to know specifically what kind ,
| |
| 23 of problems wculf incur between the two systems.
| |
| BY MR. RUSSELL:
| |
| '^' 24 25 4 I would ask you what kinds of problems you would COMMONWEALTH REPORTING COMPANY (717 761 7150
| |
| | |
| 1285 l
| |
| ja5 i
| |
| i foresee by way of conflict between the two service areas?
| |
| 2 l A. I don' t see any conflicts. If we're talking about 3[ the customer-company relationships, the average customer will 4 really notice no dif ference. IIe is going to be dealing with 5 l the same kinds of people, almost the same people he is si currently dealing with, whether he is industrial, residential 7l or commercial.
| |
| 8 As far as the relationship between the new set of 9 officers in my organization and the reorganized staffs at to the division levels and at corporate headquarters levels, we 1: i have had many changes throughout the years, both in Penelec l
| |
| 12 ' and Met-Ed. I think people are able to accommodate to new 13 i organization structures, to new lines of authority and 14 responsibility.
| |
| 15 If, for example, 'c hey participated in developing 16 these new organizations, if they have helped write the prc-17 cedures -- the way we're doing business now is quite a bit 13 different than it was 5, 10, 15, 20 years ago. I think we're 19 constantly making changes in procedures, organization set-ups; 20 and, again, depending on the quality and caliber of the 21 people that you put in charge of these things, my experience 22 has been that they go quite well.
| |
| 23 0 Under the proposed management combination, would
| |
| ,4 you do the financial planning, if any, that may be required G
| |
| 25 to keep Met-Ed out of bankruptcy?
| |
| COMMONWEALTH REPORTING COMPANY <717 761 7150
| |
| | |
| 1286 :
| |
| +
| |
| l j26 !
| |
| A. No, we would not. We would participate a bit, butg ,
| |
| primarily that has been handled in the past by the holding 2
| |
| company and GPU service company officers; and it would con-3 tinue to be in the future.
| |
| MR. ICSSELL: I believe that's all we have for 5
| |
| Mr. Verr chi.
| |
| 6
| |
| . JUDGE CASEY: 'Are you ready to question, a
| |
| Mr. Shilobod?
| |
| i 9
| |
| MR. SHILOBOD: Yes.
| |
| . CROSS-E M INATION 10 l I ..
| |
| 33 l BY MR. SHILODOD:
| |
| i i
| |
| 12 G Mr. Verrochi, you testified that as you perceive 04 '
| |
| 13 it there will be a job reduction in Johnstown of 85 people; i
| |
| 14 do you recall that testimony? -
| |
| 15 A. Yes, sir.
| |
| i to G Do you agree that that is based upon the presumption!
| |
| t- that you will continue with the generating portion of the ta corporation's headquarters in the Johnstown area?
| |
| I 19 A. That's right.
| |
| 20 G You are familiar, are you not, ~ with~ tihe TB&A warning about the probable problems of having corporate generation
| |
| ' ~
| |
| 21 22 offices in Johnstown as opposed to having them in Reading l 23 heacquarters?
| |
| t im 24 A. I'm sorry; what warning was that?
| |
| l l 25 MR. RUSSELL: Would you identify what you're l COMMONWEALTH REPORTING COMP ANY a717e 761 7150
| |
| | |
| 1287 j27 i
| |
| referring to?
| |
| , 3 gg l
| |
| BY MR. SHILOBOD:
| |
| 3I G I'm referring specifically to the Ta&A report, -
| |
| 4 page 615 which states as follows: "The fact that the 5 generation..." --
| |
| l .
| |
| . 6 I MR. RUSSELL: Would you wait just a moment?
| |
| :s 7 (Couneai 9"--all perusing document.)
| |
| 8 MR. SHILOBOD: The last paragraph preceding the 9 heading " Customer Operations," the sentence appears, "The to fact that the generation organization would be physically 11 separate from the rest of the company may pose problems in 12 coordination, communications, control and policy adherence."
| |
| 13 BY MR. SHILOBOD:
| |
| 14 G Do you not recall that provision?
| |
| l 15 A I do, sure.
| |
| 16 % Would you agree that that could have a potential 17 ef fect on the long run as to exactly how many jobs would be 18 reduced in the Johnstown area?
| |
| 19 A I never considered that it impacted on that 20 parameter, Mr. Shilobod.
| |
| 21 Did you ever evaluate that potential?
| |
| 0 22 A. No, I haven't. I'm not sure I understand.
| |
| 23 g Did you ever evaluate the impact of that warning 24 on your control as the chief officer of this new combined O
| |
| 25 management?
| |
| COMMONWEALTH REPORTING COMPANY 717 761-7150
| |
| | |
| 1288 j28 i
| |
| 3 A That is a different question. You're talking about 1 2
| |
| \ /
| |
| 2I PEOPlG-l 3l G It is a different question.
| |
| l 4l A Yes. I recognize that having the senior vice-l 5 president and several vice-presidents under him remain in 6l the Johnstown area and not be housed with me and their fellow I
| |
| i :s 7l of ficers at corporate headquarters in Reading would create 3; some problems in terms of coordination and communication and >
| |
| 9! control of policy adherence. I don't consider them to be i
| |
| 10 i major problems. I think that we can accommodate to them.
| |
| l 11 G Why would it be a problem?
| |
| 12 A Everything else being equal, the control team
| |
| ; )
| |
| '' ' ' generally likes to be in the same facility so you can walk 13 l l
| |
| 14 j down the corridor and chat with each other instead of getting 15 into a car and driving someplace or writing a memo, or even IG using the phone. However, it is noc mandatory. We do a lot 17 of our business with people with whom we need to deal effec-13 tively in the GPU system who are not physically located in 19 the Johnstown area. I know, from a considerable amount of I -
| |
| 20 past experience, that it is not a major problem and that we 21 can accommodate to them.
| |
| 22 G Referring to another portion of your testimony as m
| |
| 23 given now, you refer to these econcmies of $18 million a year 24 plus an additional $7 million or S8 million arising out of 25 the management combination. Do you mean to refute COMMONWEALTH REPCRTING COMPANY 4717 761 7150
| |
| 'd
| |
| | |
| 1289 j29 Mr. Donofrio's testimony that a significant portion of these I h~
| |
| savings come from divisional reorganization and not the l
| |
| 3 management combination?
| |
| l 4
| |
| I A I didn't mean to, and I didn't think I did. I 5 meant to state that the total savings identified in our 6l studies is $18 million, made up of savings resulting from 7 the management combinadlon and from divisional consolidation; a and chat these savings vo21d accrue to both Penelec and to 9 Met-Ed.
| |
| 10 % The breakdown as to how much of those savings are 11 attributab e to the divisional reorganization and how much 12 to the corporate combination are as presented by Mr. Conofrio; 13 is that correct?
| |
| g 14 A .That is right.
| |
| 15 % Mr. Donofrio did not refer to some additional S7 16 million or $8 million, did he?
| |
| 17 A No, and I didn't mean to either, Mr. Shilobod.
| |
| 18 G Whenever you talked about the rates would be lower, 19 that is based upon the assumption of the correct calculations 20 or reasonable calculations that you have made~and no probable 21 reduction in efficiency arising out of this combination; is 22 that correct?
| |
| 23 A I think we tried to factor in some of the 24 ' inef ficiencies, but that is right; it is basically based on 25 cost reductions and cost avoidance estimates.
| |
| CCMMONWEALTH REPORTING COMPANY 717 761 7150
| |
| | |
| 1290 ,
| |
| i j30 l 4
| |
| G Turning now to another subject, you discussed the ,
| |
| 3 I :
| |
| fact that the present largest industrial customer is Charmin 2li I
| |
| 3 Paper. WoulditbefairtosaythatAbexisgoingtobeyourl I
| |
| 4 largest customer when they come on line? l 5
| |
| A. N; they will be smaller than Charmin by a con-
| |
| \ .
| |
| . 6 siderable amount.
| |
| 7 G Whenweconsikertheelectricarefurnacesthatare 3
| |
| already in the Johnstown area and the Abex plant that is 9 coming on and the synthetic fuels project, would it be fair to to state that Johnstown will be the area of the heaviest 11 industrial use of electricity in the Penelec area?
| |
| 33 A I don' t really know how to answer that question.
| |
| O *3 That would assume, among other things, that no other part of j i
| |
| 14 our service area expands in any way. I can only attest to !
| |
| 15 what I know now. !
| |
| I 16 Q Based upon what you know now, would that be a fair 17 statement?
| |
| I 18 A. I really haven't thought about it.
| |
| 19 ,4 As the President of Penelec, is this a concern that 20 is normally thought about: what are-the future' demands for i
| |
| 21 electricity. of Penelec?
| |
| 22 k. Certainly.
| |
| 23 G Are you aware of other major expansions that would 24 suggest that Johnstown won't be the area of the nost concen- g 25 trated use of electricity by industrial customers? .
| |
| }
| |
| COMMONWEALTH REPORTING COMPANY 1717 761 71.0
| |
| | |
| 1291 j31 l
| |
| , 3 A Well, U.S. Steel, forexample,upatErieCounty,gg 2
| |
| has been on again, off again on a major development of a 3l steel mill, which would be a very significant load.
| |
| 4 g You're talking about the construction in Conneaut, 5
| |
| Ohio?
| |
| 6 A That's right.
| |
| A 7 G Is that within your service te rritory?
| |
| 8 A Yes, it is, to this extent -- I'm sorry; it is not 9 in our service territory. He have met, in fact, I personally 10 met and attended some of the meetings with U.S. Steel ti officials. They, at the time, were exploring the possibility 12 of being served by Penelec and we were exploring with them i
| |
| 13 that possibility.
| |
| 14 G .You participated in those explorations of possi-15 bilities with U.S. Steel?
| |
| 16 A I attended some of the meetings at which those 17 points were discussed; yes.
| |
| la G Now, turning to another subject, you gave testimony 19 concerning distances to various sections of your service 20 territory. What percentage of your customers are located in 21 the northeijst corner of your service territory? The distance 22 that you referred to, I believe, was 225 miles away.
| |
| 23 A May I ask a question of one of my colleagues?
| |
| O 28 JUDGE CASEY: Yes.
| |
| 25 (Witness confers with Penelec/ Met-Ed personnel .)
| |
| COMMONWEAL 9Pd CEPOOTENG COMOAW7 +909* 56 0 -7 0 50
| |
| | |
| 1292 ,
| |
| i l
| |
| j32 i
| |
| THE WITNESS: I don't have it, except to state tha,t
| |
| '( g 2
| |
| the number of customers served in the northeastern division, 3
| |
| the so-called Towanda area, I'm sure that is the smallest of 4 our five divisions in terms of customers served. I think 5
| |
| that Erie, the northwestern division in Erie is probably our 6 largest service area -- division for the number of customers.
| |
| ' "\
| |
| 7 BY MR. SHILOBOD:
| |
| 8 G You indicated that there was no intent to solve I
| |
| 9 Met-Ed's problems as a result of the management combination; 1
| |
| 10 is that correct? l 11 A I think there was an adjective before the word l l 12 " problems." I think somebody -- maybe you can read the l
| |
| )
| |
| C'# '
| |
| 13 question again, but wasn't it GPU and Met-Ed's financial 14 problems? l l
| |
| 15 G Let me ask you then, rather than trying to go back ,
| |
| i 16 in the record and find out' exactly what was said'-- I had 17 written down that you stated th'at there was no intent,.in l 18 setting up this management combination, to solve the Met-Ed !
| |
| l 19 problem; is that wrong?
| |
| i
| |
| ( 20 A Yes; that statement is wrong. We certainly are 21 goin,y to try to help solve Met-Ed's problems by this ,
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| I i l
| |
| 22 combination. j l
| |
| 23 G Do you believe that you have the capabilities of ;
| |
| (~) l
| |
| \/ 24 assisting Met-Ed in avoiding the bankruptcy problem?- i 1
| |
| 25 A. I suspect I don't have much power in that specific l I
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| COMMONWEALTH REPORTING COMPANY 1717 761 7150
| |
| | |
| - 1293 j33 1
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| area.
| |
| 1l Is this management combination designed to help O
| |
| 2 %
| |
| 3 Met-Ed avoid bankruptcy?
| |
| 4 A I think I testified earlier that that certainly is 5 not one of the expectations of any significant amount. We
| |
| ~
| |
| 6 don't think that combining the managements of Met-Ed and
| |
| '\
| |
| 7 Penelec is going to forestall any bankruptcy that may or may 8 not be realized.
| |
| 9 JUDGE CASEY: I think the major concern in connec-10 tion with this case is how much time would have to be devoted 11 by the management combination in dealing with Met-Ed's 12 i financial problems and getting Three Mile Island back on line 13 in order to restore the original generating capacity that 14 Met-Ed had.
| |
| 15 THE WITNESS: Do you want me to address that questioni 16 JUDGE CASEY: Yes, it you would.
| |
| 17 THE WITNESS: I would be happy to. There were a la couple of points in there that I think we ought to spend a 19 few minutes on.
| |
| i 20 In terms of getting Three Mile Island 1 back into 21 service and TMI 2 cleaned up and restored to service and getting 22 the necessary funding, the formation of the GPU Nuclear 23 corporation is designed to bring that about to the benefit of 24 all three owners, including Penelec and Met-Ed.
| |
| 25 JUDGE CASEY: Mr. Verrochi, I don't understand that.
| |
| COMMONWEALTH REPORTING COMPANY e717 7617150
| |
| | |
| 1294 j34
| |
| , i They would be the operators, the officers. If that organiza-E- 2 tion was formally approved by the Commission -- it has 3 already been constituted on paper, of course -- they ,
| |
| 4 I would take up the problem of dealing with the NRC and getting 3 the nuclear plants back on line, the one cleaned up and the ,
| |
| 6 other back on line. l
| |
| .\
| |
| THE WITNESS: Oh, yes; they are going to have some l 7l 3, 3,000 people in there. i 9
| |
| JUDGE CASEY: Would that remove that problem from
| |
| :o your consideration as the top official of the combined ;
| |
| i 11 management?
| |
| 1: THE WITNESS: It would as President and Chief
| |
| ) 13 j Operating Officer for Met-Ed and Penelec; yes. Remember, I l
| |
| 14 '' would spend some time monthly as a director of the GPU 15 ' Nuclear Corporation; but that is what that is designed to do 16 exactly.
| |
| 17 There was another piece to your question, Your 13 Honor.
| |
| 19 JUDGE CASEY: Go ahead and answer that. I forge t 20 myself. ,
| |
| 21 THE WITNESS: It had to do with would my time be .
| |
| 22 spent in trying to keep Met-Ed out of bankruptcy?
| |
| 23 JUDGE CASEY: That was part of my question.
| |
| 24 THE WITNESS: Therefore, I wouldn't have time to 25 spend on the operating problems of Met-Ed and Penelec; and my COMMONWEALTH REPORTING COMPANY 4717, 761 7150
| |
| | |
| i 1295 j35 l
| |
| ; answer to that is that I would not expect to spend much timq 2 keeping Met-Ed or Penelec out of bankruptcy. Here, again, 3 ! those negotiations, the financial, the legal, the revolving 4 credit agreement, the negotiations with the federal govern-5j ment political body as well as the regulatory body to get
| |
| * 6 the necessary financing in place, that effort to date has
| |
| :\
| |
| 7 been primarily done by GPU top officers and the GPU service f a co rpo ration , Mr. Graham, for example, and Mr. Condon and 9 Mr. Dieckamp.
| |
| and 10 Ie;y position as Chief Operating Officer, 11 Dr. Bartnoff, the Chief Operating Officer of Jersey Central, 12 has us focusing our attention on running the operating So I would not expect that I' would spend many of O
| |
| 13 companies.
| |
| i 14 ;
| |
| l my waking. hours trying to do whatever is necessary to keep i
| |
| i 15 i Met-Ed and possibly Penelec out of bankruptcy. I would try 1
| |
| 16 to operate the system.
| |
| 17 JUDGE CASEY: That is you personally. How about the' la rest of your officers?
| |
| 19 THE WITNESS: The same; they would be under my 20 direction, primarily focusing their attention'on keeping the 21 power plant.s running, connecting up new customers, collecting 22 bills, doing all these wonderful things that we.do to try to 23 run an operating company.
| |
| 24 BY MR. SHILOBOD:
| |
| O i 25 G Staying with those two items that were covered by W
| |
| | |
| 1296 ;
| |
| j36 the Judge. One of the things you mentioned was the GPU e _ 1 ,, 3 ,
| |
| (''' )
| |
| 2 Nuclear. As I recall, that will have the responsibility not 3 only for the TMI 1 and TMI 2, but also the plant in 4
| |
| New Jersey over which or in which Penelee has no interest.
| |
| 3 A Oyster Creek; that's correct.
| |
| , 6 G Do you believe that as a Director of GPU Nuclear
| |
| '\
| |
| 7 that you're going to have some responsibilities with respect g to solving that corporation's problems?
| |
| 9 A To the extent that I would participate in the 10 matters as a Director, sure.
| |
| 11 G Would you contemplate that you would intend to 12 fulfill all the obligations that you would have a Director of i
| |
| (~)'
| |
| k '. the corporation when serving in that capacity?
| |
| i 13 j 14 A. .I would hope and expect that I would do my duties 15 as a Director; yes. ,
| |
| is G Have you had any specific training with respect to 17 nuclear problems or nuclear accident problems? I l
| |
| 13 1 In my prior capacity I served as Vice-President of i 19 Generation, and prior to that time as Director of the Nuclear l
| |
| 20 Power Activities Group from about the end of '6'9 to the middle l 21 of ' 77. In that role I was responsible for the licensing, l
| |
| 22 design, construction, start-up and test of Three Mile Islandlj l
| |
| 23 and until I left those functions, as they pertained to Three :
| |
| en i 24 Mile Island 2. ;
| |
| 25 G But you agree that the problems that are confronting !
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| COMMONWEALTH REPORT;NG COMPANY a717 761-7150
| |
| | |
| 1297 j37 or will confront GPU Nuclear are quite unlike the problems
| |
| > g O
| |
| 2; that you dealt with in your prior capacity?
| |
| 3 A Yes; I would say that is true.
| |
| 4 G Would you also agree that the work in the nuclear 5 field requires special expertise and special attention?
| |
| . 6 A Yes; I'm sure that's true.
| |
| :.\
| |
| 7 0 You would agree then that there would be some 8 demands made on you serving as a Director of GPU Nuclear?
| |
| 9 A Again, modest demands; in terms of what fraction of to my total waking hours I would be spending in that area, I s
| |
| 11 would suspect it would be fairly small.
| |
| 12 0 Do you think in light of the problems that are 13 facing the GPU companies with respect to its nuclear 14 facilities that modest attention of top management or the 15 Board of Directors is adequate?
| |
| IG A Again, I think modest attention on the part of my-17 self as a Director would be adequate. Again, I point out that' la the GPU Nuclear corporation itself has a ve y fine assemblage 19 of of ficers and managers and they, in turn, are a subsidiarf 20 company of the GPU holding company; and they will get similar 21 financial a.nd legal and other help from the service company 22 in those matters.
| |
| 23 So, again, those people would be spending their time
| |
| *1 94 trying to develop the plans and strategies and it.:plimenting h 25 them to keep the Nuclear Corporation going and the necessary COMMONWEALTH REPORTING COMPANY 717 761 7150
| |
| | |
| 1298 l
| |
| ~
| |
| j38
| |
| , 1 financing going.
| |
| * 2 Q. Would you agree that for any corporation there -is a 3 need for guidance from a Board of Directors?
| |
| 1 y A I would agree with that. I think as an owner, a 25 5I percent owner of Three Mile Island 1 and Three Mile Island 2,
| |
| . 6 which represents a very sizeable investment to Penelec, that l '
| |
| 7 I would want to be involved in overseeing and helping to a direct and guide these activities; at least being kept in-9 formed of them. .
| |
| 10 G Now you would be representing 75 percent ownership;
| |
| , 11 isn't that correct?
| |
| 12 A That is true.
| |
| /~T .
| |
| \# G Uhat portion of the ownership of the New Jersey 13 j i
| |
| 14 corporation would be represented by either Penelec or Met-Ed?
| |
| 15 A Penelec and Met-Ed neither owns any of Oyster Creek.
| |
| 16 That is owned entirely by Jersey Central Power and Light .
| |
| 4 17 Company.
| |
| I 18 G . But your attention as a member of the Board of Direc4 19 tors will also have to take into account the best interests i
| |
| 20 of properly carrying out the functions of GPU Nuclear with !
| |
| 21 respect to that New Jersey. facility; is that correc ? l 22 A I would say yes. ,
| |
| 23 % .You also indicated to tne Administrative Law Judge ,
| |
| 5 fs
| |
| - 24 t' tat you did not expect to spend much tire trying to keep-25 Met-Ed out of bankruptcy. I think in response-to my earlier- j.
| |
| l h
| |
| COMMONWEAL.TH REPORTING COMPANY ~ (71717617150 {
| |
| | |
| I 1299 I
| |
| j39 l l
| |
| l question you indicated that you could be helpful to that 3l i
| |
| 2l company in avoiding bankruptcy; isn't that true? j 3
| |
| ! A Do you recall in what sense?
| |
| 4 G Did you say that?
| |
| 5 A I'm not sure.
| |
| 6 i MR. RUSSELL: Did he say that'today or previously? ,
| |
| 7 MR. SHILOBOD: In response to the question that I gl asked, and the question was then followed by the inquiry by i
| |
| 9l the Administrative Law Judge.
| |
| 10 THE WITNESS: If I understand what I think you're 11 l saying, I guess my answer would go something like this: to -
| |
| i
| |
| ~
| |
| l 12 i .the extent Met-Ed, and to a lesser extent, Penelec has a risk 23 ; of bankruptcy, anything I can do as President and Chief O
| |
| i i
| |
| 14 i Operating Officer of either of these two companies to make I
| |
| 15 their operations more efficient, to be able to keep their is needs for cash expenditures for operating and maintenance 17 down and for construction down, to do the best job I can with 18 spending -- seeing that our limited resources are spent l \
| |
| 19 l intelligently and wisely and on the most important areas, I l
| |
| 20 guess I would characterize that kind of effort as Chief 21 Operating Officer as helping in some small way, at least, 22 , Met-Ed and Penelec in avoiding bankruptcy. But I ton't con- l
| |
| -l i 23 ' sider that a major effort in terms of keeping either company 24 out of bankruptcy. I think the bankruptcy question is solvec Oi ,
| |
| 25 by other people in other organizations.
| |
| s COMMONWEAt.TH REPORTING COMPANY 4717, 761-7150
| |
| | |
| 1300 '
| |
| j40 :
| |
| /~) 1 BY MR. SHILOBOD:
| |
| is 2 G Is that to say that the Chief Operating Officer of l
| |
| 3j the company has no responsibilities or no duties or no jobs !
| |
| 4 to perform in helping the company to avoid bankruptcy than -
| |
| I 5l are dif ferent than usual?
| |
| 6 A I guess I've never been really involved before l A i i
| |
| 7 with a company or companies that are approaching or have z. !
| |
| I a possibility of going into bankruptcy or receivorship.
| |
| 9 I guess I would learn as I go along on that 10 question. ,I hope I would be guided by Mr. Kuhns as to what .
| |
| 11 to watch out for; and our general counsel, I'm sure that l em 12 >
| |
| I they will advise me and I would seek their advice and counsel.'
| |
| ss
| |
| )
| |
| 13 G Turning to another factor, you would agree that the 14 financial straits'that Met-Ed has found itself in -- and I {
| |
| 15 suppose it could be the same for Jersey Central --
| |
| 16 MR. RUSSELL: Did you mean Penelec?
| |
| 17 BY MR. SHILOBOD:
| |
| 38 - that the employees have experienced, to some G
| |
| 19 degree, a demoralization; is that correct?
| |
| 5 20 A I guess that is a conjecture one could make; sure.
| |
| 21 And if you become Chief Operating Officer with l
| |
| G 22 responsibilities for Met-Ed, that is a problem you are going 23 to have to deal with; is that not true?
| |
| s r
| |
| ( I '
| |
| 24 We also have similar demoralizing situations A Yes.
| |
| 25 involving Penelec officers and employees and we deal with these l CoMMoNWIAL.TH REPORTING COMPANY 1717 761 7150
| |
| | |
| 1301 j41 1 and try to keep morale up.
| |
| lll 2l G But there is something different at Met-Ed; isn't i
| |
| 3 that true?
| |
| 4 A It is hard for me to characterize, really.
| |
| 5i G As I recall your testimony earlier, whenever you i
| |
| , 6l were fircat cross-examined, the second day you were cross-n -
| |
| 7 examined you gave an indication, as I recall it -- and you can a correct me if I cm wrong -- that the morale at Penelec was 9 relatively high.
| |
| 10 A Considering the circumstances we are in and the
| |
| .1 ! strike we just ended, I think I would have expected the morale 12 to be lower than it is. I am happy that it is as high as it .
| |
| 13 j @ But it is simply not the same at Met-Ed; isn't that 14 true?
| |
| 15 A I re-l.y don't know. It is hard for me to define 16 that.
| |
| 17 JUDGE CASEY: Off the record for a moment.
| |
| i 18 l (Discussion off the record.)
| |
| l 19 8 ,
| |
| JUDGE CASEY: On the record.
| |
| 20 BY MR. SHILOBOD:
| |
| l 21 g You also mentioned that there would not be a reduc-22 tion in the management group because now you have a number of ,
| |
| 23 , officers -- I believe you mentioned seven officers and three
| |
| ! k
| |
| ! 24 ! reporting to you *- and now you will have 16 officers; isn't 25 that correct?
| |
| COMMONWE ALWa CEcOWNG COM90NY e719M TOb70 50
| |
| | |
| i 1302 j42
| |
| , s i A I think those are the numbers I may have used; yes.
| |
| i
| |
| 'j 3 G Would you agree that under the new arrangement you 3 only have two people reporting to you?
| |
| 4 A No; I won't agree with that.
| |
| 5 Q. You won't?
| |
| 6 A No.
| |
| A -
| |
| 7 (Witness perusing documents. )
| |
| 8 It is Exhibit 2.
| |
| 9 G fou talked about that there would he no particular 10 problems with this management combination and for an example 11 you gave the experience that you had with the 15-week break-12 down at Penelec; do you recall that?
| |
| t l' 13 A I think I caid 15-week strike.
| |
| 14 G Was it a lb-week strike?
| |
| 15 A Yes.
| |
| 16 G As a manager, Mr. Verrochi, would you agree that 17 when there is an exceptional problem facing any corporation, 18 l the job of management is to bring all forces to hear that are 19 available to deal with that exceptional problem?
| |
| 20 A All necessary forces; sure.
| |
| 21 G Whenever you are serving as the chief executiv2 22 officer of this combined management group, what is going to be 23 the prime problem which you feel you are going to have to bring 7-24 most management attention to bear on?
| |
| 25 MR. RUSSELL: You said chief executive officer.
| |
| COMMONWEALTH REPORTING COMPANY (717' 761 7'"O
| |
| | |
| I 1303 i l
| |
| j41 i j 1
| |
| BY MR. SHILOBOD:
| |
| 2 G Chief Operating Officer I meant to say. j 3 A Pretty much the same kinds of matters that I 4
| |
| 4 currently direct my attention to in the operation of Penelec; 3 tPose kinds of activities, those kinds of problems.
| |
| , o G In other words, it 'eould be business as usual?
| |
| :\
| |
| 7 A I don't know if I would agree that it is business a as usual. ;
| |
| 9, G Is there something unusual?
| |
| 10 A Every day bring unexpected and unusual problems in i
| |
| 11 , my current job. I'm not sure I understand that. !
| |
| l l 12 l G Problems are encountered; that is the function of l
| |
| 13 management, to deal with exceptional problems, isn't that true?
| |
| 14 A .And routine matters; yes, sure.
| |
| 15 G You don't see that there is going to be any change l 16 in your functions as a result of undertaking Met-Ed's problems?
| |
| l 17 , A Well, there will obviously be changes in terms of
| |
| \ l l 18 trying to get the new organization in place, trying tc 19 , develop roles and responsibilities, to clarify them; to try 20 to standardize some procedures as it makes sense to do so in 21 each of the functional area; to develop budgets and cost ,
| |
| 22 controls, goaJ s and objectives and all that sort of stuff; and 23 to deal with t'te daily problems --
| |
| I can't identify what 24 I they're going to be, but to deal with them.
| |
| 25 Through my staf f -- we will meet, as we do now. I
| |
| , CcMMONWEALTH REPORTING COMPANY e717 7617150
| |
| | |
| I 1304 l
| |
| l j44 l I
| |
| 11 meet with my officers formally a couple of times a month, the (v~)
| |
| 2 second and fourth Monday of each month. We have staff 3 meetings with other officers and managers. They have meetings I
| |
| 4 with their groups. We develop budgets.
| |
| 5 It is going to be more of that. If that is
| |
| . 6 business as usual, I guess I plead guilty to saying it will A
| |
| 7 be business as usual. The job of a manager is to manage, I
| |
| : g. guess.
| |
| 9 G Is the divisional consolidation a problem that will to be business as usual?
| |
| 11 A No. Only to the extent that we have continuously 12 i and continually in the past years reorganized and rechanged
| |
| 's } I 13 the way that we do things at division and district and 14 ' generating-station, materials management, at all of these 15 levels. So the burden of trying to reorganize corporate 16 headquarters and division staff into this new mold --_sure, it 17 is a problem. It is a challenge. It is going to be fund.
| |
| 18 7 It is going to have headaches and we will work it out.
| |
| 19 ,G The impl amentation of the divisional consolidation 20 ' 'is going to require special management attention; is that not 21 correct? .
| |
| 22 A It is.
| |
| 23 G The implementation of the energy conservation pro-f\
| |
| - ! 24 gram is going to require special management atte~ntion; is it 25 not?
| |
| COMMONWEALTH REPORTING COMPANY 1717a 761 7150
| |
| | |
| 1305 -
| |
| I j45 1
| |
| A It is. Both of these are already involving specia
| |
| ; manage:uent attention and they will continue to involve and ,
| |
| 3 require special management attention in the future. .
| |
| 4 G The actual operation of the Master Plan has not 5 yet been implemented; is that correct? ,
| |
| , 6 A On the contrary, the Master P'lan is designed to havei i
| |
| i a three-phase approach. ' \ It is, by the way, one of the items i
| |
| 7 8 that is covered in the Implementation Plan.
| |
| 9 The first steps as identified in this Implementation to Plan of the Master Plan involve primarily service company 11 of ficers and staf f people with fairly modest assist from operating company people.
| |
| 12 l l
| |
| 13 j Those action items are underway pretty much as 14 forecast and scheduled.
| |
| 15 G It is going to require a significant amount of 16 management attention to implement the Master Plan; isn't that 17 correct?
| |
| 13 A It certainly will.
| |
| 10 ,G And that would be true for bot companies?
| |
| 20 A And for the service company.
| |
| 21 G The fossil fuel planning that you currently are 22 faced with is going to require special management attention 23 now in light of the financial conditions of both companies ;
| |
| 24 O
| |
| isn' t that true?
| |
| 25 - A The fossil fuel planning in what sense, Mr. Shilobed?
| |
| I h COMMONWEALTH REPORTING COMPANY e717 761-7150
| |
| | |
| 1306 j46 l l .
| |
| I O With respect to the efficiency of operations? '
| |
| [}
| |
| 2 A I'm sorry. Will you try it a different way? I'm 3 not sure I understand you.
| |
| 4 % As I recall, TB&A reported that there was a poten-5 tial fur $13 million'in savings if you could improve the
| |
| , 6 efficiency of your fossil fuel plants; do you recall that A
| |
| 7 report?
| |
| 8 A Yes. I think what TB&A is talking about is the 9 program to identify and correct problems in existing generatinc 10 stations, the fossil-fired generating stations, which have 11 contributed to what we call loss of generation.
| |
| 12 I believe they have identified the potential for G
| |
| V 13 saving $13 million. That activity, the organization and the 14 procedures to bring that about; to identify what needs to be 15 done at each of these generating units and which of these items i 16 will have sufficient cost benefit to justify their doing them, 17 has already led to our spending many, many millions of 18 dollars each year in bringing these generating units up to an 19 approved level of capacity factor or output.
| |
| 20 We have been involved in that; and.I personally 21 helped get that started at Penelec ,ince the middle-60's. And l
| |
| 22 we would coatinue, we would expect to_ continue to identify 23 these causes and correct -them as the cost benefits are O-1 24 , acceptable to justify that.
| |
| .25 ~
| |
| So that particular item doesn't pose to.ne a bold, COMMONWEALTH REPORTING COMPANY . #717' 7617150 f_ g {
| |
| | |
| 1 1307 1
| |
| je7 :, '!
| |
| 1 1
| |
| 1 new initiative that isn' t already on the way. I think it iggg l 2 really doing more of the same, but maybe doing it at a faster 3 level.
| |
| 4 G Mr. Verrochi, as I recall the TB&A report, there 5 i was an indication that you did start that program in the late
| |
| . 6
| |
| '60's; and then in the '70's you had to bring management's A !
| |
| 7 attentiontobearonproblemssuchascleanair,environmentalj i
| |
| s concerns, nuclear problems and as a result, the planning to 9 . prove gene:Jation ef ficiency suf fered; isn't that true?
| |
| 10 A It is true that in the late '60's and early '70's 11 a large fraction of the total capital budget to fix up 12 existing generating stations -- perhaps the lion's share of Went into major, environmental improvements, new precipitators.
| |
| 13 l 14 l I remember some of these programs involved tens of millions 15 of dollars.
| |
| 16 The Penelec staff, if you will, needed to identify 17 and develop, design and implement environmental improvement la programs. It was also, in many respects, the same staff that 19 was involved in performance improvement programs.
| |
| 20 I think if you look at the record you will see that 21 Penelec, over the last ten years or so, has identified and, 22 in fact, has grouped capital improvement programs Jor existing:
| |
| 23 generating stations under the heading of Environmental and O
| |
| 24 Performance Improvement.
| |
| 25 Many of these environmental programs -~ you know,
| |
| __ CoMTONWQAATH REPORTING COMP ANY #717 761799
| |
| | |
| 1 1308 l 1
| |
| j48 1
| |
| 3 you cap only put a new precipitstor in once. So the fraction ,
| |
| 2 of the total money available te fix up existing power plants 3 -- the fraction for performance improvement ss, again, on ;
| |
| 4l the uprise, on the upswing.
| |
| I i
| |
| I 3i I don't think it is a fair characterization to say
| |
| . s that Penelec neglected that in the early '70's.
| |
| :.\
| |
| 7 JUDGE CASEY: I hate to cut you off, but I would 8 appreciate it if you would try to hold your answers to a 9i direct response to the questions and save us some of the 10 historical details. They are interesting and it bolsters your j ,.
| |
| It f position, but we simply don't have the time today. I am i j 12 , very anxious to get Mr. Wheaton of TB&A.
| |
| 's 1 13 i MR. SHILOEOD: I have three to five more minutes, i
| |
| 14 ' and then that is all. 8 1
| |
| 15 l BY MR. SHILOBOD: l i :
| |
| 16 g As I recall the earlier cross-examination, you !
| |
| I l- i agreed that one of the functions of management-is when you havd 17 l l I id { a special problem you bring the necessary management's atten-l !
| |
| l 19 tion,to bear on that particular problem. -j 20 TB&A gave an example of whenever you had problems f 21 i with implementing the environmental control regulations and/or l l !
| |
| 22 the nuclear construction, that you brought _ management's l l
| |
| t i
| |
| 23 attention to bear- there; _ and as a result efficiency of plant l \_)
| |
| ; 24 ' suffered. j' 25 Is there any reasonito believeLthat that type of.
| |
| j COMMONWEALTH REPORTING COMPANY a7171 761 7150 '
| |
| | |
| i, 1309 I <
| |
| j49 i !
| |
| i process would not continue in the futureinageneralsortcgg'
| |
| ,! way; namely, that if you're going to take management's time i
| |
| 3 and attention and put it on one problem, you're not necessarily i going to have the time available to solve another? Wouldn't 4
| |
| *i
| |
| . that be a fair assumption?
| |
| I i
| |
| i A I guess the way you state it, sure.
| |
| 6 9 l 7
| |
| MR. SHILOBOD: I have no further questions.
| |
| g JUDGE CASEY: It is very easy to give an answer i
| |
| 9j like that after he stated the entire problem from A to Z.
| |
| i 10 i Do you have anything in addition?
| |
| !, s 31 I MR. RUSSELL: Just a moment.
| |
| 12 i
| |
| . JUDGE CASEY: I just have a single question for 13 l Mr. Verrochi.
| |
| 14 l If the future of the.Three Mile Island generating i
| |
| 15 !
| |
| facility, both plants, is somewhat uncertain at the present i
| |
| is ! time, would that have any effect on the company's intention I
| |
| 17 ' to do something with Seward 7, which is now on hold because is o f economical problems?
| |
| I 19 THE WITNESS: Sure. The decision to start building 20 Seward 7 will depend on, one, our expectation as to when we 21 will need it to take care of load growth for Penelec, Met-Ed 22 and Jersey Central; and, two, the ability to finance it. .
| |
| 23 To the extent that Three Mile Island 1 and 2 -- if 9
| |
| 24 l TMI 1 is delayed, our ability to finance Seward 7 will i
| |
| 25 certainly be impaired.
| |
| l
| |
| ! _m _ , s , mm . , m .,m , . mmm-
| |
| | |
| l 1310 i j50 t
| |
| i 1 To answer your question, I guess the answer is yes'.
| |
| 2 JUDGE CASEY: Do you have something further?
| |
| 3I MR. RUSSELL: Nothing further.
| |
| 4 JUDG3 CASEY: I think we'll take a very brief 5 recess. Then I would appreciate it, Mr. Russell, if you would, f a l . s instead of calling Mr. Graham right of way, if you would i .
| |
| ! 7 have Mr. Wheaton testify.
| |
| 8 (Witness excused.) i
| |
| - 9 (Recess.)
| |
| 4 .
| |
| 10 .
| |
| 11 '
| |
| lo~
| |
| O 13 s
| |
| i 14 15 tS i
| |
| I.
| |
| ; 17
| |
| )
| |
| 18 19 ,
| |
| '20 21 -
| |
| l j 22 23
| |
| ' ' 24 l t
| |
| i 25 l.
| |
| t COMMONWEALTH REPORTING COMPANY 47171 761-7150 -)
| |
| | |
| p2 1311
| |
| .t 1
| |
| lll JUDGE CASEY: We are back on the record.
| |
| 2 Mr. Shilobod, are you requesting that the JARI 3 witnesses be axcused at this time?
| |
| 4 .i MR. SHILOBOD: Yes.
| |
| JUDGE CASEY: Is that correct?
| |
| t
| |
| ?
| |
| , G MR. SHILOBOD: Yes.
| |
| !' t.\
| |
| T ji JUDGE CASEY: I see they are already on their way out.
| |
| i:
| |
| 8 -l You are excused.
| |
| Il 9j (Witnesses excused.)
| |
| 10 JUDGE CASEY: You can, proceed, Mr. Russell.
| |
| ti l MR. RUSSELL: We call as for cross-examination Mr.
| |
| i Wheaton.
| |
| 12 O
| |
| 13 JUDGE CASEY: Mr. Perry Wheaton can come forward.
| |
| 14 l MR. SHILODOD: I understand that he is now being 15 ; called by the company --
| |
| 3 As for cross-examination.
| |
| IG q MR. RUSSELL:
| |
| 'l ,
| |
| 17 ', MR. SHILOBOD: I don't understand. Is this rebuttal IE ; testimony?
| |
| 19 MR. RUSSELL: Yes.
| |
| o 20 l JUDGE CASEY: Your position is adverse to Mr. Wheaton's 1
| |
| ?
| |
| 21 ll with respect to certain portions of the management audit; is
| |
| !I 22 j that correct?
| |
| -I
| |
| .i 23 ', MR. RUSSELL: I don't know that it is essentially 1
| |
| Mr.
| |
| lh 24 adverse, but we are separate and distinct parties.
| |
| 25 Wheaton testified on behalf of the Administrative staff and 4,
| |
| mus e % c ..-n.-m_
| |
| | |
| p3 q 1312 t
| |
| not on behalf of Met-Ed and Penelec as parties. .
| |
| 0,1 2 ;; MR. SHILOBOD: The difficulty I have is when he testified there was no cross-examination of him by the companies 4
| |
| that is the utility companies, and now he is being called 5i in rebuttal, and I don't think it is really as off cross-a 6 examination. Ilaybe that issue may not"be important, dependingf Ii :s l T{ on how the questioning goes.
| |
| i 8 I think it really is not proper, at least at this time, 9 to characterize it as cross-examination.
| |
| I 10 JUDGE CASEY: I have a similar feeling about it. If j ..
| |
| 11} you are calling him to rebut some testimony that is given by 12 the JARI side of the case or to fortify some of the positions
| |
| [')
| |
| ' 13 that some of your witnesses had taken, I think you are really i f i 14 calling him as your witness. ,
| |
| i' I3 MR. RUSSELL: You may recall the discussions in the 16 ) early part of this proceeding about whether or not the
| |
| .I
| |
| " Commission staff was going to call Mr. Wheaton and the other a '.
| |
| 33 '
| |
| TS&A witnesses, and we made it clear there that our_ calling 18 him ,if the Commission staff.did not call him would not be :
| |
| 20 as our witness, but we would call them as wicnesses that had 21 prepared matters for the Commission, and they are'not literally 41 22 ] our witnesses.
| |
| ,, 4
| |
| ", We are calling him with respect to material prepared O~
| |
| \/ 24 for somebody else; not for us.
| |
| 20 I I would quite appreciate the problem that this is an
| |
| 's l'
| |
| COMMcNWC ".LTH iTEFORTING CCMF ANY 7:' 73;-7!50
| |
| | |
| -34 1313 t
| |
| 3 unusual circumstance, just as you had an unusual circumstan 2 in Phase 2 at I-308 when the Administrative staff likewise called various TB&A witnesses, and we cross-examined them as well as many other parties; so as we see it, it is the witness 5 of another party, and we are questioning him with respect to i matters that pertain to the report which he prepared for the
| |
| :\
| |
| ~ j Commission.
| |
| S 3 MR. SHILOBOD: The mere fact that he is a witness for 9
| |
| another party does not make him an adverse witness. That is 10 / the only issue. -
| |
| 1 11j MR. RUSSELL: The question is not whether he is an l!
| |
| 12 j adverse witness; the question is whether he is a witness for
| |
| ~
| |
| an adverse party.
| |
| n d
| |
| M: JUDGE CASEY: The Commission Administrative staff is I'
| |
| a special body; it is not even the Commission trial staff.
| |
| Mj Even if we could assume that the Commission trial staff is 1 .
| |
| I taking an adverse position in these proceedings, the Commission 13 trial staff has not sponsored or adopted the TB&A report. It b is that the Commission saw a need to get the report into 20 evidence for whatever the value of the conclusions in the
| |
| :I 2 ~ body of the report would be to this proceeding; cet I don't 22 think the Commission Administrative staff is adverse and
| |
| 'n' hostile to the moving party in this proceeding.
| |
| "I In point of fact, the TB&A report, as I see it, is h 20 more supportive of your position in the case than it is CCMMONWE ALTH R CPoRTING COMPANY ~*7 76!.7150 i
| |
| | |
| p5 'l 1314 :
| |
| 0 i.
| |
| () neutral or against your proposed management combination and
| |
| * 2 Nuclear Corporation. j d ,
| |
| MR. RUSSELL: As we would view it, any favorableness )
| |
| i 4 or adversity of viewpoint is not the criterion; it is the l 5
| |
| witness was, in fact, the witness for another party, and we ;
| |
| * 6 ) are calling the witness as another party for some further j %
| |
| 7il cross-examination.
| |
| 8 JUDGE CASEY: Rather than make a collateral issue out ,
| |
| 9 of the thing that would hold the case up, we will permit you i
| |
| : 1 10 to examine _,this witness in whatever form you see fit. ;
| |
| I 11 Mr. Shilobod may make necessary objections on the }
| |
| r~ 12 record, and may also question the witness thereafter if he
| |
| %g) -
| |
| 13 ; chooses to do so.
| |
| i 14l MR. SHILOBOD: I would like to ask for an offer of .
| |
| 15 proof.
| |
| i I 16 JUDGE CASEY: All right; I will entertain that ,
| |
| 17'! request. What do you intend:to prove through cross-examination
| |
| >> i l' i' of this witness?
| |
| ^
| |
| l .
| |
| ' I C'
| |
| .j . MR. RUSSELL: We intend to -- we will show through ;
| |
| 20 this witness -- I can't say whether we will show through him ,
| |
| h :-
| |
| , , ,li o r no t , because I haven't spoken to the witness, and I don't
| |
| ~
| |
| ,,4
| |
| - g know what the witness' answers would be; but we would-propose 'ii d '
| |
| ~, b
| |
| ~
| |
| .. to shcw if the witness' testimony did, in fact, indicate what '.L
| |
| -(-s
| |
| < \
| |
| ts/ ," j _
| |
| we -- really, I can' t give you an of fer of proof in the sense
| |
| --n of what we would prove, because I don't know what'we would li ~
| |
| I' 9 .
| |
| II CCN:foO*tWE ALIM REPORTING COMP ANY 1717 5917'50 j
| |
| | |
| 96 a 1315 1
| |
| prove.
| |
| 2 All I can say is that I will tell you the questions 1 that I am going to direct to this witness.
| |
| I 4 JUDGE CASEY: I think even though you know the 5/ questions, as a lawyer calling him, unless you are calling on 4
| |
| S a fishing expedition and at your own peril, there would be a
| |
| .:\
| |
| ;hbottomlinetothepurposebehindyourquestioninghim; and 3 that purpose would constitute an offer of proof that you could 1 '
| |
| 9 , make at this time.
| |
| t l
| |
| to ; MR. RUSSELL: I would,say frankly that an offer of 11 proof is not required with respect to cross-examination.
| |
| :i
| |
| ' ' ' il 'IR . SHILOBOD: I will withdraw my demand for an offer 13]ofproof. However, I am going to continue my position with n
| |
| I N 'l respect to the fact that this is not a witness called as on h,
| |
| 'l Bj cross-examination.
| |
| l l
| |
| JUDGE CASEY: You may proceed.
| |
| 16i jl
| |
| '4 R . RUSSELL: I trust the questioning will take less I
| |
| M time than the procedural questioning.
| |
| l N- JUDGE CASEY: It always does. You may proceed.
| |
| .I 20 .
| |
| Whereupon, a
| |
| 2I . PERRY WHEATON b
| |
| 22 , having previously been duly sworn testified further as follows:
| |
| i 23 j DIRECT EXAMINATION (As on cross)
| |
| .,4
| |
| ' - BY MR. RUSSELL: .
| |
| 25 , Q Mr. Wheaton, have you had occasion to read the direct
| |
| :i COMMONWC A L TH REPORTING Covp ANY 7'? 7317'50 t
| |
| | |
| F7 1316 il
| |
| ?
| |
| a u
| |
| ; testimony and cross-examination of Frank R. Budeuti in this .
| |
| 2 proceeding?
| |
| 3 A I had a general scanning of it.
| |
| 4 Q Mr. Budetti on several occasions in his testimony, i
| |
| l including, for example, at page 21 of his direct testimony it .
| |
| , 6[ which is JARI Statement A --
| |
| ! n 7 A Do you have a copy of that?
| |
| 8! Q It refers to the management of Penelec, the management I
| |
| 9
| |
| ; team of Penelec under the proposed management combination I,
| |
| 10 i as constituting a part-time management team, i .*
| |
| 11 l (Document handed to the witness- by Counsel Russell.)
| |
| ll 12 !i MR. SHILOBOD: I think you have some of those things b' 33 il circled and some notes made. Could I.look at that?
| |
| O M j' (Document handed to Counsel Shilobod.)
| |
| :l 15h MR. RUSSELL: I will get you a clean copy.
| |
| d IO I have no objection MR. SHILOBOD: That is all-right.
| |
| il I
| |
| to Mr. Russell using his document, having had an opportunity d
| |
| i I8d to see it.
| |
| +
| |
| f I2 BY'MR. RUSSELL:
| |
| a o it You are familiar with the proposed management
| |
| ;! . Q 0
| |
| '23 h combination, are you not?
| |
| ,o
| |
| -, A _Yes, I am.
| |
| 4 3 Q In the event _that;the proposed management' combination c:), ,- .
| |
| j takesLplace-as proposed, in your opinion, would-Penelac under _
| |
| Il
| |
| [ that plan have_a part-time management team?
| |
| l!
| |
| I cos dcNW E AL.*H REPo9 TING COMPANY 4717 ? ?6; 7 t SO -
| |
| ~
| |
| d
| |
| .I
| |
| . , , - , - - . . 81. - s - , . - . . , . , _ _ , , , , , . . . _ _
| |
| | |
| ~ _
| |
| p8 1317 i
| |
| i
| |
| .I A I thinktheproposedorganizationthatwehaveoutgg 2 lined in our report, which is Exhibit VI-4, in our review of 3 this proposed organizational structure, if it is implemented 4 , as outlined in this report, then we would think that there 5 , would not, in fact, be a part-time management of either Met-Ed G I- or Penelec.
| |
| :.\
| |
| T '; MR. SHILOBOD: If Your Honor please --
| |
| ?,
| |
| 2I JUDGE CASEY: From the standpoint, Mr. Wheaton, that 91 the combined management team would have to divide its time
| |
| : 0 ..
| |
| i between the corporate problems and the operating problems of Il ..
| |
| .. two companies as opposed to the old Penelec management team 1
| |
| 2j that was only concerned with Penelec problems, would that be O
| |
| :3 ' a type of part-time management rather than full time manage-l 14 i, ment,in your judgment?
| |
| 3 15U THE WITNESS: Let me try to explain how, as consultantst M y we look at this particular situation. We were presented with
| |
| ! d 17:! a proposal of combining the managements of the two companies.
| |
| 13 ] When you look at that, one looks to determine what the a
| |
| M(attributes, if you will, of the proposed organization will be 20 h for the new entity, the new entity in this case being a M combination.
| |
| 22 ' In doing that, we were looking to see what would be II
| |
| - U] the most effective organization for that new entity. In
| |
| " . ' . that context, it is impossible,once we determined that the 1
| |
| 2 '' organization as proposed has met the various criteria we have il 1
| |
| q CoMv0NW C
| |
| * LTH MCPORT!NG COMPANY M*-* 70 !-7 t SO
| |
| | |
| p9 . 1318 outlined in our report that would be essential to any
| |
| () organization like that -- once we have determined whether that organization would be effective, it is immaterial. You don't consider whether it is one management or two managements 4
| |
| because you are looking at a combined, if you will, management structure for a new -- and I use the term -- entity.
| |
| G What is the new entity, in your opinion?
| |
| JUDGE CASEY:
| |
| i<
| |
| TIIE WITNESS: Th'e new entity is a combined operational 3 .
| |
| t management of what was the preceding -- or what was the legal 3
| |
| constitution and the financial constitution of two separate 10 companies,'i.e. Penelec and M'et-Ed.
| |
| 1! ;
| |
| This, by the way, is a fairly common organizational 12 q
| |
| ' structure that exists within holding companies, and I am
| |
| (~)/
| |
| s_ :3 familiar with a couple of situations where we have seen 14 very similar operations where you have separate legal and financial entities that exist, but a separate operational or 16 organizational thing to manage the day-to-day activities.
| |
| IT JUDGE CASEY: Go on,.Mr. Russell.
| |
| 13 BY MR. RUSSELL:
| |
| u "Q Turning to the supplemental testimony of-Frank R.
| |
| 20 Budetti, which I show to you, at page.1, starting at line 7, i
| |
| Mr. Budetti makes this statement and I quote,_"The. majority.
| |
| 22 of the TB analysis and report in the areas called' unclear,
| |
| (~% Financial and Energy _ appear to be supported by independent t) 24 '
| |
| 4 analysis. However,.the' financial analysis in the management
| |
| ?
| |
| d CoMMCNWC ALTH H EDCFtTING OCMPANY 7 t 7 .'6 i 7 ' 50
| |
| | |
| p10 1319 0
| |
| 1 organization area is non-existent." ggg 2 ' Do you agree with the last sentence of that statement, 1 Mr. Wheaton?
| |
| , A I am not sure what the statement means, so if I don't understand exactly what it means I guess I can neither agree I
| |
| 6 I or disagree with the statement. And without having the
| |
| :s
| |
| : . opportunity, I guess, to talk to Mr. Budetti and ask him S
| |
| 3]whathemeansbythisstatement, I don't know how I could
| |
| :l 9 ' respond to your inquiry.
| |
| .i
| |
| .I 10] Q Then perhaps you would continue to read, starting at 1: the end of line 10 of the same page as follows, "In fact, 12 they accept the S18 million as belonging to the management N
| |
| O consolidation only."
| |
| i 14 i In your opinion, does the TB&A report accept the
| |
| :3 S18 million in saving as being attributable to the management 16 consolidation only?
| |
| l l
| |
| 17 A Let me tell you what I think the S18 million meant 13 to us, and I don't know whether that will be responsive to i- your question or not.
| |
| 20 One of the many criteria that we outlined in terms
| |
| ! 21 of looking.at whether this proposed combination made sense 22 was whether there were financial benefits, if you will --
| |
| 1 23 cost benefits to be obtained by going through the management h
| |
| combination. In that context, the company' developed a proposal 2' which, in effect, showed and demonstrated that they believed CGMMON =.'s T A LN 15E AC 9 TING CoVP ANY 7:7 75!.7'50
| |
| | |
| pil !! 1320 l
| |
| t that $18 million in annualized savings could be attained
| |
| ()
| |
| i ,
| |
| 2 through a combination of both cost avoidance and cost savings.
| |
| 3 In our raport, I think you will note that we have 4 indicated that there are a number of things that have to take 5]placetoattainthosesavings, including which is a precise
| |
| , 6[[d'efinitionofwherethosesavingswill'comeand'hcwtheywill >
| |
| e d 4 7ybeattainedandatwhatpointintimetheywillbeattained j'
| |
| 3F and what activities have to take place.
| |
| 9 '
| |
| We were able in terms of doing our review to satisfy 10 '! ourselves to the extent that ,the order of magnituda represented 1: ; by those savings made sense and were attainable; and, in f a ct, 12 I think we have indicated that they, in fact, may be conserva-c:)
| |
| I3 / tive. But the fact is at this point in time -- the point J
| |
| I40 in time when we did our review -- the savings, the process a
| |
| 15 they had gone through to identify those projected savings I
| |
| 16 ! seemed _ to make sense, ' but we clearly have pointed out in our ti .
| |
| I.' ,
| |
| report that there are many other things that.have to take 13 place to attain those savings and to define precisely what 19 those sr.vings would be.
| |
| i 20 j So I don't know if that answers your question with 21
| |
| . respect to Mr. Budetti or not, j
| |
| 22 JUDGE CASEY: 'I think'the thrust of Mr. Budetti's 23 statement in his prepared testimony and his supplemental
| |
| (~ 94
| |
| \ testimony was that it appeared that your company, your 15
| |
| ~
| |
| management. audit team, had accepted'all of the data and
| |
| . COMMONWEALTH REPCRT NG COMP ANY C7 751 7 t SC i
| |
| | |
| pl3 1321
| |
| .\
| |
| tl d
| |
| conclusionsofthecompanywithoutanyindependentanalysish 2 on the part of the management audit team to determine where
| |
| , these savings might be derived or cost avoided, that you saw 4
| |
| that through your own analysis without accepting the company's fconclusionswithoutquestion; is that essentially what you
| |
| . G, were saying? I an asking Mr. Budetti. Is that what you were y :.\
| |
| saying in that statement and your supplemental testimcny?
| |
| 6 MR. BUDETTI: The supplemental was in addition to i
| |
| 9 that, Your Honor. What I tried to do was point out that in h
| |
| 10 the headings in the testimony.that the S18 million was under i
| |
| l '- the management consolidation and not under the divisional I
| |
| 12 reorganization, and that thecompanyhassincetestifiedthg 13 i the management combination was only $1.2 millivn, and that 1
| |
| 14 i the divisional organization is' the remaining $16.8 million 15 or whatever those numbers work out to be.
| |
| i N 'l So it is a difference in headings, and that that
| |
| 'I
| |
| " company, TB&A, had totally committed itself to attain S18 13 I think what the TB&A people did was to say that million.
| |
| 3 it 1.coks like that might be a reasonable number without any 20 detailed analysis because at that point in time they just
| |
| , 1 ",
| |
| stated there wasn't any detailed analysis. That is my version.
| |
| 22 To say or imply that a detailed analysis THE WITNESS:
| |
| 3 was not done is erroneous. The fact is that in developing y- .
| |
| O this report over man years of consulting effort were put into 3
| |
| it. The very fact is there was a great deal of analysis and
| |
| - m "cr/A m aefp m e, aem psyy . -- 7 317 go j
| |
| | |
| pl3 l 1322 i
| |
| review done on the company's proposal in this respect,
| |
| * 2 including the cost benefits; and there is no question in ny l 3I mind that a review of that took place.
| |
| I would characterize a similar situation in addition 5
| |
| 3 to this $18 million, which is the $2 billion that is projected l
| |
| 6 l; in the Load Conservation Management Plan.
| |
| ; , This, again, was
| |
| , O \ i 7 9 a company proposal that was developed by people where j
| |
| i 3
| |
| experts in that area who did a detailed review and were able c
| |
| 0 , to assess whether the order of magnitude of those projected I
| |
| 10 ; ,l savings made sense; and our report includes commentary on i 3
| |
| 11 : that to the extent that those savings look like they might 12 be obtainable.
| |
| () 13 We talk about the specific steps that might be l
| |
| 14 ;f required to attain those. I only bring this up at this '
| |
| (
| |
| 13 point to indicate the similarity in terms of analysis that
| |
| !! ~ +
| |
| N h; we used in an entirely different area than the management 9 .
| |
| 17j combination, i.e. we looked at savings that might be obtained. t i
| |
| 13 1- So any reference to the fact that a detailed analysis 13
| |
| ,i has ,not taken place, what we did was analyze.what the company s
| |
| 20 put forward. We looked at the techniques that they developed i
| |
| 23] in projecting their savings, and from that we have said, yes, 22 the order of magnitude certainly looks attainable and achieve- i d
| |
| 23 able, but there are a number of steps that have to be taking ;
| |
| d
| |
| ([) ' ,4 : place including the development of the detailed implementation 25 p plan; and that's it. r-1 COMMoNWC ALTH REPCRTING CoVP ANY 717 741 7 ' SC
| |
| . --. _?. . . - , ,
| |
| | |
| pl4 1323 N
| |
| O JUDGE CASEY: Mr. Russell? h 2 MR. RUSSELL: All right.
| |
| 3 BY MR. RUSSELL:
| |
| 4 Q Mr. Wheaton, I direct your attention to page 36 of Mr. Budetti's direct testimony, and I ask you to read the
| |
| . i
| |
| . '3 I first question and answer that appear on that page.
| |
| ~5 I l A (Witness perusing document.)
| |
| 1
| |
| {'
| |
| 8 MR. SHILOBOD: What page are you referring to, Mr. '
| |
| 9 Russell?
| |
| 10 MR RUSSELL: Page 3 6.-
| |
| 11
| |
| , BY MR. RUSSELL:
| |
| 12 Q Have you had a chance to read it? ggg 10 A Yes.
| |
| 14 0 In'that answer appearing on page 36, the first answer,,
| |
| 30 Mr. Budetti makes a statement, "I have concluded that there i " are no benefits to Penelec as a stand-alone company in a separate certificated area."
| |
| I3
| |
| ; The question, Mr. Wheaton, is: do you agree, disagree D
| |
| or have some other comment to make with respect to that 2
| |
| ' conclusion?
| |
| F
| |
| ~
| |
| MR.'SHILOBOD: I object. Mr. Wicker who performed i b
| |
| 2
| |
| .this study specifically stated that no study was made from the j 3
| |
| standpoint of the individual utilities. His testimony was t 44 -
| |
| no such study was conducted. I wc 21F ,bject to having that 25 on the record.
| |
| COVUONWC A L.TH 9'EPORTING COMP A NY 7 ' '' *
| |
| * t 7 t ':0
| |
| | |
| ~
| |
| )l5
| |
| ; 1324 i
| |
| JUDGE CASEY: My recollection of the record is as
| |
| [ , *
| |
| .l 2 ] clear as yours. I would tend to agree that that was the i
| |
| 3 i position of TB&A.
| |
| j MR. RUSSELL: I asked if he agrees, disagrees or e
| |
| 3, has any other comment.
| |
| S MR.- SHILOBOD: He has to have some support for his I
| |
| 71 opinion, and the information is already put in that there was -
| |
| 1 S ! no such support.
| |
| I 9f JUDGE CASEY: Are you stating that in the form of an 10 objection? ,
| |
| 11 MR. SHILOBOD: Yes.
| |
| l' 12 l JUDGE CASEY: The objection is sustained.
| |
| ( )i :3 BY MR. RUSSELL:
| |
| i 14 ;, Q Mr. Wheaton, after having given you the testimony of II
| |
| , 15!l Mr. Budetti, has anything come to light which would,cause you b
| |
| 16 d to alter or modify the conclusions in the TB&A report with 17 respect to'the proposed management combination?
| |
| . i.
| |
| 18 !i A I think I' indicated at the outset that I have not
| |
| ; i 19! reviewed in detail Mr. Budetti's testimony, and therefore.--
| |
| 20 $ I have only scanned it, so you used the term "after my review 21 ~
| |
| ,of it," and.since.I have made no review,1I can't comment.
| |
| 22 What was the extent of my review?
| |
| 1 Q 23 l: A iAs I said, a general': reading. A' general scanning, but
| |
| ) -, !
| |
| ; not a detailed ~ review.
| |
| 25 ' 'Did you readithrough-the direct testimony?
| |
| Q-y'
| |
| *l-COYMov.'/C41 TM R CPC9 TING COMP ANY 7*7 761 7 t !O
| |
| | |
| pl 6 ! 1325 s
| |
| A I have scanned through the direct testimony.
| |
| I 2 .' Q Did you reau his cross-examination?
| |
| d 3
| |
| A I have scanned through it. I have not reviewed it in 4
| |
| detail.
| |
| 5l Q As a result of your review, to the extent that it is, 1
| |
| G has anything come to light which to the extent of your review Tfll would cause you to change any of your opinions or the
| |
| \
| |
| i l
| |
| 3" conclusions that you reached in the TB&A report?
| |
| 9 MR. SHILOBOD: Objection. The answer has already 10 been made that there wasn't a, sufficient enough review to 11 l express an opinion, and to try to force an opinion I think is 12 ) improper.
| |
| 1 (1) 13 ' '4R . RUSSELL: My question is whether there were any ll q
| |
| 14 .!y facts that came to light during the course of such review
| |
| 't is ' as he did make which would lead him to reach any different M" conclusions than he reached in the report.
| |
| 1 17 L JUDGE CASEY: To the extent that he was able to 13 review the report,which he has characterized as simply scanning 13 i the, testimony and the cross-examination, if he has an observa-4
| |
| 'l 20 3
| |
| tion to make, I will permit him to answer that question.
| |
| 'l THE WITNESS: I saw nothing in my very limited review 22 I that we have l
| |
| ' :! of this that would change any of the opinions 23 made in this report.
| |
| U MR. RUSSELL: I have no further questions.
| |
| 25 Mr. Shilobod?
| |
| JUDGE CASEY:
| |
| ' OMMCNWC AL h4 AIPCRTING COMP ANY 27' 7 75 t -7150 L.
| |
| | |
| p17 : 1326 S
| |
| f
| |
| {}
| |
| Before he scarts the questioning, having listened to 2
| |
| l this series of questions of this witness and the responses 2 and the subject matter of the questions, I would have to 4
| |
| characterize it as true rebutt,al testimony rather than 3 i questin:.ing as en cross-examination because on cross-examina-ri
| |
| , 5j tion you would have been questioning him or attacking hi9 on 0 :s i 7 i, the strength of the TB&A report or his testimony, whereas you *
| |
| :i 8 were using his answers and his judgments to attack the P
| |
| 9j prepared statement and the testimony offered by Mr. Budetti; 10 and that to me is rebuttal and not cross-examination of a 11 , hostile or adverse witness.
| |
| t 12 j So whether that will make any difference -- it U certainly won't in my review or judgment, but that is how I 14 see the nature of the testimony and the questions.
| |
| Uj 9 MR. SHILOBOD: I have two questions of Mr. Wheaton.
| |
| 16 CROSS-EXM4INATION f
| |
| s M BY MR. SHILOBOD:
| |
| i 18 ; O Mr. Wheaton, any review of any cost savings was W done, by Mr. Wicker and not by irou; is that-correct?
| |
| 20 L A No.
| |
| 41 I Q I am speaking specifically with respect to the l
| |
| l w
| |
| !! management combination.
| |
| 'y P The review of cost savings was A That is not correct.
| |
| i i
| |
| ' C~~'} i done under the direction of Mr. Wicker, who was working under j
| |
| - r; 25 jmydirection, and he had experts working'with him on looking 4
| |
| cenew.catra.nepcarruc comaave -77 7ct.7,e:
| |
| t , [-
| |
| | |
| pl8 g 1327 d l 0
| |
| at those cost savings, andtheywereexpertsintheirpartillk
| |
| - lar fields, be it transmission and distribution or be it
| |
| : industrial operations.
| |
| i Q Would it be fair to state that Mr. Wicker would be
| |
| ; more familiar with the degree of review of cost savings, if e
| |
| .i I'
| |
| * O any, that took place?
| |
| l' A !
| |
| A I have a great deal of confidence in Mr. Wicker and }
| |
| 7[ '
| |
| I 8h he spent a great deal more time than I 'n that area; and I :
| |
| 9 would be foolhardy to say that I would not have more confidence '
| |
| 10 in Mr. Wicker than in myself.
| |
| 1: , Q To your understanding, were all of the S18 million J
| |
| 12 ',' in cost savings coming from the management combination? gg{
| |
| i 13j A No, they were not. ,
| |
| 'l Ni Q When did you learn that? ,
| |
| 15 I would suspect that I learned that sometime in the A ,
| |
| i l
| |
| ") period of May or June of 1980. l II Q You learned that then prior to the tre statement on IU ' page II-9 of the report in which you reported to the Public E Util.ity Commission that the company has publicly committed
| |
| ~~ '
| |
| itself to attain $18 million of annualized cost savings and i
| |
| ~' '
| |
| cost avoidance through the management combination; is that n ! ;
| |
| "g correct? .
| |
| If that says management combination, it is referrin 3
| |
| A u
| |
| to the concept of management combination which would also i
| |
| encompass the consolidation of divisions.
| |
| U ec1 pswesis oemm wtsmw.w? n n.r m
| |
| | |
| ._.7_
| |
| pl9 j!, 1328 il i
| |
| , Q In the report there were different sections devoted
| |
| * 2 to the divisional reorganization as opposed to the management consolidation; is that true?
| |
| 4 A Yes.
| |
| i 5, Q And they were specirically designated as separate li. -
| |
| . G 4 problems; is that true, separate undertakings?
| |
| \
| |
| ~
| |
| A No.
| |
| 8 O In other words, they were two different reorganizational 9
| |
| or organizational changes? -
| |
| 10 A I think that is a difficult and perhaps overly precise distinction to make. The proposal as put forward by c
| |
| 12 :il; the company encompassed both division consolidation as well
| |
| '. (")T
| |
| : x. 13 6:. as a management combination, and in that context we were d
| |
| 14 looking at both in cerms of de'veloping and analyzing the total 15' package.
| |
| I6 MR. SHILOBOD: Yobr Honor please, since this TB&A U
| |
| report is going to have to stand on its own, I am not going 18 to have any further cross-examination of this witness.
| |
| I M
| |
| , JUDGE CASEY: Mr. Wheaton, you are excused. Thank 20 you very much.
| |
| v I
| |
| 3 *
| |
| (Witness-excused.)
| |
| I !i
| |
| ".. JUDGE CASEY: There is another TB&A witness here.
| |
| ~
| |
| , i.
| |
| 43
| |
| - h J,I presume that neither side will be calling Mr. Hogan, r~T d'
| |
| > ,.a I ''j ". MR. RUSSELL: I was not advised that Mr.. Hogan would il 45' be here.
| |
| i y' coMMONWEA1.TH REPORTING CCMPANY i7t? 741 7150
| |
| | |
| , 1329 P20 .
| |
| 4 JUDGE SHANE: Thank you, gentlemen. gg 2
| |
| Mr. Russell, do you want to call Mr. Graham at this 1
| |
| time?
| |
| 4 MR. RUSSELL: Yes.
| |
| I Whereupon, 5
| |
| , JOHN G. GRAHAM -
| |
| Ifhavingbeen'dulysworntestifiedasfollows:
| |
| 3' DIRECT EXAMINATION 9
| |
| BY MR. RUSSELL: ,
| |
| 10 Q Would you state your name and address please?
| |
| Il II "
| |
| A John G. Graham, 100 Interpace Parkway, Parsippany,
| |
| 'l 12 New Jersey.
| |
| "] Q Ly whom are you employed and in what capacity? '
| |
| " :ld A I am the Treasurer of General Public Utilities i
| |
| I Corporation, Vfce-President and Treasurer of GPU Service l
| |
| . Corporation, and Treasurer of GPU Nuclear Corporation.
| |
| O Would you just describe briefly your educational and professional background?
| |
| I3 A By education I am an attorney-at-law. After my
| |
| 'O
| |
| ~
| |
| clerkship I worked as an Assistant Prosecutor in New Jersey
| |
| ~
| |
| for about a year; and then I taught at Rutgers Law School 22 where I served as Assistant Dean and Associate Professor of 23 Law.
| |
| 2a I practiced law for a period of about six years until m
| |
| ~
| |
| 1976 when I became employed as Vice-President for Law at CCW'.C*rnutra C EPo ATING CCYPANY 717 7GI"iSC
| |
| | |
| 1330 p21 ,
| |
| l i
| |
| Jersey Central Power and Light Company.
| |
| 9 2 ,! In the fall of 1978, I became Treasurer of GPG.
| |
| ^
| |
| Q Could you describe, Mr. Graham, where the financial 4 ll planning is done for Met-Ed and Penelec?
| |
| 5 h'l A The overall financial planning is one of my responsi-
| |
| * 6 bilities. The financings, the cash planning, all of that 7f is done under my responsibility and supervision. ,
| |
| 8 3
| |
| of course, the operating companies 2 treasurers and h
| |
| 9 l comptrollers work with us with the plans that go into that, M l and the ma)ching of those pla,ns.against actual results, the i
| |
| 11 budget controls, etcetera.
| |
| J 12 Q Are you familiar with the financial condition of the
| |
| ([ )
| |
| 13[ various GPU system companies?
| |
| 14 ::n A I am. -
| |
| ..]p Q Could you state what factors, if any, are presently i 1
| |
| 16 .
| |
| adversely affecting the financial conditions of those I .,
| |
| II ! companies?
| |
| 18 Yes, sir.
| |
| A l .
| |
| And I direct your attention to Met-Ed in particular
| |
| ! M ,Q
| |
| !l 20 l and Penelec in particular.
| |
| ,1 ,!I :
| |
| si A Yes, sir. Each of the chree companies is a part II -
| |
| ,, n
| |
| - j, owner of Three Mile Island. As you know, the Pennsylvania 1
| |
| -, ., a Commission and the New Jersey Commission have not recognized-(~)S
| |
| ( :
| |
| 4 fi the capital or operating costs associated with Three Mile !
| |
| d 5 } Island, in the case of Unit 2 since the accident, and in the I
| |
| 'l CIdMM@NWE%TH _ REPORTIN@ COMPANY ??7 7G1 7
| |
| * 5C .
| |
| | |
| p22 j 1331 E
| |
| case of Unit 1 since the spring of last year.
| |
| : 2. What that means is that in the case of Metropolitan
| |
| . Edison Company, something more than half of its capital is 2 not being recognized for ratemaking, and it is incurring i ,
| |
| significant operating and maictenance expenses for the two o
| |
| 0 plants at Three Mile Island. ;
| |
| \ '
| |
| T l; In the case of Penelec, the exact same thing is l
| |
| 3- happening. It is only half as much money because they own !
| |
| i.
| |
| 9 25 percent. It is not as apparent as a problem with Penelec ,
| |
| '' i.'
| |
| 1 10 j because it is a bigger company. ,
| |
| i 11 The same thing is true with Jersey Central. {
| |
| 12 The additonal factor that operates in the case of 13 Jersey Central is that they were constructing another plant ,
| |
| 14 ' at Forked- River, which we have now decided not to proceed 0
| |
| lwith, and they have significant money invested in that plant.. :
| |
| 36 ,, Since the decisions of the Ccmmissions -- in the ,
| |
| i I case of Penelec and Met-Ed the Pennsylvania Commission -- to i i
| |
| 13 not give recognition to the costs associated with Three Mile ,
| |
| t:
| |
| P3 Island, there has been a very significant deterioration in i
| |
| - 1. the financial condition of both companies.
| |
| n0 !
| |
| 1
| |
| #- f
| |
| : Penelec, for instance, is rated as a speculative issue
| |
| 'l l
| |
| 22 as regards its senior securities by both of the major rating l 20d agencies, bonds, deferred stock and debentures. ;
| |
| ., . U '
| |
| 'i Q Going back to the point in time immediately followi
| |
| " the TMI-2 accident, could you describe the financial posture
| |
| !i il 11 coWect."/E ALTH PCcCRTf NG COMP ANY 71' M .7 30
| |
| | |
| p23 1332 g
| |
| :i 1
| |
| 4
| |
| () of the companies as of that time, and what steps were taken '
| |
| 2 at that time with respect to the financial affairs of the 3
| |
| companies?
| |
| i i A Yes, sir. We saw three major things happening. First 3
| |
| of all, we knew that immediately after the accident there
| |
| . 6 ) would be a significant cnst. drain to deal with the accident
| |
| .l :.\
| |
| IU itself and its aftermath, the problem of the money necessary a L to bring the plant to cold shutdown, all of the effort that 9
| |
| was associated with the Island itself; second, we saw a 5
| |
| 10i replacement energy cost of about $24 million a month for the I
| |
| 1; d system, about $10 million of that being Met-Ed and about 12
| |
| $4 million being Penelec.
| |
| .- a
| |
| " it We knew that there would be a significant cash drain Il 14htofinancsthosecosts.
| |
| .**. ~Y, Third, we knew that the capital and operating costs 36 associated with Three Mile Island were under attack. -We did i! -
| |
| n ": In the case of Penelec, not know what the Commission would do.
| |
| i la they had received a rate order in February of 1979, and had
| |
| ! i" l begun collecting those costs. In the case of Met-Ed they had
| |
| ~y .
| |
| qreceived a rate order which had not yet become effective.
| |
| u
| |
| '1
| |
| ~ ;!ll That rate order was suspended by the Commission,- so we never
| |
| ''] started collecting those rates.
| |
| q:
| |
| ~
| |
| That gave us significant concern about the cash that
| |
| (-)
| |
| s/ ,4
| |
| ~ fwas coming in to Penelec.
| |
| . il
| |
| ~
| |
| 'S id Q There has been considerable testimony in this proceeding l'
| |
| ;l
| |
| ;t COf1?AoNWCAL.TH REPORTING COMPANY !7 ? 7 731 7i50
| |
| : a. , _ - -
| |
| 1
| |
| | |
| p24 , 1333 with respect to a revolving credit agreement; areyoufamilll(
| |
| 2 with that agreement?
| |
| i A Yes, sir.
| |
| 4 Q Did you participate in connection with its institution?
| |
| '; A Yes, Mr. Russell; I guess I was the major negotiator
| |
| . 'i , on behalf of the companies in the forming of that.
| |
| _) :.\
| |
| 'j Q Would you describe the circumstances of its adoption l
| |
| 8 and the purpose for which this revolving credit agreement was 9
| |
| adopted?
| |
| 10 A Yes, sir. Immediately after the accident, because of li the cash drain that I saw from the three elements that I have 12 described, I asked the treasurers of the three operating g
| |
| U companies to approximately double the lines of credit that
| |
| " they had with banks and with respect to what we call joint U
| |
| use lines; that is lines of credit at major money center
| |
| " banks that were available to GPU and to any of the operating l
| |
| . companies.
| |
| " I myself and my staff called those banks and asked that,the credit lines be doubled, so we went from about a
| |
| ~O quarter of a billion dollars of lines of credit -- S225 million
| |
| ~3 '
| |
| or $250 mil-lion -- to about twice that much.
| |
| Those were still informal lines of credit. They were m
| |
| ~'
| |
| not secured lines. They were not contractually guaranteed.
| |
| 21 Q Excuse me; contractually guaranteed in what sense?
| |
| 'n A The bank informally or in the form of a letter tells l
| |
| e COYMCNWrALTH 7EPGTf NG COf4P ANY s717 761 71'!O
| |
| | |
| p25 ". 1334 a 1
| |
| ('S The terms of the line '
| |
| you that you have a line of credit.
| |
| \/ '
| |
| are described, but you don't kncw that you actually can borrow ,
| |
| the money until you call up the bank and ask.
| |
| The difference, of course, with a guaranteed line or 5
| |
| with a revolving credit agreement is that the bank is i
| |
| 6
| |
| * ', contractually obligated to lend to you. Typically, major
| |
| :A utilities other.than in times of stress or special situations use lines of credit rather than contractually guaranteeing o
| |
| credit lines with banks.
| |
| 30 So,the first reaction.of the banks was to about
| |
| " double the lines of credit. I think that was described this 12 1 morning by the representative of one of our Johnstown banks.
| |
| 7_
| |
| \-) 3 As we saw the reaction of the Pennsylvania Commission 14 we were advised by our banks,'and in this regard the major
| |
| " discussions were with the representatives of City Bank and Chemical Bank as agents for the banks with whom we deal, t.at i .
| |
| we could not rely upon informal lines of credit. There was too much doubt about the situation and that we might not.be
| |
| " able to borrow money from our banks on those informal lines of
| |
| ~n o .
| |
| ! credit.
| |
| e, 4
| |
| ~^
| |
| We were advised, therefore, that we should move from
| |
| ,3
| |
| ~~
| |
| informal lines of credit to a contractual arrangement, a revolving credit agreement-type of arrangement.
| |
| ,,_ i
| |
| %) 24 O Does that conclude your response in that area?
| |
| 25 A Yes. sir. I can describe more if you want, the process CC'4MONWE ALTH REPC#Tif4G COMPANY -''7 7Ci 7'50
| |
| | |
| p26 1335
| |
| 'l s
| |
| e by which that came about.
| |
| O 2
| |
| Q Go ahead.
| |
| A As we talked with the banks and as they watched the i
| |
| 4 situation and talked with all of the other banks in the group,
| |
| *j the terms and the ur.derstanding of the revolving credit l .
| |
| 6 agreement changed somewhat. -
| |
| _ ' t, w
| |
| ' At first it was thought that the revolving credit j
| |
| ]
| |
| 3 agreement would be with the big banks, the money center banks,! .
| |
| f
| |
| * the regional banks like Pittsburgh banks and Philadelphia
| |
| , i 10 I banks and that kind of larger institutions. The smaller banks
| |
| , i I would stay on a line of credit arrangement. l 12 As the time between the accident and the middle of
| |
| '3 June proceeded, and the situation deteriorated further and O'l .
| |
| l
| |
| " furthe., it became clear that-the banking group could not put
| |
| " together an agreement based on that kind of an understanding. '
| |
| I
| |
| "' Therefore, it became necessary to put together a 4 ,
| |
| " revolving credit agreement for the system that included
| |
| " essentially all of the banks and, therefore, the agreement 1
| |
| came into being with about $410 million of credit. at that time;it was expanded slightly thereaf ter to S412 million f
| |
| with varying amounts of credit available to the various . ;
| |
| operating companies and to GPU, and with limitations upon ;
| |
| outside borrowings by the various operating companies and by ,
| |
| GPU.
| |
| Q Did you hear the testimonf of Johnstowr. witnesses, C"JMMON'NCALTH EDC ~ING COMPANY /!' 731 7150
| |
| | |
| p27 .
| |
| 1336 l
| |
| 1 1
| |
| I including bank officials, this morning in this proceeding?
| |
| 2; A Yes, sir; most of it. I was out of the room for a 1
| |
| while.
| |
| 4 i Q Can you tell us whether or not in your opinion Penelec.
| |
| 3 l was exploited for the benefit of Met-Ed or GPU in connection
| |
| . 6 with the adoption of the revolving credit agreement?
| |
| 7- MR. SHILOBOD: I object. The characterization is a i
| |
| 8 conclusion. There has to be a lot more basis laid to make 9 that type of conclusion than what is on the record so far.
| |
| 10 JUDGE CASEY: Objection sustained as to the form of Il i ;
| |
| the question.
| |
| 12 You may rephrase it.
| |
| ( 13 [,i BY M2. RUSSELL:
| |
| I4 Q Mr. Graham, were any of Penelec's lines of credit 15 pi removed or taken away from it in connection with the adoption
| |
| 'i 16 j of the revolving credit agreement?
| |
| l 4 .
| |
| II
| |
| , A I don't know how to answer that. We know that all of
| |
| .i 18 the lines of credit, including Penelec's, were becoming 19 in very significant doubt. Some of Penelec's lines of credit 20 1 were individual to that company, and I can_say that some of N
| |
| 21
| |
| , the major banks -- some of those major banks were acting very, p.
| |
| ,o 4
| |
| - 'j very hesitantly toward making any_ loans to any GPU company.
| |
| 'i -
| |
| Some of Penelec's lines of credit were in the. form of
| |
| ), 44
| |
| ~
| |
| what we call joint use' lines. As I said earlier, that means 4
| |
| ,3 u. that they were available to all of'the GPU companies and it was COMMCNWE1.Lm PEPO.4 TING COMPANY. f;;7 701-7150' 1
| |
| | |
| p28 '; 1337 4
| |
| l i'
| |
| t clear that those lines of credit were becoming extremely doubtful.
| |
| One of the reasons that I have difficulty answering 4 the question is that at the time of the accident, Penelec 5
| |
| ; happened to have short-term investments, a small amount --
| |
| i
| |
| . 6 ', I think it was S10 million or S15 million -- so Penelec didn't;
| |
| . z\
| |
| l 7 ;al have very much need to go to banks and actually ask them i d i 3! whether they could borrow money. !
| |
| H 1 a 0j a We therefore don't know what they would have said,
| |
| ;0 l what those, banks would have said if we had asked at that time. ,
| |
| 1: , In my opinion --
| |
| 1 12 MR. SHILOBOD: I am going to object. Idon'tthinklll 13" that there is any basis at this point fca him to render an ,
| |
| 141 opinion as' to what those banks would have done.
| |
| II
| |
| .TUDGE CASEY: He said in his answer that there hasn't
| |
| ;i 6+
| |
| .,been a need, and he doesn't know what the attitude of the banks I
| |
| would have been if Penelec had attempted to do some borrowings.i :
| |
| 8
| |
| . MR. SHILOBOD: I was cautioning his opinion then that he intended to give on that.
| |
| ,. a
| |
| ~~,l MR. RUSSELL: How do you know what the opinion is?
| |
| ! JUDGE CASEY: We didn't get to it yet.
| |
| n i 3, il
| |
| -o You can move to strike if you feel that it is
| |
| # 1, conj ectural, but I thinkyoushouldallowthemantofinishggg; I
| |
| 3
| |
| ~4 his answer.
| |
| 25
| |
| _ wxannamazu-xm
| |
| | |
| p29 1333
| |
| (}
| |
| BY MR. RUSSELL:
| |
| 2 O Would you finish your answer?
| |
| 3 JUDGE CASEY: Did we destroy your train of thought, 4 Mr. Graha:a, or can you continue?
| |
| 3 Ti!E WITNESS: No, sir. ,
| |
| t G! In my opinion, there was significant doubt that i ;\
| |
| _d
| |
| ; Penelec could have borrowed money on more than a fraction of 8
| |
| its lines of credit by mid May ct early June of 1979.
| |
| 9 As the person responsible for having the bank to ' relationships necessary for Penelec to have the credit it l
| |
| II
| |
| -1 needed, I could not express to the. people to whom I am-32 responsible that that credit was there.
| |
| MR. SHILOBOD: I am going to request that that be 1
| |
| ! stricken unless w' hat he is doing is merely stating what he
| |
| ~
| |
| " thought without having inquired.
| |
| " "'JDGE CASEY: I won't grant the request since I reali:0 that it is an opinion. It is not a fact that they 13 would be denied lines of credit, but that was his judgment, t and he is in charge of approaching banks for loan purposes,
| |
| ^o !so I think that it is an opinion and it stands on its Own-
| |
| ~
| |
| e o t 'i
| |
| ~
| |
| jweight.
| |
| 4,
| |
| ~~
| |
| i BY MR. RUSSELL:
| |
| '' j Q Mr. Graham, I direct your attention to page 50 of the O 41
| |
| ~
| |
| direct testimony of Mr. Budetti.
| |
| 05 :
| |
| g A I htve that.
| |
| COVMcNWEAL*'1 REPOftTING CCMPANY '" '51 7 t n
| |
| | |
| p30 i 1339 i
| |
| O And the particular line., thequestionandtheanswelll 2 starting on page 19.
| |
| 3 A Yes, sir.
| |
| 4 0 Mr. Budetti at page 50 at lines 20 and 21 makes this
| |
| , statement, this one-sentence statement, "GPU has initiated,
| |
| . *!, in my opinion, exploitation of Penelec's financial standing, 1 :s i" name and management to save Met-Ed and GPU.' That is in 3 . response to a question that reads, "What is the total impact I
| |
| on Penelec of the GPU RCA action and the proposed consolidation?
| |
| 10 My question, Mr. Graham, is: do you agree, disagree 1
| |
| ; or have any other view with respect to the answer of Mr.
| |
| 12 Budetti, which is contained on lines 21 and 22 of page 50 M of his direct testimony?
| |
| " A Mr. Budetti's statement is irresponsible and unfounded.
| |
| t
| |
| " The simple fact of the matter is that Penelec had no choice i
| |
| " ' but to go into the revolving credit agreement. I might say il "l that Mr. Budetti did not in any way inqua;e of me as to I
| |
| .lwhatthefactswere.
| |
| I have known Mr. Budetti for ten years and worked with 20 hin for about ten years, and I can't believe that he would
| |
| , make such a statement without first at lean t asking what the i
| |
| 22 true facts were.
| |
| 3 Penelec during the time of the accident was trying
| |
| ^,
| |
| very hard to market permanent securities. !n fact, we found buyers for $50 million of first mortgage beads that were i
| |
| c"O"' oNWi* ? L TH 7EoOCTING CCVPA NY '7 c 'J : ? ' S O
| |
| | |
| p31 , 1340
| |
| ;l I
| |
| l
| |
| (~gi V'
| |
| 1(issuedinlateJuneof1979.
| |
| i 2 ',: With the problems from the accident, we did not know 1
| |
| 3 J whether Penelec would be able to issue bonds after June 30, a
| |
| 4 i 1979 because of the requirement with respect to coverage and 5; the last 12 months out of 15 months requirenent for meeting l' .
| |
| , 6, that requirement.
| |
| ! A 7 ll We were able to . enter into a bond purchase agreement.
| |
| i 8q One of the things that the purchasers of the bonds explicitly 1
| |
| 0 ' said was that they would not buy those bonds unless there was i
| |
| 10 g contractually obligated bank gredit available to Penelec so 1
| |
| 11 that they could know . hat they were not putting the last dollar 12 i into that company.
| |
| (_) I 13 l It was an explicit condition of the bond pu': chase O
| |
| 14j agreement, not only that the revolving credit agreement first S
| |
| 15 be executed, but it is a continuing obligation of that $50 E
| |
| 16 ( million that the revolving credit agreement be maintained.
| |
| 17 g And I might say that that bond purchase agreement was la 'j submitted to this Commission and approved by this Commission ti IS in approving the issuance of those securities.
| |
| 20 N Q on unsecured lines of credit as Penelee had them i
| |
| 21 L prior to the accident, what commitment fees, compensating 22 balance or other arrangements were in play wit'.1 respect to 9
| |
| 23jthem?
| |
| (~N !l 2'. A For the most part, they required a continuing deposit
| |
| ^
| |
| 51l of about 15 percent of the line of the credit, 10 to 15 percent.<
| |
| I! .
| |
| Il CoMMoNWEA* TH RTPoRTING COMPANY '7'- 761 7'50
| |
| | |
| p32 ,, 1341 I
| |
| Generally speaking, the borrowings would be at prime, but lk
| |
| :l 2" when there was a borrowing one would have to add to the 3 deposit a compensating balance of approximately another 10
| |
| 'j!percentoftheborrowings.
| |
| c i! O What commitment fees, compensating balance or other i
| |
| d Sl arrangements are in play under the revolving credit agreement?!
| |
| ! A 7, A There is a one-half of one percent commitment fee.
| |
| , l I
| |
| B]Borrowingsareatamultipleofprime, starting at 105 percent l L
| |
| and scaling up to 111 percent. There is also a relatively n ,
| |
| 10d '! small ager.,t's fee that is charged under the agreement. ,
| |
| !! The cost of credit under the agreement to Penelec is ;
| |
| 1 12 less expensive than it would be under lines of credit. The{gg; 13j cost of borrowing under the credit agreement to Penelec is f L
| |
| 't II
| |
| ;l, less expensive than it would be under lines of credit. !
| |
| ". "1 .
| |
| j I might say that the bank witnesses in the rate case i '
| |
| " , ' were explicitly questioned about the cost of the credit. I there testified and the bankers there testified that it was ,
| |
| l 38 less than would be the charge on lines of credit, and the .
| |
| 39 bankers testi fied that this was done because they did not want; 20 to in any way be accused of, if you will excuse the term, d .
| |
| 41 'j " exploiting" the situation in the spring of 1979.
| |
| i ,
| |
| 1 O ''
| |
| ~~,;
| |
| 's Q How.long does the revolving credit run, Mr. Graham? :
| |
| '3 0 1981.
| |
| A It expires on October 1, ggg; '
| |
| \ ,
| |
| ~
| |
| Q If the revolving credit agreement is not renewed or
| |
| ,5 replaced, wnat results, if any, would take place with respect e
| |
| d d w maw w rn.nm
| |
| | |
| p33 1342 L
| |
| ) to Penelec's financial condition? .
| |
| 2 A Penelec would have to make a mandatory repurchase of 3 S50 million of outstanding first mortgage bonds. Penelec 4 would not have the cash resources available to do that. It would have to attempt to borrow that money on lines of credit.
| |
| 6 ! It would become money that instead of being due over the next if :r in 20 years would be due on demand essentially, or on 60 or 90 :
| |
| 4
| |
| 't 8
| |
| * day notes. I have no reason to believe that Penelec could j
| |
| 9/ borrow $50 million from banks on lines of credit if the 10 revolving credit agreement we,re not renewed.
| |
| 1; O Are you aware of any basis upon which Met-Ed or 12 "i GPU can use Penelec credit for the benefit of Met-Ed?
| |
| O 10 4 1
| |
| A There is no basis. One of the proofs of that, Mr.
| |
| I' )l is the fact that Penelee has had significant l Russell, 15 d temporary investments since the time that we were able to do I G ,' the $50 million of bond financing in June of 1979.
| |
| 't I' All through the very serious problems that Met-Ed has' 13 faced for the last year and one-half we have never once used 30 a penny of Penelec mone'y to shore up Met--Ed. It would be
| |
| ~
| |
| I inconsistent with our obligations to the senior security 4
| |
| ~
| |
| holders of Penelec. It would be inconsistent with our l
| |
| f 22[ obligations'tothisCommission. It would be inconsistent with 1'
| |
| 2'" our ob'igations under the Public Utility Holding Company Act O> w of 1935.
| |
| 3 l 43
| |
| ; Q I direct your attention to page 10 of Mr. Budetti's
| |
| . COMMONWEALTH REPORTING COMPANY i7t ? 751 ?' 50
| |
| | |
| 334 i
| |
| 1343 i
| |
| ~i I
| |
| i direct testimony, which is JARI Statement A, andinparticugg 2 tc a statement on the first two lines which reads as follows, "The financial risks of Met-Ed and GPU may be spread to 4
| |
| Penelec as a result of consolidation."
| |
| ^ Would you state whether you agree, disagree or have
| |
| ' 6 any other comment with respect to that statement?
| |
| 1 c.s 7 I disagree with it entirely. In the first place, A
| |
| E ! there is an assumption that Penelec is healthier than is in i
| |
| 9 Penelec is a very sick utility. Not as sick fact the case.
| |
| 4
| |
| " as Met-Ed,,but one that is of significant financial illness.
| |
| t II That is recognized by the fact that all of the rating agencies M have said that its senior securities are speculative. That O
| |
| '3^ is recognized by the fact that in August of 1979 we attempted i
| |
| l'
| |
| , to market'Penelec first mortga'ge bonds -- I am sorry; August e
| |
| is of 1980 -- we attempted to market Penelec first mortgage
| |
| " ,' bonds. We failed in the market.
| |
| i I
| |
| It is evidenced by the fact that Penelec today has
| |
| " coverage of only two times on its ability to issue first
| |
| " mortgage bonds, and that is declining rapidly.
| |
| y-It is evidenced by the fact that Penelec's preferred v' , . stock coverage ratio is well below the minimum that is legally
| |
| ~
| |
| n,~ ' ,
| |
| !)
| |
| ~
| |
| required for them to issue new preferred stock.
| |
| ~9 It is evidenced by the recommendation with respect to k
| |
| ~y g
| |
| the treatment of TMI-1 and 2 and the clean-up and the revenue
| |
| ,3 award recommended by the staff in the rate case, which gives h
| |
| 1 CCVYONWE ALTH REPORTING COVP ANY 717 NT.7?SO
| |
| | |
| p35 1344 f
| |
| k
| |
| ()
| |
| * significant possibility to the reorganization of Penelec, if' 2 , edopted by the Commission.
| |
| i 3 So I don't agree at all that there are separate 4 ] financial risks of Met-Ed or of GPU that are different in kind from those that apply to Penelec. They are different in L
| |
| . Gl magnitude, but if we have to write off TMI-2 for Met-Ed, we A
| |
| ~
| |
| have to write it off for. Penelec. If we have to book the loss b for the clean-up for Mot-Ed, then we have to book it in 9 Penelec. If TMI-l doesn't operate again for Met-Ed, it d
| |
| 10 ! doesn't operate again for Penelec.
| |
| .t 11 il I think that people should stop kidding themselves 12 that the risk of TMI-l doesn't apply t'o Penelec also, Os i
| |
| ! 13 ' In addition to that, this is a question of management 14 consolidation. It is not a merger. I believe that the
| |
| "!, financial community recognizes and understands that difference, l
| |
| 16' and I think they recognize that the senior securities of the l.'
| |
| two companies are now and will continue to be separate i
| |
| 18 Y obligations of the two companies.
| |
| d l IU ; .0 Will the proposed management combination of Met-Ed 20 h,and Penelec change either the method or the location of 21 financial planning for those two' companies?
| |
| ,e t
| |
| A Not.the overall financial planning. That is my g
| |
| o 43 ! It would only change.in the sense that the gs
| |
| .; responsibility.
| |
| (-) 3
| |
| '4 I
| |
| ralationships that I and my people have with the treasury-3
| |
| ,,d functions and the controller functions in the operating O
| |
| :i CCMMCNWCALTH RIPoRTING COMPANY - 717 701 7150
| |
| | |
| p36 1345 q
| |
| i companies, instead of going to Reading and to Johnstown, wel h 2.; would simply go to the organization for the two companies 3
| |
| located in Reading, i O Would the proposed management combination cause Mr.
| |
| Verrochi and the other top managment officials of Met-Ed and
| |
| ~
| |
| ' 'l 1 Penelec to assume the burden of financial planning to avoid
| |
| ^ l i
| |
| Idthepossibilityofbankruptcyonthepartofeitherorboth l
| |
| 3 of those companies? ,
| |
| a
| |
| "' A Mr. Verrochi already has that responsibility as W
| |
| . regards Pepelec, that the avents that would cause Penelec l'
| |
| I to become reorganized or insolvent are the same for that t i i ., o company as they are for Met-Ed; so I don't think that his ggg.
| |
| lresponsibilitiesorthatoftheotherofficersformanagement l
| |
| ..? !
| |
| ''l of the companies would be any different. l i
| |
| ! i
| |
| '.'?
| |
| O Who up to this point has borne the burden of I
| |
| ' l financial planning to avoid any such events within the GPU li I' system?
| |
| " A The initial view of things comes from my group. Mr.
| |
| Hafer, who is responsible for the regulatory relationships, i o
| |
| ~n and I work work very closely together on bringing to the i
| |
| management'the views that we see of the financial problems.
| |
| Mr. Hafer was my predecessor as Treasurer, so his background "3
| |
| ~
| |
| in that regard is very valuable. ggg
| |
| 't Mr. Kuhns, Mr. Dieckamp and Mr. Condon are the senior B
| |
| management of the GPU system.
| |
| I -_;eammwo m - - w - . my
| |
| | |
| s p37 g 1346 0
| |
| 0
| |
| () Reports are also made regularly and presentations 2
| |
| made to the Directors of the GPU Service Company. Mr.
| |
| 3 i Verrochi is a member of the Board of Directors of that
| |
| ' company, so the plans come out of a process that involves 3
| |
| our working with the senior management of the GPU system and 6 Y l
| |
| J the work done with the GPU 3ervice Company Board of Directors.,
| |
| 9 %
| |
| =.I
| |
| '! O I am not clear -- I am sorry.
| |
| 1 3
| |
| A The plans that come out of that process are also 8 '; presented by the controllers of the operationg companies and
| |
| ; A 30hthetreasugersoftheoperatingcompaniestothemanagements
| |
| '. within the operating companies and to the directors of the
| |
| (}
| |
| 12 joperating companies.
| |
| 13 ;I .Q Can Met-Ed presently issue either any additional
| |
| " 3 funded deb't or any additional deferred stock?
| |
| A No, sir. Met-Ed is in a loss position. Its interest
| |
| :I
| |
| ,d J
| |
| ' coverage is less than one times.
| |
| : e
| |
| ! h Q Can Penelec presently issue either any funded debt
| |
| " I or preferred stock?
| |
| " A No, sir.
| |
| i Its coverage at year end would be just 1 -
| |
| 'O
| |
| ~
| |
| ,about two times, and declining quite rapidly. Penelec failed 93 ';i in the market six months ago.
| |
| ~
| |
| Things have only deteriorated o,"
| |
| ~~3sinces then. '
| |
| m~ i ~
| |
| A potential investor would see the recommendations of
| |
| -,4 p
| |
| the staff and the Consumer Advocate in the rate proceedings.
| |
| ~3l
| |
| -2 j,There is no market for a_ permanent Penelec security.
| |
| . ;l -
| |
| 1 cOMVoNWCat.fri F 8EPooTING COMP UlY - ':7 ''61 7 ' *C
| |
| | |
| p38 1347 ,
| |
| i 1
| |
| Q Mr. Graham, Idirectyourattentiontopage1045oflll 2
| |
| the notes of testimony in these proceedings, which relate to a time when Mr. Budetti was the witness. The statement was 4
| |
| made relating to the GPU companies at lines 18 and 19 on that page tha t -- and I quote, "That they are bu'.lding up AFUDC 4
| |
| i !
| |
| . by reason of the two units at Three Mile Island."
| |
| A Can you state ahether eitner Met-Ed or benelec or }
| |
| both is accruing any AFUDC with respect to either of the ,
| |
| units at Three Mile Island?
| |
| i M '
| |
| A They are not. They ceased acquiring AFUCC when they were placed in service. That was 1974 in the case of Unit 1 l 1
| |
| 12 and 1978 in the case of Unit 2. When they were removed frorg rate base, we did not accrue AFUDC on them.
| |
| 4 '
| |
| MR. RUSSELL: May I have just a moment? ,
| |
| JUDGE CASEY: Yes.
| |
| (Pause.)
| |
| MR. RUSSELL: That's all we have of Mr. Graham.
| |
| " JUDGE CASEY: Mr. Shilobod?
| |
| ~
| |
| CROSS-E:Gu4INATION
| |
| ^')
| |
| BY MR. S!!ILOBOD:
| |
| Q Sir, in the beginning of your testimony, Mr. Graham, 2
| |
| you indicated that one-half of Met-Ed's capital is not being recognized as a result of the incidents at Three Mile Islan and then you went on to say that Penelec has the same thing 2
| |
| with half as much money.
| |
| cc: c . v. a 4 , cec- n s a c: v = e.y r- : - ec
| |
| | |
| , p39 ,
| |
| 1348 a
| |
| () '
| |
| Do you mean to say that Penelec had one-half of its '
| |
| 2 capital not being recognized in rate base?
| |
| 3 A No, sir. Penelec has assets of about $?.5 billion.
| |
| , Its investment in TMI-1 and TMI-2 is about $300 million.
| |
| i
| |
| ~
| |
| Q Prior to the incident of Three Mile Island, Penelec
| |
| * 6 :! had a number of lines of unsecured credit available to them, y zs I!i did they not?
| |
| O 3 A Yes, sir.
| |
| Do you remember the total amounts of lines of credit 4
| |
| 9l Q 4
| |
| h 10 ] that Penelec had available to them?
| |
| I if A I don't recall explicitly, but I did see the number of.
| |
| 12 $120 million, and I should say that Penelec had some lines
| |
| )
| |
| U3 of credit with its own banks and some lines of credit in the form of what we call joint use lines,which means that it was t
| |
| " a line of credit with a bank that could be used by any of the 4
| |
| .d four borrowers of the GPU system.
| |
| e- '
| |
| O How much of the $120 million was available to Penelec?
| |
| A I don't recall explicitly. My recollection is that
| |
| ;~
| |
| of the total lines of credit of about $225 million, about "O
| |
| $100 million was single use lines of the operating companies, 6
| |
| ., . J and about $125 milliin wus joint use lines. I would have to
| |
| ,,'t
| |
| " [ go b:- :nd loch 2.< 7 24 much of that was Penelec's alone.
| |
| 3 After Three Mian Island but before the revolving
| |
| -)
| |
| (V Q
| |
| ! credit agreement was entered.into, I. understand that all of
| |
| ~
| |
| , these single lines of credit were converted to-lines of credit
| |
| ' j 0
| |
| t Cov.uoNWEALTH REPCMTING COMPANY t717 ' 751 7 t SO
| |
| | |
| a40 1349
| |
| :i r
| |
| available at least to GPU in addition to the operating h 2 companies. Am I correct or am I wrong? i r
| |
| 3 A That is incorrect. None of the Penelec lines that 4 had just been available to Penelec were extended to any other '
| |
| i company before the revolving credit agreement.
| |
| 1
| |
| . 6j I think there may have just been some confusion on thel!
| |
| i a 7E part of the witness this morning. !
| |
| d 3] We did ask the banks to double the lines, but none ,
| |
| :i ;
| |
| 3 of the Penelec lines -- that is the ones that just made credit!
| |
| J
| |
| :n available to Penelec -- was asked to extend credit to any
| |
| 'I I other company until the time when the revolving credit agreemens J
| |
| l' was implemented, atwhichtimethoselineswereconvertedtrgg' R lines available as part of the credit agreement to all of the ;
| |
| I4 borrowers 'under the credit agr'eement.
| |
| U How much of its lines of credit was utilized by !
| |
| Q
| |
| ' Penelec at the time that the revolving credit agreement was entered into? ,
| |
| i 10 A None. Penelec did not have to borrow at that time.
| |
| O Could Met-Ed and GPU have achieved the lines of 7 the revolving credit agreement credit that they did through 21 without the participation of Penelec?
| |
| A I believe they could. I might say that some of the ,
| |
| 23 western Pennsylvania banks were among the most difficult to
| |
| ~.
| |
| bring into the credit agreement. By June 15 we believed that we would be able to do the Penelec bond financing and the i
| |
| CgvMC YtE AL'** 4EFCRTING CO MP " NY 7'' 75'7'50 2
| |
| | |
| 941 1 1350 d
| |
| d Jersey Central bond financing before the end of June of 1979.
| |
| C/
| |
| 29 It might therefore have been possible to put the I
| |
| ; agreement together without Penelec.
| |
| 4 [i 0 Would it be fair to state that it would have been n
| |
| - i more dif ficult --
| |
| ?!
| |
| i
| |
| . 6 j! A I am sorry. I hadn't finished my answer.
| |
| I A T Q You were silent so I wasn't sure.
| |
| 3 A I do not know what the reaction of the purchasers of 9 the Penelec bonds might have been if we had tried to sever i
| |
| 10 Penelec out of the credit agreement. It was an explicit
| |
| :l f
| |
| 11 il term that Penelec had the revolving credit agreements before F
| |
| 12 we could close on those bonds.
| |
| ()' 13 g Q Now, the common stock ownership for Penelec is
| |
| ~
| |
| 14j pledged as security for borrowings by, for instance, GPU and I3[ Met-Ed under the revolving credit agreement; is that correct?
| |
| Ml A Would you repeat the question?
| |
| 17 Q I will repeat it. The ownership of the common stock
| |
| 'E of Penelec is pledged as security for the repayment of-debt l
| |
| l l
| |
| l'' by GPU and Met-Ed under the revolving credit agreement; am I n 22 I correct?
| |
| l 21 iiI A Yes, in the same way that be arowings by Penelec are f
| |
| ? s 22 I secured by a pledge of the stock of Jersey' Central, Met-Ed
| |
| * 0 23 l
| |
| L and GPU Service Company.
| |
| [}r O.
| |
| How much of its borrowing capacity under the revolving 22 credit agreement has been exercised by Penelec?
| |
| .f CO MMO N W C A LTi RE;20 3T!HG CoMPAfff ?
| |
| 761 79"O ,
| |
| | |
| p42 i 1351 l
| |
| A None.
| |
| Q How much has been exercised by GPU?
| |
| A GPU has borrowed at the present time about $44 million 4 out of a stated sub-limit af $75 million.
| |
| Q How much of the available lines of credit -- or what !
| |
| . s is the volume of the lines of credit that would be utilized i
| |
| ;\
| |
| Tj by Met-Ed currently under the revolving credit agreement? I o A Met-Ed has about $62 million or $63 million outstanding and has a limit now of about $95 million or $100 million. l
| |
| 'i !
| |
| 10 i
| |
| Q How much of its borrowing capacity has been utilized '
| |
| r I by Jersey Central under the revolving credit agreement? ,
| |
| e i
| |
| '2 1 A Jersey Central has, I believe, about S70 million i II
| |
| ..2 outstanding, and has a credit limit of about $120 million. i 4
| |
| Q As I listen to your testimony, I perceive that you 13 are saying that the risks for bankruptcy are as great for l
| |
| !" Penelee as they are for Met-Ed; is that a correct assumption 17 on my part? t 2 I think it is an oversimplification of my view. I A
| |
| l IT think there is more chance of an insolvency, and particularly 20 an inadvertent insolvency for Met-Ed. I think what I said 21 uas that the risks that would cause a reorganization of Met-Ed:
| |
| , i
| |
| +, ' '
| |
| are essentially the same for Penelec.
| |
| 2' j Q Not only the risks, that is the factors that could
| |
| ~~u create the risks are the same, but that the risks are of tl9 ',
| |
| 1 3
| |
| same degree of magnitude; would that be correct?
| |
| I' 1
| |
| i ,
| |
| C O M?.:o N V E a t " H 2E C AnNG ccMst sy 7- 751. ce i
| |
| | |
| p43 1352 "l
| |
| u,
| |
| () A I don't know how to answer that.
| |
| 2 '
| |
| O Well, the impact of the happening of the events that 3 might cause a bankruptcy on Met-Ed does not necessarily mean 4
| |
| that Penelec would necessarily go into bankruptcy?
| |
| 3 A How are you defining " bankruptcy," Mr. Shilobod?
| |
| . 6 Q As defined by the Bankruptcy Code, as unable to meet
| |
| ;\
| |
| 7 your debts when they become due.
| |
| d 11 s ll A So in the insolvency sense?
| |
| 9" Q That is correct.
| |
| d 10 d A There is more risk of insolvency for Met-Ed than there I
| |
| , !! d is for Penelec, but there are significant other events that e
| |
| I 12 could cause the reorganization either under the Bankruptcy B' Code or under the Public Utility Holding Company Act of either C,
| |
| 14 Penelec or Met-Ed or both.
| |
| M Q What are you talking about specifically as something 1G different than insolvency? You are speaking from the stand-t *
| |
| ;7 point of involuntary placement of reorganization; is that 3" :
| |
| what you are saying?
| |
| I 13 A It could be involuntary; it could be voluntary.
| |
| 20 0 If it were involuntary, what?
| |
| 2I A Mr.*Shilobod, can I ---
| |
| 22 Q That was my question. Will you answer it? ,
| |
| y MR. RUSSELL: LetLthe witness finish the answer.
| |
| l <
| |
| i MR. SHILOBOD:- I asked if he was talking about voluntary l
| |
| 23'or involuntary. -
| |
| [ .
| |
| Co'."9CNWCALTH R EFC RTING OO5tPANY 67 t " 7?* 7*.5C
| |
| | |
| 944 ; 1353 il 1
| |
| 1 MR. RUSSELL: Let him answer the question.
| |
| 2 MR. SIIILOBOD: He did.
| |
| 3 JUDGE CASEY: I think he was continuing.
| |
| 4 MR. RUSSELL: He is entitled to make an explanation.
| |
| ~ '
| |
| JUDGE CASEY: What the difference would be in his i
| |
| 9 [ f.;dgment; is that true, Mr. Graham? Were you going to continue c :,s !
| |
| with your answer?
| |
| 3 THE WITNESS: Yes.
| |
| i 9 I will permit you to continue.
| |
| JUDGE CASEY:
| |
| 'l 30 Tile WITNESS:
| |
| In the . event that we had to write off 1
| |
| II an asset or book a loss that caused the company to go into I2 the kind of a position -- cause either company to go into t I3
| |
| , kind o_' position such that it could not receive credit from
| |
| " banks or could not see itself able to finance in the future, 15 : it may be that a governmental authority, the company itself, I6 or a creditor or an investor would petition for a reorganiza-tion of the companies.
| |
| 15 BY MR. SHILOBOD:
| |
| i~"
| |
| .Q I am sorry. I inve no idea what that answer had to
| |
| ^
| |
| 0 I asked him specifically -- you had do with my question.
| |
| ~~v mentioned reorganization, whether you were speaking about i
| |
| e,~
| |
| voluntary or involuntary; and I don't understand what this involvement with a governmental authority has to do with it.
| |
| 2:
| |
| MR. RUSSELL: Voluntary or involuntary reorganization 23 or bankruptcy.
| |
| covnewcacs acaccm.c covpasy -7 ::-r;
| |
| | |
| p45 ,
| |
| 1354 I'
| |
| 't MR. SHILOBOD: That is what I was talking about. *
| |
| {)3 2 MR. RUSSELL: He was talking about reorgani:ation under the bankruptcy concept.
| |
| 4 MR. SHILOBOD: He was talking about reorganization, 5 ', I assume, under the Bankruptcy Code.
| |
| . 5 BY MR. SHILOBOD:
| |
| :\
| |
| 7 ji Q Is that what you were talking about?
| |
| a 3l A No. It is simply that we don't understand enough i
| |
| 9 !i about the area.
| |
| -i il 10 : Q Isn't reorga.tization a term of art within the
| |
| !! j Bankruptcy Code?
| |
| e Do0sn'-t that have a specific meaning?
| |
| i 12 A I am not only talking about the Bankruptcy Code. ,
| |
| Ui. Q You used the word " reorganization," and you are telling il 14 i me now that the whole problem is I didn't understand it.
| |
| i 15 : I want to know what use you are making of the word "reorganiza-S q
| |
| 16li tion." Does that appear in the Bankruptcy Code?
| |
| li A It could be a reorganization under the Bankruptcy
| |
| ;3 ' Law or it could be a reorganization under the Public Utility M , Hold.ing Company Act.
| |
| *5 -
| |
| 20 I. .
| |
| Q Within the bankruptcy, are you speaking of reorganiza-
| |
| 'l 21 ! tion on a voluntary basis, or is there an involuntary-22 ( reorganization available to you under the Bankruptcy Code?
| |
| .9 22 !! A I don't know " involuntary reorganization available
| |
| ") ij -
| |
| (J >. ,;
| |
| to you"'means.
| |
| 23
| |
| .Q .Can Met-Ed, for instance, be placed into reorganization 1 -
| |
| CCIM 1cNW : cat.TH REFC RTING CO!.1P ANY - 7'" 757-71$O 9
| |
| | |
| p46 ,
| |
| 1355 from an involuntary standpoint under the Bankruptcy Code?
| |
| I
| |
| - A Yes.
| |
| 3 0 It can also go into reorganization from a voluntary 4 standpoint; isn't that correct?
| |
| A Yes.
| |
| S
| |
| , O Isn't it true that the mere happening of any of these 1 :s 7" events that could precipitate the involuntary bankruptcy would: ,
| |
| i -
| |
| 1 8
| |
| not necessarily mean that Penelec would be exposed to being i
| |
| 9 placed into involuntary bankruptcy in the same sense, whether
| |
| :0 l it be organization, reorganization or bankruptcy in a pure sense A Can I have that question read back please?
| |
| 12 h JUDGE CASEY: Let's go off the record.
| |
| M l (Discussion off the record.)
| |
| ti JUDGE CASEY: Would you repeat the question? :
| |
| U MR. SHILOBOD: I am referring to the Bankruptcy Code again, Your Honor, be it reorganization or be it in the pure
| |
| " sense a bankruptcy or, if I am not mistaken there is a
| |
| " I specific provision of the Bankruptcy Code dealing with public
| |
| " utilities, and I am speaking with respect to the voluntary 0 bankruptcies only, and I asked the witness if the event should i
| |
| 21 happen such that it would place Met-Ed into involuntary j 22 bankruptcy, made it eligible for involuntary bankruptcy, does 2I it necessarily follow that Penelec would also necessarily
| |
| ,,1 be exposed to the involuntary bankruptcy?
| |
| g<
| |
| JUDGE CASEY: Could you answer the question the way l
| |
| CC' MON'/. C AI.M F E:C RTN G COMPANY **? T C ' 7' 50
| |
| | |
| p47 3 1356 l
| |
| p it has been stated?
| |
| O I believe so, Your Honor.
| |
| C THE WITNESS:
| |
| 3 I do not think that it necessarily follows that i Penelec would be placed into reorganization. He would try.
| |
| * our darndest to avoid having Penelec also go into reorganiza ,
| |
| . 6j tion.
| |
| p 7.g 7 It is still the. case that the major precipitating 3 events, TMI-2 clean.up, TMI-2 investment recovery, TMI-1 i
| |
| :l 3 operation and investment recovery, are the same for the two l
| |
| M- companies. .
| |
| 1 11 l BY MR. SHILOBOD:
| |
| 0 12$ Q Would you agree that this risk of bankruptcy, if and I3 l in the event that these risks become greater and greater, ,
| |
| r 14d are going'to put' greater and greater demands on all employees 15 within the affected company?
| |
| 16 A Greater than they have been since the accident?
| |
| ,l' -
| |
| C jj Q You tell me.
| |
| IB A No. I would find it difficult to describe greater "3 ' demands than have been placed upon the. management since the 20 jj accident.
| |
| )
| |
| 21 Q What cost-cutting measures have been placed into 22 effect on Met-Ed on a day-to-day basis? ,
| |
| n3 !l I can sayLthat there
| |
| ~ ;j A I am not an operating person.
| |
| !i
| |
| - ' ') '- ,2 -
| |
| g have been signifiAant reductions from the levels of expenditure
| |
| ~
| |
| t for construction, than
| |
| ]foroperationsandmaintenance, COh'VCNV. t* ALT H R EPORT!'!G COMP ANY -7 :7 761-7153 .
| |
| y !'
| |
| | |
| p48
| |
| * 1357 existed before the accident; and that were planned even in 2 1980.
| |
| I testified in the rate case that we had planned for i . expenditures of about S165 million by Met-Ed in 1981. We
| |
| ' have had to control that level down to about $157 million,
| |
| . S and we are taking steps now to control that down to about ,
| |
| c.g I So that there have been I 7 $150 million at the present time.
| |
| i 3
| |
| q significant reductions for that c.3mpany planned for 1981,
| |
| ,i 9 and that actually took place in 1980.
| |
| it 10 l O You didn't understand,my question. I asked you: is 11 there a program at Met-Ed for day-to-day review of cost-12 cutting measures in light of the dangers of bankruptcy?
| |
| MR. RUSSELL: " Day-to-day review;" I think the S'
| |
| N question is unreasonable and almost incomprehensible. What 15 is a day-to-day planning study to do this?
| |
| M 3
| |
| MR. SHILOBOD: " Day-to-day" means Monday, Tuesday, I Wednesday, Thursday, Friday, 52 days a year -- 52 weeks out M of the year.
| |
| D JUDGE CASEY: Are you confining your question 22 concerning Penelec?
| |
| 21 1 MR. SHILOBOD: I asked with respect to Me'c-Ed.
| |
| E <
| |
| JUDGE CASEY: With respect to Mec-Ed. Does the 23 management sit down every day and decide what their position is this morning, ahid what the hell they are going to do abou 23 it; is that what you are asking?
| |
| l cer me rn m ru e ce m o ec w Ny 70 m i.r so
| |
| | |
| p49 d.
| |
| 1358 !
| |
| i l
| |
| MR. SHILOBOD: Yes.
| |
| (}
| |
| 2 JUDGE CASEY: Can you answer that, Mr. Graham?
| |
| 3 MR. SHILOBOD: Your Honor please, that may be treated 4 with some amusement; however, I think that the fact is that shat a corporation does in bankruptcy has never been studiec,
| |
| . 6j as has been pointed out by Mr. Verrochi.
| |
| He has not been A
| |
| 7 aware of any specific plans, and I think this is very relevanti i
| |
| 3}tothiscase.
| |
| 9
| |
| : MR. RUSSELL: He is not aware of any specific plans
| |
| , l 10 1 with respec,t to what? -
| |
| 1 11 MR. SHILOBOD: With respect to cost-cutting.
| |
| 12 BY MR. SHILOBOD:
| |
| gs
| |
| 'v) 13 0 My question now is with respect to cost-cutting, Mr.
| |
| M Graham.
| |
| 12 JUDGE CASEY: Bankruptcy avoidance; is that what you IS
| |
| ;are suggesting, that there has to be a plan in' place right now?
| |
| =
| |
| l
| |
| " MR.-SHILOBOD: I am asking if there is a plan.
| |
| IO ' JUDGE CASEY: If you know, Mr. Graham.
| |
| . THE WITNESS: I can't say that is on a day-to-day
| |
| 'O
| |
| ~
| |
| basis. I know that I bring to the attention of the management t
| |
| 0 ) 'il the needs for' cash and the credit available to net-Ed on a an h,
| |
| ;; monthly basis, so that management can see when it is that
| |
| .,3
| |
| ~
| |
| Met-Ed would run out of cash. I do the same thing for Penelec,
| |
| , 73, L.! o; 1
| |
| ~
| |
| but I think that our planning and our view of the situation is l
| |
| somewhat better than trying to look at it every morning to see CoMt.10NWCt,LTH REFC ATING Cot 1PANY 7'? 761 7:50 j
| |
| | |
| p50 1359 4
| |
| ' whether we would run out of cash.that afternoon. -
| |
| J 20 BY MR. SHILOBOD:
| |
| 4 q
| |
| Q Do you know.if anyone anywhere within the Met-Ed 4
| |
| Company is doing that at whatever level of management?
| |
| O
| |
| ! A Doing what? I am not sure I understand it. ;
| |
| 6i Q The question th..at I asked you originally, on a day-g
| |
| ',i to-day cost-cutting basis, a review of where it can be done.
| |
| I I i
| |
| 8
| |
| ! A I know that Mr. Smith is personally involved all of the 9
| |
| time with the question of the expenditures that Met-Ed can .
| |
| I II 10 3' make for operations and maintenance and for construction.
| |
| 1I Q He is always involved in that as the matter of a ;
| |
| I2 l
| |
| normal course of business; is he not? lll A I think sc yes. ;
| |
| 'l l 1 Q I'am asking you -- and' I think you are aware that I ,
| |
| i' 15 am asking you -- with respect to planning to avoid bankruptcy,'
| |
| l 16 '
| |
| what specific special cost-control measures have been i-instituted; or are there any on a day-to-day basis? Or do is -
| |
| you know if there are any on a day-to-day basis anywhere within 1," ' ,
| |
| ,' Met-Ed? '
| |
| lI
| |
| , i
| |
| " 9 ll, A I can only say that we have cut the expenditures, cut 4
| |
| 12' q
| |
| the forecast for expenditures so as to live.within our avail-
| |
| ~~m
| |
| )' able credit as long as we possibly can. We have reported that; J
| |
| vs .
| |
| lll
| |
| ~'
| |
| to the Commission by a letter dated September 12 from Mr.
| |
| Smith and by monthly updates since that time to the Commission
| |
| ^3 on the status of Met-Ed's cost-cutting measures.
| |
| o I
| |
| N N*JLOR
| |
| | |
| p51 1360 i
| |
| I don't know how to answer a question about what is
| |
| * 7-V) 2 done on a day-to-day basis.
| |
| J . Q You are saying you don't know?
| |
| 4 A No, I am saying that I know how the management process
| |
| 'l works, and I know what we have done, and I know what Mr.
| |
| J 6 Smith's responsibilities are. ,
| |
| p m
| |
| 'j Q Then if you know, you can tell me yes or no. Is there
| |
| !I 8Y a day-to-day cost review program with a view to cost-cutting l
| |
| 9h --
| |
| t to ? MR. RUSSELL: Your Honor, this is unduly protracted.
| |
| I ? ', It is argumentative. He is creating a straw man to strike Ml down with vigor. I think the line of questioning ~is objection-
| |
| " able. I think it has gone too far already.
| |
| "l MR. SHILOBOD: I want'an answer yes or no.
| |
| I q JUDGE CASEY: I think he'has attempted to answer it.
| |
| b
| |
| .",3 i MR. SHILOBOD: If he'doesn't know -- he can answer r me yes or no. I would like to know that.
| |
| IO As far as he is concerned, although there!
| |
| JUDGE CASEY:
| |
| I# are .certain day-to-day activities, there is a monthly report
| |
| 'o rendered in his of fice to the companies with respec t to the -
| |
| H
| |
| ~ll! money position and the need to borrow; and he knows that Mr.
| |
| h
| |
| " , Smith is engaged in some similar exercises. within the Met-Ed di structure.
| |
| 'l MR. SHILOBOD:
| |
| I don't know-that he said that.
| |
| .,3
| |
| - i MR. RUSSELL: He did say that. He said that Mr. Smith.
| |
| .l:
| |
| CON.MoNWEALTH CEPCF UNG CcMP ANY' 717'761 7150
| |
| ^
| |
| | |
| p52 c 1361 4
| |
| t, 5.
| |
| is always working on that.
| |
| ll 2
| |
| MR. SHILOBOD: He said he reports to Mr. Smith. He 3 is concerned about financing, and that is something he is 4
| |
| always concerned about by the nature of his position; and I 5
| |
| am trying to get to see if there is a ything special or any-d a 'I thing unusual or any type of special planning being done as y a :
| |
| I! bankruptcy avoidance; it is very simple. That question has 1
| |
| ai; never been answered.
| |
| 9 If he can't tell me on a day-to-day basis, can he i t i
| |
| 10 tell me on,a week-to-week basis or a month-to-month basis?
| |
| M JUDGE CASEY: Maybe it is the way the question is 1
| |
| U framed. You might ask Mr. Graham if he is doing anything O
| |
| since the accident on financial distress beyond what is l
| |
| I+lbeingdonebyhimasTreasurerinhisofficepriortothe i
| |
| faccident.
| |
| " ' MR. Sn ,OBOD: No, Your Honor. I don't want to ask that. The reason is Mr. Graham has come to you and said that this isn't going to be a problem for Mr. Verrochi; "I am taki-ng care of this. "
| |
| ~0 4
| |
| ' If he is taking care of that, I would like to know n~
| |
| , what he knows about it; what does he know about what is going
| |
| .\
| |
| m
| |
| -~ " on in that operating company? ,
| |
| He is able to come before you and say:
| |
| noproblems,h.
| |
| ~'
| |
| Mr. Verrochi; I am taking care of this.
| |
| Now, are v' to accept that, and then we are not going
| |
| 'l co? WNwLRAL% A EPcFTING CNo4NY MT 7'r0
| |
| | |
| 53 1 1362 to be allowed to inquire as to what is happening if he is .
| |
| 2 taking care of that?
| |
| 3 JUDGE CASEY: I don't want to circumvent your right 4 to inquire, but at the same time --
| |
| . MR. SHILOBOD: Your Honor,if he doesn't know, then h
| |
| 6' I will accept the answer.
| |
| a .g i MR. RUSSELL: The questioning is also misleading S..l questioning because it assumes something which there is no l
| |
| 9;l fact in evidence to support. It assumes that there is a l
| |
| 10 lg particular kind of planning that will prevent bankruptcy as l' ' against a particular kind of planning that will prevent cur II 12 ; inability to meet expenses of a storm or a part.icular kind of
| |
| (
| |
| ' ' planning -- he assumes that the planning is coppartmentalized ti j into these different pieces, and that simply -- there is s
| |
| M[simplynothingintherecordtosupportthatkindofquestion.
| |
| M JUDGE CASEY: I think perhaps.you are right. Maybe 17 he is assuming that if there isn't any special kind of d
| |
| I3 planning to avoid bankruptcy, maybe there should be; or perhaps 1
| |
| i
| |
| " Mr. ,Verrochi may have inferred, not intentionally, that the
| |
| ,O
| |
| " GPU officials, especially in the ~. financial field, were spend-
| |
| .i
| |
| ,1 I; ing a lot of time concentrating on means tx) avoid bankruptcy.
| |
| I J
| |
| .i .3-- 3-MR. SHILOBOD: Your Honor please, I am not referring i
| |
| % 1 I am referring to
| |
| ~~
| |
| at this point to Mr. Verrochi's testimony.
| |
| the testimony given by this witness. It referred.tx> the fact 2# ' that this planning for. bankruptcy-is all being.taken care of
| |
| :i.
| |
| covMON". El-i.TH AEDCitTING CCMF ANY 7'? TC*.7"50
| |
| | |
| m PM 1363 by himself. He referred me to the fact that Mr. Kuhns and h Mr. Dieckamp and Mr. Condon and all of these people are concerned about it, but it was specifically presented in
| |
| - his rebuttal testimony as to whether or not there was going to be any impingement on Mr. Verrochi's time to avert bank-e ruptcy; the clear inference was being presented to Your Honor j A l 7 that thiswasbeingtakencareofbythisfloatingmanagementJ
| |
| ? from GPU. That is what I am trying to delve into. ,
| |
| u MR. RUSSELL: And the witness has said in response to i 10 your ident,ification of bankruptcy in the insolvency sense ,'
| |
| that they do this planning on a regular basis to see that the
| |
| !; companies have enough cash to meet their bills, and he g 12 not.ifies the officers when Met-Ed might not have enough cash i- to meet their bills, which is precisely the kind of planning 1 with respect to the concept of bankruptcy that Mr. Shilobod has raised.
| |
| 17 MR. SHILOBOD: That simply is not so, Your Honor.
| |
| I' I have been asking him questions on how this plan is carried out ,in the company, in operations, and Mr. Verrochi has come t
| |
| 3 in to you as the chief operating officer of this company --
| |
| 21 his obligations are to operate this company. I would like to .
| |
| i 22 know who is going to do it if it is not Mr. Verrochi.
| |
| 2 JUDGE CASEY: Now you have me conf t sed. Mr. Verroc is going to manage, if this is approved, both companies in
| |
| = a similar fashion to the way he has managed Penelec; and to the
| |
| | |
| -~ ,
| |
| p55 1364 i
| |
| l extent that the chief cjer2 ting officer would be concerned '
| |
| 2 with daily financial circumstances, this concern could carry through in his new position; but this gentleman, who is the 4 financial specialist, so to speak, with the parent, the holding company, has day-to-day activities, and he sends
| |
| . 6 ,' information to the operating utilities, and they send informa-M 7
| |
| ; tion to him, and this goes on on a regular basis.
| |
| a 1
| |
| 8 i Now, what Mr. Russell tried to say is whether his t
| |
| 9 activities would intesify or whether some special plan, like 10 Plan C, would be installed in order to avoid bankruptcy, i
| |
| 11 ' apparently not. That is what I gather.
| |
| 12 MR. SHILOBOD: I hadn't understood that from Mr.
| |
| ' 13 Russell or from Mr. Gr'aham, that there would be no such plan 14 ! implemented. If that is the case, that may answer my
| |
| ; Mj inquiry.
| |
| I'? JUDGE CASEY: They would approach or treat any 1 .
| |
| 'T[ catastrophe, whether it w..s a floor or a pending bankruptcy, I f- ' from the standpoint of: what is the cash flow; what are our 1: need,s as far as cash is concerned?
| |
| 20
| |
| * In other words, there might be a great deal of Il 21[ activity, but there wouldn't be anything that was especially l
| |
| N 22h designed to stave off bankruptcy. At least that is the 23 ] question that I am getting up . here..
| |
| /~
| |
| M
| |
| : 5. /T ' it MR. SHILOBdD: If that.is the impression that is being-
| |
| ! E
| |
| '23fconveyed, then that is what I would like to know, and that 1
| |
| k
| |
| , COMMONWEALTH R EPCCT*NG CCMPANY ?'?'761 7150
| |
| - , - - , .-.,.,s -.- -.
| |
| | |
| p56 1365 a
| |
| s may answer my line of questioning in that area. g 2 THE WITNESS: May I try to help, Your Honor?
| |
| JUDGE CASEY: By all means.
| |
| 4 THE WITNESS: I am very troubled by the " day-to-day"
| |
| ~
| |
| part of the question because that implies an oversimplifica-I 6 tion of a planning operating process that is much more complex
| |
| :,\
| |
| i 3
| |
| than thinking that every morning you can look out to see how r
| |
| 31 many trucks you can send out onto the road that day. ;
| |
| 9 I think that a good example is the September 12 letter ~
| |
| l '3 to the Commission. We saw righ,t after the extraordinary I
| |
| !! relief application for Met-Ed was turned down, right after 12 the banks reduced the credit available to Met-Ed, that there 13 would be a point out in the future where Met-Ed would run out O
| |
| i 14 of money.- ;
| |
| M Ue immediately reported that to the Commission and i l '3 immediately reported the steps that we were taking to avoid 17 that, or at least to extend it as long as we possibly could.
| |
| B Every month we have sent in another letter to the Commission reporting on exactly what we have done, so there 20 is a process.in place that watches the solvency of the f .
| |
| 2i corporation in its time of stress. ,
| |
| i 22 The question seems to imply that the e is some kind j 23 of a process that every morning we look at that, and that is l i b' not how a big business enterprise operates. That is my 2I difficulty.
| |
| t
| |
| .' \' % i E \, b 8N '3 [g* lk[h ( 4 f.j II ,k N Y s[* 9.7j h
| |
| | |
| p57 a 1366 d
| |
| 1 JUDGE CASEY: Was Mr. Verrochi involved in any way .
| |
| 2 in that Septenber report to the Commission about emergency 3 rate relief; was he directly involved with that activity?
| |
| 4 THE WITNESS: No, the major activities in that regard '
| |
| were a combination of my financial planning group, Mr. Condon l l
| |
| who is the chief financial officer, Mr." Dieckamp who is the 6>
| |
| , l I
| |
| l 2\
| |
| Tj President of Met-Ed and of GPU, Mr. Smith of Met-Ed, and the !
| |
| 8 'l Assistant Controller for Budgeting of Met-Ed, Mr. Wise; it was!
| |
| i 9 that group that was the major contributors to the decisions N
| |
| 10 ; as to exactly what projects wou,ld have to be eliminated to 11 deal-with the crisis that we saw developing.
| |
| 1 12 JUDGE CASEY: Is that true of the subsequent reports
| |
| ([? 13 to the Commission in the period between September, 1980 and 14 ; the present?
| |
| 15 THE WITNESS: It was the same group. Now,.I should i
| |
| l 16 .' say that if the management combination were in place, I have
| |
| =
| |
| l .
| |
| l **] no doubt that Mr. Verrochi would be involved in something as 1
| |
| l 13
| |
| : significant as that for Met-Ed. If a significant event arose i
| |
| 13 , for,Penelec, in the same way he would be involved in that, d
| |
| 20]inwhatwasamajoreventinthelifeofthecompany.
| |
| i-21 ! JUDGE CASEY: Mr. Shilobod?
| |
| 22 - E'1 MR. SHILOBOD:
| |
| i l
| |
| 23 "
| |
| Q Mr. Graham, perhaps the struggle I am having has to l(~)
| |
| ! '- .,i$ do with the difference between planning for the operational
| |
| ;i j 05 ,f aspects -- that is planning versus implementation. 'You aren't b
| |
| i 3 4 .
| |
| g . COMMONWEALTH AEPCRT!r4G COMPANY +7 ? ?= 7617150 !
| |
| | |
| p58 1367 i
| |
| claimingresponsibilityfortheimplementationoftheplannllk i
| |
| j that you do, are you?
| |
| 3 A No, I am not on the operating side of the company.
| |
| 4 Q Would it be fair te assume that that is going to be lsomethingthatMr. Verrochi would have to assume responsibility I.
| |
| . 6 to Met-Ed?
| |
| lj for with respect l 'A
| |
| ~ ll A Mr. Verrochi would have responsibility, but he would i i
| |
| s have the controller andhis staff and the senior operating 9
| |
| people and their staff who would de the actual implementation 10 ' of the decisions as they are made.
| |
| Q From a nanagement standpoint, when you have a special 11.l i
| |
| 12 management problem, it is necessary to bring all management 12 that is available to the extent needed to solve that problem; ff n
| |
| M lisn'tthattrue?
| |
| l 17' A That is a generalization. I don't have any particular 16 difficulty with it as a generalization.
| |
| l I!
| |
| 3t Is there any employee within the corporation that is l Q
| |
| " i' approaching bankruptcy that is free from the effects of that
| |
| 'E
| |
| ,f .tancial venture?
| |
| l ,0
| |
| . MR. RUSSELL: I think that is objectionable. It is
| |
| ;l a
| |
| " -' speculative, and it certainly is not within the scope of this
| |
| ,,liwitness' direct testimony.
| |
| ~
| |
| MR. SHILOBOD: I would like to know his answer.
| |
| m$ JUDGE CASEY:
| |
| You know his areas of responsibility
| |
| .s , .i
| |
| ;with the company and what he. specializes in, and I think some l
| |
| a
| |
| ; co Y Mc N ".# E L . a 7EPCGTING CcMP 1NY '''~3'7'57
| |
| | |
| . . - ~ .
| |
| p59 i: 1368 ll ll
| |
| (' of the questions are getting a.little theoretical. '
| |
| b}
| |
| 2 MR. SHILOBOD: Is the objection sustained, Your Honor?
| |
| I JUDGE CASEY: Yes, as to that last question.
| |
| 4 BY MR. SHILOBOD:
| |
| 'j Q Within those employees within a company that deal with il
| |
| . 'i : the financial area for which you are responsible and with d ':.\
| |
| T{;whichyouhaveknowledge, are there any employees within that ,
| |
| F,
| |
| ' 8 segment ei the corporation that are free from the impact of i!
| |
| 9 impending bankruptcy?
| |
| 3 10 l MR. RUSSELu: Can you i,dentify what impact you are 11 talking about?
| |
| 12 MR. SHILOBCD: The burden of approaching bankruptcy, g-(> S no burdens of approaching bankruptcy?
| |
| or are there 14 1 JUDGE CASEY: That is~very general. I don't under-13 j- stand what you mean by that, that they would all have to 16 work harder, or that they would lose their positions?
| |
| CU BY MR. SHILOBOD:
| |
| r 38 Are they going to have any jobs different from what Q
| |
| l '9 . they, would at any other time' if there were not that bankruptcy 9 .
| |
| 20 ! pending? ,
| |
| 4 21 h MR .- RUSSELL: It is also -- I mean in a literal i
| |
| 22 sense there has been a threat of possible bankruptcy hanging-23 d around for~ going on almost two years, depending -on how you s y~ '
| |
| want to assess the potential problem..
| |
| 2L; MR.:3HILOBOD:' .But I think that.I should have an n .
| |
| lf COVMCNWCALTH REPo? TING COMPANY '717 7 31 7 t 30
| |
| | |
| p60 . 1369 answer if he has had two years of experience. g 2 MR. RUSSELL: I think the question is so general and undefined as to admit of no responsible answer.
| |
| 4 JUDGE CASEY: Yes, I think you are asking him to 3
| |
| testify as to subjective feelings and impact on many, many 1
| |
| F
| |
| . employees.
| |
| i
| |
| :s :
| |
| 7, MR. SHILOBOD: That is not correct. I asked him if l
| |
| . I i
| |
| 3 6
| |
| ltheyhadanydutiesthatwereanydifferentoranygreater 9
| |
| burdens; I am thinking of job responsibilities.
| |
| 10 ' JUDGE CASEY: Do you megn all employees, or selected 11 top management?
| |
| 12 MR. SHILOBOD: You restricted my question when I 13 referred to all employees, and now I am confining it to those l'
| |
| , in the financial segment, and he is the Treasurer of the
| |
| " corporation, and I confined it to his area of expertise.
| |
| " JUDGE CASEY: If he understands the question, I will U permit him to answer it.
| |
| 1
| |
| " THE WITNESS: I think I understand, Your Honor.
| |
| E In my group there are many people whose jobs are 2" essentially unaffected by something like a pending insolvency 1
| |
| 1 ., I
| |
| ,or reorganization. I am responsible for the payroll section 22 and I have clerks who prepare paychecks, and I don't think 23 their job changes.
| |
| ~'
| |
| There are other people in my area and in the financial 25 areas of the operating companies whose lives have changed CC?/MCNWC/.L" 4 WIPC GT!NG CG?tP A NY '''~~: M ' ':C
| |
| | |
| p61 1370 0
| |
| {} 2 significantly since the accident, and whose jobs have changed significantly since the accident and who are responsible for
| |
| ~
| |
| very different kinds of planning and very different kinds of 4
| |
| understanding of the operations and the organization.
| |
| JUDGE CASEY: Since you are best acquainted with your i -
| |
| , 5j own personal circumstances, perhaps you could describe for i
| |
| U a T
| |
| our benefit how the post Three Mile Island period has impacted 6 upon you.
| |
| I 9 THE WITNESS:
| |
| Before the accident I was about six n
| |
| 1"d i' foot and had hair.,
| |
| 1 II ! JUDGE CASEY: That is a great summary. Now you are i
| |
| 12 ! going to take me through a lot of esoteric --
| |
| 7-)
| |
| \.
| |
| I *.
| |
| ij Have your hours increased, for instance?
| |
| -i i
| |
| ." j Has your work load doubled?
| |
| i;
| |
| ,3 it
| |
| - j You may ask your next question, Mr. Shilobod.
| |
| a M MR. SHILOBOD: I am hesitant to'ask it after that n
| |
| l., '
| |
| answer.
| |
| 13 BY MR. SHILOBOD:
| |
| Ib Would it be fair to assume, Mr. Graham, that you were Q
| |
| oV.. performing functions before the danger of bankruptcy appeared s
| |
| v :
| |
| -' j; that you are not performing now?
| |
| Il 4
| |
| A No, I think there are added. functions. I am not sure
| |
| .i 23 that there are significant functions that have gone away.
| |
| C)> ., . d <
| |
| "'' There is an added burden of stress, and I might say that~in y 1 the two years since the accident: I have been able to change COVMcN W~d L f H %PCitT:NG CC* 1 A,* NY 717 731 7150 i
| |
| | |
| p62 1371 the organization that reports to me in terms of the people llh
| |
| ; and the functions so as to have people who are attuned to dealing with the problems that we now face. The organization 4 changes with time as well as with the individual work loads and the composition of the work.
| |
| 6* The? 'a was a time af ter the accident that we were all !
| |
| i ; !
| |
| The level of involvement and stress l working *.emendous hours.
| |
| ' i is not nearly as great then as it was, but there is still --
| |
| ~ '
| |
| JUDGE CASEY: Do you mean now?
| |
| 8 i
| |
| 10 THE WITNESS: As it was.immediately after the 11 accident, but there is still for the management of the company 12 and the people responsible for the operations and the gg
| |
| :3 finances a very significant level of greater work load and 14 greater stress than there was before the accident, to try to
| |
| * R keep on top of the thing and to try to have people outside of M the organization, our regulators, Congressmen, everybody else,'
| |
| ~~
| |
| understand what the problem is.
| |
| 13 So it is very, very different from what it was before the , accident, but it is also very, very different from what 3 it was immediately after the accident.
| |
| 2I j MR. SHILOBOD: I only have two more questions, Your 22 Honor.
| |
| l BY IIR. SHILOBOD: ,
| |
| n ,
| |
| Q Would a management ccabination avoid bankruptcy for J Met-Ed?
| |
| co r. aww4 re=cmo cc :pw v~ m: 7 se
| |
| | |
| p63 :
| |
| 1 1372 i
| |
| A No. -
| |
| ', O If the management combination is allowed and if Met-Ed a, were to go into involuntary bankruptcy, and Penelec would not,
| |
| . would the existence of that management combination create f
| |
| )problemsformanagement?
| |
| 'l
| |
| , cj MR. RUSSELL: Problems different than those that would
| |
| ! M
| |
| : ), have been in existence before?
| |
| 2] BY MR. SHILOBOD:
| |
| 0- Q Will the fact of the bankruptcy creats cifficulties i
| |
| ic i of managing one company in bankructcy and one out?
| |
| f .
| |
| 1: '
| |
| A The uncertainties and the complexities that would I' i accompany reorganization of a major electric utility system
| |
| () l are so great that I am not sure that I can envision exactly 1
| |
| i 14 ! how everything would work. I would have to know, for-instance, i
| |
| M to give an adequate answer to your question, who is the-
| |
| :9 ll trustee of Med-Ed when it is in reorganization. My understand-
| |
| ^
| |
| ~
| |
| ing of the new Bankruptcy Law is that the presumption is that II the current management would stay.- If that were the case, I l L am not sure that it would be too different from the way it 20 ' would be if we didn't combine the management.
| |
| 2; j So there are so many unknowns to the whole reorganiza-
| |
| ?
| |
| 2:
| |
| [i tion process that I don't know that I'can give you an~ answer-23! as to whether the combination would make it more complex or
| |
| 'T -
| |
| I more troublesome o'r harder than would be.the case'without the
| |
| ' "4 s
| |
| 25 combination.
| |
| !l . '
| |
| COMMCNWE iL'H A EPc9 TING CCM&2ANY ,717 75i 7t!C J
| |
| | |
| p64 1373 1
| |
| a MR. SHILOBOD: I have no further questions. I a
| |
| JUDGE CASEY: Unfortunately I have three quick ones.
| |
| MR. SHILOBOD: I also have Mr. Budetti.
| |
| 4 ' JUDGE CASEY: I will try to make this brief.
| |
| 5d Where did the RCA or revolving credit agreement il
| |
| ') ' originate? Whose brainchild was it?
| |
| :.\
| |
| I] ;l THE WITNESS: What happened there, Your Honor, was 8 I that a couple weeks after the accident a group of the senior ;
| |
| " people from City Bank and from Chamical Bank who we had asked I3 to try to work with us to keep .the banking group together .
| |
| II came out and advised us that the lines of credit of the GPU l
| |
| 12 system and its operating companies were becoming so tenuous
| |
| " that we should not, as the managers of the companies, rely I4 ' upon them' as a source of f t;nds to operate the businesses. ,
| |
| We were advised at that time that we should put together a contractual credit agreement. Ne worked with !
| |
| " Sanford Reis, who is the outsidt financial advisor to the is -
| |
| GPU system, and he advised us that in his view we should go
| |
| ' to a contractual credit agreement.
| |
| 20 At firs t the , thought was that if we had $400 million n .
| |
| j of credit for the system, maybe $250 million or $300 million t i
| |
| ~, ! '
| |
| -~
| |
| would be in the revolving credit agreement and mmyce $100 I y'
| |
| million or $150 million outside, O, '
| |
| As the situation continued to deteriorate -- and I do remember one meeting was held on Good Friday because I have d
| |
| @SYliONW F M T.t G E"C E T:NG_ CGW2 A NY 7'- 'r'.7'00
| |
| | |
| p65 ,
| |
| 1374 i
| |
| ~ been known to make a few remarks about it not being so good -
| |
| 2 -- the bankers came to us and said that we would have to go to a credit agreement for virtually all of the credit for the whole system because they were not going to be able to put i together one that was a partial credit agreement.
| |
| 6 ,! So I guess that was in late April or early May, and
| |
| \ .
| |
| 7 at that time our counsel and counsel for City Bank sat down e
| |
| c-and began to draft the term sheet for the revolving credit ,
| |
| agreement, and we began to go through the bank to try to get 10 them in place. ,
| |
| II So there is no one person who came up with the idea.
| |
| 12 It was rather something that was necessary to be able to keep
| |
| '~ U the credit there.
| |
| " JUDGE CASEY: But the impetus, you say, was supplied 2 by the New York banks? They broached the subject and sort of M intimated that your lines of credit'would probably dry.up if you did not enter into such an agreement?
| |
| THE WITNESS: Yes. I think they put it that the lines
| |
| " of credit probably were drying up ak that time,. that we could not rely upon them. .I am not sure that it is ge te fair to-3 say that the-impetus 'came from them because we had asked them
| |
| ~
| |
| '' ~
| |
| 22 to help us and to advise us as to what we could do to keep 3
| |
| the banking relationship there. And they had very close
| |
| (~T i ,
| |
| \'
| |
| contact with the Pennsylvania banks and the New Jersey banks-to get them to come into the agreement.
| |
| , CO*. WON"v""A*.T4 C CCCR'"*NG COMP A Nv - ** ~ 7 T 31-7 ? M
| |
| ?
| |
| | |
| p66 3 1375 i
| |
| JUDGE CASEY: And you also testified that Penelec 2 had no choice but to become involved in the agreement which 2 would include -- of course, they had no say over their own i common stock that was held by GPU; is that correct?
| |
| 3 THE WITNESS: That is correct in that sense, but let i
| |
| , ; me put it this way, that it is only with the benefit of ,
| |
| A !
| |
| 7 ' hindsight that Penelec did not have to borrow under the i 8 ., revolving credit agreement.
| |
| ll 9 If you go back to June 1 of 1979, for instance, 4
| |
| 10 ] Penelec had a little bit of maney in the bank or was down to 1;
| |
| about zero; we didn't yet have a rate order that would tell 12 us that Penelec would be able to keep collecting the energy
| |
| .l 5 expense, and we didn't yet know that we were going to be 4 N able to make those deals for energy outside of the GPU system
| |
| .. i
| |
| ; and reduce the energy expense.
| |
| 'O Had Penelec not been able to do the $50 million of II bond issues or had Penelec not Eccn able to collect its energy 13 expense pretty currently, then Penelec would have been I borr.owing under the revolving credit agreement from July, 1979-20 until today. ,
| |
| s N "I
| |
| i So when you go ba, c to the time when the decision had
| |
| >>j' - to be made, you had no choice. .
| |
| , The other people who saw that were the insurance
| |
| #i companies who bought those'Penelec bonds. They said to us:
| |
| 2' we know that your lines of credit are going away; we will put i:
| |
| o L COM VCNWE A L7' ? PCRTING COMP %NY '7*7 Nt7tSC il
| |
| | |
| p67 3 1376 i:
| |
| money in. 'We will invest, but we can' t do that if, you know.,
| |
| O 2 as soon as our 550 million is gone you guys go into reorganiza-
| |
| ~
| |
| tion because you can't pay your bills; so they insisted that
| |
| ; there be contractual bank credit behind their bonds, and that
| |
| ,I is why Penelec had no choice but to go into the agreement.
| |
| G! JUDGE CASEY: Was it anticipated that any money 7.\
| |
| 7 borrowed or some portion of the money that might have to be 3
| |
| , borrowed under the revolving credit agreement would be applied
| |
| 't 3 toward TMI clean-up costs?
| |
| 10 j l THE WITNESS: Our forecast for Penelec up until
| |
| :i
| |
| ; 1: '; September and October of this year included Penelec financing 0
| |
| 12 l'l some of the clean-up activities, partly because we were 10 3 anticipating a lag in insurance recoveries and partly because 14 we were trying to do some of the clean-up work. As a. result
| |
| -4 M , of the Commission's orders on September 18 and September 26 l 1
| |
| 13 j and as a result of an agreement with the insurance companies 17 to get the money more rapidly, we are no longer using any of l '5 '
| |
| our funds for clean-up activities.
| |
| : 1 l 4" But if we go back.to the time when we'were entering l -
| |
| ~
| |
| 20 d into the revolving credit agreement, yes, we did then 1;
| |
| 23 l' anticipate .that we would be using some of Penelec's funds to 22 9, do the clean-up effort.
| |
| -l 23 That was true also of. Met-Ed and Jersey Central.
| |
| JUDGE CASEY: As well as Met-Ed and Jersey Central.
| |
| 25[ One final question from me, Mr. Graham: did you or CoMMONWEA LTW REPo?. TING COMP ANY 717 7C) :*O
| |
| | |
| p60 .
| |
| 1377 1
| |
| 'i f
| |
| some other GPU corporate official testify recently before gg 2 Congressman Allen Ertle's ad hoc committee that the GPU system
| |
| : would not require federal funds to assist in the clean-up of 4 the T!!I aftermath?
| |
| i THE WITNESS: No, sir. We testified exactly the S opposite, and the General Accounting officer said the same a c.s 7
| |
| thing. Given this Commission's position with respect to the 8
| |
| j te of customer funds to clean up, there is no one else other 0 i than some industry assistance or the federal government.
| |
| i i
| |
| 10 What you might have read was that we did say that we 11 didn't believe there would be a cash crisis for Met-Ed until 12 l the f all of this year.
| |
| ! h 131 We also said that we did not see that the Congress I
| |
| 14 should give us assistance to deal with just operating the 13 electric system, the kinds of things for which we normally D3 i get rate relief; but there is no question that se had taken
| |
| .i 17( the position quite strongly that we need assistance to deal
| |
| ~i
| |
| " with the clean-up.
| |
| -' So you don't think that the position
| |
| . JUDGE CASEY:
| |
| # that you have maintained in *ront of the Committee would l
| |
| ; 4 2I discourage those Committee members and others from sponsoring 22 federal legislation in the current session of the new Congress
| |
| 'y .
| |
| to give you relief for the clean-up expenses?
| |
| THE WITNESS: I certainly hope not. One of the 9
| |
| i 23 problems that came up, Your Honor, is that when Congressman couveswe Lm ,Eponrisc c .
| |
| =r.ny e- 3 7 co
| |
| | |
| P6D , 1373 ii Ertle and his group first started looking at it, it icoked 2 like if they didn't get a bill in place to deal with clean-up
| |
| ' i by the spring of this year, that Met-Ed would go under.
| |
| 4 More and more as they looked at it and studied the financial reports, what they saw is that Met-Ed needs a rate
| |
| " increase to deal with all of the normal kinds of inflationary A
| |
| ~ !' problems that everybody else is f acing, but Met-Ed is not 3h trying to do the clean-up, and therefore it wouldn't be the n
| |
| d 9; clean-up that would lead to a cash problem in 1981.
| |
| a 10 !! We simply couldn't support the idea that Met-Ed would 1
| |
| get into financial trouble in 1981 because of the clean-up.
| |
| 12 I don't think that we have in any way discouraged the
| |
| ( .d 4 j Congress or the Congressiona1' investigators from acting as
| |
| '4 ! promptly and expeditiously as 'possible, but I think that we i.
| |
| 13 had to agree with them that there was not the kind of panic Mj that there seemed to be there when they first started looking i , ,
| |
| II ' at it.
| |
| 18 JUDGE CASEY: Thank you.
| |
| " . MR. SHILOBOD: I just have two questions.
| |
| 20 BY MR. SHILOBOD:
| |
| 0
| |
| 'l :i 0 One, I am a little bit confused because when I asked Mr. Graham if he could have had the revolving credit agreement q for Met-Ed and GPU without Penelec, you said that you
| |
| ([) ; ,T
| |
| '' , thought that you could; and now I understand in your answer y t.i.
| |
| ~~
| |
| j to cross-examination by the Judge that-you indicate that the s
| |
| N c m se j cowoswcu_m armswea comm v-
| |
| | |
| I p70 -
| |
| 1379 adviceindicatedthatallGPUcompanieshadtobeapartytdlk that agreement. Am I right in my recollection?
| |
| 1 A I am sorry. I think there were two different 4 questions. What I thought you were asking me earlier was:
| |
| ' . suppose there had been a revolving credit agreement for GPU,
| |
| 'i ;
| |
| G ] Met-Ed and Jersey Central and some kind of a separate 74
| |
| ~ l agreement for Penelec on lines of credit; and I think that I I
| |
| l 8
| |
| said that it would be possible perhaps or would have been l ii
| |
| ' possible perhaps to design that kind of a structure.
| |
| I t
| |
| tol i I think it is unrealistic to think that that could 1: have happened, but I still say maybe it could have been done.
| |
| 12 I don't know.
| |
| ll a
| |
| 13 ~' I do know that the people who were going to buy the ,
| |
| .t i
| |
| i Penelec bonds said that there had to be a contractual credit.
| |
| . 1;
| |
| "' e The obvious logical thing to do was to have one credit avail-10 able to the whole system, and that is the way that we I
| |
| proceeded. ,
| |
| I3 Is there any consideration of pledging Penelec's Q
| |
| IS stock as security for those mortgage bonds rather than becom-20 ing a party to the revolving credit agreement?
| |
| :i "I
| |
| I don't think that that is financially or legally A ;
| |
| a ,
| |
| 22
| |
| . sensible. They already come ahead of the owners of the common l d ,
| |
| 201 stock. They are secured creditors of the corporation. -
| |
| g
| |
| ~
| |
| MR. SHILOBbD: I have no further questions.
| |
| [~ JUDGE CASEY: Just one more that occurred to me: would-
| |
| ! COV:!ON" C/= LTH R EPCU:"G COMP A NY "* * ~ ? ", * ? '
| |
| * O
| |
| | |
| p71 1380 the revolving credit agreement which will expire in its .
| |
| 2 present form as of October 1, 1981 impair your ability to 3 sell a service territory or one of the operating companies 4 or, of course, the stock of the operating companies if it 1
| |
| 5 is hypothecated that it can't be sold; would that impair 5;l, another approach or take away some of your leverage if you
| |
| :.\
| |
| Ti really wanted -- if GPU wanted to go out and do a bail-out 0 fund selling part of Penelec to West Penn. Power and the other 9 part to PP&L -- please don't condemn me for these thoughts.
| |
| I 10p THE WITNESS: I underst,and what you are saying. I d
| |
| l! " don't think the revolving credit agreement is the major i
| |
| 12Y problem there. I do think that the first mortgage bond O :
| |
| la '! indenture is a significant problem as to how you get those
| |
| !i V
| |
| 4dpropertiesfreeofthelienofthefirstmortgagebondholders.
| |
| U 35 Are most of the fixed assets liened by JUDGE CASEY:
| |
| i 16 ? the first mortgage bonds?
| |
| M , THE WITNESS: In the case of Penelec, all of the 4
| |
| 13 assets.
| |
| i y i9 JUDGE CASEY: All of the assets?
| |
| 20 l THE WITNESS: ,
| |
| Yes, and I have a feeling that if there 1
| |
| 21 that was were a sensible solution that one could work out 22 satisfactory to the first mortgage bond holders, that we would
| |
| .I iH not have the revolving credit agreement getting in the way of 24 i that. *
| |
| 'l 5
| |
| 1 JUDGE CASEY: _I understand.
| |
| .f cor.voro eat:sr<c,0,riso coun w - , 31213
| |
| :l e
| |
| | |
| p72 1381 THE WITNESS: In other words, I understand that thag 2 is not a major problem in that area.
| |
| 1 JUDGE CASEY: Thank you.
| |
| 4 -
| |
| ItR . RUSSELL: I have one other question.
| |
| 5 REDIRECT EXAMINATION 6 BY MR. RUSSELL:
| |
| :.\
| |
| 7 Mr. Graham, in the event, today for example, that Q
| |
| 8 Penelec were to sell a piece of real estate and obtain some 1
| |
| 0 proceeds from it, or for example if it obtained some insurance 10 proceeds for property damage in. Three !!ile Island's recovery, II and received those proceeds either directly or indirectly 12 through the -- I am sorry.
| |
| " What does it have to do under the credit agreement O
| |
| li with those proceeds from the sale of real estate, for "3
| |
| example, or from the insurance proceeds for Three Mile Island; l0 where do those proceeds have to go?
| |
| " A I think it is different. As I recall, under the I3 agreement, in the two examples, in the case of the sale of an
| |
| " a s se,t , assuming a release of the funds from the first mortgage 20 bond trustee, those funds have to be used to repay borrowings under the credit agreement.
| |
| n In the case of funds released by the trustee represent-ing certified clean-up costs, I don't know that they have to
| |
| ~, .
| |
| go to repay under the credit agreement.
| |
| O JUDGE CASEY: So still the sale of an asset proceeds 4
| |
| COMYoNY'.C A L*H D CPORTING " OMF A NY - " '3i 7*50
| |
| | |
| p73 ;
| |
| 1382 1
| |
| il would be encumbered under the RCA, but insurance recovery for 2 property damage loss would not be so encumbered?
| |
| ? THE WITNESS: Perhaps I could just ask Mr. Jolles.
| |
| 4 Was there an exception for sales in the ordinary 5 course of business?
| |
| MR. JOLLES: No, the sales of assets -- when the G ]I
| |
| ] company sells an asset, the cash is put up with the trustee.
| |
| p 8 Of course, the asset was subject to the lien. If the company 9 l is able to withdraw the cash from the trustee against other 10i y property that it has, against o,ther property additions, then i .
| |
| I 11 i that cash must go to the banks under the revolving credit 12 agreement with some minor exceptions, such as the sale of
| |
| (~T l
| |
| '# 13" certain fuels. But, by and large, if you sell an asset, when 14
| |
| }youget the cash you have to pay down the bank loans.
| |
| t c
| |
| is , With respect to insurance proceeds, the cash comes Id down from the trustee only when you tell them that you are U ,
| |
| 17 j using that to clean up or build something. So it never gets 15 near the banks.
| |
| 1 19 JUDGE CASEY: I' understand that; -thank you.
| |
| I 20 t MR. SHILOBOD: Without taking additional time, there 21 is one question.
| |
| 22 ] RECROSS-EXAMINATION 23 BY MR. SHILOBOD:-
| |
| ' Mr. Graham,' you indicated that to reissue these 24 Q
| |
| 1 23 'l first mortgage bonds,. that the purchasers required some formal-d ,
| |
| i' f, CoMMoNVMALTH REPORTING CO*4PANY 7!7 7G 1 -7 ? 50
| |
| | |
| p74 '
| |
| 1383
| |
| .l commitment of lenders to make money available to Penelec in the event that it was needed. What efforts were made to get specific formal commitments for Penelec from those 4 banks that had already extended some form of line of credit
| |
| * to them in the past?
| |
| I A Those banks that refused to co$te into the revolving c;
| |
| l :.\
| |
| T credit agreement for the most part we kept small line of 3 credit relationships with them. We had very extensive 1
| |
| 9 discussions with some of the major Pittsburgh banks during the 10 negotiations to get them tc com,e into the credit agreement.
| |
| :' At times they indicated to us -- or some of them indicated to 12 ' us that if they did not come into the credit agreement they 12 would be willing to continue to extend credit to Penelec.
| |
| O I
| |
| li j Q Would it be fair for me then to assume that there was M no specific approach to acquire some more formal commitments N for credit availability to Penelec separate and outside the F- revolving credit agreement in order to place those first I iS mortgage bonds?
| |
| N ,A We did not take that line, that kind of an approach 20 in the spring of 1979; most of Penelec's credit was with the n .
| |
| l 2I major money center banks like the big New York banks, and J
| |
| 22 many regional banks and country banks rely very heavily 3 upon what they do.
| |
| We were trying to bring them into the credit U I agreement for Penelec and for all of the other parts of the' CCvMCNWK RN SEPC 4*;NG CONF?ANY 7'" ~5?.~;00
| |
| | |
| p75 1384
| |
| :)
| |
| i 3
| |
| i' t GPU system. I guess that now that we has
| |
| * what happened 2 for another year and one-half one might say, "Why didn't 1 you set up a mini-revolving credit agreement with some other 4 banks for Penelec?"
| |
| I guess I have to' admit that that did not occur to 5 }i
| |
| 'l 6 me as an approach that was beneficial t[o Penelec or to anyone h ;
| |
| i! else at that time.
| |
| 8 Q Finally, is it fair to state that some of the banks 9:} that previously had lines of credit available to Penelec and 10 who then joined in the revolving credit agreement, that those il banks under the terms of the credit' agreement have now
| |
| .i 12 j contributed to the borrowings. of the other GPU companies O - 3 under the revolving credit agreement?
| |
| 14 A That is correct.
| |
| 33 ! A good example is Mellon Bank,'which had a re'lation-IG ship with Penelec. They did not have a relationship _with II the other GPU companies; a'very important Pennsylvania' bank 13i, that has a significant influence in the' life of the-State, 19
| |
| .c they.came into.the credit agreement and are therefore extending e
| |
| 20 credit to Penelec, Met-Ed, Jersey-Central and GPU.
| |
| 21 Q. To the extent that they.have' extended credit-to those--
| |
| 22[otherutilities,-isitfairtostatethattheirlinesof
| |
| '23 credit' do not extend or are not- available to ' Penelec?
| |
| .y A There is -total of.$292'million available to:this-9 23 .! whole system,'which has to be' shared among the four companies 3n.
| |
| d' COMMcN'A CA .7H RENORTING COMPANY ??? -751 7150. .
| |
| 9
| |
| | |
| , i. 1385 Il p76 that borrow. Therefore, to the extent thatanyonecompanyggg 2' borrows, there is less credit available to each of the others.,
| |
| Penelec is included in that.
| |
| 4 MR. SHILOBOD: I have no further questions.
| |
| 3 MR. RUSSELL: I have just one, Your Honor.
| |
| i 1
| |
| 6 m REDIRECT EXAMINATION l,
| |
| .].. BY MR. RUSSELL: !'
| |
| I Mr. Graham, were there any banks that never heretofore:
| |
| o Q !
| |
| 4 9 ' had had any relationship to Penelec that now are available '!
| |
| i
| |
| .I 10 i to Penelec for borrowings under,the present agreement? i l .
| |
| 11 A Yes, about 30; and the credit agreement is for l i
| |
| d , $412 million, and Penelec had relationships that were 100-og W.
| |
| 13 so million dollars -- $120 million -- before the accident. l o !
| |
| 14l Plus when an important bank like Mellon Bank comes into the j
| |
| 1 U agreement, I believe that it was beneficial to Penelec becausel M .'
| |
| thebigquestionsthatthisstatehastofaceaboutThreeMilef I
| |
| Island affect Penelec and affect Med-Ed and affect the whole state; so that I think that it was helpful to Penelec to l C
| |
| . have,one of its major banks go into the lending to the whole
| |
| 'O system.
| |
| J I
| |
| ., 3
| |
| ~
| |
| MR, RUSSELL: That is all I have. f, RECROSS-EXAMINATION f
| |
| '1 i BY MR. SHILOBOD:
| |
| 9 Q You don' t mean that Penelec has a $400 million line !
| |
| of credit to it now? 5 Cot 1MONWE A LTH S EPC9T!NG COMPANY :7 t ? 79'7tSO
| |
| | |
| p77 p 1386 d
| |
| ti A No. There are banks, many of which are in Pennsylvania o O : that have a commitment to the GPU system, including Penelec, 2 for $412 million. I think that it helps Penelec to have that 4
| |
| consortium of 45 banking institutions behind it.
| |
| ~j Q : ot behind it; it is behind the four GPU ce panies, i .
| |
| 6 ., isn't that correct?
| |
| % :.\
| |
| 7 it A It is only a matter of characterization. They, in 3 fact, are behind Penelec. They don't want Penelec in trouble..
| |
| 9 MR. SHILOBOD: I have no further questions.
| |
| 10 JUDGE CASEY:
| |
| Thank you very much. Mr. Graham, for 1: i your testimony. As far as I am concerned, you are excused q
| |
| 12]permanentlyfromthisproceeding.
| |
| O/
| |
| s- ;3 jl (Witness excused.)
| |
| N MR. RUSSELL: I have a laundry list I can read or l
| |
| i H d3 if you wish I can make it a blanket offer into evidence of 0
| |
| I60 the several statements and exhibits.that-have been marked for l.1 .
| |
| 'd identification on behalf of Penelec of Met-Sd.
| |
| UI MR. SHILOBOD: I would suggest it would be more Budetti is finished.
| |
| : l. appropriate to wait until Mr.
| |
| M JUDGE CASEY: As I understand it, Mr. Shilobod would 1 :
| |
| 'want to cal 1 Mr. Budetti in surrebuttal for a few points.
| |
| 22 MR. SHILOBOD: With respect to the Penelec/ Met-Ed' Exhibit 18 that was presented to us for the first time this 24
| |
| * afternoon.
| |
| 20 JUDGE-CASEY: All right, on that.one exhibit.
| |
| E COMMONWCr*L7:4 REPCRTING COMPANY :7!7 761-7150
| |
| | |
| P8 . 1387 i
| |
| MR. SHILOBOD: May I have just a few minutes?
| |
| 2 JUDGE CASEY: Yes.
| |
| s-(Pause.)
| |
| 4 JUDGE CASEY: We will go back on the record.
| |
| l 5
| |
| MR. SHILOBOD: There are two items which I wish to
| |
| 'l
| |
| ; cover. One is Exhbiit 18 and then just a very short surrebut 1
| |
| f.s
| |
| ~ q tal with respect to Mr. Graham's cross-examination.
| |
| I JUDGE CASEY: What Exhibit 18?
| |
| MR. SHILOBOD: Penelec/ Met-Ed Exhibit 18, which was 10 produced by Mr. Verrochi. .
| |
| !! Whereupon, 12 , FRANK R. BUDETTI 13 :
| |
| having previously been duly sworn testified further as follo I*
| |
| DIRECT EXAMINATION IO BY MR. SHILOBOD:
| |
| I". Q Mr. Budetti, you have been previously sworn, haven't you?
| |
| IE '
| |
| Yes, I have.
| |
| A 12
| |
| ; .Q Have you had an apportunity in the last hour or so
| |
| " to read the Exhibit Number 18 that was presented by Met-Ed 2I and Penelec?
| |
| 22 I have, A Yes j 0
| |
| 0 Is there rnything particularly significant in that 24 document with respect to the proposed management combinatio A Yes, there is. Mr. Verrochi alludes to the fact that com ao'avcm Ta acrcaTING ce"pe.N r ~
| |
| s t -7 s:
| |
| | |
| gr>
| |
| ' 1388 i
| |
| the present value at this point in time of the numbers is -
| |
| }
| |
| 2 only $1.2 billion as opposed to $2 billion of total savings 1
| |
| that is going to occur.
| |
| 4 There are two or three points about the exhibit that I think are important. Number one, when you talk about $1.2 i,
| |
| G'. billion coming back from 20 and 30 years out, if you look at I
| |
| i tg I
| |
| it at the time it is happening, it is going to be very 3
| |
| significant numbers in terms of the real dollars at that 9
| |
| l point in time; so it is not a $1.2 billion savings. If you l
| |
| 10( take a look at it cumulatively on an annual basis, it would 11 be significantly higher, probably double that.
| |
| 12 j The second point is if you look at what is going to
| |
| ( .,
| |
| happen in the first five years, there are reasons to suspect
| |
| " that even going at' their, for' instance, capacity of GPU of I3 II
| |
| .! S50 million, in the time period of '80 to '85, relative to
| |
| ,- c, 6 I
| |
| ! -- and this is where we are commenting on Exhibit Number 9.
| |
| B l Q Peneler'" M Exhibit Number 9?
| |
| I8 A Penelec/ Met-Ed Exhibit . Number 9 where Mr'. Verrochi l 1 l also, stated at the same time -- where'it.shows-that a study _
| |
| i ,
| |
| ~0
| |
| . of all of the major operating systems and methods and d
| |
| ~I d
| |
| :, procedures, identif'ing y the similarities and differences wl
| |
| ~~q between the two companies, and.then establishes a set of "1
| |
| s common corporate operating' systems, methods and procedures.
| |
| 94 .
| |
| ~j Q Is that with respect to the management combinaticn?
| |
| A The management combination, which i s initiated ~ new h
| |
| : CoMMoNWOL*'M REPoRitt:G compt.NY 7;? 73 ? -7 t !O
| |
| | |
| p80 1389 and will not be done until the fourth quarter of 1982. ggg 2 MR. RUSSELL: Could you stop a minute and get specific. You are talking about Exhibit 9. Identify what portion of Exhibit 9 you are talking about.
| |
| THE WITNESS: Page 15, the management combination.
| |
| 6 Action Plan H. I just stated what it was. The plan is .
| |
| :\
| |
| ~
| |
| initiated; scheduled completion date, fourth quarter of 1982. !
| |
| I f That is on page 15.
| |
| If you look at the benefits of trying to work on P something that is going to give you $1.2 million starting in II the year 1982, 1983, 1984 and 1985, versus working on 12 somee hing that has a capacity range of benefits even though
| |
| " there i.s c ome costs of term that one can attempt to speed up 9
| |
| " and to speed up the pay-back of $1.2 million.
| |
| " , I guess I worry about the wisdom of going after M $1.2 million versus $1.2 billion; and that is really where 1 :
| |
| '~
| |
| my comments would be.
| |
| U BY fir. SHILOEOD:
| |
| .Q If I understood what you said correctly, what you l
| |
| " are indicating is that management's time could be better spent attempting to' accelerate the benefits of the Master Plan:
| |
| 22 as opposed to proceeding with this management combination?
| |
| A That is correct.
| |
| G:
| |
| O Is that a fair summary?
| |
| ~i
| |
| , A It is; correct.
| |
| CCCTONW~~.TH V.5C TING cow:Avy 7:- 7 >C
| |
| | |
| -_ - =. . - , - _ _ _ - __
| |
| 1 .
| |
| 1 JUDGE CASEY: The $1.238 billion was the net benefid (2) 2 over a 30-year period, appearing in PE/ME Exhibit 18 that ,
| |
| Mr. Verrochi testified about; is that correct?
| |
| 4 4 THE WITNESS: That is the right, the current value t
| |
| of that number, which means if you look at, for instance, thej i : 1 s( 1986 to 1990 capacity benefit of S577 million, during that j 9
| |
| .. ~/.\
| |
| ? time period that benefit is not going to be 5577 million; it l
| |
| 3 is probably going to be $750 million. It is a huge number.
| |
| I e t l' It is a much larger number. Theyhavetakenitanddiscountedj 1 I 10,! !i it. .
| |
| a e 11 j JUDGE CASEY: Have they discounted these figures ;
| |
| ,i 12 i! for the present --
| |
| ( "j MR. SHILOBOD: It says "present value." f.
| |
| m 14 MR. RUSSELL: The exhibit is in present value dollars, 15 j!not the present day value. !
| |
| b i 16d MR. SHILOBGD: The present value of dollars has a ii l _'
| |
| specific meaning. .
| |
| 4 13 ' MR. RUSSELL: It is in 1980 dollars;-it is not in -
| |
| s
| |
| ! I3
| |
| ; the, dollars of the years that they would be incurred- .
| |
| I 20 ] MR. SHILOBOD: ,'That is precisely-it. -
| |
| 21 O MR4 RUSSELL: That is correct.
| |
| 22 j THE WITNESS: That is right; he is right. 3 1 '
| |
| 23 MR. JOLLE:- That has nothing to do with discounting. .
| |
| t i s. c .
| |
| J~ "
| |
| THE WITNESS: It says there " expressed in present 25 ' value 1980 dollars."
| |
| l CCMVONW GLTH R* PORTING coMT' ANY r717 75 t .7 t So . ,
| |
| | |
| p82 1391 i
| |
| MR. RUSSELL: So they weren't discounted. They wer 2 expressed in today's dollars.
| |
| 1 MR. SHILOBOD: As in 1980.
| |
| 4 MR. JOLLE: They are not discounted.
| |
| 1
| |
| ;l MR. SHILOBOD: Expressed in 1980 dollars.
| |
| 's ,; JUDGE CASEY: Wouldn't it be im'possible to express
| |
| .c.s
| |
| ~1] it in any other way?
| |
| I 3 MR. SHILOBOD: Not necessarily.
| |
| 9 MR. RUSSELL: How can you tell what the costs are
| |
| .I 10 going to be 20 years from now?
| |
| 1 II i THE WITNESS: The same way you budget dollars.
| |
| '2 ' The number is still $1.2 billion, which is a significant h
| |
| 13 ' difference in terms of what the opportunities are for cavings li for the customers as opposed to spending considerable time l
| |
| " and effort two or three years down the road to get $1 million N' or $1.2 million or whatever the guess is as to what those U savings are going to amount to.
| |
| 18l BY MR. SHILOBOD:
| |
| ,Q Nevertheless, you are indicating that'come 1983 and 20 j 1990, presumably that the savings were in 1980 dollars as set d
| |
| 3I I forth in Met-Ed/Penelec Exhibit Number 18, that in current
| |
| .,,r
| |
| - !' dollars of that time it is going to be significantly greater; 23 is that correct?
| |
| 'i
| |
| " A Yes. This' is the current value of 1980 dollars, 2
| |
| present value.
| |
| COMMCN .'C ALTH R EPCOTING COMP ANY 7'? 7G 1 71 SO
| |
| | |
| -_ - - _ _ - ~ = . - _- - . . _ . . _ . . . .
| |
| p83 . 1392 I
| |
| (} JUDGE CASEY: I understand what you are saying. -
| |
| 4
| |
| )
| |
| 2 BY MR. SilILOBOD:
| |
| Q Going on to another matter with respect to my cross-i + examination of Mr. Graham, in your opinion as a management 1
| |
| 3 I consultant, is it ludicrous to presume that a corporation the 6l size of Met-Ed and/or the size of Penelec should'not have in ;,
| |
| l
| |
| \
| |
| l I' operation specific programs, be in on a day-to-day or week-i s 8, to-week basis, with respect to the cost reductions?
| |
| i 9 I think this is objectionable. j MR. RUSSELL:
| |
| I i
| |
| 10 , JUDGE CI1EY: Perhaps it is objectionable because of ;
| |
| I
| |
| ! 11 the way the question has been framed; "Is it ludicrous." j 12 MR. SHILOBOD: I will rephrase it, Your Honor. }
| |
| )" .
| |
| '3 )1 JUDGE CASEY: In his judgment and his experience.-- -l.
| |
| 4 I4 BY MR. SIIILOBOD:
| |
| j !'
| |
| t5 d Q Is it proper? l 16 ' JUDGE CASEY: Should t:iere' be some specific plan or
| |
| " program for cost savings, given the'present circumstances of
| |
| " [ the two companies, to avert bankruptcy?
| |
| U EBY MR. SHILOBOD:
| |
| f .
| |
| 0 ]' ~ Q That is correct. Does -- ,
| |
| i.
| |
| ~y '
| |
| MR. RUSSELL: I have no problem with that.- :l <
| |
| i
| |
| .., y JUDGE CASEY: .Can you respond ~to that?
| |
| ~j '
| |
| 0
| |
| ^3 There are two answers.to that. Not only, D THE WITNESS: i 9
| |
| O*' ,,
| |
| p
| |
| ,Fi should there be, but my suspicion is that there probably.
| |
| 4 4
| |
| 33- already:is an impact on-the operations'in Met-Ed:of the. kinds _ l i
| |
| :l
| |
| . CCf 4MONWCALTH MFO tTING COMPAtJY ''7 ?c,1 7t!O
| |
| ..- ~ _ . _ , , , . ,
| |
| | |
| 963 1393 plans that Mr. Graham talked about. Mr. Graham can project h what the cash requirements are and what budget one has to live within. Mr. Smith, if I have the name of the position correctly, apparently is taking and inplerenting that at Met-Ed with, it is my understanding, fewer numbers of people 5
| |
| than originally were there doing this same number of jobs,
| |
| :.\
| |
| T which means that people on the operating level now have fewer i
| |
| 2 people to do essentially the same number of jobs, and so they 9
| |
| tend and would have to do what you would call day-to-day M
| |
| short interval scheduling to figure out what is the most 11 important thing that one does today.
| |
| !2 Yes, Mr. Graham is right; theydon'tsitdowneverygg M
| |
| day and figure out how many dollars you can spend. He said M he does it on a monthly basis. But certainly, when you are runing any company of any size that has cost-reduction programs in place, you have to worry on a week-by-week and often a L -
| |
| II day-by-day basis of "what are my people going to do today?"
| |
| "What is the most important things, for instance, for my accopnts payable person to do?"
| |
| 20 These kinds of impacts relate to a financially
| |
| ~1'' troubled company, and clearly to a company that is on the
| |
| '2 verge of bankruptcy. I believe I testified earlier that I
| |
| , i was associated with one, and it is incredibly demanding on time. It does add additional work effort all the way down
| |
| " through the operations.
| |
| i' COMMONWEALTM REPCOTING COMPANY Cf7 '0: 7130
| |
| | |
| 1394 p85 Some people it doesn't touch. Most people it does -
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| 2 touch.
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| 3 BY MR. SHILOBOD:
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| 4 Q Is it fair to assume that those burdens of cost control 5 or cost avoidance on the various operational pecple are i -
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| 6 something greater than the burdens in a normal day-to-day A ,
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| T . operation of a business that is not so threatened? i S i MR. RUSSELL: If Your Honor please, I would like to ,
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| 9 move to strike the last answer -- the.last question on the ,
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| i 10 . grounds that it is not rebuttal testimony. >
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| :: The questioning of Mr. Graham was not with respect 10 to cost control per se; it was with respect to day-to-day O :2 operations to avoid bankruptcy.
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| 14 This was with respect to cost control, which he
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| '3 didn't ask Mr. Graham about, and such it is not proper 16 surrebuttal.
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| I~ MR. SHILOBOD: I most certainly did. Mr. Graham 12 said you don't worry about if you send out more trucks today 12 I asked him specifically with respect to his or not.
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| 20 operational matters. ,
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| 21 MR. RUSSELC: In terms of bankruptcy avoidance.
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| 22 MR. SHILOBOD: Mr.' Russell was making a great. deal of 23 ' fuss about'that.
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| i JUDGE CASEY: I-think the term " cost. reduction" may- -
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| 23 havefbeen used during the time'of Mr. Graham's cross-examinatios CCMMcNWEu T:4 REPORTING covP ANY ;7- 7 7C' 7' n
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| | |
| 986 1395 rather than cost control, and I thinkperhapsMr.Shilobodllh 2 did not regard that problem as being severable from the pending bankruptcy even though during good financial times 4
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| there may be cost reduction and cost control programs in 3 But you were questioning with respect place within a company.
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| to what specia.1 cost reduction efforts and activities would i
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| 7.\
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| 7j go on in the light of the possible pending bankruptcy; isn't 8
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| : that correct?
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| i 3 MR. SHILOBOD: That is correct.
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| j JUDGE CASEY: So I think the last question that he 10 ) ,
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| 'I j asked Mr. Budetti may be another way of asking the previous 12 question, but Iwouldoverruletheobjectionandpermithimggg 13 to answer it, if he remembers what it was.
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| 7 BY MR. SHILOBOD:
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| "] i Q I can repeat it.
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| ,s j Those needs to take measures of cost reduction and 1
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| , so on that you mentioned on a week-by-week and potentially 1
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| t "c day-by-day, depending on what level you are on, is that the
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| " same as in a normal business that is not facing pending bankruptcy? .
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| :I IO A There are greater requirements in a business that is v
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| ~~l in a cost reduction or cost avoidance or cost control --
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| 'l
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| 'l '
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| whatever word you want to put around the act of attempting to significantly reduce the costs associated with carrying out your normal day-to-day operations, because of the number of convow r .i s arrearrse coneun a:7 va:e:53
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| p87 g 1396
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| {}
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| people in their area has to change, and the demands for 2 electricity -- they are trying to do it with less and stay 1 within the cost confines, if you will, of the cash available .
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| 4 to Met-Ed. It becomes a significant burden on people.
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| 1
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| -'i Yes, there are some people -- and Mr. Graham had a 6 great example about the payroll people -- they pay fewer ,
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| l ^
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| 7 ]!people; that is all. It really doesn't change their responsi-l 8: bilities, but all the way down through the organization there '
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| 9 is an impact from bankruptcy. It gets greater the higher !
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| , t 10 ; up you go ,because there you are only dealing with exception 11 kinds of things, and obviously one of the exceptions that 12 is common throughout someone like Met-Ed -- like they are
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| ()
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| 13 i trying right now to do the same job with fewer people in all !
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| f 14 areas, and that is part of the cost reduction and the cost 35 '; avoidance program.
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| I M I presume that -- I have heard it stated that it ,
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| 1 t I7 ' exists at Met-Ed right now, a tremendous reduction in avail- l 1 ,
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| " able people.
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| U . MR. SHILOBOD: I have no further questions.
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| l .
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| 20 MR. RUSSELL: ,May I have just a moment?
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| 'l'
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| ~
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| .; (Pause.) j, li 22 ,' CROSS-EXAMINATION i' 1
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| 23 BY MR. RUSSELL:
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| *y Q~ Mr. Budetti, directing your attention to PE/ME ;
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| 'i 2I Exhibit Number 18,- what cash requirements would the GPU ,
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| 5 i!
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| covvoN"/C ALTH REPOR?iNc COMPAP)Y 7:7 74 t .71:30 ;
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| | |
| p88 1397 J
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| :i companies have to reach during the first five years of the 2 proposed plan to carry out that plan?
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| A It says $170 million for all GPU costs.
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| 8 O And what about the customer costs of $268.4 million?
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| A Are you asking me if that is GPU costs?
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| 'i Q I am asking you what costs would have to be provided, a
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| 7 what cash flow from GPU would have to be provided to meet 8" this program?
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| 3 A The $170 million for GPU costs and $268 million in for customer costs.
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| ll Q All right now; just taking $170 million in costs, is I2' thatcashthatGPUcompanieshavetoprovideduringthefirg D' five years?
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| " A I assume it is cash: I don't know what else it would I3 ' be.
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| "3 O Did you hear the testimony that Penelec and Met-Ed II have no ability to raise senior capital?
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| IU Yes, I did.
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| A I5
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| .Q Have you any suggestions as to where this cash would d come from in the first five years for these companies?
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| 21 A If this is a plan that is underway, I assume that 22 you have figured out that you have the ability to put the 23 plan in. If you are telling me you can't do it -- g Is your answer no to the question?
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| Q A No. My answer is not no. Mr. Verrochi said that the i
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| | |
| pB9 1398
| |
| .i l
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| () plan, on the initiation from a question by Mr. Shilobod on i -
| |
| 2 the Master Plan, was underway. I can't believe Mr. Verrochi 3 started this program and spent money to get this program
| |
| ! 4 underway without having the financing available to do it.
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| S MR. RUSSELL: I have no further questions.
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| l
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| * Mr. Budetti, you are also excused from 5l JUDGE CASEY:
| |
| i, 3 70 this proceeding.
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| I 8s1 (Witness excused.)
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| 1, 9i JUDGE CASEY: That appears to conclude the testimony.
| |
| li -
| |
| 10 i Now we come to that mundane take of the parties offaring 1 ,
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| 11 ',' their exhibits into evidence, f
| |
| ,. I 12 ] MR. RUSSELL: I can read a laundry list or make a s_/ q 13 general offer, which I did before. I will stert with the ;
| |
| 1 14 q general offer to move into evidence the several exhibits {i I I' that have been marked on behalf of Met-Ed and Penelec. ]
| |
| i If Your Honor please, I would like j 16 MR. SHILOBOD:
| |
| 3 t C , to point out , chat an issue of whether or not the company has l
| |
| " l M ' a right to implement the divisional consolidation I don't W believe is before Your Honor. That is not an affiliated i
| |
| +: i 20 J interest to be discus, sed. The affiliated interest agreement !
| |
| L 1 21 is the management consolidation that is before us.. There is i i
| |
| ! i 22 .i a lot of testimony in here concerning .the divisional i t
| |
| i i 23I consolidation which I don't really believe is before Your :
| |
| ( y~ b i' Honor. Understanding that --
| |
| s 23 In addition.to the reorganization.
| |
| , JUDGE CASEY: .
| |
| 'l CoVYO*tWE At.TH R EPQHT!NG c'*,v.P A vy 717 ; t ' .7
| |
| * 30
| |
| | |
| p90 1399 i
| |
| l MR. SHILCBOD: I could object to it. However, I g
| |
| 2 think it is necessary to be in the record to explain the r
| |
| S18 million. In light of that, I am not going to object to
| |
| " the general introduction of information.
| |
| I MR. RUSSELL: I would say quite frankly that the
| |
| '' testimony indicates that the two things are not severable.
| |
| 4 7
| |
| It is only by going together that they make sense. Therefore, I
| |
| 8 it is relevant as part of the overall package.
| |
| 9 JUDGE CASEY: I think we have an answer from one of 10 your witnesses that the division reorganization is possible I;
| |
| without the management combination.
| |
| I2 MR. RUSSELL: But at a cost which would not be ther
| |
| " if you had the package.
| |
| " MR. SHILOBOD: I move'that the JARI statements and
| |
| " exhibits that I have presented --
| |
| M MR. RUSSELL: I made a motion.
| |
| " MR. SHILOBOD: I consented to it. I guess the I3 Judge didn't rule on it.
| |
| " JUDGE CASEY: I did not rule on it. Your motion l
| |
| ~J again? ,
| |
| 2I It is to move into evidence PN/ME MR. RUSSELL:
| |
| 2 22 Statements A, B and C and the several PN/ME exhibits that have been marked for identification.
| |
| 4 JUDGE CASNY: I was hoping maybe you could just give me the range to make sure that the court reporter has that.
| |
| t CoMMONM C3 LTH RECCPTiNG COMP ANY 7t' 7 31 -7 ' = 0
| |
| [
| |
| | |
| p91 y 1400 I
| |
| MR. RUSSELL: I will say Exhibits 1 through 18
| |
| (}
| |
| ;!, inclusive.
| |
| s JUDGE CASEY: Exhibits 1 through 18 inclusive plus a Statements A, B and C. Any objection?
| |
| 5 MR. SHILOBOD: No.
| |
| o MR. MC CLAREN: No.
| |
| it A i MR. MORRISON: No.
| |
| s JUDGE CASEY: The Penelec and Met-Ed Statements A, B 9 and C and Exhibits 1 through 18 are hereby admitted into 10 i evidence. .
| |
| 11 ii (Whereupon, the documents marked 0 as Penelec/ Met-Ed Exhibits Nos.
| |
| 10 :! 1 through 18 and Statements A,
| |
| (_~) B and C were received in 13] evidence.)
| |
| i 14 MR. SHILOBOD: If Your' Honor please, I move the t
| |
| 13 ' ,
| |
| JARI Statement Number A, Statement Number A-1, Exhibits 1
| |
| :6 : through 6 and JARI Exhibit Number 8 be introduced into i
| |
| I 17] evidence.
| |
| ?
| |
| 13 h JUDGE CASEY: All right.
| |
| j la . MR. RUSSELL: Before we make any comment with 20 respect to that, I do.n't seem to have a notice as to what 21 iExhibit 7 i's .
| |
| i l
| |
| 22 MR. SHILOBOD: That was the one that I presented and 1
| |
| 23 had marked and did'not admit, which I believe was the O ,-4 Conemaugh operating agreement.-
| |
| 25$
| |
| ~
| |
| ;MR. RUSSELL: That is not included in your offer?
| |
| d-T comuow.nu.m neronma count,uv .m e:-rac
| |
| | |
| p92 .,
| |
| 1401 L
| |
| 1 1 -
| |
| o MR. SHILOBOD: That is right. llh 2, MR. RUSSELL: Subject to this one item that we
| |
| : would raise objections with respect to the Statement A and 4 > Statement A-1 in the same ve.n as we raised objections to i
| |
| the motions to strike, perserving that point for the record.
| |
| i .
| |
| 6\ JUDGE CASEY: You may preserve that. >
| |
| p ex 7i MR. RUSSELL: Apart from thrt we have no objections i I
| |
| 't 3" to the others.
| |
| 9 JUDGE CASEY: I am going to overrule your objections 10
| |
| ; at this ti.7e, granting you a general exception; and we will
| |
| !! admit Mr. Budetti's prepared testimony and the supplemental i
| |
| 12 i testimony which has been identified for the record as g 33 Statement A and Statement A-1; is that correct?
| |
| I4 MR. SHILOBOD: Yes, Yo'ur Honor.
| |
| I ~'
| |
| JUDGE CASEY: And JARI, Incorporated Exhibits Numbers l 'i 1 through 6 and Exhibit 8 are admitted into evidence.
| |
| " (Whereilpon , the documents marked as JARI Exhibits Nos. 1 through
| |
| " 6 and No. 8 and Statements 1 and
| |
| , lA were received in evidence.)
| |
| s..
| |
| JUDGE CASEY: 7 was deleted by JARI's counsel in the 2n
| |
| ' offer.
| |
| U Does that take care of everything? ,
| |
| 22 Mr. McClaren, any final comments or points on behalf of the Commission trial staff?
| |
| MR. MC CLAREN: Nothing, Your Honor.
| |
| covvoNwratA 9 c'mNc. co m ANY -7 ret m to
| |
| | |
| p93 .
| |
| 1402 I
| |
| l e
| |
| ,() MR. RUSSELL: Was the TB&A report moved into evidence?'
| |
| MR. MORRISON: Yes, it was movred into evidence, j i
| |
| l whenever it was.
| |
| 2 . JUDGE CASEY: I had it marked on top of my copy that i
| |
| i E, it was, PUC Administrative Staff Exhibit Number 1, and I t
| |
| * I 1
| |
| 6 think that it was marked for identification and effered on i
| |
| ^
| |
| If not, 7{thesameday,anditwasadmittedbyme, I hope.
| |
| i
| |
| ,i 8 i I will admit it nunc pro tunc.
| |
| i
| |
| '> l Is that everything?
| |
| l (No response.)
| |
| 10 l I
| |
| I
| |
| ' ;I . JUDGE CASEY: It appears that all testimony has been ;
| |
| i I
| |
| !2 concluded, anc that all exhibits have been received. I
| |
| (}
| |
| ' Mlwillroworderthattherecordbeclosed,andbeforeI~ adjourn l t
| |
| i
| |
| , I 4j the proceedings I think we had an understanding about a j
| |
| ~
| |
| M'l,briefingschedule.
| |
| I I
| |
| 4 Mr. Russell, you masterminded that effort. Would ;
| |
| I 17 you remind us all at this time? 1
| |
| " MR. RUSSELL: Without warranty; main briefs.are due not mailed, but delivered. -- on the 23rd 1
| |
| '' 4, to be deliverd - <
| |
| l 29 of January. Reply br,ief s are to lua mailed not later than i
| |
| 22 - !!
| |
| l the 28th.
| |
| ll l
| |
| 22 ] !:
| |
| I believe the initial recommended decision is to be !
| |
| ?.
| |
| ~~
| |
| rendered on Friday, the 13th of February; and exceptions by.
| |
| )
| |
| " the 19th of February; and the ' matter is then in. the lap of the' '
| |
| Commission.
| |
| l d
| |
| : i. - com.tc wa.u_ ~ = wc mo ccewv .m 5:.r s:
| |
| | |
| )4 1403 i
| |
| l.
| |
| JUDGE CASEY: Is that understood?
| |
| ' MR. SHILOBOD: Yes.
| |
| MR. 2C CLAREN: Yes.
| |
| 'l JUDGE CASEY: This proceeding is now adjourned, and
| |
| 'O the record is officially closed subject to the briefing
| |
| _ ii
| |
| ' :. schedule and the timetable that has just been read into the
| |
| .: a
| |
| _'yrecordbyMr. Russell.
| |
| . ll
| |
| *[ r I would like to thank all of you remaining partici-9I pants and counsel for your cooperation and patience during
| |
| .I 10
| |
| : this somewhat arduous case.
| |
| 11 l It is probably old hat to the gentlemen over on tnis I
| |
| side of the table, as well as Mr. Shilobodwhoisanertswn.jll
| |
| +
| |
| :s i rate case attorney; also by members of the Commission trial 14 ' and Administrative staff, who are also even more experienced is !
| |
| than I am in these long, drawn-out cases.
| |
| 16 I
| |
| .i Thank you all very much.
| |
| IT ,
| |
| MR. RUSSELL: Thank you.
| |
| (Whereupon, at 5:42 p.m. the hearing was closed.)
| |
| :9 20 'i 21 q .
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| 22 n.
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| O I
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| I m".txxmmzcoan w a s2 po
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| I i
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| 1404 l
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| f f,') 1
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| ! CERTIF ICATE 2, I hereby certify, as the stenographic reporter, l
| |
| 3> that the foregoing proceedings were taken stenographically I
| |
| 4; by me, and thereafter reduced to typewriting by me or under i
| |
| 5 I my direction; and that this transcript is a true and accurate 6l record to the best of my ability.
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| z.\
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| 7 COMMONWEALTH REPORTING COMPANY, INC.
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| 8 9f I
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| I
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| \
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| - ( q* .- d a By:s_
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| y
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| . / d,, w II Phyllis Glass
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| ,es 12
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| . .\l 13 14 ,,,
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| 15 16 :
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| 17 l
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| 18 I i
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| b 19 ,
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| 20 l '
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| 6 21 'l .
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| 22 23
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| COMMONWEALTH REPORTING COMPANY 4717i 761 7150}}
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