ML20003B539

Transcript of PA Public Util Commission 801114 Restart Hearing in Harrisburg,Pa.Pp 494-572

ML20003B539
Person / Time
Site:	Crane
Issue date:	11/14/1980
From:	PENNSYLVANIA, COMMONWEALTH OF
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Download: ML20003B539 (101)

Text

i 4

1 e

Ber. ore (G

T et"f THE PENNSYLVANIA PUBLIC UTILITY ColGIISSION 3l

--o0o--

4 In re:

R-80051196 - Pennsylvania Public Utility Commission, et al. versus Metropolitan Edison Comcany.

5l Investigation into a requested $76.5 million dollar rate increase.

6 l

l C-80072105 - Metropolitan Edison Company versus l

7, Pennsylvania Public Utility Commission.

Complaint against temporary base rates fixed by the Commission 8

in its Order of.May 23, 1980 at I-79040306.

O R-80051197 - Pennsylvania Public Utility Ccmmission, d

et al. versus Pennsylvania Electric Company.

10 !

Investigation into a requested $67.4 million i

dollar rate increase.

11

• l i

C-80072106 - Pennsylvania Electric Comoany versus i

^~ j Pennsylvania Public Utility Commission.

Complaint l'.

3 against temporary base rates fixed by the Commission

.., d in its Order of May 23,1980 at I-79040308.

^#

l il l

14 fl g

Hea rings.

3 15 ;

--o00--

l 16[

Harrisburg, Pennsylvania

-i "i

November 14, 1980 18 il q

--oCo--

1 s

19 j u

f Pages 494 to 572

.,0 c K

i 21 le

~

--o0o--

I 22 4 i

l m1

~..

MOHREACH & MESHAL. INCo

,(Jl 27 ;iorth Lockwillow Avenue M'

I '-

Harrisburg, Pennsylvania 17112 25 j MCHP.OA';H 3 M A*!SHn..i;c. - 27 ?I, Ecc:WILLOY, AV2.- F Al* Tt SB UR 3. P A.

17112

{

81021209

494 h

1l Sefore 2i THE PENNSYLVANIA PUBLIC UTILITY COMMISSION 3l

--oCo--

(

4 In re:

R-80051196'- Pennsylvan_la Public Utility Commission, et al. versus Metropolitan Edison Comnany.

5; Investigation into a requestad $76.5 million I

dollar rate increase.

6

(

C-80072105 - Metropolitan Edison Company versus 7f Pennsylvania Public Utility Commission.

Complaint l

[

against temporary base rates fixed by the Commission 8l in its Orde r of May 23,1980 at I-79040308.

i i

9; R-80051197 - Pennsylvania Public Utility Commission, et al. versus Pennsylvania Electric ' Company.

10 Investigation into a requested $67.4 million l

dollar rate increase.

11 !

C-80072106 - Pennsylvania Electric Comcany versus 12 Pennsylvania Public Utility Commission.

Complaint l

against temporary base rates fixed by the Commission g

{

13 in its Order of May 23,1980 at I-79040308.

l 14 j Hearings.

l I

15l

--o0o--

16f Stenographic report of heering held I

in Hearing Room No. 2, North Office 17 l Building, Harrisburg, Pennsylvania,

18

Friday, j

November 14, 1980 19 -

a t 10 :13 o ' clock a.m.

.l 20:

--o00--

21l JOSEPH P. MATUSCHAK, ADMINISTRATIVE LAW JUDGE t

22

--o00--

I 23 4 2y?

,e c

l 25 ll l

t treansAca a :.iArtsw AL. mc. - 27 N LCcKWILLOW AV::. - MAnm S90RG, PA,

!?!!2 I

A

495 d

1j APPEARANCES:

O l

~

2 j

STEVEN A. McCLAREN, ESQUIRE eputy e

Consel 3f' JULIAN S. SUFFIAN, ESQUIRE Assistant Counsel 4e!

P. O. Box 3265 5

Room 28, North Office Building Harrisburg, Pennsylvania 17120 i

6 For - Commission Trial Staff 7

SAMUEL B. RUSSELL, ESQUIRE A

W. EDWIN CODEN, ESQUIRE 8f ERIC L. B. STRAHN, ESQUIRE i

ALAN M. SELTZER, ESQUIRE i

9 Ryan, Russell & McConaghey 530 Penn Square Center P. O. Box 699 10 Reading, Pennsylvania 19603 For - Metropolitan Edison Company and yy I

' Pennsylvania Electric Company 12 CRAIG BURGRAFF, ESQUIRE

(

13 !

DAVID BARASCH, ESQUIRE j

ASHLEY SCHANNAEUR, ESQUIRE

~

1425 Strawberry Square

'4 li 1

Harrisburg, Pennsylvania 17120 i

15l For

. Office of Consumer Advocate l

i 16l BERNARD A. RYAN, JR., ESQUIRE i

i 800 North Third Street Harrisburg, Pennsylvania 17102 17 For - Bethlehem Steel Corporation i

18 KENNETH A. WISE, ESQUIRE 19 213A North Front Street Harrisburg, Pennsylvania 17101 20t For - Louise Riley a nd S.P.A.G.

21l ROBERT JUDE JENISON, ESQUIRE j

R. D. 1, Box 280-6 22l Wellsville, Pennsylvania 17365 For - Pro se r

i 23' 25!

t MONRDACH & MARSHAL. IMC. - 27 Nc LCCKWtt. LOW AVE. - H ARRISSURG. PA.

17112

495-A 1 APPEARANCES:

(Continued) 2}

ROBERI E. KELLY, ESQUIRE 3,

P. O. Box 1003 Barrisburg, Pennsylvania 17108 4l For - Victaulic Co. of America n

5f JOHN J. SPEICHER, ESQUIRE Merkel, Spang & Weidner 6;!

P. O. Box 1256 528 Washington Street

?k Reading, Pennsylvania 19603 For - American Society of Utility Investors 8ii DAVID L. KURTZ, ESQUIRE 9l 100 North Main Street Moscow, Pennsylvania 10 :

For - Frank Bonin, Complaineat 11 ;i 12 i k

I 13,

h 14 i 15 :

16 g ti 17 f 16 l 19 1

20:

I, 21,!

22 li l

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a 23 il li 24]

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25 ]

!!l' t? cst:s>.cx a MAa: MAL. mc. - ::7 :: LocKwiLLow Avs. - HAamssveo. PA.

171:2

496 e

1 1f

_INDEX TO WITMESSES 2

RESPONDENTS DIRECT CROSS i

3 6 William D. Garland 502 511 4, Edmond Newton, Jr.

521' 531 i

5l 6!

I 1

7!

i 8i 10 i i

11 l 12 INDEK TO EXHIBITS l

13 f i

MET-ED IDENTIFIED

~

1-4 }

1 l

No. F-1.1 - Document entitled Penelec-Met-Ed-JC 15; Agreement, Schedule 4.01, Rev. 6, l

Subject:

Installed Capacity Obliga-16 f tions Within GPU and Related Charges.

497 r

17, No. F-2.1 - Document entitled Schedule 4.01, 5

Revision No. 3, Rates and Payments 18 l For Contract Capacity.

497 19 No. F-12.1-Table entitled GPU System Short Term Power Agreements 497 20i Six-page document entitled Calculation No. F-25 21 }j of PJM Reserve Obligation 498 Three-page document entitled Metropolitan l

22j No. F-26 l

Edison Company, GPU Power Pooling Agree-23l ment, Determination of Installed i

Reserve Capaeity Obligation, Illustra-lO 24i tive Data 498 u

25' I

uowancu a uincurt. me. - n n. Locavntuow as. - waamseuna. er-. nua

495-A i

1,)

INDEX TO EXHIBITS (Continued) g 3

PENELEC / MET-ED IDENTIFIED 4[ No. G-2 7 Six-page document entitled Capit' l a

Recovery (Depreciation Approaches),

5jl Chart No. 1 498 i6' PEMELEC 7

No. F-1.1 - Document entitled Penelec-Met-Ed-JC Agreement, Schedule 4.01, Rev. 6, 8 p

Subject:

Installed Capacity Obliga-tions Within GPU and Related Charges.

498 9 i j No. F-2.1 - Document entitled Schedule 4.01, 10 l Revision No. 3, Rates and Payments For Contract Capacity 498 11 ll No. F-12.1-Table entitled GPU System Short Term 12

• Power Agreements 498 13 ;

No. F-25 Response to Oral Request by Staff at N.T. 231 498 14 i

15 16l 17 :

1 18 f

I 19 l

20; 31 i

22' 23 4 24l l

C' l

25, I

i' t4CHR*.:ACM & 24A3SM AL ttfC. - 27 N. t' OCKWit.t.3W AVE. - H AR R LS B U R G. PA.

1~7112

497 e

I r

THE ADMINISTRATIVE LAW JUDGE:

Before we 1i

! proceed --

O 2}

MR. SELTZER:

If Your Honor please, we have 3

a few preliminary matters that we can take care of at this l

time.

5 THE ADMINISTRATIVE LAW JUDGE:

Very well, you can take care of those.

l 7?

I MR. SELTZER:

Your Honor, I have handed three 6l copies of various documents to the reporter as well as your-I self and various of the parties.

I would like to have them marked at this time for identification purposes as Met-Ed 11 {

l Exhibits F-1.1, F-2.1, F-12.1, F-25, F-26, and G-27.

12 j For Penelec I would like to have marked for

<O 23 :

identification as Exhibits F-1.1, F-2.1, F-12.1, F-25 and G-27.

14 l I

r THE ADMINISTRATIVE LAW JUDGE:

Very well, 15 they will be so marked.

a 17 '

(The following exhibits were produced and marked for identification as follows:

18 i i

i Met-Ed. Exhibit No. F-1.1, document entitled 19 l

Penelec-Met-Ed-JC Agreement, Schedule 4.01, 20}1 Rev. 6,

Subject:

Installed Capacity Obligations Within GPU and Related Charges.

J1!

Met-Ed Exhibit No. F-2.1, document entitled t

Schedule 4.01, Revision No. 3, Rates and 22{

Payments For Contract Capacity.

23 h Met-Ed Exhibit No. F-12.1, table entitled GPU System Short Term Power Agreemants.

O u:

(

a l

'l d

MCHRDACM a M ARSHAL. INC. - 27 N. LOCKWILLOW AVE. - HARPISalJIIS. PA.

17112

~ _. - -

498 I

I I'

Met-Ed Exhibit No. F-25, six-page document entitled Calculation of PJM Reserve g

2f Obliga tion.

i 3 [l Met-Ed Exhibit No. F-26, three-page document 4l entitled Metropolitan Edison Company, GPU Power Pooling Agreement, Determination of Installed Reserve Capacity Obligation, 5j.

Illustrative Data.

0 Penelec/ Met-Ed Exhibit No. G-27, six-page document entitled Capital Recovery 7

(Depreciation Approaches), Chart No.1.

6!

Penelec Exhibit No. F-1.1, document entitled i

Penelec-Met-Ed-JC Agreement, Schedule 4.01, 9@

Rev. 6,

Subject:

Installed Capacity obligations Within GPU and Related Charges.

10 )

Penelec Exhibit No. F-2.1, document entitled 11 f Schedule 4.01, Revision No. 3, Rates and i

Payments For Contract Capacity.

12 g h

renelec Exhibit No. F-12.1, table entitled g

13 [

GPU System Short Term Power Agreements.

i 14 Penelec Exhibit No. F-25, Response to Oral Request by Staff at N.T. 231.)

15; il 16 j THE ADMINISTRATIVE I.AW JUDGE:

Are there any l

9 17 f other preliminary matters?

t 18 i (No response.)

19 THE ADMINISTRATIVE I.AU JUDGE:

We have one

20. other preliminary matter and that is the petition of the 4

21j American Society of Utility Investors for intervention in 1

l 22!

this proceeding.

Have counsel received copies of the 1

3 23 complaint and the petition?

a 24i MR. SUFFI1.N:

Your Honor, I just received

]

(

l l

25 h copies of the American Society of Utility Investors ' ccmplaint ii manes a masu.u.. me. - a n. teenv tow m. - >uamsseno. n.

um

~~

~

hthismorning,abouttenminutesago.

I havan't had a chance t

O j to fully review the petition or complaint, but the complaint I

seems to be directed to temporary rates in the temocrary rate docket.

l 41 1

i The petition seems to be directed to both

,[ dockets.

I Insofar as the temporary rate complaint 7

docket is concerned it secms this is not timely filed.

i 8

t A so, from a preliminary review it doesn't 9

seem tht dere u any anegation in eMer the compWt or 10,i

{ the petition that any of the members of the American Society of Utility Investors are customers of Metropolitan Edison g

l

! or Penelec.

O 2 '

THE ADMINISTRATIVE LAW JUDGE:

They don't l,e; allege they are customers but they do allege they are g

16l investors in Met-Ed or Penelec.

Doesn't that show an

}

interest in the matter?

MR. SUFFIAN:

I don't know if that shows a 13 sufficient interest, Your Honor.

That shows perhaps an 79 interest in the return but I think the interest must go 20 i

beyond that.

I think that it has to rise to the status of 21r 2

I customer status.

That does not seem to be shown in either.

l I

THE ADMINISTBATIVE LAW JUDGE:

Let me ask 23 5 you chis question, was the American Society of Investors 24; l

involved and allowed to intervene in the 308 proceeding?

i 2:3 :

3 MOMitDACH & itAftSMAL, INC. - 27 f t. (2CICW1LLOW AVE. - H A;LtliiS WRG, PA.

17110

500 3f MR. SUFFIAN:

I was not a participant in the 2f 308 preceeding.

I am not aware one uay or the other wusther g "7

3 i

MR. BARASCH:

Your Honor, oh, you are 4

referring to the 308 proceeding?

5 THE ADMINISTRATIVE LAW JUDGE:

Yes.

6 MR. BARASCH:

My memory is no, they were not

,7 i

3 parties to that proceeding.

I believe that the Commission i

allowed a public statement from the audience by a representa-9 tive f that organization, but my memory is they were not 10 Parties to that proceeding.

11 i

THE ADMINISTRATIVE LAW JUDGE:

I think your 12 recollection is in the extraordinary rate proceeding.

We g

13

{

14 l allowed them to make a statement in that case.

But I was n t inv lved in the 308 proceeding, 15 i

16.'

MR. BARASCH:

Then I don't remember anything.

17, My nly memory is a woman stending up and addressing us.

18l THE ADMINISTRATIVE LAW JUDGE:

I think your 19j reference is to the extraordinary rate proceeding in which I

1 f

l 2-0 !

We Perm 2.tted them to file an oral statement.

MR. BARASCH:

If I could make a comment, 216 j

Your Honor, I have a copy of the complaint and until just f

now I locked to my left and saw a copy of the petition on i

Mr. Suffian's desk.

I have not seen the petition itself 24;

~~'

,,[

yet or even reviewed it.

"b mea Aca a e.iansext. sac. - 27 re Lee:<wittow Ave. - HARRISStJRO, PA.

17112

.s

501 r

l t

ij But just commenting on the complaint I wc,uld C

2 l also point out that apparently there is no allegation of i

3l them being a customer, but, more specifically, I am a little 4

bit troubled by the complaint inasmuch as it refers to the 5l companies' request for extraordinary rate relief which Your 1

6 Honor has now indicated they apparently made some statement 7[

in that proceeding.

That matter has been decided by this 0l Comission.

9 THE ADMIMISTRATIVE IAW JUDGE:

Yes.

MR. BARASCH:

And is on appeal to the 10 l 11 Cocmonwealth Court.

If there is any complaint against that 12 !

cction, it certainly seems to be totally untimely because 13 that matter bas been disposed of by both Your Honor and the 14 l full Commission.

15 THE ADMINISTRATIVE IAW JUDGE:

I think as 16{

to that item the petition for intervencion is denied, as l

17l to the extraordinary rate relief petition.

18 l MR. BARASCH:

But I have not reviewed the 19 petition itself and my coment is only restricted to the i

20 complaint where I notice that fact.

31f MR. SUFFIAN:

Your Honor, we would request that we be given further time to review this before you 22l make a determination as to intervention.

23 p) pf As I mentioned a few moments ago, we just c

received this a few moments ago.

33 VGdR$4C:4 as I.tARSHAL. IMO. - 27 fic facC:< WILT.OW AVC. - 74ARRISSURG. PA.

171ta

502 h

If THE ADMINISTRATIVE LAW JUDGE:

We will defer 2;

ruling on tha t.

Let's proceed with the matter at hand.

h i

3; MR. OGDEM:

Your Honor, we promised that we t4i uould have Mr. Garland and Mr. Newton and Mr. Carter here t

5i today.

The indication from the parties is that there may 6

not be too many questions for Mr. Garbnd so we thought we 7 i would put him on first and then go on to Mr. Newton.

.S l THE ADMINISTRATIVE LAW JUDGE:

Very we11.

t 9 i MR, OGDEN:

Mr. Garland, if my recollection 10 i is correct, was sworn in the Penelee proceeding.

He has not i

11 given any testimony in the Met-Ed proceeding.

THE ADMINISTRATIVE LAW JUDGE:

We will swear 12 13 him in again so we have him covered one way or the other.

{

t 14 s 15 '

WILLIAM D. GARLAND, called as a witness on 16 { behalf of the Respondents, having been duly sworn according 17 6 to law, was examined and testified as follows :

18 l

?

19l DIRECT EXAMINATION i

1 20:

BY MR. CGDEN:

21' Q

Would you state your name and business 22 ) address for the record, please?

23 A

My name is William D. Garland.

I am employed 24 by GPU Service Corporation at 100 Interpsce Parkway in

\\

25 } Parsippany, New Jersey.

1 i

Mo%1E ACH A mal'SHAL. f?tc. - 27 H. t.GC:CW!LLOW AYE. - H AM f0 S*d V M G. P A.

17113 l

Garland-direct 503 i

1l Q

Mr. Garland, did my recollectien serva me i

correctly that you did indeed identify your prepared direct i

(]

2, testimony and ' Exhibits G-1 through G-21 in the last Penelec 3

4;> hearing in this proceeding?

I 6

A That is correct.

31 Q

Or in one of the last hearings?

6 7l A

That is right.

gl Q

I now show you what have been marked for identification as Penelec Eyhibits Nos. G-22 through G-26 9

10 l and ask you to briefly review those and tell us whether those

,l were prepared by you or under your supervision?

12. p A

Yes, these were prepared by me.

l Q

I also show you what has been marked this 23 o

morning for identification as Penelec/ Met-Ed Exhibit G-27

.14,

and ask you whether that was prepared by you or under your i

supervision?

A Yes,i. twas.

, 7 :.

1 i

Q Now there were marked for identification

~

yesterday several replacement pages to several of your 19 20 h enhibits for the Penelee proceeding.

Could you briefly j describe to what those replacement pages refer and describe 21l r

the reason for the replacement pages ?

22}

A Certainly.

In the process of further work 23 f j

by my department currently we found that there were some

' h' 24 !,

ij problees with the underlying data on w.

.h our calculations i

25 !,

1

. CMRMCM & MAnsML. WC. - 27 N. LOC:0 WILLOW Ai StSSURG. M.

UM2 l

Garland-direct 504 s'

cad d:rivations d:pcod:d.

Raving found theso problems we

.e 1

i

(

2; immediately proceeded to correct that underlying data and

[

g to prepare revised exhibits for the Penelee proceeding.

3!

Basically the revisions do not at all change 4 I i

the claimed rate base by Penelec.

5' t

The revisions do alter the amount of 6

7l depreciation in the claim for Penelec by an increase of

$358,000, i

The balance of the revisions concern the

i. information which has been provided on an informational basis 10 i l

by Penelec.

These data concern the so-called bench mark i

11 i' l

calculated reserves and the exhibits have been changed to 12J i

refle e the change in the calculated reserves as a function 13 }

h r-(.

of the correction of the underlying data base.

Q Does that complete your answer?

I f

A It does.

Q Now turning to Met-Ed for a moment, Mr.

,7 t l

show you he bs been erked for Mentmcation l

8 1

t as Met-Ed Statement G and ask you whether tbat was prepared g

t l

by you in this proceeding?

20t Yes, that was prepared by me or under my A

21f I

supervision.

22 Q

Does it constitute your prepared direct 1

testimony in the Met-Ed preceeding?

24 l g

l il A

It does.

25l N

I munucw a i.uasu At. inc. - n n. tocawiu.ow Ave. - H AR*MSSUM, PA.

m ig l

l

Car.le.nd direct 505 Q

If I ware to ask you the same questions today 7

as are contained in that statement, would your answers be the s

e j same?

3 t t

A Yes, they would.

4 Q

I also show you what have bean marked for 1

6{ identification as Met-Ed Exhibit Nos. G-1 through G-27 and ask you whether those several exhibits have been prepared by 7

8 yu r under your supervision?

A Yes, they were.

9,I Q

w turn ng r a moment to Exhuit G-27 10 which was handed out this morning, and it has been marked 11 ;

12 f as a Met-Ed/Penelec exhibit, would you briefly identify 13 l what is represented on the exhibit and the reason for introducing the exhibit?

y A

Yes, this exhibit consists of excerpts from

~

15 i a manual entitled Introduction to Depreciation which was l

16l I prepared and published by the EEI-AGA Depreciation Accounting g

gg : Committee in 1975.

I have taken the liberty of adding some 19l titles to it and of underlining some of the names in the materh l.

20 The purpose of the exhibit is to show that there are a number of different capital recovery or deprecia-22l tion systems.

Each of the systems actually consists of the 23.5 i combination of three components.

' f'h MN t V The methods may be a straight line method, 25 gl i

l 4

i b

MGMMDAOM C: St AR SHAL. IMC. - 27 ?!. L3C:GVILt.OW AVE. - MAR 8ttS90HG. PA.

17112

Garland-dircet 30F-3 I

i y: c lib:raliz d m thod as wa are more familiar with with respect

(

2l co tax depreciation, ani.ay be a compound interest method a

r W

3l r m y be some other method such as a unit of production

. method or a succcasive appraisal method or an observed 4

5l condition method.

I With each of these, however, there may then 6i be a procedure and it may be an item or individual unit type 7

8! of Procedure.

It may be an equal life group type of procedur I

a vintage group procedure, or a broad group type of procedure.

i 9,

t-10 i yy ;

(Transcript continues on next page.)

L' i

9 14 i i

15i 16f t

17 t

18l il 19 j n

l 20 q i, '.

31'I, t

22 T ln 23 !!

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24; 1

9 23i.

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Iftr2

~

~

Garland-diract 506 1

[,

1l And with any combination of those two, you then have variationa t

l 2

of techniques.

You may have a whole life technique and you may 3l have on a location basis, you may have a whole life technique

~4j on a total life basis, You may have a remaining life i

5 j technique on either of those bases as well.

6 The balance of the. exhibit goes on to give 7I some descriptive e w lanation with respect to each of these 8

methods, procedures and techniques, albeit very briefly.

9[

What I wish to emphasize in placing this t

10 i exhibit into evidence in this proceeding is that there are 11 l many different systems that one can employ to effect capital 12 j recovery over the pe~riod that assets, of course, contribute 13 fto service to customers.

However, with each of those N.

1

-14 ! various combinations of methods and procedures there 19 only t

15. one technique which effectively will recover the capital that 16 h is invested, no more and no less.

There is only one 17 I technique that takes into account that original life estimates f

l l

18I or original estimates of a total production perhaps to be

~

19l produced by a' facility are made with the best information at 20l the tima that those estimates are made.

However, it is 21i inevitable that actual experience wi1#. vary from such l

22! estimates.

When, in fact, you find that actual experience l

t 22 [ has varied from the estimates, it is necessary to reassess 24f the future of that investment, what its present remaining O,

i 25! life astimate would be vis-a-vis that which was estimated t

I MOMROACM & 11AR$HW INC. - 27 M.- LOOXWILLOW AYO - H ArtatssustG. PA.

17112 I

l

Carlend-direct au/,

c l

1i before or if you are using a unit of production basis, how I

much its future production esti=ates versus what was expected h

{

g 3

before, so the only technique that adjusts for these 4i inevitable variances experience versus estimates is the 5' remaining life technique.

It hoe an automatic adjustment 6

feature which guarantees there shall be no over recovery or 7: no under recovery of the actual investment in the facilities l

3l over the period that is producing service.

9[

Q Mr. Garland, which of the ratemaking concepts i

10 j among those that you have described have you utilized in this i

11} proceeding for purposes of the claimed depreciation reserve 12 j and for purposes of' depreciation accruals?

13 A

We have used the straight line method.

We 14 !' have used the vintage group procedure and we have used the 15 remaining life technique in deriving the figures in the claims 16 for the respondants in these proceedings.

17 !,

Q Would you explain to us briefly, and if it i

18l would be helpful to you, refer us to any of your exhibits l

19 i which you feel necessary to refer to, and describe for us l

l 20 l precisely why you chose remaining life accruals and the basis i

31; for the claimed depreciation reserves.

I i

l 22 i MR.BAFASCH:

Your Honor, my understanding of I

l 23 the record is that all of this is already in the record.

I i&

24 " a= not sure we need to have a regurgitation of the testimony W

25 j and exhibits that Mr. Garland already submitted.

I think it l

3 noumea c. suasa.u.. inc. - a n. toexwra aw e - wmaun u..

ima

Garland-diract 500 1 l pretty clear from his direct testimony.

I think that is the l

]

2 limportofhisdirecttestimonytosetforthwhyhehaschosen 3

the various methodogies that he has used.

I don't see any i

4 reason to tie up the record in this fashion. -

5 MR.0GDEN:

Well, Your Honor, I am trying l

6l through direct examination to have Mr. Garland highlight the i

7i points which he feels are important for us all to understand 8, in terms of what he has put forth in his testimony.

9 THE ADMINISTRATIVE LAW JUDGE:

We will over-10

, rule the objection for the timeheing and see how far you can g o.

11 ;

THE WITNESS:

Yes.

With respect to the i

12 i question, I would direct attention to Exhibit G-20 and it 13

{p matters not which of the company's exhibits you refer to 14

• since they are identical.

15j To be brief, I would direct attention to i

16( page 5 of this parcicular exhibit.

On page S I have 17 I summarized the results of three example situations with I

18 i respect to capital recovery and return on unrecovered 19 investment over the period that that investment was serving i

20 [ the custot.sr.

21 Case 1 I refer to as the perfect case.

This t

22! is where there was perfact clairvoyance and the original 1

23,i estimate of average service life, in fact, became what was 24 actually realized.

In this case there was no need for any 23 changes or revisions in the accrual rates.

There, in fact, 1

'JOHRMCM & MMSH AL. WC. - 27 N. LeCXW:LLOW AVE. - MI R Mi& BUR G..' A.

t?t12

Garland-direct 509 u

I swas then full recovery of the investment and the return did 5

f 9 [ follow the pattern of the target return, et least in the t

2 te= ample, and the real rate of return when all the cash T.ows

(

4 f are at present value was, inf::ct, the target ' rate of return.

s 5l In this example 10 percent.

i 6

It also matters not in Case 1 whether you 7 cr. ploy what I have titled as Pennsylvania Rate Case 3 Depreciation Policy or the use of book reserves in remaining 3

9.' life since they would be identical in all instances in this J,

20 - rather rare circumstance of actual experience following

)

i 11 ; original projection.

I 12 i The accond casa is titled the decrease life

(

13 l case.

This is where later at the third year is was found V

14 f necessary, because of additional information and experience, l

13sto reestimate the life and got a shorter life with the f

f3 mposition of the new whole life rate which since one has l

15 i

0 t

l 17, decreased life is higher.

One still, despite that higher E

13l life, does not fully recover the investment.

One recovers i

19)only$85ofthe$100oftheoriginelinvestmantinthis l

t 3

20y example.

There is then a $15,15 percent under recovery.

l t

21 When one computes the return, one finds that the allowed i

4 I

It] rate of return with the imposed calculated reserve which is l

?

23 ', higher than book reserve in this instance that on the books

(

2+

of the ecmpaniec the realized rate of return is subsequently g i

, lower in the subsequent years When one then computes the i

i I

,1 i

nermex a uesau me. - 27 u. coexwietow *ve. - a4xaiseue 2. pr.

irit:

Garland-direct 510 e

t.-

1 9

1 present value of the various cash flows from this, you get 2 a real rate of return of only 4.58 percent.

However, if one

(~)

3 j used book reserves and remaining life depreciation policy, d

3 4 ; you would still have 100 percent recovery and the opportunity l

the 3 f eo realize the target return of 10 percent.

In/ decrease life 5 l ease the investor, of course, has L9en disadvantaged.

l 3

c 7[

The third case is increased life and in this i

8 l example, with a particular policy that has been employed 0

9'lproviously in our rate cases, there will be overrecoveries.

~

i IC j In this case a 10 percent overrecovery.

One hundred ten l

i 1; # dollars would be recovered versus the original investment of i

12, one hundred.

When one computes the rate of return on the I

13 $actual book base, one finds that those rates of return are r~'

14 i higher than the target rates of return in the later years 15 ; after the change.

In present value in all the cash flows id one sees that the real internal rate of return becomes i

17 12.78 percent versus the target allowed return of 10 percent..

i i

18.Here we have an apparent disadvantage of ths consumer.

I 19 i

However, in the third case, if you use book

(

k 20jreserves and remaining life, you get again only 100 percent f

i t

21 } recovery, no more and no less, and the opportunity to own 22 that real rate of return of 10 percent, that which was J

I 1

25 lt.! allowed as a targat rate of return, is provided to the i

t I

t g

f-)s ledconcany and its investors.

t._

j i

. 2? f; This exhibit proceeds with discussion, of

[

m 'Dj e.:omuca a uusus. me. i a n. i.coewu.a m. - sm:smo. n.

un:

sy.

.. 7 9.*

t

's.

s

Garlend-dirtet

311, 1f course, about it.

On page 7 it provides a chart of the various combinations of approaches and what their effects are h r-2 i 5

3 : on recover r and the real internal rate of return, and on 4

4! pages 8, 9 and 10 are the detailed data behind that summary 3

1 5 i that I have just review J for you.

The rest of the exhibit I

6 ! presents further dir.cussion and further information with 7 l respect to, for instance, other,)urisdictional practices, 8; the apparent results of some particular cases in Fennsylvania 9 : and some com=ents by outsiders concerning the problem of 10, capital recovery and the kind of inside use effects that 11 ' can occur over a lengthy period of time because it isnotonef 1

12 of those things that is so readily observed as are things 13 l such as payroll increases or maintenance cost increases, but 14 yet has an effect on economics of the firm.

4 16 1 MR.OGDEN:

That is all we have on direct 16-examination, Your Honor.

We offer Mr. Garland for cross-17, examination.

18 THE ADMINISTRATIVE LW JUDGE:

Trial Staff?

19 '

MR. SUFFIAN:

Yes, Your Honor.

We do have 203 a few questions.

21]

CROSS-EXAMINATION 1

l 22 BY MR. SUFFIAN:

23 Q

Mr. Garland, now could ycu tell us what i

24 Penelec's original cost rate base claim is now?

,L I

25j A

Penelce's original cost rate base claim now l 1

wnexcx c ma sm. u:c. - 27 r:. tecxwi:.i.ew avr. - aas aissuno. 74.

73,2

l Carland-cros s-512

,1 which i

i fis identical to that/was originally submitted in this 2 proceeding.

.i 5

Q And it is in no way changed by any of the 4ftestimonyorexhibitsthatyousubmitte.dharethismorning?

-l

.5 A

That is correct.

6f TIE ADMINISTRATIVE IAW JUDGE:

Wait a second.

7 "dhat is that?

, ).-

TE WITNESS:

Are you speaking of the ne't 8.

9 rate base?

10 s THE ADMINISTRATIVE IAW JUDGE:

On original 11 hcost.

12 l TE WITNESS:

On original cost basis the 13 lclaim is 1,067,903,000.

I have it reflected on my Penelec 14 l Exhibit G-1 on line 22, the first column.

It is also 15 reflected in the main ff. ling.

L 16 BY MR. SUFFIAN:

17 !

Q You are referring to page 2 of the revised 1

IS!?enelecExhibitG-1, revised 11/7/807 il 19 A

No, sir.

I am referring to G-1, page 1, 20'i Q

Well, would you refer now to page 2 of 21l Penelee Exhibit G-1 as revisad 11/7/807 g

i 22 )

A Certainly.

s d

23 Q

Is chis the rate bese reflecting the j

p O

24 celcu1atea aegreciation reserve on line 227 1

23g A

As rc.'rised, that is correct.

N -

uowaaAcw c emSHAL, INC. - ?7 N. LOCXWILLOW Av3 - H ARRISBURG. PA.

17112 ---

t

Garland-cro5:s 513' 1

Q And would your answer be the same as

~

O

(

2 applicable to Met-Ed, the originsi cost rate claim, would it 3

Le the same as originally submitted?

4 A

Yes.

5l Q

What would that be?

6l MR. OGDEN:

Mr. Suffian--

7!

MR. SUFFIAN:

That is in the record, too, 8fIimagine?

Well, His Honor was interested in what the 9j original cost claim dollar amount was for Penelec, so I also 10 [ thought I would get before His Honor and in the record again i

11,uhat it is for Met-Ed.

i 12 MR. OGDEN:

But there was no correction made O

13

• to the Met-Ed.

(

.i 14 THE ADMINISTRATIVE IAW JUDGE:

That includes 15 TMI-1, not 2?

16; THE WITNESS:

The rate base claim does i

17 ; include TMI-l but excludes TMI-2.

Met-Ed's rate base is, of i

18 course, in the original filing, Exhibit B-1, part 2, page 1 19 and as reflected in my exhibit in Met-Ed 1, page 1 and the i

l l

20 ) bottom line figures are identical in Exhibit 3-1 in the fifth 21i column $728,031,000.

The same figure is reflected in G-1,

(

l 22; Page 1, on line 19.

1

.]

23 l BY MR. SUFFIAN:

!G 24 Q

Now would the annual depreciation accruals 25jchangeforeithc-Met-EdorPenelec?

MONM5ACM & :* ARSH AL. ti3C. - 27 N. L3C*CWILLOW A *.T. - H AR MIS SUMG,

.*A-17112

Garland cross 514 4

i 1l A

They have changed and are refle cted in my 3

revised exhibits for Penelse only.

1 Q

Not Met-Ed.

They are not reflected in this 4

Exhibit G you have submitted for Met-Ed?

1 5{

A They have not changed.

6f Q

They have not changed for Met-Ed but they i

7l bave for Penelec and they are reflected in your exhibit for a

p,,,ye,7 9li A

Yes.

That was your question.

10 Q

The question referred to both Penelec and 11 Met-Ed and I think you cleared it up, that it applied to L

12 [Penelec, not Met-Ed.

To repeat, for Met-Ed, there has been C

13 '

s i no change in the accrual claim from the time of original N

submissio' of the case.

For Penelec, however; --

i 15 {

THE ADMINISTRATIVE LAW JUDGE:

Is that on I

16 i line 19 on your G-l?

l 17 l THE WITNESS:

We are speaking of the 16 depreciation accruals, now, are we not?

MR. SUFFIAN:

Yes.

~0 I 1

j MR. OGDEN:

Now wait--

21l THE ADMINISTRATIVE TAW JUDGE:

I am referring

~2f to the rate base, the net rate base.

I missed your line on ont

that.

Met-Ed, is that line 197

~~

p i

V 24 THE WITNESS:

Yes, Your Honor.

The rate s

5hbaseclaimforMet-Edisintheoriginalcostcolumn, column I

xomases a unsm me. - a m i.oem.u.o v av2. - mm una, i *. irii

""~

m m.

GarLanc :roca 313 l

1 1 on Exhibit G-1, and the total is on line 19.

t G

C 2

BY MR. SUFFIAN:

31 Q

Can you think of any circumstances under 4 j which a utility would not be entitled to full capital recovery f

)

5 A

Yes, I can hypothesize such circumstances.

6 l One of those circumstances could be that in the judgment of 7

others that presumably some portion of the investment in e 8 particular facility was unwarranted, imprudently made and in that instance I can envision, of course, incomplete recovery, 10 if any, with respect to that particular investment.

11 f Q

Now when you say one of the instances under 12 l which full capacity recovery might not be permitted is when

~

13

('-

! the Commission might consider the investment unwarranted i

4l would you include within the circumstances where there might 1

j 15 have been, under the determination of the Commission, a 16 mistake in construction or a faulty design in a facility?

17f A

That becomes a difficult question to give a 18 cofinite answer to.

I 19 h Q

Well, I will ask you if you are aware that l

20f the Commission bas, in fact, decided capital recovery in the 21s past for both TMI-l and TMI-2, TMI-1, a ring girder cost 22 associated with that and TMI-7, certain steam valves?

23 f A

Yes, I am aware of that.

May I comment i

G 24

{

further with respect to your initial question?

.* q l

~~ (

Q Go right ahead.

Pt3MREACM a MARSH AL. IMO. - 27 N. LOCXWLLOW AVE. - H ARRISBURG. P A.

171l2 A

varianc cre33 310

!I t A

I said it was difficult to give a reply to o

h' 2l that initial question.

Human beings being what they are, and 3l there being so ciany involved in the construction of a facility, 4f it is very difficult to control all the activities or to i

5l assare, although'one makes extremen fforts to do so, the 6l quality of all of the activities in the construction of a 7 h facility and it is inevitable that there will be some mistake t

8f and there will be corrections of. it.

A window may be put in 9

a little crooked in your house and it is caught in the process 10 [anditiscorrected..

However, that is part of the normal i

11 [ construction activity and it becomes a cost of the total-12 facility and to be expected.

13 Q

Let me interrupt you.

We are talking about 14 ! certain unwarranted investments and certa.i.n circumstances in 15 i which the Commission might not permit.

The question was 16l directed to certain circumstances in which the Commission 17 might not permit full capital recovery and under those 18f certain circumstances, I asked whether or not a mistake in 19 design, faulty construction had been considered %y the i

20 ', Commission as illustrations of just what might entail less 21] than full capital recovery.

22 A

Yes, that is a matter of record in prior 23 ; proceedings.

il O

24f a

that is riaht, thank you very much.

t

[

25[

MR, SUFFIAN:

We have no further cross-MOHRDACH & MARSH AL. INC. ~ 27 N. LOCKWILLOW AVC. " HA AR158URG. P A.

87512

Garlandtross 517-f Ihexamination.

h c

i. _.

TIE ADMINISTRATIVE LAW JUDGE:

Consumer 3 ' Advocate?

'5' h3Y MR. BARASCH:

5l Q

Good morning,IC. Garland.

C' A

Good morning.

'l 7l Q

I have very few questions, questions that R

almost don't warrant your appearance

'l l In the last Penelee proceeding, which I 10 ; think was RID 599, the Public Utility Co:nmission reached a 11 decision based ~on the use of a theoretical depreciation 12 reserve, didn't'they?

13

('

A That is correct.

I j

Q And in the last Panelec decision, depreciation 15 l accrual base for the company was based on remaining life 16 methodo1.ogy?

i 17 A

That is correct.

l

S j Q

The Commission did not approvo rates based l

19 on the remaining life method either, did it?

4 20 l A

Correct.

1 21[

Q Now the company requested the use of 4

22 i remaining life accruals in the last Met-Ed case, didn' t they?

n G

23 ?

A That is right.

M

~

O

(_.

Q Isn't it t rue that the order in the last k

.c

~: Met-Ed case stated that the Commission would continue to e

MCHT:3AC1. & M A8t SMAL. IMO. - 27 N.' LCC.TW ILL 3W A VE/ - H 4itRtS3RRG. P A, 17112

ua uauu creas 516 1

set rateze using the whole life methodology?

O.

2l

^

x7 recollection of the woratna in the order 3 ' itself would need to be refreshed.

Do we have a copy of that 4

here?

5 Q

Well, I am not sure you need to check for 6l that.

Isn't it your memory that in the Met-Ed decision 7I that the order itself was consistent with the order they had 8j just issued in the Penelee proceeding?

That is, they used 9i whole life methodology rather than remaining life?

i 10 l A

My recollection is that the language in the 11 $ order left room for some interpretation concerning what the i

12 i position of the Commission might be relative to the requested Q

13 l remaining life methodology.

If, in fact, however, if I may 14 ' proceed, in the Met-Ed order there was an adjustment to the i

i 15 ; claimed book reserves to bring those to the bench mark 16I calculated reserves in the same fashion as they had done in the' l

17l Penelec case.

However, there was no adjustment made to the 18f depreciation accruals which had been claimed on a remaining i

19' life basis to adjust those to an average whole lifa basis 20 as, in fact, they did do in the Penelec :ase.

21l

-Q Well, to snmmarize, you propose to use this i

i l

22 l theoretical reserve in both the Met-Ed and Penelec cases that i

23 I are before us today, don't you?

Excuse me, I meant to say O

24: o=ed hcox de9reciatioa reserves-23)

A That is correct.

E uewasaca a suasuu_ me. - 7 n, toexwittow ave. - war.ni..ua ex. 37.:

i l

Garlend-cross 519 o

I 1l Q

And this, if adopted, would make a

(

2[ departure from past Public Utility Cocmission policy on this t-3l matter, wouldn't it, sir, and I well understand your i

4j rationale for doing it.

I am just trying to clarify that 5l this would constitute a departure from Commission policy.

5 6{

A I can respond to that only with respect to 7

the cases I am familiar with that it would with respect to f

8 y get.Ed or Penelec be a departure from that previously i

9l followed.

10 Q

And further more, your remaining life 11 l proposal would also constitute a departure from past Public i

12} Utility Commission policy, is that correct?

I 19

{}

13 l A

Relative to the respondant, correct.

14 :

Q Each of the respondants, to both Met-Ed a

15 ) and Penelec?

n 16 d A

Yes.

I am answering in this fashion because E

I 17f there appear to be instances, in fact, where the Commission 18 has permitted book reserves and permi.cted a remaining life i

19 5 methodology previously.

l 20 g Q

Yes, but we are talking about the way the i

l 21i Commission has dealt with the GPU subsidiaries ue are talking 1

22 about today?

33 A

Correct.

t i

i$

24

- {

Q Do the depreciation rates that you are 25 recon:cending for Met-Ed and Penelee include any allowance for MC?tP.3ACH 3 MAM SH AI INC. - 27 ft. LOCKWILLOW AV E. - H ARRIS3URC. PA.

17112

Garland-cross 520 1! the cost of removal or for salvage value?

2 A

No, sir.

They do not.

3 MR. BARASCH:

That is all I have.

4 TE ADMINISTRATIVE IAW JUDGE':

Any other 5l cross-examination of this witness?

6 (No response.)

7 MR. OGDEN:

May Mr. Garland be excused for i

8, today?

TE ADMINISTRATIVE IAW JUDGE:

Any objection?

9 t

10 l MR. SUFFIAN:

No objection to that.

11 TE ADMINISTRATIVE IAW JUDGE:

Very well.

12 Mr. Garland, you may be excused.

13 MR. SELTZER:

Your Honor, we would like to 14 I call Mr. Newton to the stand.

15 TE ADMINISTRATIVE LAW JUDGE:

Has he been 16 } sworn?

17 [

MR. SELTZER:

I believe he has been i

18 previously sworn in all the proceedings.

I 19; (Testimony continued on next page.)

20 21:

r 23; Y

~

25!)

T4044R3 ACM (s MARsMAL. tNC. = M N. t.OC<WtLt.cw AVE. - H AmmiseURG. P A.

87tt2

Newton-direct 521 EDMOND NEWTON. JR., recalled as a witness 3

t 2f n behalf of the Respondenta, having been duly sworn accord- (

)

(

3 4

DIRECT EXAMINATION BY MR. SELTZER:

6 l

Q Mr. Newton, I would like to direct your 7

attention, if I might, to the following Met-Ed exhibits and 8',! ask you whether these various exhibits were prepared by you 9

or under your supervision and they are Met-Ed Exhibits F-23, 10 fF-24, F-1.1, F-2.1, F-12.1, F-2 5 a nd F-26.

11 A

Yes, they were prepared by me or under my 1 ;

supervision or they are material that I am sponsoring.

h 13

(

j Q

With respect to Peneloc, now, I ask you the 14 same question with respect to these exhibits, Penelec A5 l Exhibits F-1.1, F-2.1, F-12.1, and F-25.

16;l A

Yes, they were all prepared by me or under 17 :

my supervision or are exhibits that I am sponsoring.

18' i

Q If you might, briefly, Mr. Newton, with 19l t

l l

respect to the exhibits that were distributed this morning, 20j if you could take a few moments to briefly describe and 21 identify each of those exhibits for Met-Ed and Penelec, 22 starting, I presume, with F-1.1.

23 A

Met-Ed F-1.1 is a schedule from the GPU 24

(

power pooling agreement which is an update of Schedule 4.01, 1

0

,~5] bringing the current capacity charge into play.

1 What is in f 4Gl*RRACM (a M ARSMAL. TNC. - 27 M. LeCKWILLOW AVE. - HARMISS1JRG, PA.

17112 l

l

Newton-direct 522

!,j the original F-1 includes a supersedad charge in that

~ l schedule.

F-2.1 is an exactly similar revision for the P3 agreement and it brings the current charge, which 4 i became effective June 1, 1980, into the case.

5 l

Both of these charges, b'y the way, were used 6!

in our normalization in Exhibit F-6.

7 Exhibit F-12.1 is an update of the short-8 term power agreement for the GPU System.

It adds the Central 9

Hudson agreement, which was not on the original, and eliminatas 10 ),

the FP&L purchase which was negated by the PE special arrangement.

p i Met-Ed Exhibit F-25 is presented, and I 13 propose to discuss it in a few moments, but is an attempt t

to clarify the input data to Exhibits F-5 and F-6, and shows 15 ;.

the source of that data, and ties it in with the contracts that give rise to those charges, those obligations.

g F-26 is also an exhibit intended to explain yg the determination of reserve capacity obligations and charges 19 '

under the GPU power pooling agreement.

20;I i

Those are the Met-Ed exhibits.

Now I don't el; believe I have previously identified in the Met-Ed case Exhibit F-23 which is the settlement agreement in the so-g;

.i called PJM special which provides for a cost plus 10 percent O

24 l

payment for a certain portion of the purchases from PJM, f.;OMR3ACM & ;J ARSHAL. f?iO. - 27 N.1;GCKW:LLCW AYE. - H ARRISOURG. PA.

17tl2

1 N;wton-direct 523 l

I this is related to the TMI accident, and replaces the split 1

a 2 ; saving basis of pricing which heretofore, or up to the time 3

of the settlement agreecent went into effect October 1,1980, 4

replaces that split saving pricing.

5 Exhibit F-24 is the FERC order and opinion 6q that approved the settlement agreement.

That is a very brief description of the Met-Ed exhibics.

7 l

8{

Q Mr. Newton, you indicated a mrment ago that i

9l perhaps Met-Ed Exhibits F-25 and F-26 required a further i

10 l explana tion.

If you can provide a slightly more detailed i

11 j explanation of what those exhibits are and how they fit into 12i the overall case with respect to your testimony.

f

{.

13 {

A Yes, sir, I will.

Exhibit F-25 wac a Xerox i

14 copy of the calculation made in June of 1978 to fix the fore-15 l cast obligations under the PJM agreement for all of the 16f companies in PJM in accordance with the various provisions 17 of the PJM contract, and it is this obligation that is the 18 starting point for Exhibit F-6 and indeed for Exhibit F-5 l

19 which show the reserve capacity adjustment figures in both 1

20f the Met-Ed and Penelec cases.

I 21l The same exhibit, by the way, F-25, or an 22 identical exhibit with a different number, I believe, will 23 h be introduced for Penelce and similarly with F-26.

0 24 [

The critical number in F-25, without going through the entire thing at this point, going back to page 6 25 MC7tR3ACM & M AR SHAL. fHC. - 27 N. L4CXWILLOW AVE. " H ARRISBURG, PA.

17112

Newton-direct 524

~

i 1

of 6, on line 15 under the column GPU is a number, forecast h

2 [ obligation, 7,691 megawatts for GPU.

i 3l Referring to Exhibit F-6, page 2A, Step 1, 4l under PJM capacity accounting, the top numbe'r described 5

there, GPU accounted for obligation of PE, is the 7,691 6

megawatt capacity responsibility figure.

7' So this six-page exhibit, F-25, represents t

8; the derivation of the one single number we started from in 9

F-6.

10 l Now going back to page 2 of Exhibit F-25, 11 and without attempting to deal with all of the manifold 12 details, the first step is the forecast summer and winter 13 f Peaks for each of the companies in PE as well as the total 14 i system peak, and then following the procedures which are i

13 l shown numerically and in the right-hand column, it describes 16t what has to be done to arrive at each number.

17 It can be followed through, the development 18 I of the reduced winter peak, the identification of the summer 19 !

and winter peaking systems, the allocation of diversity, 20 suremer peak diversity, and then finally at the bottom of the page the development of the diversified planning period 21 i

Peaks for both the winter peaking system and the summer 22 23 peaking system.

.i Q

Page 3 is not applicable for GPU and I won't trouble that, but the end result is the development 25 It

't3 HRS ACH & 3.f ARSHAL. tNC. - 27 N. LSCKWILLOW AVE. - H ARnts9URG. PA.

I'lll2 L

Newton-direct 525

~

i gl of the diversified planning period peaks of each of the t

bl 2j companies in PJM which show on the top of page 4, totaling a

t W

l uP to the PJM total diversified peak.

3 Then the forced outage adjustment is 4

5j developed.

i 6

So that we come down on line 8 on page 4, the 7

development of the forced outage rate adjustment in percent.

8 Now these all, by the way, relate to the 9l formula for the reserve capacity determination which appears I

in Exhibit F-2, the PJM agreement, and Schedule 2.21 where 10 the forecast obligation is the peak, the plcnning period 17 diversified peak times one plus the factor R plus F plus U 12 O

O R is the reserve percentage, F is the forced 14 utage percentage, and that F is what is developed here on 15 line 8 of page 4.

16 The large unit adjustment is not operative 17 18f at this time, it is zero, and passes entirely out of the i

19 f i

P cture.

20l On page 5 is the development of the load i

dr P adjustment which is the factor D in the forecast 21 gf obligation formula.

i S

that on line 13 GPU is seen to have a load 23!

i drop adjustment of 4.35, tha t is percent of reserve.

O t

G 25l Then taking the diversified planning period I

menarcu a m.usu.. inc. - n n. teenwuow m. - wannieown. ex. ers,2

N:wton-dircet 526 n

t 1

peak again as developed earlier, adding the PJM reserve 1

l margin R, which is 22 percent, the forced cutage rate 2

adjustment, which is a negative.15, the lead drop adjustment 3:

4j which is a positive 4.35, GPU's reserve margin required is i 26.2 percent, and that produces the forecast obligation of 5l 6

769 shown on line 15.

7 Now that is a very quick overview of the 8

determination of the forecasti obligation, which really is g i an extremely complex calculation all the way through, to 10 treat all of the different components.

11 But this represents a calculation which is 12; made every year for PJM.

The calculation in a given year, 13 for example in June of 1980, the calculation was made fixing

.24 I a forecast obligation which was fixed for the planning 15 Period starting in June 1982, June 1982 through May of 1983 i

16l was fixed by a similar calculation to that shown in Exhibit 17 f F-25.

i 13 g That obligation will remain fixed.

The I

19! capacity to meet the obligation is determined by what is 20 installed at the time or what may be purchased or sold by 21l the various companies within PJM.

S it is a vary rigorous calculation and I 22 merely wanted to demonstrate that we started F-6 from a very 23.

soundly based calculation which.is applicable to all of the 25/ companies in PJM.

f'

!.tCHftCACH & MAR SHAl f!!C. - 27 fit t;CCXWit.1.OW AVE. ~ H AflRISSURG. PA.

171f2

527 Newton-direct f

i That explains Met-Ed Exhibit No. 25 and the 1

I C

2 same explanation would apply to the Penelen counterpart h

3 exhibit, whatever that number may be.

1 4(

Met-Ed F-26 is a similar tre' tment, 4"st to a

5 show the similarity, but also to show the sligh't differences 6

between the determination of reserve obligations under the 7,

GPU agreement and that under the PJM agreement.

t al Page 2 is a shortened example, illustrative l.

9 only, showing the determination under the CPU agreement of 10 ;

the same reserve obligation, now this is the determination 11 among the individual companies of GPU, similar to the 12 ca1culation made for the individua1 eompanies of PJM, bearing

{';

13 in mind that under the PJM agreement GPU in. total is treated h

as one party and establishes one obligation which is then 14 l

8P it up among the individual companies.

is 16 The calculation on page 2 here is virtually 17; the same as that for PJM, right down through line 30, the 18 determination of the forecast capacity responsibility.

i 19; In PJM we call it the forecast capacity 20l obligation.

In GPU we call it the forecast capacity responsibility.

21 Now the or.6 Trinary difference in treatment 22 23{

in GPU and w in P*A 9,, the treatment of the correction i

l or the adjustment after the fact for actual changes from the $

p L

25j f recast values.

McHR3ACM & f.tARSH41 f ttO. - 27 fL LCC:"W!t. LOW AVT. - HA 44:1SBURG..*A.

17112

Newton-direct 528 L

g In PJM basically the forecast obligation is C

2 a established and then after the fact adjustments are made for the deviation of load drop from the forecast and the deviation 3;

4 f f reed outages from the forecast, so there is an after-the-5 fact adjustment under the PJM agreement which normally will 6

be done fol' lowing the planning period, so that it is a retro-7 active type adjustment once a year, generally speaking.

8 Now in GPU we don't do that.

We make the 9

calculation on a weekly basis and that is acccmplished by l

go the use of the formulas which appear in the GPU power pooling j

yy agreement.

i

~

12l Page 3 sets forth the steps that we use to keep our capscity accounting current.

13

.14 {

On page 3 the various bracketed figures i

15j under the various parts of the obligation, the adjustments i

16 and so forth, refer to schedules and paragraphs in the 17 schedule of the GPU power pooling agresent.

18 For example, he weekly capacity obligation 19 is defined completely in Schedule 4.01, Paragraph 2 of the 20i GPU Power pooling agreement.

i 21l Goin8 Part way down the page to the forecast capacity responsibility, the determination of that is as 22 23 shown on page 2 and parallels exactly that in the PJM agree-

.I 24f ment.

We then determined the annual adjustment ratib, 25j f.!OM7t EACH & '4ARSHAL, INC. - 27 N. t.OCXW!!. LOW AVE. ~ H. RRISS4JRG. PA.

17112

Newton-direct 529 l

which is nothing more than a statistical tool to carry 1

through the rest of our calculations.

h C

2 l

We get a weekly allocation factor according 3

4 to that formula, determine the basic capacity obligation, then take the difference between the forecast average unavail -

5 6

able, the actual unavailable, to get the unavailable adjust-ment in each week, and then make the weekly capacity obliga-7 i

8 tion equal to the basic obligation plus the unavailable 9

9 capacity adjustment.

vnen each week the deficiency is the 10 difference between the individual company's obligation and 77 j i

12; its insta11ed capacity, f

13 So under the GPU agreement we keep the h

{

i entire capacity accounting, the determination of our y !,

gj obligations, our deficiencies on a current basis and there i

16{

is no need for a retroactive adjustment.

i The one other element as shown on page 3 is 17 l; l

18 [

the bottom one, ' ne annual size factor, and that is used to i

19 l allecate among the GPU companies the total GPU capacity i

20 obligation to PJM.

They are determined once a year and gl applied for the entire planning pericd.

i

,,., l That completes the description of F-26 for i

~~;

both Met-Ed and Penelec and they are prepared only for the 23 yl purpose of trying -- although they seem to be unduly h

(

~j SPlicated -- of trying to shed a little better understandiq.g 25 a

U mom 8tBACM & MARSHAL.1*fC. - f.7 Na t:OCXWILLOW AVE. - HAMmSBURG PA.

17112 l

Newton-direct 530 i

i on the calculations that have been shown on Exhibits F-5 1

m n

2 and F-6.

U, 3

Q Mr. Newton, let me direct your attention solely to Penelec.

For purposes of the record, could you 4

5 just briefly look through the u hibits that we have marked today and describe those, beginning with F-1.l?

?l A

F-1.1 is the revision of Schedule 4.01 to 8

the GPU power pooling agreement which introduces on the 9f record the capacity charge per week that became effective 10 June 1, 1980.

11 Exhibit F-2.1 does exactly the same thing 12 f for the PJM capacity rate which became effective June'1, i

13 :

1980, and as I said with respect to the Met-Ed, both of 14 :

those rates were used in the calculations shown on Exhibit 15 F-6.

I 16I Exhibit F-12.1 is the GPU short-term power 17 I agreement updated to the present time.

It differs frem the 18 [ original exhibit, by the addition of the Central Hudson 19 f agreement, and its basic terms, and the elimination of the l

20l PP&L short-term purchase, which was eliminated by the PJM 21(

special settlement agreement which was introduced as an i

22i earlier exhibit in both cases.

I don't have the number for i

23 ;

Penelec.

I p-24 i Penelec Exhibit F-25 is a response to a l

V i

i 25 3 question directed to me last week at page 231 of the transcript, I

2

?t3H taACH e MAR SH AL tNC. - 27 M. LOC 7:W1LLOW AViL = HARRIS 3tTRG. PA, 17112

N;wton-direct 531 0

7 l asking to provids soma figures for ths Penelec T&D payroll i

C 2 h f r the years ending 3-31-80 and 3-31-79.

It is just a matte f housekeeping to bring that up to date.

3 l

4 ]

We will, as I think I said earlier, also t

introduce Penelee exhibits, I believe they will be F-26 and 5

F-27, which will be identical with Met-Ed Exhibits F-25 and 6 :

F-26.

7 MR. SELTZER:

That is all we have of Mr.

g Newton at this time.

9 MR. SUFFIAN:

With Your Honor's permission, 10 l and at the request of the Consumer Advocate, we would like i

11 to defer cross-examination until they finish their examination.

12 13 MR. BARASCH:

Thank you, Your Honor.

{

14 i CROSS-E M MATION 15 r

BY MR. BARASCH:

16 77 l Q

Good morning, Mr. Newton.

l l

A Good morning.

18 >

19 Q

As you said on the record, this area is a 20 little bit complicated.

I have a series of questions I l

21l w uld like to discuss with you.

I frame them with the hope 1

1 22j that perhaps we can get to the heart of the matter quickly.

MR. BARASCH:

At the conclusion of that, 23 k

just for purpose of the parties, what I propose to do, b,

h

~

i after Mr. Suhn conducts Ms cross, is perhaps have an 5 (:

P.townsACH a M ARSHAL. INC. - 27 N. LOCKWILLOW AVE " 14 ARRISSURG. PA.

17112

Newton-crons 532 I

t

~

1j off-the-record conference, because I basica11y have two 2!

packets of questions here, and perhaps you can dispose of 3

the more detailed ones off the record and not have to come n

4 back on, if that is amenable to everyone.

5 BY MR, BARASCH:

6 Q

Do you have Exhibit B-1 in front of you, sir, 7'

for Penelec?

S!

A Yes, sir, I have it.

9 Q

That is the Penelec B-1, I hope.

10 A

Yes, sir.

11 l Q

If you will take a look at Part 8, page 1 12 of that document at line 12 --

13 A

Penelec Part 8 --

14 Q

Page 1, line 12.

15l A

Yes, sir.

16; Q

You have an item labeled reserve capacity 17 !

and the budget reflects a $5,569,000 reduction in expense i

18 due to reserve capacity.

Do you see that number, sir?

19 [

A That is right, yes, sir.

20 Q

Now isn't it' true that that approximately 21l

$5.7 million amount represents the budgeted receipts from i

1 ther GPU companies during the year ending March 31, 1981?

22 23 h A

It is 'certainly a receipt.

Whether it is

.q all from the GPU companies, I don't have that Penelec

' O 24 tb 25 exhibit -- maybe if I could get that I could confirm it.

McHR3ACH a MARSHAL. !NC. - ?.7 N.- L9CXWILLOW AVE. - HAMRISBURG. PA.

17!12

533 N wton-cross I

i 1!

Q F-6, page 2, sir.

A That is correct, that is entirely a GPU g

C 2{

3j internal transaction.

l Q

You don't have to take the b'ook out, but if 4l 5, you will accept, subject to check, Met-Ed Exhibit B-1, Part 6

8, page 1 also reflects an income credit on that line item.

7 Can we assume that all that money would be coming to Met-Ed 8

from Jersey Central Power and Light, that is, from sources i

9] within GPU as opposed to in the pool?

10 A

Yes, sir, tha t is correct.

11 )

Q At the present time and in the budget isn't 12 k it true that PJM treats the two Three Mile Island units as I

{

13 l being out due to a forced outage?

g 14 A

That is correct, they are recognized in the I

)

15; forecast determination and comparably recognized as being on i

16, extended forced outage, shown as unavailable.

l 17-Q Isn't it true that due to the way PJM treats 18 l forced outages, TMI is still being treated as available l

19-capacity but the capacity requirement for GPU is increasing 20 over time?

I A

I am not sure I fully understood the question 21 Q

Let me make it simple fcryou.

I used the 22 f

23l wrong word.

I should have said installed capacity.

Let me

,,, [

rephrase the question that way so we are clear, that due to h

(.

~~'

the way P.Ri treats forced outages, TMI is still being treated 25) 9 MCMRS ACH & btAR 5HAL. INC. - 21' N. t.edKWhLLOW AVE. - HARRig3URG. PA.

17112

Newrno-cros_s 534 II

! as installed. capacity but that the capacity requirement for

,.t GPU is increasing over time.

2 v

s With that ccrrection in the question, does

,a th t make it easier. for you to answer?

4 A

That is correct, yes, it is due to the 5' l gr wth in load, increasing average forced outages, 6

et cetera.

7 3

Q Now as I understand your testimony, you Prepared the capacity accounting and reserve capacity 9

expenses and whatnot exhibits for both Met-Ed and Penelec 10 in this proceeding, right?

g A

That is correct.-

12 l

\\\\

13 g Q

And those computations were, as I gather, compared on an identically comparable basis, just adjusted y

i for the different facts of each company's case?

g A

ht is correct.

16 I

17

-Q With the exception of those last set of exhibits that were discussed this morning, all the exhibit 18l numbers, certainly those prior to F-25, are identical for i

19 both cases, as I understand it?

20 I

21l A

That is correct.

t Q

I am trying to simplify the questioning a 22 23(

little bit, so for purposes of the question I am going to i-ask you I may refer to a Penelec or a Met-Ed exhibit of O

2y, !

., i the icwar numbers, below the ones you just handed out today, cl i

l m.s m cs...as m.,,= -, n.,_. - u... m. _ m m m.. m in u l

Newten-cross 535

?

gl and if you would enswer those questions I would assumn that i

y u are s ying it is identical for both and if there is some 2

3l reason wny it b Merent, please inform me as we go through 4l this, otherwise I will presume that you are basically answer-ing the question for both companies.

5 A

If you are accepting the fact that the 6;

1 7l numerical values are different in both companies.

L 8 I 4

Yes, but we are tialking about the theory and i

' I just wanted to make sure we are using the same theoretical 9

10 j approach.

If you turn to Met-Ed Exhibit F-6, page 2, g

which I think you probably have in front of you, 2A that is -- -

12 A

F-6, page 2?

13 O-O 4>l 1

Q 2A.

15l A

Yes, sir, I have it.

Q And I am looking at lines 1 and 2, the total 16 column on the far right-hand side of the page.

From there 77 l

l 18 { it appears that GPU has capacity in excess of requirements t

19 !

f r Purposes of PJM accounting, is that correct?

20i A

That is correct.

I i

Q No credit, however, frca PJM is reflected.

214 Dcsn't that assume that all PJM companies have sufficient ap ity as compared to their obligation, in other words, 23 t

every one is above the requirements, and that is the reason

(~~

b, h

gj why you don't see any credits flowing to GPU even though I

s' 370H199ACH & MAR $NAL. !NC. - 27 PL tacxv/'LLOW AVE. - M ARRissuno, PA.

17112

Newton-cross 535-A I

they have more than what they are supposed to have?

2 A

That is correct.

3 Q

And in fact that is the case, all the PJM 4

companies have installed capacity beyond their accounted for 5

obligation to PJM?

6 A

They have installed capacity beyond their 7,

forecast obligation.

It is possible that when the accounted 8

for determination is made there may be some minor deficiencies.

9e I am not certain of that.

10 11,

(Transcript continues on next page.)

12 ![

13 !

Om l

14 i I

15 l

)

16l I

17 18 i

f 19l 20 21 l

22 23 i

,~4 15 :

McMUS A*H 1 M AR SHAL. INC. - 27 N. LOCTNLLLOW AVE. - H ARRISBURG PA.

17112 h

]

Fewton-cross 536 I.

1l G

Eut for orojectinc budactino ourposes it is assumet 2

that there will be no deficits?

g 3J A.

That is correct.

4 G

No deficiencies, I should say.

And if for some 3

reason it turned out that one is exoected to occur does not

'6 occur and someone did have a deficit, that variance would be 9

trued up after January 1st of next year?

i A.

That is correct.

I micht make one comment on that 8l 9i If as we ao through the year and our calculations are made, i

10 j we check calculations routinely, and if we make a determina-i L tion that there is coina to be a sionificant admustment at 11 t

the end of the year, we normally begin to take care of that 12j 13 !

as we go along so we don't have a aree end of the year 14 exchance of cash.

So far as I kno t

ab bot been i

15 h determined as beine necessary as yet.

16 0

Mr. Newton, lookina at line two, does the GPU installed capacity figures include any increases or reflex-17 i ns for increases due to short-term firm purchases being IS 19] made by GPU since the Three Mile Island outage?

1 A.

No, sir.

They'have not reflected in that line.

20-0 W uld those values be reflected on a true-up 21 basis at some point in the future?

22 j

23:

A.

Y s, they would be.

They would be reflected as i

I necative unavailable capacity which is a confusing term but 24; b

I think I should clarify.

I think you used the term short-

,5; i

2 PSOHRB ACH a MARSHAL. INC. - 27 N. COCKWiLLOW AVE. - H A rl m s e t,*t G P A.

17112 1

I Newten-cross 29fr i

4 i

1 term firm purchaces and the short-term purchas2s are not what r~

3 we describe as firm.

That is why we treat them only in the O)'

3 [ unavailable calculations because ve never know whether they 4

are coina to be available next week or not.,

t G

Mr.. Newton, when were the numbers shown on F-6, l

~6 page two-A forecasted?

7 A

They were forecast in June of 1978.

8 G

Prior to the accident, in other words?

9 A

Yes.

I 10 0

When you use that phrase " negative unavailable 11 capacity", should I deduce from that that had it been known 12 there was coing to.be an outage at TPI that the company f

13 ;

would have the need to make these purchases of system, that-

,'_),

l-

,14 that would have resulted in. adjustment to GPU's installed 15 capacity numbers shown on line 2?

16l A

I'm not sure I follow the question really, sir.

I 17l 0

Unavailable capacity computation, is that an in-18 l put into the number thct ends up beina GPU's installed f

i 19 capacity?

I will start there.

20 L

No, no.

The installed capacity is the rated i

3g, capacity that our eguipment can produce when it is all I

available.

The unavailable factor is the reduction to that i

22 i

23 installed' figure that flows from the units being out for 24l maintenance or being forced out, so the unavailable capacity

~

25 is a reduction to the available, but the negative unavail-i in mounsaca a uAnssat. inc. - 27 n. ::ecx. wits aw avr. - HARRIS 8URG. PA.

17112 l

Newton-cross bSM I

1 able works in the other direction and has tha offect of

(~;

2 appearing to be an increase in capacity althouch it is treated u:

4 p

3; only in the unavaileble capacity calculation.

4 O

Fr. Ueuton, let me just ask you a hypothetical 5I and maybe this can help to clarify it.

If you had known'back t

i 6;

in June of 1978 when these forecasts were put tocether that f

7; it was going to be a change such that you would have nega-3l tive availability factor of 200 mecawatts -- excuse me I

negative available capacity of 200 megawatts, what difference 9

10 would that make in the numbers that would appear on lines

)

t 11 l 1 and 2 of F-6 and where would those changes come in?

I 12; A well, sir, had we known that, and I don't want to I

13 postulate that if we had known there would have been an s

,14 accident --

15 G

No, I am not postulating that question that way l

16f myself either.

I am trying to make it simpler than that.

17 A

But had we known at the time this calculation was Ig run that we would be bringing into our system short-term 19 purchases that would have the effect of representing an 20; average of 200 megawatts of negative unavailable, what it i

l l

would have done was, and if I may refer you now to Exhibit gy!

F-25 from Met-Ed, page 4, line 2, the forced outage rates g3 i

i f units planned in service for GPU is shown as 18.44.

Had 23.!

we known that we were coina to have this 200 meaawatts coming in that farced outage rate would have been smaller llh

~

25 MOMADACH a MAftSHAL. tNC. - 27 N. LGCXWILLOW AVE.- M artRiss un G, P A.

17112

Newton-cross 539 s

e I

1l and our reserve obligation would have been smaller.

l

{ 3 0-so line 1 on F-6 would have been smaller? I 3t A That is correct. May I correct my answer? 4I I misstated slichtly. I referred you to paq'e 4 for the 5-l forced cutage. I should have referred you to page 5 for 6 the miscellaneous adjustments, line 3 of unpaid 5 of F-25 7 shows for GPU, average miscellaneous adjur.tments and minus 8' 217. That number would have incre'ased by the number we are 9I theoretically talking about and then it would have had the i 10 same effect on our reserve obligation. I would have reduced 11 it. l 12 G So just'to summarize this-little bit of w ndering, a 13 as of this moment on F-6, page 2A, the impact of the company' s J4 purchase of power outside the system is in n ray reflected f 15; in the values given in line 1 sM line 2? I l 16; A At this point in time, that is correct. r I 17l G. And t - thermore, the accident and the impact of i 18! the accident and GPU is in no way reflected in the values 19{ that are shown in line 1 and line 2 of F-6, page 2A? 20 A That is correct. 21 G Now.in June of 1981 we are going to come back and draw up these values that are shown on F-6, as I understand 22: i 23 it? t A For PJM, yes. y Nh 25 G Fine, and at that time these numbers would then E MOmtBACH & MARSHAL. INC. = 27 N. ESCKWILLOW AVE. - H ARRISBURG, P A. 17132

Uewton-cross 540 Ifbeadjustedtoreflectfirsttheimpactontheforcedoutage {- 2 rate, and secondly, the negative unavailable capacity due to g a 3 lpurchasesofsystem? 4 A That is correct. .f G In your opinion, without doing the calculation 5 6 for the moment, will the net impact of those two changes 7 produce approximately a wash between the values of line 1 or 8* line 2 or will there be a variance that will result? 9j A There were so many variables involved in here. 10, I really would not want to hazard a guess. Another one of 11 the adjustments is the load experience and that is varying. 12 I think probably our losses are less than forecast so there 13 is so much working in different directions, I would not.want 14 to hazard a guess. 15: G I understand tha t there are going to be a lot of i 16! chances in June of 1981. What'I am asking is the way you i 17 i understand the system, if everything else remained constant 18 [ and the only thing we were changine is the impact on the 19-forced outage rate from the accident and the impact of short-1 20i term purchases on the negative unavailable capacity, do you t 31l have any idea what the result of the impact of those two i 22j factors would be upon the relationship between those numbers? 23 If you don't know, that is a perfectly valid response. I am ( ~~ 24[ just trying to understand how we can have an understanding I 25j how those two factors relate to each other. MOHRB ACH & MARSHAL. INC. - 27 N. I'OCr.YlLLGW AVE. - M A RRl60 0M G. P A. 17112

Newton-cross 541 3 1 l A. I really don't know so far as this planning year is' 2 concerned. As we go along for one or two more years, then 3 definitely wo will swing to a deficiency posture. One of 4 the problems is the forced outage that goes into this calcu-I 5 i lation in a given June is based on the three year average f ending with the prior January 1, so it is going to take 6 7! three full years until we.get the full impact of the TMI t 8! outage on that factor, i 9f G Fine. Now PJM's planning runs from June to the 10 i following April, May, correct? 11 l A. That is correct. 12 f G And'when I look at F-6, I see values for April and 13 { May of 1980 and then another set of values moving ahead to y s l ,14 next year. Do I understand it then that we will really have l I 15j a piece of two different planning years shown on that i 1 er.hibit? 16; 17! A. That is correct. Yes. 18 G And the values that are shown in April and May-19 of 1980 would have.been developed when? A. They would have been-developed in June of 1978. 20: O And the other piece, the year starting June of 21 1980, they would have all been developed in June of 1978? 22, i A. Let me explain what we did.. We are' doing two 33 th!.ners here. We are normalizing and annualizing so we have ~ 24 adjusted April and May of 1980 which properly belongs in the 25 'i. MOMRB ACH & MAR 3HAL. INC. ~ 27 N. t.GCKWILLOW AVE. " H ARRf 88tJRG PA. 17112

Nrwton-cross 542 1 1979 to 1980 planning period to the end of the test year p 2 value which is the March *_381 figure, so we are annualizing g 3 those first two values there. The underlined values indicate 4 those that we have changed, so they do indeed include parts { 5c of two different planning periods, but we have traded that 6 on an annualized basis across the full period. 7 G So the 1980 to 1981 planning period was developed y i 8j for June of 1978, correct, and the reason why the values 9l' remain the same for April and May is because we have normal-10 ized the previous planning periods forward to reflect the 11 ; results of the 1980-1981 period? 12 A. Insofar as the PJM values are concerned, yes. l 13 That is correct. g J4l G When thoce short-term purchases end of being I 15j reflected, will the in:reases due to the purchases as off 16! system purchases be allocated within GPU according to the 50-25-25 percent ownerships of TMI-17 17; 18 [ A. Generally 3peakir J that is the way they get 19 treated. We use what we call the right of first refusal. 20l Each company gets that share of most of those purchases. If 1 21{ they can't use it economically then they pass it along to the i other GPU ccmpany that can use it. 22 l! 23l G I understand that for your energy accounting t purposes, but is that also the way it is tr6ated for capacity 24 l [' 23 accounting purposes? MONREACH th M ARSH AL. INC. - 27 N. CSCXW1t.t.GW AVE. - H ARRISGU5tG. PA. 17112

N:wten-cross 543 1] co-Yes, on the short-term, the/ called negative un-A g l 2 ' available would follow the energy. i 3j 0 You treat it that way even though there are i 4 capacity costs associated with those short-t'erm purchases? 5: A Yes. We bring the capacity costs into the energy l 6{ costs. I 7 0 That is because of the offset, if you will, in the 8 Energy Clause that was provided for by this Commission in its 9 order since the accident? 10, A Yes. In order to get the energy from the outside l 11 l companies, we must make these capacity commitments a week 13 ahead of time. CN 13 G So you treat it as an energy-related cost through Y) 14 the Energy Clause? 15 -A Exactly.- 16 G If you turn over to 2B of F-6 whereas I under-L j 37j stand in it you show the effect of removing TMI-2, is that i 18 i correct? 19 A That is correct. That is the TMI-2 admustment i 20( after we put the basic. data on a normalized-annualized basis i 21 h and correct it for the one error that we had made. 0 And at line 11 of that document you show for I 22 23l Met-Ed, you show a payment of 5.85 million dcl.lars to PJM, a is that correct sir? p)j I I w A That is correct. That would be Met-Ed's share of l 25l: d McHRBACH & MARSHAL. INC. - 17 N. LCCKWILLOW AVL - HARRtSB URG. PA. tyttg

1 l Nswton-cross 544 0 f 1. the increased onligation occasioned by the removal of TMI-2 { 2 in total. l 3lI G And as.I understand it, Mr. Newton, that payment 4 I isn't actually being made to PJM today, is i't or in the test 5 year? 6 A. That is a very difficult question. There is no 1 1 7 payment being made manifestly but what this represents is 8, a credit was found, a credit that is now being flowed through 9 to Met-Ed customers a'.Ulough they are bearing none of the lo ! costs of maintaining the TMI-2 unit in service. What indeed 11 this represents is the obligation that Met-Ed would have 12 f through PJM or the cost of that obligation had TMI-2 never 13 been built, incurred none of the costs and would incur none h (- .t t 14 i of the resulting benefits. I 15i G Thank you. Well, th'at credit as you have described 16! it, isn't going to be reduced by $5,858,000, is it because-s 17 of TMI-2 being out of rate base? 18 A. Well, the credit exists under the present cir-on a 19, cumstances under our present accounting. Now,/ theoretical'i 20i ratemaking basis the customers bear the burdens and they I 31j accept the benefits, properly so. In the case of these 22; units there is absolutely no revenue coming into Met-Ed for i 23{ any of the capital invested in the unit. The capital was to make it available, no O & M expenses to keep the unit h 24 25i available or ready to go and on that basis, it would seem to i MOMRS ACH & MARSH At INC. - 27 N. COCON!LL@W AVE. - HAe ti$8tntG. PA. 17112

Nr wton-cross 545 1 me to be totally inequitable to hcid ths.customsrs freo of 2 any cost, any of the burden and still attempt to ascribe 3 to them the benefit of this $5,858,000 which flows from the 4 presence of the' unit. It's just another part of the whole 5 ratemaking treatment. i 6! THE ADMINISTRATIVE LAW JUDGE: Let's take a

7. ten minute recess.

) 8f (Whereupon, a short recess was taken.) 9 (Testimony continued on next page.) i 10 l l 11 ! 12 [ l 13 I 14 15 16i i I 17 Is [ 19' 20 f 21l I 22f 23.f i 24t b l 25t MONRDACH a M ARSS4AL. INC. - 27 N. CeCKwu.!.SW AVE. - HARRI$31dRG. P A, t *f t 12

Newton-cross 546 f 1; EDMOND NEWTON, JR., rasumed. [ 2 i BY MR. BARASCH: 1 3 Q I would like to take you back if you 4l remember, to your last response before the break. I think i 5l upon your last response you implied a benefit to present 6 ratepayers due to TMI. Now in fact wasn't that benefit in 7f rates removed whem TMI was removed from the rates in both 8 f Phase 1 and Phase 2 of the 308 proceedings? 9,f A I am not certain that I know exactly what 10 j the 308 proceeding was. i 11 l Q That is the two proceedings that followed i 12l the accident, the one which first involved TMI-2, whether 13 {- that was used and useful, which was the June 19, 1979 g 14 l decision, and then the May 23, 1980 order relating to TMI-1. 15 A No, sir, the benefit on reserve capacity of i

16. the credit was not removed by that.

There has Seen no base j 17 l rate determination up until this point, until this filing, 18 l in which the removal of that is possible, and we indeed are i, 19 ; proposing to do it in this filing with respect to the No. 2- !i 20 !! unit. l 21 a Q If I could, I would suggest perhaps you 1 22i better consult with your lawyer or with Mr. Huff or Mr. 23 j Car oll because I believe the; have testified contrary to (7 24 [ what you have just said in terms of how the values af TMI-2 g 1 a p 25 and 1 were computed when they were pulled out in Phase 1 and mannuen a uma.u me. - n n. caenwu.ow as. - no.ansmma. n. smz l

Newton-cross 547 1 g l Phase 2. Perhaps you would like to consult with counsel n that. 2 I A Mr. Barasch,1 am advised by Mr. Huff and 3 counsel that your statement was indeed the fact and I was 4 incorrect when I said that it had not been removed. I did 5 6. n t realize that. 7 But what we are doing here is just a 8 recalculation of the same thing, just updating it, if you will. 9 Q That is right, you are basically in this 10 base rate filing bandling thosc matters in exactly the same 11 fashion which the Commission pulled out the values for TMI-l 12 2 O A That is correct. .14 j Q' Therefore, in fact the benefits are no 15 16; longer being reflected in rates at the moment. A To that limited extent, yes, that is correct. 17 1 Q Now the real cost to ve paid to PJM due to l 18 the accident will come in the future when the accou.sted for 19 ~ 20i obligation to PJM goes up due to a rising forced outage rate,, isn't that true? 21 t. A That is correct, the fall impact will occur 22 then. 23 l 24; Q And in fact with the firm purchases being Paid for by ratepayers, the cost of the accident in terms 25, L l wennucu o unasuit inc. - er n. i.eennu.ew av. - MAR;t!SSWRG. PA. 17172 l t

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l i Neuton-cross 548 i l of PJM or in relationship to PJef is presently being reduced 7 r f fset, isn ' t tha t correct ? h 2 A Well, the short-term purchases are made to 3 provide energy to replace the energy no longer available from 4 5l TMI. Flowing along with that energy is this credit to unavail-able capacity. 6 Q So, in summary, the answer is yes ? 7 I 8; A I don't see them as part of the same matter, that is to say, as $1 matter of practical effect they operate i 9 that way but as a matter of rate-making procedure and theory 10 i they don't even enter the equation. .t 1 i I Q I can understand that we have a difference g 13 in theoretical approach to the problem, but you agree with h O, pj me that this is an offset to the PJM cost at the moment? I A That is correct. 15 Q Now in future rate cases, is it GPU's 16 I Position that you will be computing GPU's obligation to PJM 17 by not reflecting the TMI outage for purposes of computing 18 i 19 ! your accounted for obligation? l 20l A In a future rate proceeding if we are seeking t btain full revenue for TMI or either unit we would 21 g[I normalize and adjust it on the reserve area for the to'. 23 [ effect of that. That is to say, when the unit goes back .,h in ~ service and we make a rate filing, we would presume h y 25l ue w uld no longer be making the short-term purchases for a i McHR3 ACH & M AR SHAL. !?f C. - 27 N. Lt,CKWILLOW AVE. - H ARMIS SURG. PA. 17112

Newton-croso 549 I 1 smaller amount and we would normalize that part out. f] 2, We would normalize the installed capacity in. 3 We would normalize the forced outages, the available capacity 4, for all of the TMI effects, and they would operate as a I. credit. 3 6 l I think possibly it might help if I referred e l 7 you to -- 8f F Mr. Newton, could I interrupt you right 9 there for a second, just to make sure I follow you as far 10 as you have gone. A Sure. 11, 12 Q I think so far you have said in a future 13 case you would normalize the forced outage. Does that mean 14 i that your rate case claim that you would make for forced i 15j outage would be different than the value that you would be. 16 in fact showing in your transactions with PJM in that future i 17 i Period? I want to make sure I understand what you meant by ~ normalize. 18 i 19 ) A For a base rate filing unquestionably we 20 would be applying our best estimate cf the conditions that 21 w uld prevail at the end of the forward-looking test year and that would reflect the conditions that would be in effect 22 i 23 in the accounted for adjustment under a PJM calculation, and t whatever extent we would predict that our outage experienca 2 25 would change from what was in the previous determination of StoHMSACH & MARSH A1 tN. - 27 N. LOCXwILLOW AVE. - HAftRLSBURG. PA. 17112

MO Newton-cross l l 1 the PJM forecast obligation, we would reflect that in the 2 accounted for ad;ustment. 9 O 3 Q To surnmrize where we are, as I understand t 4{ it, the ratepayers are going to pay new beca'use they a? e not i i going to get the benefit of capacity associated with 'IMI, as 5 6 we established a few minutes ago, and then they are going to l 7 Pay later through a higher forced outage rate in a future 8, rate case, and it appears to me that that is something of l 9l counting this accident twice, and that is the sourc;e of the k 10 ' difficulty we are having here, Mr. Newton. 11 A No, sir, I did not mean to convey that 12 l impression, if you did indeed understand that. khtI { intended to say was that we would normalize that out of the h 13 I 14 l claim, that is, by having the TMI unit back in service we 15 [ would change our forced outage experience or any of the 16f other factors, we would normalize that in a calculation i I l 17 ! regardless of what the PJM forecast obligation was. l I 18 f Q So what you are saying is that in that i 19l future rate case claim your forced outage calculation would 20f not reflect the effect of that three-year running average 21! experience coming at the end of that period associated with 22 [ TMI-1, you would have to take that back out, right 7 23' A We would normalize that out, yes. i p 24l MR. BARASCH: I think, Your Honor, it might a l 25 k be useful -- this is not the off-the-record discussion that E i snaien a naRsaxc. i:ic. - 27 u. tecxwittow ave. - H ARRISBtJRG. PA. 871!2 1 l

Newton-cross 550-A I referred to earlier -- if we could go off the' record for a 1 second and cImrify something. 2 j THE ADMINISTRATIVE. LAW JUDGE: Very well. 3 (Discussion off the record.)' 4 5 i I 6 l (Transcript continues on next page.) 1 i I. Bl 9 l 10 11 l 12 I I 13 14 1 15 6 f 16 i 17 i 18 19 20-21 l 22 i i 23l O 24! v 25i nonno ca a nan.nu_ me. - a u. e.=:cwiu.OW AVE. - HAMmsgar,, M, ngu l

Newton-cross 551 1 BY MR. BARASCH: { 3 G Do you understand the question that was put to you 3 off the record in terms of a data request in these proceedingo? 4 1 Yes, sir. I do. I 5 f G I wonder if you could describe what information 6 and explanation you will undertake to provide to the Consumer 7 Advocate and I gather to the Trial Staff? 8 A. We will undertake to make the installed capacity a 9 available to GPU at a given time including both TMI units, 10 I remove them both simultaneously for a given period of time, 11 determine the dollar increase and reserve capacity costs 12, occasioned by that adjustment removal in total from the cal-13 culation and then also assume from the same point in time h 14 that those are maintained in. installed capacity but are i 15,i still inoperable as they are now dnd determine what the long 16 range impact in terms of costs of those units being on 1 17 ! forced outage and how our cbligations will increase and the i 18 l resulting costs and then how they will go back down again 1 19 as we bring the unit back in service, and attempt to de-t i i 20! monstrate the offsetting nature of those two values l 21; O In my own terminology, the offsetting nature of i 22l the eventuai normalizations that the company would make in l l 23 !

a. future proceeding to GPU obligation credits to PJM.

h A Yes. p o_ MR. BARASCH: May we go off the record? 25 MOHRDACH & MAR $NAL. INC. - 27 N. t;4GKWILLOW AVE.

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Newton-cross 552 1 THE ADMINISTRATIVE LAW JUDGE: Yes. 3 (An off-the-record discussion was had.) 3 BY MR. BARASCH: 4 O Mr. Newton, I wonder if you could restate for the i 5 l record your understanding of the manner in which Met-Ed and fPenelec'sECRfilings,EnergyCostRatefilingswilltreat 6 i 7, the PJM credits for short-term purchases? 8f A. We will reflect in the energy cost adjustment 9 filing a credit to the energy cost resulting from the PJM f 10[ negative unavailability credit due to the short-term pur-l l 11 chase. We do not reflect that in this base rate filing be-l i 12, cause we are proposing that that flow through is a credit to 13 ! energy cost in the clause inasmuch as the demand cost of f l 14 ' those pureliases is already in the energy cost flowing through 13l the clause and this is just a reversal of a part of that. f 16! O And you have made some sort of a filing with the h 17 : Commission that reflects that intention on your'part for 18l these companies? 19, A. I testified to it. I am not sure we have ever 20; made any filings specifically. 21'i G Well, as you understand GPU is making some filing? 22 i A. We will make t filing and we will reflect that 1 23 i in the filing. l 24 g W uld you provide that filing when it is O made as an exhibit in this proceeding so that we understand 25 MOHRDACH & MARSHAL INE. - 27 h* LOCKWILLGW AVE. - M ARRISSURG. PA. 17812

Nawton-crons: (553 - 1) the relationship between what is going on in your energy j p 3 cost rate and what is going on in your treatment of capacity h -s-3l payments and whatnot in this proceeding? l 4ll A. Yes, certainly. 5l (L "o you know, sir, whethor or not your ECR filing, t6' whether it is the company's intention to refloct a credit for 7, the impact of short-term purchases only for those purchases 8 associated with the TMI outage or is it the company's in-9 tention to always reflect in the future for short-term 10 purchases for whatever purpose as a credit in the energy 11 clause? 12 I A. That is a rather broad question and I can only 13 say that insofar as any demand cost of a short-term purchase g J4, is reflected in the Energy Clause, we will indeed reflect a 15 credit. 16 MR. BARASCH: Your Honor, that completes the 17 first portion of what I had in the way of cross-examination 1 18 and I unuld propose and I have consulted with Staff Council, i l 19 i and apparently they are in a similar situation, that we 20 could perhaps adjourn for lunch and take some time after gyf lunch and during lunch to try to resolve other matters that i i 22 may n t have to be put on the record. l 23 MR. OGDEN: Your Honor, this is understandably a complicated area and I would say the company is perfectly g y (") i 25' willing to do whatever it can to alleviate whatever confusion MOHRBACH & MAR $HAL. INC. - 17 N. LOCKWILLOW AVE.- M ARRISBURG, P A. 17112 l

553A i 1 Cxicto. 2 THE ADMINISTRATIVE LAW JUDGE: Let's adjourn g b 3 until 2:00 and if you want some time to have off-the-record 4 discussions, we will. 4 5 MR. BARASCH: Thank you, Your Honor. 6 (Whereupon, the hearing was adjourned at 7 1:55 o' clock p.m. for lunch ) i 8! (Testimony continued on next page.) 9 I 10 l 11 l 1%' 13 C 14 t 15l I 16l t 17: 18 l i 19; 20' 31, t 22 I I 23i-i 24l 25 MCHRBACH & M ARSHAL. INC. - 27 N. EOCKWit. LOW AVE. - H ARRtsaustG. PA. 37112 l i l L

55!4 g 3 --o00-- 1 h 0 2l AFTERN N SESSION I --oCo-- ,e 4!f (The hearing resumed at 2:00 o' clock p.m.) 5I 6 THE ADMINISTRATIVE LAW JUDGE: Are you ready 7' to Proceed? Have the Commission staff and the Consumer 8 Advocate had an opportunity to review the complaints and 9 the petition to intervene by the American Society of Utility i 10 ! Investors? (No response.) ~ 11 THE ADMINISTRATIVE LAW JUDGE: We indicated 12 13 ! that the complaint as far as the extraordinary rate relief h b. .g j is concerned is not timely and we are going to issue an order dismissing that complaint. 15 MR. SUFFIAN: Your Honor, would your ruling 16 17 j stated just now extend to the complaint against 'the May 23, f 18 ! 1980 order docketed at C-80072105? I 1 i 19 ! THE ADMINISTRATIVE LAW JUDGE: I don't have i l 20 ! the numbers. Do you have the numbers there? MR. SUFFIAN: This is stated in the body of 21 ( l '2, the complaint. It addresses the Public Utility Commission's 23l order of May 23, 1980. Does your ruling extend to that? 24( THE ADMINISTRATIVE L/M JUDGE: My ruling Q i 23l extends to the complaint that was filed by the American l lI McMitO ACH t MAR $ hat., fitc. - 27 N. t CCXV/1LLOW AVE. - H ARR!SSURG. PA. t1112 l

555 g i lSocietyofUtilityInvastors. I don't hava e numb;r on it. 1 2 They refer to the extraordinary rate relief petition. That 3l is n t timely and we are going to dismiss that and we will 4l issue an order on that one. 3 NR. SUFFIAN: I believe that the matter on 6 the docket number I just stated, the Commission's order of 7, May 23, 1980 is now on appeal, and I imagine that the most t 8f expeditious way for the intervenors' to pr'oceed in that matter l 9 would be to try to intervene at the appellate level. 10 THE ADMINISTRATIVE LAW JUDGE: Yes, as far as 11 the petition to intervene referring to the extraordinary rate i 12 relief, that is also refused. 13 MR. BARASCH: If I could take a shot at it, Os 14 Your Honor. There are three complaints before us, one of 15 which is apparently against the Conunission for the extra-16 i rdinary rate relief denial. That is the one that you have .t ruled -- 17 l 18 THE ADMINISTRATIVE LAW JUDGE: That is the 19 one that I am going to -- o l r 20j MR. BARASCH: Now there is a second one, Your 21 Honor, in which American Society of Utility Investors is i n apparently complaining regarding the Commission's May 23 23 rder, its failure to give the company an adequate rate of ~4q!return. It seems to me that as well is a matter that has OLD t 25j been determined by.this Commission and if this group of 1 l MMREACH & MARSHAL. INC. - 27 N.' LOCXVat. LOW AVE. - HARR155URG PA. 17112

556, i

1 intervenors wishes to pursue that matter I believe they are 2 also acting in an untimely fashion on that matter as well. h C i 3 l MR OGDEN: Your Honor, just a point of i 4[ clarification, if I might. The docket number referred to ? 5 ' in the complaint is the temporary rate proceeding docket 6 number. 7! THE ADMINISTRATIVE LAW JUDGE: That is what 8! Mr. Barasch is referring to. } 9i MR. CGDEN: I guess I am unclear then as to 10 whether the complaint goes to the temporary rate proceeding 11 we are in here or whether it goes to simply the order of May 12 ! 23. 13 MR, SPEICHER: If I may address Your Honor h i 14 l on this, to try to clarify it on behalf of the American I 15 ! Society of Utility Investors, we have the three complaints 16f and also the petition to intervene in the proceeding,s 17{ presently before Your Honor. 18 f The first complaint which I think Your Honor i 19 ! has referred to is the complaint dealing with the August 28, 20 f 1980 denial of the extraordinary rate relief requested by 21! Metropolitan Edison of $35 million. i 22! The second one, which I think is now being 23; discussed, is the ccmplaint to the order of May 23, 1980 P 24 setting temporary rates, and I believe there is also in that h (s it 25j orderthatTMI-1wasremovedfromtheratebaseforMetropoliyan 3 i uoxnuc>, a,unsut. me. - n u. c.cxwn. tow m - mamsauna. n. inu

557 l l 1;! Edison, if I am not mistaken on that. We then have a third complaint against Metropolitan Edison Company on the basis that the tariff 3 l req'uested of $76.5 million, which is before Your Honor at 3l this time, is insufficient to give the shareholders the equity they are entitled to under the law. l 6 k 7j Then as I mentioned, we also have the i Petition to intervene in the matters presently before the 8 9l c urt dealing with this tariff supplement. ~ 10 the temporary races, Section 1310(d) provides that the temporary rates so prescribed shall become permanent at the end of such trial period of extension thereof unless 13 b at any time during such trial period of extension thereof .14h f the public utility involved shall' complain to the Commission. B As far as the complaint of American Society 16 g[ of Utility Investors is concerned on the temporary rates I think its recourse was to appeal from the decision of the 18 i Commission at 308, 19 The other complaint is the complaint against ; 20 i the company that it is not asking enough money. It looks ,l i o like the two companies are in the middle here, i 22i. MR. OGDEN: Yes, sir. ,,3 ; I MR. BARASCH: That is not the first time. O) 24 j %V THE ADMINISTRATIVE IAW JUDGE: What position f.tCHRDACH & M AftSHAL. r!!C. - 27 N. t.CCKWILLOW AVE. - H AJtRISSVRG PA. 17112

558 Ij do the companies have on the complaint averring that the (~ 2 requested increase is insufficient? ~ 3 l MR. CGDEN: Well, Your Honor, I think an 4 answer to the complaint will be forthcoming in due course. 5 So far as the company is concerned, as to the status of the 6 complainant in this case to intervene, it would be our view 7 that, very frankly, they would have standing to intervene in j 8 this proceeding. 9 THE ADMINISTRATIVE LAW JUDGE: Yes, but do 10 j they have standing to allege that the company is not asking i 11 l for enough money? Does anybody have any standing in a rate 12 ! Proceeding to allege that the rate increase requested by the t 13 futility is insufficient? i 14 f Or is this the wrong forum for that kind of 15 proceeding? I am dubious as to whether this is the proper forum. 16l 17,! MR. BARASCH: Your Honor, I have a comment i whenever Mr. Ogden -- if you wish to go first, fine, other-18 l1 l. 19r wise I have something to say. I 20, (No response.) f 21; MR. BARASCH: It seems to me, as I understand I l 22i the situation, that the officers of Metropolitan Edison 23 Company and officers of GPU are supposed to be operating

21. !

the company in protection of the interests of the stock-G l 25! holders in conjunction with the interest of the public, and I I MCH23ACH Q l'AR $HAL. INC. - 27 N. LOCOVILLC # AVE. - HARMISSURG PA. 17112 l

559 r i 1l if in fact these people who make up the American Society of h/ 2; Utility Investors are in fact stockholders and they think the i 3 company has improperly managed its business, it appears to me that the recourse is some sort of derivative stockholders' 4l 5 suit against the company, not a proceeding before the Public 6, Utility Commission. i 7 THE ADMINISTRATIVE LAW JUDGE: That was my 8f impression. I don't think our position here is to determine 9 whether or not management is fulfilling its duties to its 10 l st.ockholders. 11 f MR. SPEICHER: Your Honor, if I may, on that, i I 12 I believe that the law itself in the Public Utility Code 13 l requires that the Public Utility Commission and that the l l 14 [ parties involved provide rates of return, and case law l i is f supported this, that they have to give rates of return adequal:e l 16' to protect the shareholders of the utility, and there~ have 17 ' been standards set up by the Suprece Court of the United 18 States as far as determining whether or not that has been done. 19l THE ADMINISTRATIVE LAW JUDGE: But the rate 20' increase in this case is requested by the companies specifica:.ly 21, for that purpose and this proceeding is on that request of 22 the company. The hearing here is on that request of the i 23jtcompany, h. 24 You are bringing in a new theory here that V l 23? management is not fulfilling its obligation to its steckholders. l MOHf!DAOtt & MAftSHAL. INC. - 27 N. ESCKWNLCW AVE. - HAMFtISSUttG, PA. T7412

i 560 i t 1-I don't think it is the obligt .' the g C I Commission to determine the rights and duties vis-a-vis the 3j stockholders and the management. 4 MR. SPEICHER: But I think it is the 5j obligation of the Commission to set rat es that are fair 6 rates and provide a fair rate of return. ? 7l THE ADMINISTRATIVE LAW JUEGE: Well, I think i 8: the obligation of the stockholders is to make their proper i 9l allegation in the proper forum as to whether management is 10 fulfilling its duties in making the proper request to the 11 ' Commission. 12 Your theory is that the Commission should g 2 -" 1 -1 ('

determine the relationship as to the duties and obligations 14 vis-a-vis the stockholders and the management.

I don' t think 15 that is their duty. 16i 17 (Transcript continues on next page.) 18 : 19i t 205 21 i 22 4%h O

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MOMMBACH & M AM 514AL. IttC. - 27 Ni I;OCKW!1.1.OW AVT. - M ARRISBtJRG. PA, 17112

561 i 1l MR, SPEICHER: No, I think our position is i 2[that viewing all the evidence that is presented, what is the i 3l fair rate and what are the fair rates of return to which the i 4 shareholders would be entitled and what are the fair ra'tes 5 to be imposed on the public who are being serviced by the 6 utility and our position is on that, and the evidence we l 7 expect to present will show that even the rates they are 8l proposing-- 9 THE ADMINISTRATIVE TM JUDGE: The rates'are 10 originally not set by the Commission. The rates are set by 11 the utility in the first instance. The only act that the 12 lCommission has is to review those rates and see if they are i 13 reasonable. 14 l MR. SPEICHER: Yes, and our position is that 15 the rates requested are noti reasonable and that they are ~ 16! too low, [ l l 17l MR. BARASCH: Your Honor, if I might, in 1 18 j addition to what I said about the relationship between the 4 19 y company and the stockholders, and it is also particularly 20 interesting to note that in other proceedings that we have I 21 been present thera is presently an appeal to Commonwealth 22 [ court, and it is constantly suggested that the Commission is ( 23 [ not supposed to sit as a super-body of directors of the 24! company which is basically what this comp 1sinant is trying to ! 25 do. He is interposing that the Ccomission, as a regulator, IACHR3 ACH fa flARSH G. !?tC. - 27 N. LOCMWALOW A'/R. - M AR RISBURG. PAm 17112

.562. I I 1 l bas a relationship between the stockholders and the utility. 8 O C 2l Furthermore, if we accept the premiso, 3[8 which I don't, as to what the obligations of this Commission i 4l are to the stockholders in the area of return as suggested by 5! the complaint, it would appear that the remedy is to force 6 this company to refile for more money than they asked for. a not 7' Certainly this Connaission could/ award one penny more than has 8 been noticed by the company in its latest rate filing and the 9.}?ublic Utility Law requires notice in 60 days and a refiling 10 hnd all the rest of that. I don't see how in the world there J 11. could be any remedy to this proceeding even if it were .i 12 < appropriately considered here. Q 13 f THE ADMINISTRATIVE IAW JUDGE: We are not 14 going to rule on the third complaint without some memorandum 15l of law and the parties may desire to submit a memorandum of 16 law and that complaint refers to the insufficiency of the 17{request of the company and they may do so within one week. 18 MR. OGDEN: I thought I heard you say the 19 insufficiency of the request for the company. ~ i 20l THE ADMINISTRATIVE IAW JUDGE: The 31 insufficiency of the request by Metropolitan Edison Company. i i 22 l MR OGDEN: Okay, the third complaint. 23 THE ADMINISTRATIVE IAW JUDGE: The third O r 24 j complaint in seeking $76.5 million as being insufficient. We v ? 25 L will receive memorandum of law on that to be submitted to us htO>tKB ACH & MA.isitAL. EMC. - 27 N. LOCXWILLOW AVC - Ple M M!s5URC. PA. 17812 l l

JUJ I within the week. Q 2l At this point in time I don't think that 5 3l petition is proper. I think that complaint is not against 4 the rates properly but it is against manageme'nts, operations 5l and managements responsibilities in regard to the investors, 6liI don't think this is the proper forum for that, but we will 7 welcome a memorandum of law and we will make the final 8 determination, 9 Any other statements in regard to that 10 complaint? 11 (No response.) 12 TE ADMINISTRATIVE LAW JUDGE: The company 13 does not vant to object to any more money, do they? 14 MR OGDEN: I was going to suggest a 15 compromise that we would settle for what we have. asked for. 16[ THE ADMINISTRATIVE LAW JUDGE: I gather that i 17l the company does not raise serious objection to your complaint. 18 lf MR. OGDEN: I think,Your Honor, having the i 19 i benefit of having'a week to prepare some memorandum and 20 'h giving some further thought to the matter might be better. I 21l THE ADMINISTRATIVE IAW JUDGE: Very well. 22 ) Do the parties indicate they want to have perhaps an off-23 the-record discussion? Are you ready to proceed? ,Q' 24k MR. BARASCH: Your Honor, I believe that in ,v L 25l the best use of time we could take a recess for, I don't know

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564-i 1! exactly how long. O 2 = ^ = Is = T m u w Junoz: now much et=e 3 do you want? l 4l MR. BARASCH: We could try for starters for wnere 5 a half hour and contact Your Honor and sce/we stand. 6 THE ADMINISTRATIVE LAW JUDGE: We will recess 7l for a half hour and I will rejoin you here. 8 MR. SPEICHER: Can we go off-the-record, j 9fYourHonor? We still have the question of the petition to i 10 l intervene which I don't think was decided by Your Honor. 11 The three complaints were ruled on but not the petition to 12 l intervene. 13 THE ADMINISTRATIVE LAW JUDGE: Firstly,, I '4! think the petition to intervene is the petition to intervene l I 15l in all those three matters to start off with so that that, l 16 ! to the extent that it refers to the two complaints that we 1 17 ! referred to for extrnoW ' nary relief rate, relief in the l 18 temporary rate complaint, we think that the petition to 19 I intervene is inappropriate. 20 MR. SPEICHER: 'Inat we had attempted to do 21 with the petition to intervene was to, using from the 22! notices that we had received, the Docket Numbers R-80051196 j 23 and 1197 and C-80072105 and 2106 as being the matters which 24 are presently before Your Honor and it was our intention of b i 25 j intervening in those matters. MO!:RSACM &:1Ait$N AL. tN O. - 27 N. LOOICWALOW INE.

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I 565 s i I I THE ADMINISTRATIVE LAW JUDGE: Is there any h 2 / objection to the petition to intervene in the tuo rate 3 proceedings? 3 l 4' MR. SUFFIAN: Not by Commission Staff, l 5l Your Honor. I 6 NR. BARASCH: I have a question which is, 7l I do not see anywhere in the petition or the complaint the 8l allegation that the American Society of Utility Investors is 9j a customer of either Met-Ed or Penelec. That.is one of my l t 10 i difficulties with the matter, Your Honor. Now perhaps we ~ 11 could be advised on that matter. 12 ( THE ADMINISTRATIVE IAW JUDGE: Well, we feel ]J 13 ! although cot a customer, they do have an interest as. effected l 14 by the proceedinga in the rate case and don't you think we 15-will follow the tendency of being very liberal in the inter-16 vention proceeding. il 17 ! MR. BARASCH: If I could, I have two 18 questions on point.. The first being the customer status and s 19 the second relates back to my comments as to the role of 20 companics in this proceeding which, as I understand it, they S 21; stand here representing the interest of the stockholders of l 22i GPU so it would appear to me that their. interests, if anything, 23 i are identical and what could possibly be served by identical 3 (]a 24frepresentation? .l 25[ HR. SPEICHER: If I could address that MOMTIEACM & MARSHAL. It!C. - 27 ?L LCCXWit LOW A*/it. " H AR *.19 8 U M G. P A. 17192 l

a 566, i !,[ question, I think in many instances the role of the stock-g y ( 2 holders and the company would be identical. There are 3l instances, houever, where decisions might be made by the 4 { company on a purely managerial level which might not deal i 5I with the immediate best interest of the shareholders based 6l on political reasons or what have you. Therefore, the 1 7l shareholders might have an interest to prceote their 0 position which would'be different from the immediate interest i9l of the company and just as consumers and other groups, 10 including other rate payers, are able to present their 11 : vicus hero, I think it is certainly appropriate. I 12 [ THE ADMINISTRATIVE IAW JUDGE: Then you como e { right back to stating that your interests in accordance with 14 [ the petition that you have filed alleging that the company s 15dhasnotaskedforenoughmoney. That is the basis for your 1 j 16 ]i petition for intervention, not to support the co=pany's 17 request and voluntary rato increase proceedings by the i 3 l 18jccmpany. Your petition is to challenge the company. l 19 'l l MR. SPEICHER: No. Our position is core M broad than just a limited one of challenging the company. a 3 21 We feel the shareholders interests deserve the right to be 22 ll heard by Your Honor and by the Public Utility Commission. l il 23 !l Whether or not all of our interests are the same as tho' 1 7 -r I: company, I am not quito sure. I don't believe they il v M j! neceascrily are, but I think the shareholders should be i I u: x.w.c x. ru a sm. m e. - 27 n. _ o c r.., .ow m. - iu a m s a u n a..u. irii2 l

$67 4 1 (entitled to have representation to present their views and hj' 1)ifitisdeterminedthatthesharaholdersviewsaretheseme in j 2 jas the company, so be it. And/the respect that we feel that g 4 Wa rato increase ought to be approved, we cert'ainly are in } 5 l agreement with the company. i d) We also want t' be able to put forth ? itestimony as far as the shareholderd position regarding the l 6 llrate increase which is proposed and paid to the shareholders 9 )as the rates that presently exist and what a rate increase } 10 l could mean to them in ter:as of their interest in the company. l l 11 ] THE ADMINISTRATIVE LAW JUDGE: Well, we a 12 l would suggest that you file an acended petition reciting 13 just exactly your interest in these rate proccadings inasmuch 14 as your petition refers and indicates a desire to litigate i 15 ;lin all three proceadings that you havo filed complaints and 16 we don' t wcnt to do indirectly what we said we were not going 9 17 q'] to do directly. l IS } MR. SPEICHER: Thank you, Your Honor. j IC d THE ADMINISTRATIVE LAW JUDGE: We are off i Ic j the r: cord for a half hour. 31 ! (Testimony continued on next page.) ] 4 u: $3 ! (J Mi j ~ I l 23 L r :s.a. : Aes z. .:u st A. ::4c. - 27 rt.

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Ne'ston-cross 568 4 I 4 ... al TliE ADMINISTRATIVE LAU JUDGE: Are we ready lM to proceed? p ,3 j ,y BY 12. BARASCH: a t 4} Q Mr. Newton, as I understand,*in the course ? 3,[ of this off-the-record discussion tha t has gone on, a further 6l request for data was made of you. I wonder if you could $ describe the further information that you will be providing 7 3 h to the parties relative to the PJM pcoling agreement and a the GPU agreement. 9 ;1 A We are g ing t determine the impact on both TC k ~ U the PJM and the GPU agreement of tha total removal of TMI y3 fr m consideration frem a rate-making standpoint and how 12 that would be impacted by the ongoing adjustments under the llI 32 (; contract as we have it. a4' Sj I am n t stating that veryclearly. We are going to demonstrate that the burden io 3 1 I i placed on the customers for the removal of the TMI units, i 14 j 1 ..-.i that capacity, is equal to the benefit that will accrue to ao 4 It 19 ] them in the future thrcugh the modification of the forced $i outcge rates and so forth. ,^~g 1 .d Q And you are going.to perform that demonstraticn eig fforboththerelationshiprelatin'gtothePJMagreecentto 7 23hGPUaswellasthesub-relationshipswithincndbetweenthe .,. ' GPU companier, is that correct? llh Ofl kj A That is correct. i McH.7C ACH L ** ARCHAL. !NC. - IT ** LCCXWIL*-,0W AVO. - :4AF:Rf5GU" 3, PA. f7t!

Nnwton-cross 569 ,,o 11 ,1 1l MR. BARASCH: Other than questiens that might 2 arise in response to those several data requests that have 3l been made today, we have no further questions of Mr. Newton, i 4,' MR. SUFFIAN: We have no questions of Mr. 3[ Newton today, Your Honor. l 6; THE ADMINISTRATIVE LAW JUDGE: Is there any I 7 I other cross-examination of this witness at this ti.me? 8I MR. WISE: No, Your Honor. k 9f THE ADMINISTRATIVE IAW JUDGE: Is there any 10 i redirect? 11 MR. SELTZER: We have no redirect, Your i 12l Honor. ] MR. SUFFIAN: I think there is one other 13 14 matter, Your Honor. We did have hearings scheduled next 15l for Wednesday, Thursday and Friday. I have discussed with 16j counsel for the Respondent and the Consumer Advocate whether ,1 l 17 l all three days would be necessary, i l i IJ We were also discussing which uitnesses l i 19 might be prepared to appear on those cays and perhaps we 1 20; could schedule those nou. j 21: MR. OGDEN: It is my understanding at least I r i 22 that the parties have some further cross-examination for j i 23 Mr. Huff and Mr. Carroll. Apart from that I would say we { y Q M could have any number of witnesses available if we knou what n 23 ) areas might be covered. 4 '40M?trJ ACH 6, ?4ARSH At., !?l0. - 37 ff.1.,3OKWILLOW AVE - H A"L!tt$ 3U 40. 4*A. 17112 l

570 l c s s THE ADMINISTRATIVE LAW JUDGE: What are tha 2! n ('~ 2 q wishes of the other partias? .h HR. SUFFIAN: T-ial Staff has examination 'l 4 j for Mr. Huff and Mr. Carroll but at this time we are really al not prepared to go into other areas such as rate structure P ! with Mr. Carter next week. 5 t I also don't believe at this stage that we I I gf are sufficiently prepared to address the rate of return area, 7( either. i S I w uld, with Your Honor's permission, 10 ' i 11 ll like to limit, at least for Trial staff's e:: amination, the l appearances to Mr. Huff and Mr. Carroll. 12 i MR. BARASCH: Your Honor, if I might, we { 13 h will have cross-examination for Mr. Huff. We have conducted 34 the cross of Mr. Carroll, but as you may recall, there are g 16 l1 a number of open matters that were deferred that he was going ,,, q to take back and give further thought to. !)

g[,

So far we have not received responses to l i-those and I think Mr. Carroll would need an opportunity to l 1 19 t i develop thosa. "0 )f I As far as other witnesses are concerned, we u, g have served some interrogatories on Mr. Carter in the area g e .,2.I,cfratestructureandwehavahadoff-the-recordconversation; I ,,! with the company with the hope that perhaps, rather than j g requiring a forcal answer of all those interrogatories, some g i~ '? OHM 3 ACH t M;.r 3!'AL. C;O. " 07 li. LO." ;0 /*lLLOW AVI. " M OfitSSURG. PA. 17112

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1l sort of conference might be held between our rate structure ( )' 2 people and Mr. Carter, perhaps somccime next week, to polish 3l up that part of the case in anticipation of cross. t 4! In the area of rate of return we served one t 3 l sec of interrogatories,17 interrogatories numbered 40 through 6 56, which were answered as of yesterday. There is another 7 group of appro::imately 40 some odd interrogatories that were t i G served on October 10th that as of this date we have not 9[ received answers to. i 10 So in the area of rate of return we are 11 fstill a bit early. Also I have no idea whether Mr. Seligson i 12 : and Mr. Brigham are present or could be present next week. I v, 13 l /~ So we are kind of back into a situation I 14 i where the only people that we could deal with meaningfully, t 15? since the temporary complaint and the complaint of temporary 16 i rates is kind of in suspension at the moment, next week, would I I 17i' be Mr. Huff and Mr. Carroll, just to give you the lay of the i 18[landofwhereweare. i 19 ] THE ADMINISTRATIVE LAW JUDGE: Well let's l i' 20! start on the 19th and we will see if we need the three days. I 21f If we don't -- 2;I MR. BARASCH: Could I make a suggestion, 23; Your Honor? I think that it might be more helpful if we t. ( 24]startedonthe20th. 4 MI THE ADbiINIST3ATIrr IAW JUDGE: That requires seunc>=u c. un n.u.. m=. - u n umw uow Av=. - umnssauna n. mn

B,,. 3 o m o 1 another sending of notices out again and it uould ba cacier { 7, to start on the 19th, then ue can announce any canec11ations e 3 hthen and there. 4. MR. CGDEN: We will have Mr. Huff and Mr. r, 5 iCarroll here on the 19th. 6 THE ADMINISTRATIVE LAW JUDGE: Very well, in 7 the meantime maybe someone else will be available or you may 8!want somebody else. 9: MR. BARASCH: Thank you, Your Honor. t 10 THE ADMINISTRATIVE LAW JUDGE: At this time, 11,then, we will adjourn until November 19th at 10:00, 12 13. 5 (The hearing was adjourned at 4:57 o' clock p.m.) g I 14 i 15[ l 16 D D 1 17l l 18 ' 1 19 20 3 l 31 !; 'l l 22 ] n n.. ;- $.1 1 ~..!f I u l l' onnc4cn :.ut aw_ :.sc. - a n. t.ec::we t.ew xn. - tuu:seur.a. u ima

m. o 41j n 1 --oCo-- O ., j 3[ f 4) I hereby certify that the proceedings and i a! evidence are contained fully and accurately in the notes 6j taken by me during the hearing of the within cause, and 7[ that this is a true and correct transcript of the same. i8i i 9l MOHRPACH & MARSHAL, INC. By bhh% k g [/ JAMES P.'O'HARA i i By Y2 A Le q' 13 [ [3ETTYB. MARSHAL ~ v i //- /y-[d 14 ; 13f i

1. 6,1 4

l 17 ) If 33 f (The foregoing certification of this transcrip 3 19 does not apply to any reprodt;ction of the same by any means 'l 20 f unless under the direct control and/or supervision of the y)*cartifyingreporter.) l 23 ua s 'l 33 ij e MOM!t2 ACH *: ?I A7 3 >' AL.1: C. .*.7 'J.1.oCgw;LLow A*n.. - H UUt!E3tJMG,.* A. 17f12 i

/ ~ Met-Ed Exhibit !!o. F-3.1 k'itness : E. Newton Jr. O METROPOLITA': EDISON CCMPA'Y This exhibit includes Schedule 14.01 (four pages) and Schedule 15.01 (three pages) of the EHV Agreement which were inadvertently omitted from Exhibit F-3, as filed. O O

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Met-Ed Exhibit No. F-27 Witness: E. Newton Jr. Page 1 of 2 O METROPOEITAS EDISON COMPA!.T 4 DOCKET 50. R-80051196 j l Respense to Oral Request by Consumer Advocate at N.T. 552: Provide a copy of the document in the Energy Cost Rate filing with the Co= mission that reflects a credit to the energy cost resulting from the PJM negative unavailability credit due to the short term purchases.

Response

1 () The capacity credit to the energy cost resulting from the short term purchases for GPU is $3.6 million. This amount was allocated to the operating companies based on the amount of short term purchases retained j by each company in percent of the total amount. The credits allocated to Penelec, Met-Ed and Jersey Central are 50.5, $1.4 and $1.7 million, respectively. The document showing the calculations and resulting credits is provided as page 2, attached. Note: Page 2 attached is Appendix D of the ECR filing in Docket No. I-79040308 (Phase II) made on December 1, 1980. i J l i l l l i l

Page 2 of 2 APPP! DIX D GPU System Ef fe c t o f GPU Shc r t Ter: ?urchases en P21 Ca pacity Payments Calculet$c, fer the 1979-19CO PJM Pinnnine Period O 1 GPU Contract Average k'cekly Peak Load (r.O 5 510 2. CPU !.: tual Acera:e ra :kly Peak Le ad (MU) 5 107 l 3. Average eekly Peak Load Adjustment ( 2 -1 ) (MU) (403) 4. Ac t ua l Un cv a il ab l e Ca pa c it y o f CPU Un it s ( M%') 3 185 5. GPU Credit fer Ehcrt Ter: Capacity Purchases (r!) 1 016 6. GPU Adjusted Uncvailable Capacity (4-5) (MW) 2 169 7. GPU Contrac t Average Unavailable Capacity (MR) 2 065 8. GPU Unavailable Capacity Adjustment with Short Term Capacity (Line 64Line 7) + 2 (MW) 52 9 GPU Unavailable Capacity Adjustment without Shor t Term Capacity (Line 4-Line 7) + 2 (MW) 560 With Without Short Tere Cap Short Term Can. () 10 GPU Porecast Capacity obligation To PId (EO 7 692 7 692 11. GPU Average "eekly Peak Adjustment (Line 3) (MW) (403) (403) 12. GPU Unavailable Capacity Adjustment (Lines 8&9) (MW) 52 560 13. GPU Accounted for Obligation to PJM (10+11+12 ) (MW) 7 692(1) 7 849 14. GPU Installed Capacity (MW) 7 707 7 707 15. GPU Capacity Purchase from PJM (13-14 but not less than zero) (MW) 0 142 16. GPU Payment for PJM Capacity 0 S25 550/ ru - Year ($1 000) 0 S3 628 17 Payment Avoided Because of Short Ter= Purchases (Line 16) ($ 000's) a. PN $3 628 x 14.1 (2) $ 512 = b. ME $3 62 8 x 39 7 (2) 1 440 = () JC S3 628 x 46.2%(2) 1 676 c. = i $3 628 Notes: (1) Cannot be less than 7 692 MU forecast capacity obligation. (2) Allocation percentages based on amount of short term purchases retained by each company.

Met-Ed Exhibit No. F 25 k'itne ss : E. Newton Jr. Page 1 of 2 METROP01,ITAN EDISON COMPANY DO::ZT "O. R-30051196 Recponse to Consumer Advocate Oral Data Request at N.T.579: Regarding the PJM reserve capacity payments reflected in the year ending l 3/31/81, provide: (a). The date of forecast for the installed capacity and accounted-for-obligation for the portion of the test year prior to 5/30/80, and for the portion after 5/30/80. (b). The three year periods for forced outage rate experience that were used in the twa forecasts provided in part (a). (c). Isn't it true that the first ti=e that the TMI outage will be reflected for purposes of PJM reserve capacity expenses (actual expense or credit, not proj ected) is for the planning period beginning 6/1/82? If not, when will the TMI outage be reflected for reserve capacity expense purposes? In addition, isn't it true that the planning period beginning 6/1/82 will reflect 9 months of the outage averaged with 2.25 years without the outage? [} (d). Isn't it true that it will not be until the planning period beginning 6/1/84 that the full effect of the outage for PJM purposes will be experienced, due to the three year average forced outage rate? (e). Isn't it true that.the effect of the Company's filing is to begin charging in rates the full reserve capacity expense of the outage, even though the full reserve capacity expense will not actually be experienced until the planning period beginning 6/1/64?

Response

(a). The forecast for the installed capacity and accounted for obligation for the entire test year was made on October 9,1979. (b). The historical forced outage rates were used to calculate the forecast obligation. Years 1974, 1975 and 1976 forced outage rates were used for the portion of the test year prior to 5/31/80. Years 1975, 1976 and 1977 forced outage rates were used for the portion of the test year after 5/31/80. (c). The PJM reserve capacity payments depend on many variables, not only {3 the TMI outage. The TMI outage will affect the forecast obligations s_/ starting 6/1/S2. The October 9, 1979 forecast also shows PJM payments starting 6/1/81. ~ Actual PJM payments could start as early as 6/1/81 or as late as 6/1/83 depending on other conditions in the system.

Page 2 of 2 h) (c). Cont'd x-The planning period beginning 6/1/c2 will reflect 9 months of the outage averaged with 2.25 years of norr.21 operation. (d). Yes, the full effect of the outage will not be experienced until the planning period beginning 6/1/84 due to the three year average forced outage rate. (e). Yes, the effect of the Conpany's filing is to charge the full reserve capacity expense of the outage in rates even though the full expense will not actually be experienced until 6/1/$4. liowever, we will nornalize these expenses out of future rate requests which recognize the TMI units in base rates, so that there will be no possibility of double recovery of reserve capacity expenses. ,m 5 f v l l l k } v

Mat-Ed Exhibit No. F-29 Witness: E. Newton Jr. Page 1 of 11 1 O METROPOLITAN EDISON COMPANY DOCKET NO. R-80051196 Response to Oral Request by Consumer Advocate at N.T. 568: ".... to determine the impact on both the PJM and the CPU agreement of the total removal of TMI from consideration from a rate-making standpoint and how that would be i=pacted by the ongoing adjustments under the contract as we have it."

Response

r~'g Page 3 shows how the PJM forecast obligation is fixed and how the (./ forced outages enter into the forecast obligation calculations. It shows that the increase in forecast obligation caused by an increase in forced outage is approxi=ately a one to one relationship due to the various clauses in the contract. Page 3 shows the various ',ays that a company can meet its fixed obligation. It also shows that once a PJM purchase is contracted, it cannot be reduced unless the PJM pool capacity is less than the sum of all the members' obligation. Finally, page 3 shows that an adjusted obli-gation is calculated at the end of the planning period to reflect actual weekly peaks and actual unavailable capacity and that this adjustment can increase the forecast obligation but cannot decrease it. \\ Page 4 is a graphical illustration of the conceptual impact of the THI-1 forced outage experience in the forecast and accounted-for obligation. Page 5 sets forth the calculations and assumptions that were used to demonstrate the one to one relationship of a forced outage increase on the forecast obligation. Pages 6 and 7 show the PJM accounting. Page 6 shows the calculations setting forth the assumed forced outages and the effect of the excess forced outages on future PJM forecast obligations. Page 7 shows similar data except it shows the effect on the accounted-for adjustments. These calculations are based on a return date of January 1, 1982 for TMI-1 and January 1, 1988 for TMI-2. O

Page 2 of 11 i O Page 8 shows graphically the data sub=itted on page 7 and is intended to put into perspective the TMI-1 and 2 forced outages effect on the PJM t capacity obligation. Page 9 shows the calculations setting forth the GPU internal trans-i actions and summnrizes the total TMI effect on Penelec, Met-Ed and Jersey Central. Pages 10 and 11 show graphically for Penelee and Met-Ed, respectively, the data submitted on page 9. These graphs are intended to put into perspective the TMI-1 and 2 forced outage effects on the PJM obligations, the internal GPU transactions and the total company obligation. t J e

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P gs 3 of 11 PJM Installed Canacity Obl12ation References Indicate PJM Agreement Schedule Number Tne " Forecast Obligation" is fixed each June 1 for the planning period of June 1 "ay 31 beginning 2 years later (sch. 2.01b). The forecast obligation is based, among other considerations, on the 3 year average forced outage rate of existing units, (sch. 2.21 and 2.212). As an example, the experienced 1980 forced outar,e rate for TMI is used in the 3 year historical average for calcula-tions made in June of '81, '82 and '83. Since these calculations af fect the planning period starting 2 years from the calculation date, the effect on the forecast obligation occurs in the planning periods '83-84, '84-85 and '85-86. The increase in forecast obligation caused by an increase in forced outage is approximately 1 to 1 due to various clauses in the contract. (See Example on page 5 attached). At the time the forecast obligation is fixed, a company must agree to install capacity, make a firm capacity purchase or contract to buy capacity from PJM on a firm basis to meet the obligation, (sch. 2.0ld). If a PJM purchase is contracted, it cannot be reduced unless the PJM pool capacity is less than the sum of all the members' obligation. A forecast obligation. can be offset only by-. firm capacity. An adjusted obligation is calculated at the end of the planning period to reflect actual weekly peaks and actual unavailable capacity, (sch. 3.01). ( )) This adjustment can increase the forecast obligation but cannot decrease it. The TMI outage increases this upward adjustment in the current planning period. The following sheets contain calculations based on the present return date of 1/1/82 for TMI-l and 1/1/88 for TMI-2. \\ l

O O F.tM CAPAClfY oat.tCATIt)MS CRAPHICA1. IIt.US1pAft0N OF TIMtfC CONCEFTS IH7ACT OF TMI-t FORCf D Ol' TACE EXPFRif MCE IN FORECAST AND ACCritfRTFl>-f0R ORf.ICA110N THt.2 ACCIDFtrr 1/t/is t/1/77 t/1/78 t/1/79 1/l/co t/1/8 n/i/n2 g/i/pi r_a_1,n4 3 r, Ye s e, r !'J t' 4 )' t ? f'. F FI.I'"',')) { =m== _._' _ - .__m_. t

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- + - * * * ' in f. ree 4s t rWe e M ay ] .-g I....._,,.....,....._,_,,u----.-- l- -q n., 'no . --.. -..... ~. -e i i q ,..a - <p - - - 'r - 7 t-s., 8, b y y' P IM Pienning Period 6/s/76 6/t/77 6/1/78 6/1/79 6/l/80 6/t/81 6/t/82 f /1/*,6 6/1/e4 I A< ccunted.f er Fmper tence in Per tmt 3/28/I4 - 5/11/79 sqq ver==+. synew g 6/1/79 - 5/31/80 .m 6/1/ m - 5/31/8s b _ _.... 3., 6/i/81 - 12/31/81 _( l d b (a) IJ' Pacts on period 6/8/81 - 5/31/82. etc. (b) Inacts on perto.1 6/1/78.- 5/31/79, etc. TMI-2 l ACCIDFNT m tu 00 l l v. om W W

Pcga 5 of 11 Example Oniv Effect of Increased Forced Outage (F.O.) on Forecast Obligation /~T U This calculation demoncerates the approximate 1 to 1 effect of forced cutage increase on Forecast Obligations. Assume that GPU is 1/6 the size of PJM and has an actual installed reserve of 20%. Use a base of GPU F.O. rate equal to PJM F.O. rate. Increase average GPU F.O. by 720 MW or 12%. Calculation shows that this would increase the forecast obligation by 750 MW, demonstrating the 1 to I ratio. Basic Forced Outage Adjustment GPU PJM (1) Capacity - MW 6 000 36 000 (2) F.O. - MW l 200 7 200 (3) F.O. Rate - 20 20 (4) GPU F.O. Rate less PJM F.O. Rate - % 0 (5) F.O. Adjustment 1.5 x (4) - % 0 (~')i (6) Diversified P.P. peak - MW 5 000 (7)- F.O. Adjustment (5) x (6) - MW 0 Adjustment with GPU Forced Outage Increased 720 MW (1) Capacity - MW 6 000 36 000 (2) F.O. - MW 1 920 7 920 (3) F.O. Rate - % 32 22 (4) GPU F.O. Rate less PJM F.O. Rate - %

• 10 (5)

F.O. Adjustment 1.5 x (4) - % : 15 (6) Diversified P.P. peak - MW 5 000 (7) F.O. Adjustment (5) x (6) - MW 750 l l l See Met-Ed exhibit F-25, Page 4, Lines 7 and 8. O l

O O O Assuesd F.O. and the Effect of Excene F.O. on Future Forecest obligations PJM Accounting Forced Outages (F.O.) are in terms of average MW Calendar Year '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 TMI 1 Assumed actual F.O. 654(a) 776 776 124 Normal or Mature F.O.(16%) 124 124 124 124 Excess F.O. 530 652 652 0 Effect of excess on 3 yr. avg.: Yr. 1 0 0 530 652 652 0 Yr. 2 0 530 652 652 0 0 Yr. 3 530 652 652 0 0 _J) Avg. 177 394 611 435 217 0 TMI 2 Assumed actual F.O. 725(b) 880 880 880 880 880 880 880 880 141 Normal or Mature F.O.(16%) 141 141 141 141 141 141 141 141 141 141 Excess F.O. 584 739 739 739 739 739 739 739 739 0 Effect of excess on 3 yr. avg.: Yr. 1 0 0 584 739 739 739 739 739 739 739 739 0 Yr. 2 0 584 739 739 739 739 739 739 739 739 0 0 Yr. 3 584 739 739 739 739 739 739 739 739 ~0 0 0 Avg. 195 441 687 739 739 739 739 739 739 493 246 0 Comb. excess 3 yr. avg. 372 835 1298 1174 956 739 739 739 739 493 246 0 Applicable planning period (PJM) '82-83 '83-84 '84-85 '85-86 '86-87 '87-88 '88-89 '89-90 '90-91 '91-92 '92-93 '93-94 Applicable planning period (CPU) '80-81 '81-82 '82-83 '83-84 '84-85 '85-86 '86-87 '87-88 '88-89 '89-90 '90-91 '91-92 (a) 84.342% actual F.O. rate x 776 MW - 654 MW (b) 82.381% actual F.O. rate x 880 MW = 725 MW 5 Pt

O O s Aeou.e4 r.0. and the afirs te tg3tg.. r.0. on AcconneeJ ror idj9.tmenta PJM Accounting Forced Outage (F.O.) are In terms of everage NW rienning FertoJ '79-80 '80-81 '81-82 '82 81 '83-84 '84-85 '85-86 '86; 81 '8A88 '88-89

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'94-91 "9 b9 2 ]? d } 'y}fM 4 THI I Assumed actual F.O. 776 776 504(a) 124 Assumed Normal F.O. jli 11{ lli 111 Excess F.O. 652 652 380 0 T?Il 2 AssumcJ actual F.O. 880 880 880 B80 880 880 880 880 572(b) 141 2, sus.1 wormat r.o. 1st ist igt tit jit jit 111 1st 1st jit 1:vcess F.O. 739 139 739 739 739 739 739 739 431 0 CambineJ Actust Excess F.O. 1391 1391 !!I9 739 739 739 139 739 431 0 0 0 0 0 0 Combine! Forecast Excese F.O.It) 0 0 0 372 835 1298 1174 956 739 719 739 739 491 246 0 Effect on Accounted for Adjustment = 50% of diff.Id) 696 696 560 184 (48) (280) (218) (109) (154) (370) (370) (370) ( 24 r. ) (123) o Total Tril F.f f ec t (Farecast effect pl.e positive acct.-for anfj. ) FJ *) 696 696 560 556 835 1298 1874 956 739 719 71'8 739 4'# 1 246 0 Footnotes a (7/12 m 776) + (5/12 x 776 x 0.16) = 504 h (7/12 x 880) + (5/12 x 880 x 0.16) - 572 e from page 6 d reference ashedule 3.01 (b)(2) e reference sci.edule 3.01 (f) 0

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D O i V V U THI F.0df fect.2e Urtca;t Crptegy_0bitatt_lg3 CPU Internal Accmmting an.1 Total 5uaunary Forced Ontages (F.O.) are in t.sres of averega itU f.l.(iE U "d dl._I Dalatt_lo.gn (1) C..lenJ2r vnt

• 18

'L9

• 80

'8L '12 '8}

• n

'81 ".t 6

• H

'fa '!? 'M 'N (2) Applicable Planning Period '79-80 '80-8[ '8F87 '92-83 '83-84 '84-85 '85-66 '86-87 '8 M 8 '88-89

• tt's-90

'20-jl 'yl, y 'R y ) ( 1) Coel>luci excess 3 yr. avg. F.O. (a) 0 372 835 1298 1874 956 739 739 739 739 491 246 0 o (4) Cs binci actual excess F.O. (b) 1391 1391 1189 739 739 739 739 739 431 0 0 0 0 0 C ablaed wekly adj. 0.5 (4-3) (5) GPU 696 510 142 (280) (218) (108) 0 0 (t54) (370) (z46) (143) o u (6) F.4 (252) 174 128 36 (70) (55) (27) 0 0 (33) (91) (62) ( 163 0 0 (7) P.2 (50t) 348 254 70 (140) (198) (54) 0 0 (76) ( 18 '. ) (172) (11)

I 0

(8) JC (251) 174 128 36 (70) (55) (27) 0 0 (39) (93) (h?) (36) 0 0 F.C.O. wi th ad j. F.O. ( '# ) CPU (In st alled Capacity) 7707 7707 7707 7707 7707 7707 7707 7707 77u7 1701 7707 7707 /767 1/u7 (10) Pt 2431 2399 2360 2320 2331 2350 2368 2368 2168 2368 2im 24l0 h it 2411 (11) Mc 1829 1923 2031 2159 2125 2070 2015 2015 2015 2015 l'M 3 1892 12) 18N (12) JC 3447 3385 3308 3228 3251 1287 3)24 3324 112% 3324 ? W. 3'.05

r. 7 W.7 increased F.C.O. (current

'78) (13) P4 0 (32) (71) (111) (100) (81) (63) (63) (63) (63) (41) (21s 0 0 (14) tte 0 9% 210 330 296 241 186 186 lR6 186 12 '. 61 0 0 (15) JC 0 (62) (139) (219) (196) (160) (123) (123) (123) (123) (81) 442) 0 0 Slee Factor with adj. F.O. (1) (16) 1:i (10, 9) 31.54 31.13 30.62 30.10 30.25 30.49 30.73 30.73 30.73 30.73 31.01 31.21

11. 5 '.

31.5) 2 (17) tc (11, 9) 23.73 24.95 26.46 28.01 27.57 26.86 26.14 26.14 26.14 26.14 25.34 24.55 2s.73 21.73 (ths JC (12, 9) 44.73 43.92 42.92 41.89 42.18 42.65 43.13 43.13 43.13 43.11 43.65 44.18 44.73 44.73 Co. share of CPU effect (MW) (1)) Pil (5 a l() 220 159 43 (84) (66) (33) 0 0 (47) (114) (76) (45) 0 0 no) Mv. (5 m 17) 165 127 38 (79) (60) (29) 0 0 (40) (97) (62) (3M o O (21) JC (5 x 18) 311 224 51 (117) (92) (46) 0 0 (67) (159) floo) (63) 0 0 tret Effect on CPU Contract (MW) (22) l:1 (6 + 13 - 19) (46) (63) (78) (97) (89) (75) (6 3) (63) (55) (42) (27) (12) 0 0 (21) ?i (1 + 14 - 20) 183 221 242 269 248 216 186 186 150 99 64 27 0 0 (24) 3G (8 > IS - 21) (137) (158) (164) (172) (159) (141) (123) (123) (95) (57) (37) (15) o o U (ect en Pf,J.l y a n ttttu,ns lMWl (25) CPU (b) 696 696 560 556 835 1298 1874 956 739 739 139 739 493 lit. (26) Pti (16 x 25) 220 217 172 167 253 396 - 361 294 22 7 227 22) 231 155 18 (27) ME (17 x 25) 165 473 148 156 230 349 307 250 193 193 187 181 117 54 (26) JC (18 x 25) 311 . d)6 240 233 352 553 506 412 319 3I9 321 327 211 110 12ti!_I!!Ll!1tct OF!}. E (29) P:3 (22 & 26) 174 154 94 70 164 321 298 231 172 185 202 219 155 13 (30) tE (23 + 27) 34 8 394 390 425 474 56 5 493 436 343 292 251 208 117 58 .o (31) Jc (24 + 28) 174 148 76 61 193 412

• 383 289 224 262 786 3I2 221 110

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