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148 9          1 l, ')            :                                  COMMONWEALTH OF PENNSYLVAMIA v
2                                    PUBLIC UTILITY COMMISSION 3
                                ----      -------------------+                                                        ,
:                l 4          Pennsylvania Public Utility Commission                              :
Docket Nos,'',:
versus Metropolitan Edison Company and                              :
5          Pennsylvania Electric Company, Respondents.                          :  I-79080320    ,
                                                                                                      -                i
                                        *        *          *          *          *
* X 6  ,
                                                                                                                    ~
7j Operating agreement among Jersey Central j -Power and Light Company, Metropolitan Edison
:  G-80060098 sl Company, Pennsylvania Electric Company and                                  :
                        !        GPU Nuclear Corporation.
9!
                                        *        *          *        *          *
* x l
to l                                                                              .
Affiliated interest agreement between                                :
11 ;        Metropolitan Edison Company and Pennsylvania                        :
Electric Company, relating to the proposed                          :  G-80070101 l      ccmbined management of the two companies.                            :
(#)
      '~
i 12 j j
13 1                *      *          *          *        *
* x I
14 l        Petition of JARI, Incorporated, et al. for                          :
I      an injunction to enjoin Pennsylvania Electric                        :  P-80100242 15          Company and Metropolitan Edison Company, and                        :
for hearings ,                                                      :
16                                                                                :
_______________________+
l                    17 1                                        Pages 148 through 357                                            ,
is !
l Hearing Room No. 1 North Office Building 19 ,                                                      Harrisburg, Pennsylvania l
20                                                        Wednesday, December 3, 1980 21                        Met, pursuant to adjournment, at 10:10 a.m.
22            BEFORE:
i
[j                23                        EDWARD CASEY, Administrative Law Judge u.-                      ,
24 1
25 8 m 2 2 <> %                            , , _ , , _ , _ , , , , , , , _ , , , , , , , , , , . , ,
 
I 149  l 1  APPEARANCES:                                                                      ggg i
2                SAMUEL B. RUSSELL, Esquire ALAN MICHAEL SELTZER, Esquire 3                Ryan, Russell and McConaghy P. O. Box 699 4                Reading, Pennsylvania 19603 (For Met-Ed and Penelec) 5 DENNIS S. SHILODOD, Esquire 6                HOWARD F. MESSER, Esquire Strassburger, McKenna, Messer, 7                Shilobod and Gutnick                                                    :
3101 Grant Building                                                      !
8              Pittsburgh, Pennsylvania 15219                                          j (For JARI, Incorporated) 9 ROBERT A. CHRISTIANSON, Esquire                                          .
10                MR. ROBERT L. PACKARD                                                    ,
P. O. Box 3265                                                            .
11                Harrisburg, Pennsylvania 17120 (For Commission Trial Staff)                                          .
LEE E. MORRISON, Esquire                                      -
13                P. O. Box 3265                                                            jl Harrisburg, Pennsylvania 17120~                                          i 14                  (For Commission Administrative Staff)                                  {
I i
15                IRA H. JOLLES, Esquire Berlack,Israels and Liberman                                              .
16                26 Broadway                                                              '
New York, New York 10004 17                  (For General Public Utilities Corporation)                            l e              i 18                DAVID A. FAZZONE, Esquire                                                i I
Sullivan and Worcester 19                100 Federal Boston, Massachusetts 02110 20                    (For Theodore Barry and Associates) 21                            .
l 22 24 25 i
COM MON WEALTH _R E P_O RT_I N G_C O M P A_N U7173 761 7950
 
i 150 l
l 0        >                                        c2nzents 2                                                              EXAMINATION 3              WITNESSES:                        DIRECT  CROSS    REDIRECT        RECROSS 4              HERMAN M. DIECKAMP
                              . (By Mr. Russell)                195      --
347          --
5                  (By Mr. Shilob'od)                --    200          --          --    i (By Mr. Messer)                    --
269          --          --
6                  (By Mr. Packard)                  --
327          --          --
7l                                                                                            ,
I 3!
I EXHIBITS:                        FOR IDENTIFICATION          IN EVIDENCE 9'                                                                                            .
l Penelec/ Met-Ed btatement A              195                (not offered)'
10 f                                                                          (not offered, Penelec/ Met-Ed Statement B              195 II I                                                      195                (not offered)
    - .          l        Penelec/ Met-Ed Exhibit No. 1
(' )    12 l 195                (not offered)
Penelec/ Met-Ed Exhibit No. 2 13 !,
Penelec/ Met-Ed Exhibit No. 3            195                (not offered)'
l 14 I I
Pene.lec/ Met-Ed Exhibit No. 4          195                (not offered):
15 j Penelec/ Met-Ed Exhibit No. 5            195                (not offered) 16
                    !      Penelec/ Met-Ed Exhibit No. 6            195                (not offered) 17 '
JARI Exhibit Mc. 1                      237                Jnot offered) 13 i
i 13 i I
20 21 ',
                -\
22 '
  ,,                      l O          2 u
in 23I i
i f                  COMMONWEALTH REPORTING COMPANY #717 761 7150
 
151  ;
I                              P E E E E E E 1. E E E t
2                    JUDGE CASEY:    The hearing will cone to order.
I 3                    As most of the parties of record of this proceeding' 4        are probably already aware, there has been a substantial 5        chance in the format of the hearings that we're about to 6        commence today. Specifically, two of the four docket cases 7        have been removed from consideration by an Administration Law        .
l 8      Judge as a result of certain formal action taken by this              I 9      Commission at a public meeting held on November 26, 1980 which to , was last Wednesday.                                                        ,
i                                                                        '
11 !                  The two cases which have been removed from 12        consideration in this record are the first docketed case,        h
              '                                                                          i i
13lwhichwastheongoinginvestigationintopastandpresent                            .
14      management practices of !!ctropolitan Edison Company. and 15      Pennsylvania Electric Company, respondents, which is docketed is        at I-79080320.
17                    The second case removed from our consideration            :
18        involves the petition that had been filed by the Johnstown 35 Area Regional Industries, Incorporated for an injunction to 20        enjoin Pennsylvania Electric Company and !!etropolitan Edison 21        Company from proceeding further with these plans, and for 22        hearings in the case.
23                    Theremainingmattersforourconsiderationvillh
  !        24      be the operating agreement among Jersey Central Power and Light Company, Metropolitan Edison Company, Pennsylvania Electric
    -__ i _                      __
 
I 152 !
o)
(_              1  Company, and the newly formed GPU Nuclear Corporation.            That 2  case is docketed at G-80060098.          I believe treat carticular i
3  affiliated interest agreement, as we call it under the Public j i
4  Utility Code, was first filed with the Commission back on 5  June 5, 1980.
6                The second case that will be taken up during the          i 7  course of these evidentiary hearings would be the affiliated 8  interest agreement between Metropolitan Edison Company and the 9  Pennsylvania Electric Company, relating to the proposed to  combined management of the two companies; that is, the board 11  of directors and the corporate officers, which would be common g)
(_            12  to the two companies.        That case is docketed at G-80070101.-
            )                                                                                    t 13                  In view of this change, I feel that it is necessary; 14  for me to briefly State certain matters for the record.in this, 15  proceeding before we hear from counsel and before we take any 1
16  testimony in the case.        I wish to call the parties' attentien l
1 l
17  to an order published by this Commission which was adopted at a' 1                                                                                    s is  public meeting held on August 16, 1979, under docket number 19  I-79080320, which was the first case in our consolidated cases l
20    that we were to hear.
21                In that order, the Commission stated as follows:
        .          22  In the order adopted June 15, 1979 and entered June 19, 1979 at r's docket number I-79040308, the Commission was compelled to 23 l (_)
21  state, " Performance of the GPU companien before this Cctmission 25  calls into question the capabilities of its management and cosecNwcat.rw Repoa7two comamy <9am sxan.wocy.3
 
O 153 I
i lends urgency to the investigation and managenent audit which            h 1
2    we will recuire in this order." More specifically, we stated 3    in that same order, "There are questions unanswered which 4    deserve the attention of the Commission.      Did respondents act 5    reasonably and prudently in construction and placing into 6    service of TMI-2?
7                  "Did Met-Ed, as the operator of TMI-2, ac' I
I a    reasonably and prudently in the operation of the plant prior            !
    ,  9    to and during the accident?      When if ever will TMI-2 be 10    returned to service?    What will be the cost?  Is present 11    management of Met-Ed, Pennelec and GPU reasonably efficient?
12    Can their efficiency be improved?
  )
13                    "These and other related matters directly or              -
t 14      indirectly affect the cost and quality of service provided to 15      respondents' ratepayers. Met-Ed and Pennelec have incurred 16      capital costs which they will undoubtedly seek to recover in i
17    future rate cases."
e                  !
18                    The Commission's knowledge and understanding of 19    the causes and costs cannot await these future rate cases.
20      Therefore, the Commission will be separate order institute an 21      investigation of the past and present management practices of 22    Met-Ed, Pennelec and GPU. This investigation will specifically 23    focus on the construction and operation of TMI-2, and will
  'I    24    incorporate the public reports of the President's Ccmmission, 25      the Nuclear Regulatory Commision, and others concerning the
 
I 154 l
()                I  accident at TMI-2.
2                However, the investigation will include broader 3  questions concerning the management of these companies, and 4  will incorporate the findings of a management audit which the 2 5  Commission will authorize.
6 The Commission then issued the following ordering 7  paragraphs:    Number one, that an investigation is hereby l
8  instituted into the past and present management practices of                .
                  . 9  Metropolitan Edison Company, Pennsylvania Electric Company, and to  General Public Utilities Corporation.                                      ,
11                Number two, that'this investigation shall include
()              12  an examination of the actions and decisions involved in the    -
    .              13  construction, maintenance and operation of Three Mile Island                I l
14  Power Station Unit Number Two.
15                Number three, that a management audit of                        ,
16  Metropolitan Edison Company, Pennsylvania Electric Company and 17  General Public Utilities Corporation is hereby authorized.                    .
18                And finally, number four, that the Office of 19  Administrative Law Judge shall assign this matter to an 20  Administrative Law Judge upon request of the Staff.            The order 21  was adopted August 16,.1979 and entered on August 17, 1979.
22                All of this material .that I've just read into the r~N                  record pertains to the Commission's original and initial order s,)              23 23  under I-79080320, which is the first case among the four 25  consolidateo cases that we were to hear in this proceeding COMMONWEALTH REPORTING COMP ANY (7171 761 7150
 
t 155
                                                                                          ,                            l 1
              .                                                                                                          I i
1  this morning.
ll i 2                  As we now know, the Commission sometime back in                                            !
3  August or September of 1979 apparently retained the services of 4  a New York management consulting firm known as Theodore Barry 5  and Associates.              Theodore Barry and Associates worked on their                                .
6  management audit report for arperiod of approximately a year, I
7    involving the two operating utilities and the holding company l:
i 8    in New Jersey.
8                  That report, as I understand, has been rendered to 10    the Commission sometime in September of 1980.                                          However, after 11    the report was filed, the Commission found reason, apparently 12    upon request of the Staff, to issue an order on October 29, llh 13    1980. That particular order opened investigations into the 14    two affiliated interest agreements and consolidated those 15    investigations and the JARI petition with the Commission's IG    general management invcLcigation docketed at I-79080320.
17                  In the ordering paragraphs, the Commission gave the l        18    Office of Administrative Law Judge 90 days in which to hold 18    hearings and render a recommended decision.                                        That assignment 20    was communicated to yours truly, the presiding Administrative 21    Law Judge approximately seven days later.
22                  At that time, I endeavored to schedule preli.inary 23    conferences and a prehearing conference so that we could                                            llh 24    embark on hearings in this proceeding.                                      On November 7,  1983 we l
l 25    held a preliminary meeting which was attended by the Ccmmissic:
      ,                            _ . . . . - - . - . . . . - - - . . . - _ . . . . . . -        ~
 
156 j f
l i
1 Trial Staff, by Mr. Samuel B. Russell, Esquire who is counsel 2  of record for Metropolitan Edison Company, and the spokesmen 3  for Pennelec and the GPU interest at that meeting.              A week 4  later, on November 14, we held the official prehearing                    j 5  conference and that was attended by substantially the same i            6  parties.
7                  At that proceeding,      we were able to establish thei i
a  schedule of hearing dates; namely, December 1, 2 and 3, and 9  during the following week, the eighth, ninth and tenth of 10  December. However, the Commission at a public meeting -- and I 11  am not privy to any information as to what precipitated this 12  action -- decided to remove two of those cases from our O-                                                                              .
l 13  consideration.
t 14                  I was not aware of this development as of 15  Wednesday, November 26, 1980.        I did, however, receive a          \
16    telephone call from Mr. Samuel B.        Russell informing me that he 17  was having some difficulty in getting the prospective witnesses la  from Theodore Barry and Associates prepared, and their                    ,
l 19  prepared testimony ready for this proceeding.
I 20                  He asked me if I would agree to postpone and 21  continue the initial hearings scheduled for December 1 and 2.
22  He said that he had personally been in contact with all other 23  parties of record, and it was agreeable to them.            On that
    )
      ,      24  bacis, I granted the continuance.        This is our first meeting 25    this morning, and I would ask Mr. Russell, for the benefit cf f
l I                                  CoMMcNWEAt.TH REPortTING COMPANY #717e 70171*O
 
157 i
3 the record, did you have any knowledge of the Commission's                !
2 order of November 26, 1980 at the time you contacted me?
O 3                    MR. RUSSELL:    I had no knowledge whatsoever of the 4      Commission's intention to eliminate two of the items from the 5      Proceeding before Your Honor.      I did have the understanding 6      that a request was made by Mr. Fazzone, counsel for TS&A to 7      the Commission Staff, to the Commission Advisory Staff -- I.
s      think, specifically, to Chief Counsel for the Commission --
9    that the Commission reconsider its decision not to call as its 10      own witness, via its Administrative Staff, the TB&A witnesses. ,
t 11                    And as I indicated to you on the phone, it was my 12      understanding that that request was going to be made by Chief 1
13      Counsel to the Commission at the session last week, and I also 14      indicated to you that I had a phone call from somebcdy who had 15      been attending that meeting that the Commission had directed 18      that the Administrative Staff function in this proceeding and 17      present the TB&A witnesses with respect to the two contracts.
18                    JUDGE CASEY:  Were you in contact with Mr. Howard 19      Messer, Esquire and/or Mr. Dennis Shilobod on Wednesday, 1
I 20 l November 26 with regard to the proposed postponement of e
21      December 1 and December 2?
22                    HR. RUSSELL:    I contacted all counsel cf reccrd, l
23      including Mr. Morrison who I understood from the chan who was k
i 24  : sitting in on the Commission session last week was directed tc 1
25      appear on behalf of the Administrative Staff.          So, I contacted COMMONWEALTH REPORTING COMPANY t7171 761 71*!O
 
i 158 !
all parties of record and indicated to them that it was my
()          1 understanding that the Commission Administrative Staff would 2
3 be calling the TB&A witnesses who were. scheduled as witnesses 4    yesterday and Monday of this week, and that obviously those 5    witnesses would not be availabe at our call.
f 6
They would be appearing as Commission witnesses, 7    and therefore there would not appear to be any purpose in            l a    going ahead with the holding of those two days of hearings.
          ,9                      JUDGE CASBY:    I would ask Mr. Messer at this time, 10      the reasons given to,you by Mr. Russell at the time he                t 11      contacted you by telephone on Wednesday, November 26, 1980 which was the day before Thanksgiving, were they substantially
()  )
12 13      the same reasons that I have indicated in this recor as what !
I.
14    he had told me about the difficulty with the TB&A personnel or l                      -
I, 15    witnesses?
16                  MR. MESSER:    Well, Your Honor, we spoke briefly, 17      and I directed him to Mr. Shilobod and told him that I would        $
have Mr. Shilobod contact him, indicating that I dad no 18 19      authority to agree or disagree without Mr. Shilobod's consent.
20      And I believe that Mr. Russell and Mr. Shilobod did then speak l              21    subsequently about the. situation.
22                  I would let him answer that question.
()          23                  JUDGE CASEY:    Mr. Shilobod?
        ,      24                  MR. SHILOBOD:    If Your Honor please, prior to the i
25    telephone conversation on November 26, we have no knowledge L-                                    COMMONWEAt.TH RCPORTING COMPANY 1717) 761 7150
 
159 l
whatsoever of anything that was happening with respect to the I
Commission in these matters.        I had spoken with Mr. Russell on 2
He 3
Wednesday, November 26 in response to his telephone call.
had told me that the Commission had already acted.        He 4                                                                              i 5
indicated to me that he had spoken to Mr. Fazzone; that 6
Administrative Staff was appointed; that Administrative Staff f
7 felt the need to prepare the TB&A witnesses for cross-examina-a tion; and therefore, the witnesses would not be available for
        ,  9      hearing on Monday and Tuesday, so that it was somewhat up to          ,
I    me what we wanted to do,                a                            ,
Ic                                                                              ;
I p
He wanted a continuance, indicating that if we          l 12 ,      wouldagreetothecontinuanceofthehearingstotoday,thag i          i sa '      if necessary he would join in a petition to extend the time 14 for completion of these hearings, if the delay caused a time 15'        problem.
ja I must point cut to the Administrative Law Judge 17        my extreme concern over these proceedings, whereby it was is taken at least indirectly to the Commission without our prior 19        knowledge. And perhaps of a greater concern to me is the role 20          of Administrative Staf f in this matter.
21                      They are now not only presenting the T3&A witnesses 22        but I am advised by opposing counsel that they are going to 23      help prepare the TB&A witnesses for cross-examination.      I g
24        submit that they are now becoming advocates. New we have j  e
  '        25        Administrative Staff attorneys being advocates in this case J                b
 
160 t
i
()    -
1 on behalf of Metropolitan Edison, GPU and, apparently, Pennelec.
i 2
And I can't help but wondering as to the capability 3    of having a fair and impartial decision.
I 4                  JUDGE CASEY:    We'll get to that in a few moments.
I 5                  MR. RUSSELL:    I might just point out one thing.        f t                                                                                              i 6    If there's any suggestion that I or anybody on behalf of our          :
f 7    clients talked with the Commission Staff as such, that's              :
a    certainly not in the picture.        We did talk with Mr. Fazzone,
              ,  9    who inquired as to our position.
10                  We did not want to call the TB&A witnesses as our 11    witnesses, for obvicus reasons.        We didn't generate their s
i          12      report or control it or otherwise.      And Mr. Fazzone mado it t
13    clear that TB&A wanted to maintain their independence, which 14 ,    is certainly all right with us.
i                      .
15                    Mr. Fazzone is here, and if you have any questions 16    with respect to any discussions he had with the Commission 17    Staff which apparently led to action by the Commission, s
18      certainly I'm sure he could respond.
19                  JUDGE CASEY:    I just wanted to get the background 20      of this matter, because I considered it somewhat unusual that 21      unilateral action would be taken by someone within the 22      Commision to change the format of.a proceeding while a
()              23    contested on-the-record proceeding was already in progress.
24                  MR. RUSSELL:    We would certainly agree, it was 25    out of the ordinary.
COMMONWEAI.TH RCPORTING COMPANY (7f 7' 7617150
 
I 161  j i
i i
    !                JUDGE CASEY:        We could say that it started on i
i Of course, it's out of my control and I                                          i 2    November 7,  1980.
l 3    have to go along with the Commission's directions recardless 4    of my personal feelings as a Law Judge.                                    At this point, I I
5    vould like to read the ordering paragraphs, but before I do                                              a 6    that, let me read a portion of the Commission's most recent 7    order which was adopted on November 26, 1980 and entered on' i
8  November 26, 1980.                                                                                          .
9                On the second page, I've already read a portion, 10    but the last two paragraphs, I think, are significant.                                          It 11    says, "First, lest the consolidation of the affiliated interest 12    investigation with the general management investigation be                                    ,
13    misinterpreted, it is neither our expectation nor intent that 14    the consolidated proceeding address or resolve any matters is    other than the formation of the GPU nuclear corporation and 16    the combination of Met-Ed's and Pennelec's managements.
17                  "The overall management questions raised by our 38    general investigation at I-79080320 will be addressed and 38 resolved at a later time and in a different forum."
20                As a lawyer or a Law Judge, I would construe that 21    as tantamount to a severance of this case from this proceedine.
22    Anybody have any disagreement.to my conclusion?
23 l                        (No response.)
JUDGE CASEY:        Second, insofar as TB&A's manage =en:
25 and operations study addresses the formation of the GPU nuclear
                                -....mm. a a me m A n W a a a de de A A a 21 A ha hd  .1 a "W 1EE *I E M                .a
 
I 162
( ,)      I    corporation and the proposed combination of managements, we 2    believe that it is critical that the study be entered into the a    record of the consolidated proceedings. Because the existing                I 4    parties to the proceedings are neither disposed nor appropriate s    to sponsor the relevant parts of the study, another party must              l 6
be added for this limited purpose.
7 "Therefore" -- and these are the ordering                    ;
i a    paragraphs -    "It is ordered, number one, that the initial                ,
          ,  9  decision of the presiding Administrative Law Judge in the to    consolidated proceeding of docket numbers I-79080320,                        i 11    G-80060098, G-80070101 and P-80100242 shall address and resolve r.
(,)      12    only the issues of the formation of GPU Nuclear Corporation 13    and the proposed combination of Met-Ed's and Pennelec's 14  managements.                                                                  li 15                " Number two, that there is established a                        -
16    Commission Administrative Staff which is hereby made a party 17    to the administrative proceeding for the limited purpose of 18    sponsoring those parts of the TB&A management and operations 19    study which directly address the issues described in paragraph 20    number one.
21                  "And three., a. copy of this order shall be served 1
1 22    upon the presiding Administrative. Law Judge and all parties to i
  ,7 ,
l (j          23  the consolidated proceedings."
        -      24                So, is our mission plain in this proceeding?          Ycu l            25  might say that the Administrative Staff, their role in the (R@MMONWEAL.TH REPORTING COMP ANY #7 f 7' 7617150
 
163  ,
i i
1  proceeding has been defined in the ordering paragraph nmnber i
2  two. The Administrative Staff apparently is headed by 3  Lee Morrison, Esquire, assistant counsel of the PUC Law Bureau.
4  Is that correct, Mr. Morrison?
5                MR. MORRISON:  Yes, Your Honor, it is. I might    :
6  disagree, to some extent, with your characterization and per-
:  haps at this time I could state for the record that I believe        i 8  that the proceeding here was, in effect, limited from its
      . 9  inception.
10                I think that my interpretation, at least, of the 11  Commission's order is that the Commission itself was concerned 12    lest the proceedings be misinterpreted, and that theg wished 13 I make clear the fact that the consolidated proceeding for the 14  purpose of these hearings and the orders that would be 15  produced should deal with just some of the issues that would 16    otherwise be presented in the management audit; that the 17  overall management review would not be dealt with in this 18  proceeding, but that the issues specifically to be addressed 19  concerned the formation of the GPU Nuclear Corporation and the 20    proposed Met-Ed/Pennelec management combination.
21                JUDGE CASEY:  Could you point to anything in the 22    Commission's order dated or' adopted October 29, 1980 there 23  that conclusion which you have reached was explicitly expre      d i      24  in the Commission's order', where we would simply hold hearin s and not render any.' decision' with reference to the JARI
  ;      25
'f
 
164 injunction petition or the investigation into the past and
()                                            1 2    present management practices?                                            ?
3                    MR. MORRISON:      Well, Your Honor, the way I read
                                          ,4          the order of last week, it does not preclude consideration of l i
,                                                5    the JARI petition.        As a matter of fact, I read it to include l 1
l                                                6    that.
7                    JUDGE CASEY:    Well, I was really referring to the !
8    initial order which consolidated the four docketed cases and 9  ordered them down to hearing before the Administrative Lau 10      Judge. Is there any language in the body or the ordering 11    paragraphs of that order which would indicate that the                      ,
recommended decision would be limited-to only the affiliated
()                                          12 13    interest type agreements?
14                  MR. MORRISON:      Well, I think that's the point, 15    Your Honor.      I think, to the extent that that was not clear 16    from the October 29 order, that is the purpose of the order of 17    last week, the order entered November 26.          The Commission 18    wished to make it clear that this proceeding should not produce I                                                19    a final resolve pertaihing to the overall management audit-20    that the management audit would be          r and the proceeding, if 21    there is in fact a specific proceeding attached to the manage-22    ment audit -- would go on; that i.t would not be closed by 23  dealing with the issues that we are now considering.
{}
i                  JUDGE CASEY:    Understand, I don't question the
.I l :;
i 25    authority the Commission has under the Public Utility Law to l
CoMMcNWCALTH REPORTING COMPANY (7171 761 7150 l - - .l . - . . -    . _ . - _ , . _ _ . - _ ,            _
 
      ,                                                                                              1 I                                                                                      165 1
modify, rescind or amend any of its prior orders.                            I'msimplyllh 2      questioning the manner in which it was accomplished, in the 3
middle of a contested, on-the-record proceeding which was 4      ready for hearings, where the parties to the proceeding were 5
not called in for a conference with the Commission prior to 6      the action that was taken at the public meeting.
7                    It just raises a question as to whether this action s, by the Commission was prejudicial in any way to the interests i
I
,  9'    of certain parties of record, in any event.
10                    MR. MORRISON:                  Again, Your Honor, I think that's 11      the point, that the Commission wanted to make it clear that the 12      issues in the three docket numbers other than the I docket                            llh 13      would be dealt with fully in this proceeding.                        And since there 14      appeared to be some confusion as to the management audit itself, 15      I think that that was ancillary to their order                          clarifying the 16      proceedings, the fact that the Administrative Staff would be 17      created to specifically introduce ~the. management audit fo'r the 18      purposes'of'this proceeding.                      -
  '19                    As counsel for Administrative Staff, along with 20      David Fazzone who is counsel for Theodore Barry and Associates, 21      we will be introducing the document, we will be offering the 22      witnesses that have prepared the document.                      We are not acting 23      as advocates in any manner, but we offer this ceYourMcncrllk.
24    to the other parties for their use in these proceedings.
25                  I think that that is perhaps the best way to
                            . ...........,,,mrmmmm..-        .-m...,~ ,,,  ,,,,.n
 
i 166 6
()            I    preserve the integrity of the management study itself for 2    whatever purposes it can be used in these proceedings.            It 3    will be available. But we also wish to make clear that issues 4    unrelated to the issues in the two G and one P docket, we feel l
5    to be inappropriate to this proceeding.                                  ,
6                  I think that that, again, was the thrust of the          i 7    Commission's order, that it is certainly the position of the 8    Administrative Staff. And we are not acting as advocates on 9  behalf of any party or point of view.
10                  JUDGE CASEY:    Thank you for your statement.      I 11    think that I've been able to rethink the entire matter --
()          12    that is, the Commission's order of November 26, 1980, and to  ,
13    place an interpretation upon that order.        It would appear that 14    for the purpose of hearings, the four docketed consolidated
;              15    cases may proceed so that we can make a record.
16                  As I understand ordering paragraph number one, it l
17    simply precludes me from issuing any recommended decision with 18    reference to the investigation into the past and present 18    management practices, or to take any position in my decision 0  with respect to the JARI, Incorporated petition for injunction 21    to hold up the proceedings.
22      .            MR. RUSSELL:    May we address that one aspect, if r~            23
(_s)                Your Honor please?
(      )                                                    ~
I i
JUDGE CASEY:    You may if you wish.
i 5
MR. RUSSELL:    The first paragraph says that Your i
COMMoNWEAt.TH REPORTING COMPANY s717e 761-7150
 
167 1
Honor shall address and resolve only two issues, and one is      h 2          the issue of the proposed combination of Met-Ed's and Pennelec's 3,          managements. Now, as we would view it, under the umbrella of 4          that issue would be the contract filing docket and the petiticn 5          of JARI which seeks to challenge that contract.
6                          So, as we would view it, you would be in a positica 7          to make a reccmmended decision with respect to that petition 3          as well as to the contract filing itself, under the unbrella cf 9          that issue, of that contract.
10                          MR. CHRISTIANSON:  Your Honor, if I might add fcr I
11          Commission Trial Staff, my view conceptually is, it might be 12          best, if' the I number is essentially removed from this 1
13 '        proceeding at this point, at least, the P number might possibly 14 ,'
in a sense be mooted, depending on what action the Comission i
15          takes on the two G numbers 90 days from their previcus order.
16 f                        And the JARI position would be essentially an I
17          intervenor in either the combined management G number or both, 18          if they're interested in the nuclear aspects of it.      And 19          essentially, the P number proceeding appears to be largely 20 directed to the I number proceeding, but clearly, insofar as in l
21            impacts on the others,.they should be considered as intercencrs 22            in the two G numbers .
23                        JUDGE CASEY:  I acree with you, :up to a point, b 21          I think the P number, the JARI interests were directed to the L
25 two affiliated interest agreements which would result in
<            A
 
168 substantial changes in the management operations of Pennsylvanii
{}          1 Electric Company in the Johnstown area.
2 3
I think they wanted to hold up that action until 4  hearings were held to determine whether the proposal was in 5  fact in the public interest.          Is that correct, Mr. Shilobod?
6                  MR. SHILOBOD:      That's correct.
7                  JUDGE CASEY:      Were your clients interested in any a  way in the I number, the Commission investigation into            past 9  and present management practices?
10                  MR. SHILOBOC:    At this point, only insofar as i'.
11  would have a bearing on these interrelationships between the 12    companies. If Your Honor please, there is another issue that
(~ }
13    I'd like to address that I've raised and has been discussed, 14    namely the role of Administrative Staff.
15                  JUDGE CASEY:    The Administrative Staff assigriment 16    has been explained in the ordering paragraphs, and I think 17  Mr. Morrison attempted to clarify his position as not being an 18  advocate, but in presenting portions of the TB&A feport which 19  apparently would have a direct bearing on the proposed GPU 20    Nuclear Corporation as well as the combined management of 21  Met-Ed and Pennelec, and that all other portions of the re;crt 22    and material in the report which would have a general applica-()          23  bility to past and present management practices under the 24  I docketed case would not be offered into this reccrd.        Is tha:
25    a correct statement, Mr. Morrison?
COMMONWEALTH REPORTING COMPANY (7171 761 7150
 
169 MR. MORRISON:  Yes,YourHonor,Ibelievethat'slh 2        accurate.
MR. SHILOBOD:  Well, Your Honor, first of all it's 3
4 a conclusion whether or not Administrative Staff is taking an 3        advocacy role. If they are in fact cooperating with the TB&A 6
attorney in helping to prepare his witnesses for cross-examina-
            -        tion, I submit that's advocacy in its finest sense.
8 Second of all, this entire report necessarily has
          ,  9        a bearing on the issues 7aised by JARI, because it has to be toj      viewed as a whole in order to be understood.
I Il i                  JUDGE CASEY:  Anybody wish to respond to 12        Mr. Shilobod's statement?                                ,
13 i                MR. MORRISON:    Well, Your Honor, the Administrative 14        Staff is of course going to present the TB&A witnesses.        Again, 15        the thrust of what we're doing is offering this study.
                            ~
TB&A I          16        is not a party in any sense of the word to this prcceedine,        or 17      a party at interest.
s 18                    We are merely offering this study. That is why Of course 19 l the Commission has created the Administrative Staff.
20        I'm going to be talking with TB&A. Those are the witnesses l            21        I'll be presenting as the Administrative Staff.
22                    JUDGE CASEY:    Is TB&A.and their officials cr i                !
l  f          23      employees being presented in the capacity of expert witnesse W_
I 1
l  .'    24      in the question of these two af filiated interest centracts to l-25        present opinion type evidence, either in supp' ort or against the l
l
 
l                                                                      170 proposals by the GPU system?    Do you follow my question?
(}        1 MR. MORRISON:  I do, Your Honor.      The answer is, 2
3 I guess, that of course the TB&A witnesses will be offered as 4
experts. They are being offered to testify on the report they        .
5 have prepared, but they are not being offered -- nor is the 6
report being offered -- in support of any position.                      [
It is there for the parties to use, and for Your 7
a    Honor to use.
JUDGE CASNY:  What about the point that Mr.Shilcbcd 9
30 raised, that if you simply use the portions of the report or 33 have the witnesses testify to those portiors o1 the report tha:
12 deal directly and exclusively with the two afrillated .nterest 13 '  contracts,  that you actually are taking this material" out of 14 context and that the report must be viewed in the overall sense 15 in order for it to have relevancy;to the issues raised in this 16    Proceeding?
MR. MORRISON:  I think certainly the parties to 17 is    this proceeding can argue the relevancy of various portions, l            19    and Your Honor can decide what is and what is not relevant.
20    We are essentially in the posture of offering the report for 21    the purposes of aiding,yourself, aiding the parties and aiding 22    the Commission in reaching a determination.
23                Of^ course, if all the parties find it not to be
  /~S V
        -    24    useful at-all, then that may well prove futile.            But, we are 25    also interested in preserving the integrity of the management COMMONWEALTH REPORTING COMPANY E7171 7G 1 7150
[
 
171 1
audit. It  isnotofferedtosupportonepositionoranother,{ll 2
and we are interested in preserving it as a whole and in a way 3
so that it may be used for other purposes.
JUDGE CASEY:  All right. You say that it contains 4
3 certain objective findings and opinions, and whether those 6
f ndings support or do not support is not really your concern; 7
you simply want to present the report, which represents an in-depth study of the situation.      Is that basically it?
3 MR. MORRISON:  That is correct, Your Honor. We 9
19 are presenting it as a disinterested party, for whatever value the parties feel it to be.
11 l 12 JUDGE CASEY:  I want to cover one other point, lll before I forget, and then I'll let you make a statement.        The 13 14 Commission will be participating in these proceedings in two 15    different capacities.      Commission Trial Staff has been in the is    proceeding from its very inception. Commission Trial Staff 17    originally was represented by Stephen A. McClaren, Deputy e
la    Chief Counsel.
I    19                  His role in the case for Commission Trial Staff was to aid in developing a record.      I understood that they were 20 21    going to thoroughly cr.oss-examine all witnesses presented in l
22    the case, but would probably not present any testimony in this 23 ' matter. To that extent,  theymayormaynotbeanadvocate.lll
  )
24 But in any event, on November 26, a letter was l
25    sent to me from Stephen A. McClaren which states that because l
 
172
()                    1 of commitments elsewhere, "I will be-unable to attend the hearings scheduled for December 1, 2 and 3.
2 Staff does wish i                        3  to Participate in those hearings, and ordinarily I would 4  arrange for another attorney to act in my stead.
5 "However, no other attorneys on my staff are 6  f amiliar with. this case.      Therefore, I am hereby requesting, 7  pursuant to Title 66 PA Consolidated Statutes, Section 308, a  subparagraph (f) that Robert L. Packard be permitted to
                    ,9      cross-examine any witnesses who are presented in any of the 10  hearings on December 1,      2 and 3, 1980."
11 Of course, December 1 and 2 are out, so that would
()                    12  pertain to today's hearing.        "Mr. Packard is not an attorney.
13  He is in fact the director of the Bureau of Rates of this 14  Commission, and I am not asking that Mr. Packard represent the l.
                      ''15    Staff as' counsel.
16                    " Robert Christianson, Assistant Counsel, will be 17  present. However, Mr. Packard is thoroughly familiar with all 18  aspects of this proceeding, and we have discussed potential 19  Staff cross-examination." ~
20                    So, the Commission has the right to do this under 21  the rule, and therefore I must honor the. request, even though 22  some of you members of the Bar may have some misgivings abcut
'()                      23 24 permitting a layperson to engage in the capacity as counsel es cross-examining a witness on the witness stand.              However, it is 25  permissible.
COMMONWEALTH REPCRTING COMPANY #717, 761 7150
 
173 I
3 Mr. Packard will be accompanied by Mr. Christians 2
as I have already indicated, and at least for today's date 3          Mr. Christianson is counsel of record for the Commission.
MR. CHRISTIANSON:      That's correct.      I would add, 4                                                      ,
5          just by the by, that Mr. Packard too has conflicts and is not 6          Present at this moment.      If necessary, I will proceed with 7          cross-examination. I have made myself sufficiently familiar a          to be able to proceed, though I expect Mr. Packard to be 1
9          present later today.
10                        JUDGE CASEY:      Do you expect Mr. McClaren to resume 1
11 his role as counsel of record in the hearings?
12 ,                      MR. CHRISTIANSON:      Yes. Mr. McClaren remains .
13            counsel of record in this case.        I am appearing for him, 14 l essentially, today.
I assume I will continue to be associated 15            somewhat, but Mr. McClaren will be the major Trial Staff 1
I 16            counsel for this proceeding.
l 17                        JUDGE CASEY:    All right.      Is there any objection l
l                                                                                e i      18            to that arrangement?
19 f                      MR. RUSSELL:    We have none.
!              i 20 l                      JUDGE CASEY:    Mr. Shilobod?
I i
21                        MR. SHILOBOD:      No.
22                        MR. MESSER:    No.
l
!        23                        JUDGE CASEY:      UnlessyougentlemenhaveanyfurillF l
  )      24 matters that you wish to raise on the record or cuesticas, I l        25        i would ask Mr. Russell to indicate how he is going to present erSMM9NWEAl.TH REPORTING COMP ANY e717 761 7150
 
174
()          I  his proof in this case.
2                  MR. SHILOBOD:    If Your Honor please, I have 3  several matters.      I don't wish to belabor the issue that I 4  raised concerning involvement of Administrative Staff.                I    :
5  pointed out the preparation of a witness for cross-examination 6  was advocacy.      That specific point was never addressed by              .
7  Mr. Morrison.
8                  In his final statement he said that he does have
        -  9  an interest in preserving the integrity of this management 10    audit report.      Now, if that is not advocacy, I don't know what 11    is, because the integrity of that report is clearly an issue
()        12    here. It is one of the objections that we raised.            ,,
I3                    We asked leave to intervene to attack the integrity I4    of that report.      What we have is Administrative Staff taking a 15    contrary, advocacy position with respect to that.              I do have 16    several other matters that I'd like to raise also, if Your I    Honor wants me to go on.
s 18                    JUDGE CASEY:  Well, on that point, I think you can 19    argue appropriately at any point in the briefs filed that there 20      is either a conflict of interest involving the two sections of I  the Commission Staf f, 'or that the Commission in f act, instead 22    of being an impartial arbiter of the issues in this proceeding I)
(_
23    is actually playing an advocacy role by sponsoring the TE&A 24 report. This is a matter which was ordered by the Commissic."
25 for its own information.
COMMONWEALTH REPORTING COMPANY (717e 76 8-7150
 
175 g
The Commission was at liberty to reject all or an-  ,
2    portion of that report, if it was not satisfied with the 3    report. However, if it did feel that the TB&A report was            ,
4 worthwhile and well-prepared and so fortn, I think the 5
Commission, rather than use it privately to the detriment of the parties of record in this case, is under a moral if not a 6                                                                        t 7  legal obligation to make known the contents of that report in s
this record so that adversary parties could cross-examine with 9  respect to its findings and contents.
10 So, it's a two way sword, so to speak. Do you keep it out and let the Commission be guided by it privately      when 11 12 it makes the ultimate decisio.n af ter my recommended decision 13 is rendered, or do you try to incorporate it into this reccrd 14 for whatever use it may be to the parties?
15                  MR. SHILOBOD: Your Honor please, I'm not objecting to merely having Administrative Staff come in and put    the 16 17  witness on the stand and describe that he prepared the report and that's his results. However, to prepare that witness fcr l
18 19    cross-examination, to take the stance of a need or a stance tc l  20    preserve the integrity is something different.
21                And that's.the point that I'm making, tha:
i 22    Administrative Staff could participate, but it could partici-23  pate on grounds different than what Mr. Russell had indicatem 0
24  to me was'being done.
l 25                JUDGE CASEY:  Do we know whether that has bee.- d:ne
 
176 4
q
  's) 1 MR. SHILOBOD:    I've raised it, and it certainly 2        hasn't been addressed.
3                        JUDGE CASEY:  Mr. Morrison, have you met with 4        employees of Theodore Barry and Associates and attempted to 5        help them anticipate questions they will be asked in this 6        proceeding -- in other words, prepare them for cross-examina-7        tion?
8                      MR. MORRISON:    I have not yet, Your Honor, but I 9        certainly intend to.      This is the same thing that was done in a
10 l      Phase Two of the Commission's investigation into specifically I
11 l the situation with Metropolitan Edison.      In that proceeding, h          I
(~J
    ~          12 i      Administrative Counsel assisted in the preparation and 13 ;      presentation of testimony.
I 14 I                    That was prior to the availablity of the final 15 l      report itself, the final management study.      The witnesses were 1G        presented with the aid of Administrative Staff      Assistant 17        Counsel Paul Russell, and of course he discussed the matters cf 18    1 their testimony with them.
19                      It's an independent study. It was ordered-by the 20        Commission to be done.      We are presenting the product. That is 21        the interest we have in the product.      We have no interest in 22        the outcome of these proceedings.- I t". ink that's.the point
  /~)#              '
      -~        23        that Mr. Shilobod is missing.
24 ,                    JUDGE CASEY:  I don't disagree with presenting the 1
25        product, as you say, but do you feel compelled to school the
 
177 1
witnesses so that they'll be able to put their best fact              lhk 2  forward under cross-examination, when they're being questioned 3  by hostile parties?      Is that your function?  Does the 4
Commission have to make them look good, or don't they have the 5  strength of their convictions as to what's in that report to 6  be able to respond to any questions concerning it?
7                  MR. MORRISON:  Well, Your Honor, I like to think a  that I've never schooled a witness at all.        I think cer ainly, 9  as an attorney presenting any witness, one has the duty to 10    assist that witness to the extent that one, of course, goes 11    through the proceedings with them, explains what will occur, 12    and answers any questions they may have.                  ..          lk 13                    The testimony is, of course, always that o f the 14    witness. I by no means intend to suggest answers, to change 15    answers, or do anything of this sort.      But I do intend ec 16  function as an attorney presenting those witnesses.
17                  MR. SHILOBOD:  Your Honor please, I'd like to rake 18  a request.      I'd like to make a request that we obtain a 19    clarification from the Commission as to whether or not 20    Administrative Staff is supposed to assist the witness,        cc 21    prepare them for cross-examination and to take the stance : hat 22    they should maintain, that Administrative Staff shculd assist 23  in maintaining the integrity of that report; or does        he 21  Commission intend solely and only to have Administrative staff 25  present the witness, identify their report and present ther fcr !
 
178
    /          1        cross-examination?      I think that should be done before 2
Administrative Staff deals with these witnesses, or their 3          attorney.
4                        JUDGE CASEY:        I think he's already taken a 5        position as to, rightly or wrongly --
l 6                        MR. SHILOBOD: -- He has --
7                        JUDGE CASEY:        -- how he's going to handle the 8        situation. Rather than obtain a clarification, which in =y 9
                          . view might tend to hold up the proceedings -- and we have our 9'f to          work cut out for us -- I think you can take any objection or i
11          make any legal argument that you would care to, and you can r) s-    s 12 !        cite whatever authority that you can find that this is not 13          appropriate.
I 14 :                      And, I think there are opinions -- I've seen one l              15          or two -- which deal with this precise subject, where the l
16        Attorney General of the Commonwealth of Pennsylvania is 17          involved in a proceeding and he has people under, his control.
I la          This is the way it used to be, whern the agency chief counsels 19          were all subject to control by the Attorney General, and you 20          have two separate agencies taking adverse positions to each 21        other.                    .
22                        And the basic issue arising out of that situa:ics:
  '~-          23        Wasn't the Attorney General involved in an out and cut conf _ic:
21    I of interest by presenting two sides of the picture in a given
!                25          proceeding?  I think the Supreme Court of Pennsylvania care :c i
                                                        - -----~.... ......... . . , . , , , , ,
m
 
l 179
    '          grips with that issue.      I don't have the citation at my I
2    fingertips, but you know, it is available. Mr. Christianson?
3                  MR. CHRISTIANSON:    If I may point out, there are 4    provisions in the Fublic Utility Ccde about our so-called 5
bifurcation and trifurcation, which are not necessarily the easiest to interpret.      But of course I'm not privy to the 6
7    Commission's thinking -- and I couldn't be Trial Staff if I a    were'-- but they did use in the order the phrase, "Administra-9    tive Staf f," which is not the same as either of the phrases 10      used at Section 308, subsection (b) where the Law Bureau is 11      set up as a multifunction legal staff consisting of prosecutcr.
12      function and advisory function.                        .
13                    Again, I'm only suggesting that Mr. Morrison is 14    not necessarily advisory function in the sense that he will 15    whisper in the Commission's ear at such time as they make I      16      their ultimate decision. Clearly, under a trifurcation, he 17    will not aid the Administrative Law Judge in his decision.
e 18                  JUDGE CASEY:  Well, the Administrative Staff is 19      obviously a new animal, as was the so-called Met-Ed Task Force, i
20      I believe, that functioned within this Commission in connecticn l
21    with the earlier proceeding      at I-308.
22                  IIR. CHRISTIANSON:  I believe it is still functicn-23    ing, and might have functioned to produce the November 26 l
24 i order. I'm not sure of that.
23                  JUDGE CASEY:  Who was involved in the Met-Ed Cask
 
180
()          1      Force, may I ask?
2                      MR. CHRISTIANSON:                  I believe it's Chief Counsel, 3      'b'ut I'n not sure.        'I haven't been involved.                            It just happens, 4      my background is in transportation law, so I have not been 5      closely associated with the nuances of the fixed utilities.                                            -
6'                    JUDGE CASEY:                I understand.
7                      MR. CHRISTIAN:                I believe it's been --fChief 8      Counsel, or Mr. McClaren has been Trial for a while.                                          But the I
9    peculiar problem with one Law Bureau is that you do tend to 10      run out of bodies after a certain point, and this is one reasca 11      I'm moving over to fixed utilities work.
()        12 l But as I said, I believe that Advisory Task Force 13      is still functioning and will continue to advise the Commission.
34      Whether Mr. Morrison has been or will be part of that, I don't 15      know, or precisely who is part of that.
16                      JUDGE CASEY:                I don't want to get into too many 17      extraneous or collateral matters, but at 308 --
s 18                      MR. CHRISTIANSON:                  I suggest~, if necessary, this l
l l
19      can be cured as an issue that might come up before the 20      Commission, and the Commission can decide precisely what was 21                                        -
f                    ordered for.
22                      JUDGE CASEY:              You mean, you would concur with 23 i    )                Mr. Shilobod, that it should be presented before --
i        't
                ~
MR. CHRISTIANSON:                  No, I don't think it should be 25  lpresentedasaninterlocutorydecision.                                      I think we can best i                                                              .
 
1 181 1
Proceed with this matter, and if decisions have to be cade as 2
to who may advise the Ccmmission or precisely who plays what 3
role, or even if there was an inadvertent mixing of functions        .
i 4
which invalidates the proceeding, a decision can be made on 5
the ultimate merits after your initial decision is presented.
6 I would not advocate another extraordinary reference to the            .
I 7    Commission.
8                  JUDGE CASEY:  One other question to Mr. Morrison, 9
since he seemed to be more or less familiar with the background to      of the other proceeding. I'm excluding any reference to 11      pending rate cases filed by Met-Ed.      I want that very plain in 12      this record. We are not invo.lved here with rate case,s.
13 But in the I-308, the last three numbers, was 14    Mr. McClaren the advisory counsel to the Commission who 15    operated behind the bench, so to speak, when the Commissioners l
l    16    were  residing over those proceedings?
17                  MR. MORRISON:  I believe he was, Your Honor. I an e
18    not that familiar with those proceedings.
19                  JUDGE CASEY:  And was Mr. Joseph Malatesta, the 20      present chief counsel, was he not the Commission trial counsel l    21    who was engaged in examining witnesses during the 308 22  l proceedings?
23                MR. MORRISON:    Yes, he was, Your Honor, and 24    specifically I do know that Paul Russell served as Administra-25    tive  Staf f counsel and that he consulted with the T35A
 
4 182
    /,        I    witnesses, assisting in the preparation of their testimony, and 21  that he functioned completely independently from either 3    Mr. McClaren or from Mr. Malatesta.
4                JUDGE CASEY:      Mr. Paul Russell, who has been 5    mentioned in the record,      'a former,      assistant counsel in the l
6    PUC Law Bureau, is presently an attorney in the Law Department 7    of Pennsylvania Power and Light Company in Allentown, is that 8  correct?
          *9                    MR. MORRISON:    Yes, sir.
10                  JUDGE CASEY:    Do you have a final matter that you 11    wanted to bring up?
12                  MR. SHILOBOD:    I have two other matters.      One has In our meeting on November 14, I 13    to deal with discovery.
i l
14    requested leave to look at the records of Pennelec, GPU and 15    Met-Ed dealing with these issues -- namely, the two affiliated 16    interest agreements.
17                We agreed, as a matter of convenience ,and because 18    of the time pressures to go to Harrisburg and look at those 19    records, and we did. It was my understanding at that time that 20    we would be entitled to look at the other records, in addition f
21 to thos'e that were' listed on Mr. Russell's list.
22
                                  - And the reason we requested this leave is because 23  of the extreme time limitations that have been put upon us, 1
t    '
                ,4
                ~
which I interpret as being partially in response to the sense I
                *S    of urgency created by GPU and its affiliated companies.
 
l l
183  ,
1,                  We did go to Harrisburg. We did see the records O I
2 l;  there that were listed on Mr.      Russell's statement. He in      ,
l 3'  addition presented some of the additional documents that we 4    specifically mentioned, and we expressed surprise that they 5    were not included as part of the relevant documents in this 6    proceeding.      However, the others were not --                      -
7                    JUDGE CASEY:  Stop right there for a moment. There 8    were certain documents in an appendix to the prehearing 9  conference memorandum which Mr. Russell presented on November 10    14. There were certain numerated documents; I forget how many.
11    It's in my file.
12                    But, are you saying that those documents..were not 13    available for your inspection and examination, or cther 14    underlying material, if there was such?
15                  MR. SHILOBOD:  The matters listed were available.
16    It's the underlying materials that we raised questions about at 17    our meeting on November 14 that were not.              >
18                    JUDGE CASEY:  What were you prevented from seeing, 19    or what couldn't you see on that occasion?
20                    MR. SHILOBOD:  Well, I indicated in that meeting 21 on November 14 that I wanted to see even the letters of 22      transmittal because of the brief time that passed, and for
        '3 instance the appearance of the two proposed organizational 24    reports by the two officers, one of Met-Ed and one of Pennelec.
25      I wanted to know where the're was background information giving
 
184
()  ;      i      rise to that report.            I did'n't see any of that.
2                    JUDGE CASEY:              Do you have reason to believe that 3
there was material or papers of that nature in existence?                                      Did 1
4 Mr. Russell indicate to you that there had been exchanges of 5      correspondence between and among the officers of the various 1
6      companies or minutes of board meetings which had bearing on                                          j i
7    these agreements?                                                                                    l 8                    MR. SHILOBOD:              I posed a general question to 9    Mr. Russell concerning the documents that I raised questions to      about in our prehearing conference.                          He indicated to me that it 11 ,    was his belief that all relevant documents had been presented I
()        12      to us, and that the others were irrelevant.                                              .,
13                    JUDGE CASEY:            Were you aware, Mr. Shilobod, as to 14      whether you were examining company records that had been 15      provided especially to you or for the purposes of this i
l          16      litigation, or were you examining the contents of Mr. Russell's 17      legal file with respect to these?
e 18                    MR. SHILOBOD:              Not his legal file at all.                      It was l
19      strictly documents related to the issues that we've raised 20      here. They were primarily those matters that were included on 21      the list of, quote, " relevant items," unquote that Mr. Russell 22      had presented at the prehearing conference.
    )  ,
23                  JUDGE CASEY:              You saw all of those?
        /      24                  MR. SHILOBOD:              Yes.
I 25                    .TUDGE CASEY:            And nothing else, nothing more?
 
1                                                                                          .      .
185 1                      MR. SHILOBOD:        No, we saw in addition some lll 2          calculations on the 18 million dollar estimation and some 3          summaries of results of interviews with TB&A employees, and 4          there may be one or two other items that I raised questions 5          about. In other words, if I had specifically mentioned them,I 1
6          believe they were there except for the things like the general 7          request for the various documentation.
l 8'                      JUDGE CASEY:        Considering the time constraints and
  -  9        how this had to be done hurriedly, are you still making the to          statement or arguing that you've been precluded in scme way I
Il i        from taking advantage of discovery in the case?
12 I                    MR. SHILOBOD:        Well, I certainly believe.,that Ijlh 1
13        We certainly don't have the time to go through the extensive 14 :      discovery that you normally would with all these dccuments..
15          Just the copies of those I obtained that are sitting on my 16          desk here are probably six or seven inchea high.                  To go through l
Il          that and to conduct normal discovery normally would take a 18          substantial amount of time.
l    19                      As I pointed out, we're on an expedited schedule 20          for the benefit of these companies.            There are metcranda that 21          have made references to other documents that are attached., and l
22      l they're not attached to these memoranda and so on.                        .
1 23                      JUDGE CASEY:        I can't tell you how to try four              lll l
i    24        case, even though I might be sympathetic with your                  csitic .      :
l l    25 have no control over the time factor of this case.                  The
(*nMMONWF AL TH REPORTING COMPANY t7171 7G 1 -71
* C
 
186 l        1    Commission has issued an order.              I think if any counsel in the 2    case feel that their preparation has been impeded or hampered, 3    that they can make the appropriate petition or motion directly 4    to the Commission for an extension of time.
5                  As Mr. Russell indicated, if the postponement 6    initially of the TB&A witnesses' testimony would be harmful in!
7    completing our assignment, he would join in a position to 8    extend the case.      But at this point, I think we had a similar 9  problem with Mr. Dieckamp's prepared testimony.                      I received it to    late yesterday afternoon.          It was hand delivered about four 11    o' clock. I had only an opportunity to just peruse very f~
  \~}  ,    12    hurriedly that material.                                                ..
13                  And I think that's probably the situation with 14    other counsel. Whether you're going to be able to engage in 15    any meaningful cross-examination remains to be seen.                      If 16    Mr. Dieckamp is offered to identify and qualify his prepared l
17    testimony and then made available for cross-examination,            '
is I
la    that going to be a problem?
19                  MR. SIIILOBOD:      It may be.        I got his testimony at 20    7:30 last night, before I had my supper.                  I don't believe my 21    cross-examination is going to be complete, although I'm going 22    to try to do as much as I can.            With respect to these documents Os            23  that we inspected, I respectfully request information from l
24 Mr. Russell as to which if any of these documents does he 25    specifically intend to place into the record.                    I submit that l
 
187 1        this would substantially expedite these proceedings.                        Idon'tjll 2li think that's an unreasonable request.
3                    It's also going to make it clear to us which 4        documents we have to demand copies of to be placed in the 5        record.
6                    JUDGE CASEY:            Do you want to respond to that, 7        Mr. Russell?
8                    MR. RUSSELL:            Well, with respect to the documents,
      -  9        and the discussion at the prehearing conference, I'd                        ust like 10 ,      to clarify a couple things, at least as we understecd ther.                            We i
11        prepared a list of documents that we had culled thrcugh, the y
12        variousmaterialsthatdidhaveabearingonthebac.. tground lll 13        the proposed agreement for combined management.
14                    And we agreed at the prehearing conference we wculd is i i
produce those documents for any party to take a 1cck at at a 16        time and place in Harrisburg.                  We would also see if we cculd l
1 17        find some documents that had to do with the cost savines 18        breakdown to which reference had been made.                        We also agreed we 19        would produce all of the interview logs between all Met-Ed, 20        Pennelec and GPU personnel with TB&A investigative perscnnel 21        in connection with their management audit.
22                    We produced those in Harrisburg at the assigned 23      time and place.      !!r . PackardandMr.McClarenweretheretclll
          '4 through them, which they did, and got copies of varicus cnes.
I 25        Mr. Shilobed did not appear, and didn't even call tc say tha:
                                ,*oMMON Wrat TH R FPORTING (*OM P A NY e717 761.71 M
 
188
()        i    he wasn't going to appear.
2                  We got a hold of Mr. Shilobod and arranged another 3    time in Harrisburg and place for him to come and look at them, 4    which he did, and we arranged to have copies of, I think, 5    everything run off for him which he has here on the table.
s                  We did not agree to bring file cabinets full of 7    miscellaneous correspondence at that time, and we don't think 8  that in all honesty there's any relevancy or materiality to 9  miscellaneous assorted correspondence, notes, et cetera.                                                      We to    think that everything of substance with respect to the back-11    ground of this proceeding has been fully disclosed.
()        12                  And having said that, I would say in response te 13    Mr. Shilobod's request that I'm not aware that anything of I            14    which he has copies is sufficiently relevant for us to submit 15    as exhibits in this proceeding, because the issues really are 16    these two agreements -- are they or are they not in the public 17    interest? And the manner, the time, the sequence of events-18    which led to them are of informational, but not highly relevant 19    or material.
l l
20                  The agreements themselves are the real issues,                                                      Sc, 21    from that point of view, I am not aware of any specific iters 22    in the pile that he has in front of him that we would prcpase l
25    to put in as exhibits.
24                  MR. SHILOBOD:                      If the Administrative Law Judge 25    please, I must respond to the comment made by Mr. Russell abcut
 
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1.25  1.4    1.6
 
189 1        my not appearing.      He knows very well what happened, and --
:                        JUDGE CASEY:    I'm aware of that. Let's not make 3          an issue out of that.      Some problem came up and you were act 4
able to be there at the appointed time.          As long as you had the 5        opportunity --
6                        MR. SHILOBOD:      Your Honor, I was snowed in my I couldn't get out of my office the night before.          I 7        office.
a        couldn't even get home.      Mr. Russell knows that, and he knows--
9                      MR. RUSSELL: -- I don't know that, Mr. Shilobod --
10                        MR. SHILOBOD:  --  that I talked to his employee --
l 11 1                      MR. RUSSELL:  And the airport in Pittsburgh was 12        open the entire period, and the most time that any flight wa 13 '      delayed was twenty minutes.
14                        JUDGE CASEY:  Gentlemen, we're not going to argue.
15        That's water over the dam, so to speak.          The opportunity to 16          examine did occur.      He was there at a time later.      I think I 17        understand Mr. Russell's position.        He thinks these two 18        affiliated interest agreements must be examined within the 13        four corners of those documents.
20                        He did attempt to glean from the company's records 21        any correspondence, memoranda which would have a becring cn the 22        proposals. He put it together.      As I recall, when he had :his 23        as an appendix, he said, you know, "We're not realli rushin:
24 ,      any of these matters, but they do have some general rele.ancy, 1
25 I      so I'll disclose them rather than exclude them."
l I
 
190 2
1                          I think your task, as counsel for JARI, will be, 2            during the course.-of your cross-examination on relevant matters, 3            to try to disCE..*n whether there is something that the company 4            officers had communicated to them or some underlying record 5            that you can question them about and ask them to produce at the l
time of cross-examination.
6 7                          I don't see how you could ever, even if you take a 8            cynical point of view and say that they're withholding informa-9          tion, they failed to disclose it -- I don't.think at this 10            junction that you'll be able to conduct a side investigation 11            and play detective and search through the records of both
()            12            these utilities.                                                                                              .
i 13                          MR. SHILOBOD:                            I have some specific information I 14 '          would request, if I could make it on the record.
I'd like a 15            copy of the Booz- e.llen report referred to in Mr. Dieckamp's 18            testimony. I'd like a copy of any agreements on ownership 17            and/or operation of TMI facilities between Pennelec and Met-Ed 18            such as existed as of the time the accident occurred, and any 18 i changes since.
I I
20 l
This is for purposes of comparison to the new i
21      '
I also would like to point out that among those
                          ! propocal.
22 l' written documents that were presented for our inspection, I
the j
('")            "'          earliest writing was January 7, 1980.
                    '4
                    ~
I think you also pointed that out, cr JUDGE CASEY:
ie              'S
                  ~
there was some reference to it at the prehearing conference.
I l                                              _ . . . . . . . . . . . . . . . _ _ _ . , , . . . . . , . . . . . . . , , , . , , , , . , ,
 
I 191 Are you able to produce the Booz-Hamilton report        h 1
i 2            that he's referring to?
MR. RUSSELL:  We don't have any of them here.      We 3                                                                                    ,
4            can obtain them. If he's interested in looking at the TMI          ,
operating agreements in a hurry, they're public documents on            ;
5 f
a            file here with the Commission.      And if he wants to look at them, 7i in the meantime, we can do that.                We can get copies of them in, i
8            due course.
9                          MR. SHILOBOD:  Mr. Russell, were those affiliated to            interest agreements approved by the Commission, do you know?
11 ;
MR. RUSSELL:  They were filed with the Ccmmissicn,        '
12            and my recollection was that in the absence of any ac, tion by 1
13 l the Commission, they were deemed to have been approved as a 14 { matter of law under the statutory provisions.
c 15 '                        JUDGE CASEY:  I belidve the statute indicates that I
16 I i
if they are properly filed, and 30 days goes by without the 17            Commission issuing any disapproval or extending the time pericd 18            to examine the agreements, that those agreements become 19            effective by operation of law or something similar to that, in 20            any event.
21 I                        At this point, I think we'd better be on our way.
i 22 i t
Mr. Russell, I'll ask you, if you.wish, to make an offer of 23            proof or tell me how you're going to present your case,      and i
24 f then          we'll decide on the order of cross-examination.
i 25 l                        MR. RUSSELL:  Before I proceed, I would like to
 
9 192
()              I take care of a matter I meant to earlier, and in the course of 2
discussion I didn't get to it.      I'd like to introduce
                  .,'      Mr. Ira Jolles of the firm of Burlack, Israels and Liberman, 4
New York City, who is appearing on behalf of General Public 5
Utilities Corporation.
JUDGE CASEY:    Mr. Jolles has signed the appearance 6
7        sheet?
8                      MR. JOLLES:    Yes, I have, Your Honor.
g                    SR. MORRISON:    Your Honor, if we could, as a sort to        of a housekeeping matter, before Mr. Russell begins, I would 11 like to discuss when the TB&A witnesses will be available, and (O _/        12 see if we could set that up right now.      All of the wi,tnesses 13 are out of town, and we would like to have a date..-
14 :                  We would suggest either next Wednesday, which wculd I
i i
15 I;      be preferable, or next Tuesday, as an alternative.
i la                      JUDGE CASEY:  When you say they're out of town, 17        New York City or elsewher.:?
s 18                      MR. MORRISON:  Yes, sir, Boston.
19                      JUDGE CASEY:    Mr. Russell and his client and the i
20        other attorney, they are the moving parties in this proceeding, i
21        and they are in control of how much testimony and proof they l
l 22    ! will be putting into the record, and then we have to allow fcr
(                    \
                                                  'de do have December 8, 9 and 10 scheduled,
    \_/            23 {      cross-examination.
t                        i
          /      24        which would be this coming Monday, Tuesday and Wednesday, and 25        Mr. Shilobod has already indicated he probably will have I
 
I 193  .
I 1    extensive cross-examination.            AndCommissioncounselfrombotjl 2
individual staffs will have an opportunity to cross-examine.                      l 3    Anyone else?    Mr. Messer, will you be cooperating with your 4    cocounsel in cross-examination of witnesses?                                      l 5                  !!R. MESSER:  I will, Your Honor.                                    l 6                  MR. MORRISON:    Your Honor, specifically with the                  j 7    TB&A witnesses, if we could at least get an estimate from the s    parties of expected cross-examination and if we car sc.Juule a 9    date for certain witnesses --
10                  JUDGE CASEY:  Perhaps Mr. Russell can assist us.
11      Do you think your direct case will consume all of the scheduled 12      dates we have left, including cross-examination?                      .
llh 13                    MR. RUSSELL:  Well, it's a little difficult to get.
14      an estimate with respect to that.            Our three basic witnesses 15      we have already made clear in our prehearing mer.orandum:
1G      'tr. Dieckamp, Mr. Verrochi and Mr. Donofrio.              We have presented i
17    the prepared testimony of the first two of those.                    Mr.
1 Donofrio's, we expect to have available in the next several 1
18 19 days to distribute to the parties.
20                    But so far as the amount of hearing time that is 21      required,-as Mr. Morrison indicates, it is primarily a function l
22      of cros's-examination rather than direct examination, and I 23    wouldsaythattheotherpartiescouldperhapsgiveyoumorclll
  /    24    information than we could as to hearing time on our witnesses' 25    cross.
 
i 194
()          1 MR. MORRISON:              Your Honor, if I might suggest, it 2
really doesn't have any relevance to the other parties' direct 3    witnesses. If we just know how much time they expect to take 4
on the TB&A witnesses, we could schedule our witnesses for 5
Wednesday, preferably, or if not then Tuesday of next week.                                        ,
JUDGE CASEY:              All right.                  Tentatively, we will            !
6 schedule for Wednesday.              That's the last day.                        Perhaps at the 7
a    close of today's hearing, we can decide on some additional 9  tentative dates in case we can't complete the case next i
10    Wednesday, which is probably unlikely.
11 But as of this moment, I would say, have your
()        12    TB&A witnesses available on Wednesday morning, and the la    company will have today -- the GPU system will have today and 14    next Monday and Tuesday.              They'll be putting on their direct is    case, which is all prepared testimony and exhibits, is that is    correct?
17                MR. RUSSELL:              That's as far as we know.
18                JUDGE CASEY:              I think we should move ahead.                      Do all 19    attorneys present have copies of Mr. Herman Dieckamp's 20    prepared testimony?
l l            21                  (No response.)
22                JUDGE CASEY:              Would you be calling Mr. Dieckamp as O( j          23  your first witness?
j l
l        24              MR. RUSSELL:              Yes, we'll call him as our first f
l l              25  witness. Could we have just a brief five minute recess before
 
195
  )  3
        !        we call Mr. Dieckamp?                                                  llh JUDGE CASEY:      I think it's a good time.      We will 2                                                        ,
i 3            take a ten minute recess a'      this point.
4 (Whe'reupon , a recess was taken.)
5,                        JUDGE CASEY:    On the record.
6          Whereupon, HERMAN M. DIECKAMP 7f s,          having been duly sworn, testified as follaws:
i 9                        JUDGE CASEY:    You may proceed, Mr. Russell.
l                                    Your Honor please, there's one 10 !                      MR. RUSSELL:
11            further preliminary. I've handed to the reporter three copies 12            of various documents which I..ask to have marked for identifi k i
13      !    tion as Pennelec/ Met-Ed Statements A and B, and Pennelec/ Met-Ed 14 i Exhibits No. 1 through No. 6 inclusive.
15                          JUDGE CASEY:    Those exhibits will be so marked for i
16            identification.
17                                              (Whereupon, the documents were marked Pennelec/ Met-Ed Statemen:
18                                              A and B and Pennelec/ Met-Ed Exhibits No. 1 thr<. ugh No. 6 to                                              for identification.)
20 I
DIPECT EXAMINATION 21 l
BY MR. RUSSELL:
l Would you state your name, please?
l 22                  g l
23                  A    My name is Herman Dieckamp.
24 0      Do you have before you a document which has been 25          marked for identification as Pennelec/ Met-Ed Statement A?
 
196
()  j        1                  A      Yes, I do.
Is that your prepared written testimony in this 2                  G 3            proceedings?                                                                                      l A      Yes, it is.                                                                      l 4
                                                                                                                              ^
5 g      Are there any corrections that you would like to                                  l 6,          make in the text of that statement?
7                  A      Yes.        There are a few minor typographical errors l
8 that I'll not enumerate and we can cake care of later, but en
              . 9; f
i page 22,    I would call attention to the th'ird line which should i                                                                                      " consolidation,"
10 l          read, "my understanding that a combination" -
I i
11 !
1 I should say -          " occurs when all the assets and liabilities of i                      I
()    ;
12            the two entities are combined."
13 i So, the word " consideration in the third line i
should be " consolidation." And moving down to the next para-l                        l 14 ~
15            gra ph, which starts , " At the same time (sic) ," it should read, So, "same"
                                " Met-Ed and Pennelec have some common officers."
is l And in the next line, "and some 17            should become "some."
e la separate officers and directcrs."
19                  %
With those corrections, Mr. Dieckamp, if I were f
20            to ask you the same questions that appear in your statement 21            today, would your answcrs be the same as those that appear in t
22        j that statement?                                                                              ,
i 23 i;                A      Yes, they would.
Oj )                    I
          .        24 G      I show you documents which have been marked for j
I 1 and No. 3 l
25            identification as Pennelec/ Met-Ed Exhibits No.
i I
agg ug yg m .                ]
a=e s es se nesensy n e vu O K OMOPs MM emaee n w
 
{
197
  /
through No. 6 inclusive. Areyousponsoringthoseexhibitsillk 2        this proceeding?
3                A    Yes, I am.
4                G    Could you identify briefly what those exhibits 5        represent?
6                A    Exhibit No. 1 is a map of the service areas of 7        Pennelec and Met-Ed. It also happens to show the service area si      of our Jersey Central subsidiary in New Jersey. Pe nnelec i
              )
9l Exhibit No. 3 is the proposed operating agreement among to        Jersey Central, Met-Ed and Pennsylvania Electric for the 11        operation of Three Mile Island by GPU Nuclear Corporation.
j    12                    Exhibit No. 4 is a letter from the Nuclea.:        lh 13 l      Regulatory Commission to Mr. Robert Arnold, which allcws, 14        amends the technical specifications of the plant to permit is        operation under the organizational structure that we identify 16        as the GPU Nuclear Group.
17                    Exhibit No. 5 lists --
e 18                    JUDGE CASEY:  Wait a minute, Mr. Dieckamp. Are 19        you referring to a letter dated September 15, 1980 frct the 20 : United States Nuclear Regulatory Commission?
21                    THE WITNESS:  Yes, I am.
l 22 JUCGE CASEY:  Which has been marked for identifica-23        tion as PN/MA Exhibit No. 4?
  .l 24                    THE WITNESS:  Yes, sir.
;        25                    JUDGE CASEY:  I think you said it allows permissicn
 
198 for the operation of the plant.
(},                            3 2
THE WITNESS:                  Yes.
JUDGE CASEY:                  Isn't it qualified in the letter, 1
3 4
operation of the plant during the period of its shutdown, not when it goes back on line?                        Is that correct?                        ,
5 THE WITNESS:                  Yes, sir. I did not mean to 6                                                                                                  .
senmarize the letter in its totality, but simply to briefly.
7 8        outline.
9                        JUDGE CASEY:                  I thought you said,"which would 10        permit its future operation."
11 THE WITNESS:                  Oh, no. My comments in no way are
()                            12          to amplify the exhibit itself.                                                  ,,
13                          JUDGE CASEY:                Very good.
l THE WITNESS:                Exhibit No. 5 identifies the proposed 14 i l
15 sla'e of directors for GPU Nuclear, and the back side, a list
;                                  if          of officers for GPU Nuclear.                        Exhibit No. 6 is the combimed i
17        management agreement, or I guess what has been referred to as la the affiliated interest agreement, which would describe the 19          relationship between Met-Ed and Pennelec and the allocation of 20          costs under the combined management plan.
21                        BY MR. RUSSELL:
22                  g      And you are sponsoring these several exhibits ycu l
()                            23          have identified?
            .                      24                  A      Yes, sir.
l 25                        MR. RUSSELL:                Mr. Dieckamp is available for i
                                                                  ...........-.....n.-nrn,...ere.n...,        ,, ,. ,,..,,..n
  -.,-,,,.n.      <,.,,.-,.--n- -
                                          -.-,,,-....r-,    -      an,v-,      .---.-.w.,-,      n-  ,
 
t l                                                                  199
  /    g cross-examination.                                                lll JUDGE CASEY:  We will proceed with the petitioners    i 2
I 3
first, and then the Commission Trial Staff second, followed byl
_      4 the Commission Administrative Staff if they are going to              ;
i Participate in cross-examination, and that's not at all sure.
5 i
6 We had the Consumer Advocate involved in the case 7
as a party of record at the beginning of the proceedings.        Is !
a the Consumer Advocate represented here this morning?
I MR. SCHANNAUER:    Your Honor, Consumer Advocate is 9
not yet a formal party at these proceedings.      We haven't filed to 11 a petition for intervention yet, and we are monitoring the case at this time. And at the_ time that we dodecid,e,wemdh 12 13        file a petition to intervene, but we haven't done so yet.
JUDGE CASEY:  You haven't filed any statement with 14 15        the Commission under Act 161, is that correct?
16                      MR. SCHANNAUER:    That's correct.
17                      JUDGE CASEY:  I think the Consumer Advocate's 18        name ended up on the service list of this proceeding because 19 it was included in the service 1,ist at the prior ::et-Ed 20        proceeding. Is that :he reason?
21                      MR. SCHANNAGER:  That's my understanding, yes.
JUDGE CASEY:  You can act as you see fit at the 22 23      appropriate time.
24                    MR. RUSSELL:  Notwithstanding that limited sta-us, 25        we have provided copies 6f all documents to the Consumer
 
200
(),            1 Advccate's office. I presume there ic no problem with that?
l 2                    JUDGE CASEY:          Not as far as I'm concerned.                    Are 3      you satisfied that Mr. Russell has given you the necessary 4
documents or prepared testimony and exhibits to be placed in i
                .ll this record, which will aid your office in making a decision or 6      judgment as to the extent to which you will proceed in the                                    !
7      future?                                                                                        r MR. SCHANNAGER:              Yes, Your Honor.
8 JUDGE CASEY:        Mr. Shilobod, you are the le'.d-off 9l I
10 l cross-examiner.
i 11 CROSS-EXAMINATION
()    t 12 l BY MR. SHILOBOD:                                                  .,
13                g    Mr. Dieckamp, for whom are you testifying today?
14                A    I am here on behalf of Met-Ed and Pennelec, and                                    J 15 :      I am here in my capacity as president of General Public I
i 1G        Utilities and a member of the board of directors of Met-Ed and 17        Pennelec.                                                                      ,
i f
la                G    You indicate that you are the chief operating l
19        officer of GPU and the acting president of Met-Ed?                                              -
20                A    That's correct.
21 !            O    Who pays you?
22 {;            A      My time is allocated .on the basis of best estinatcs
  ,sm.,
(,)            22      of activities and their relationship to those things which I l
24 i supervise.        For example, when I am working or functioning 25        directly in relationship to my responsibilities in the service f                                              . . . . . . _ _ _ _ _ _ . . . _ _ _ . . _ . . ._ .. ....
: s. #
 
201 1
company, my time is allocated to the service company, and in 2' turn to the operating subsidiaries on the basis of established 3        agreements and formula.                                                  .
4                      If I am functioning on a direct matter relative 5      to Metropolitan Edison, then my time charge will shcw directly            :
s      as a Met-Ed charge; likewise for General Public Utilities                ;
    .      Corporation.
I a'            g      Do you receive separate paychecks from each of 9      these entities?
10              A      No, I do not. I receive one paycheck from General 11        Public Utilities Service Corporation, a',a GPU Service Corpora-12 i      tion is in turn compensated by any other entity for tyhich my 13        time is charged.
14              G      For all the services that you render GPU itself as 15      the parent company, are your payments for that service included IG      in the paycheck that you receive from General Public Utilities 17      Service Corporation?
J 18              A      .I receive no compensations other than those shown 10        a the paycheck itself, and the normal spec
* tm of fringe 20      benefits.
21 Q.      And your entire paycheck, along with the associated 22      benefits, are parceled out among the operating companies, is 23      that correct?
24            A.      That is true, cxcept for that portion which is 25      charged directly to GPU Corporation, and in turn some of those
                                                                                      ]
 
202 t
          /
()              I      costs are absorbed by the stockholders.
2              4    Did you personally prepare your testimony?
3              A    It was prepared with my assistants.                              I reviewed it 4      and I concur in it.
l                5            G    Who helped you prepare it?                                                              ,
(
6            A    The GPU General Counsel.                                                            .
7            %      Is that Mr. Liberman?
8I            A    Yes.
9            %    When did you last work on preparation of your 10      prepared statement?
I i
11 {          A      I reviewed the drafts over the Thanksgiving holiday (O>            12      period.                                                                              ..
I 13            4      Is that the last time that you saw them7 14            A      That was the last time I saw them until last 25      evening.
16
                                %    Were they typed in final form at that time?
17            A    Last evening?
s i                18 G    Whenever you reviewed them?
19            A    No.      When I reviewed them, they were in draf- fOr .
20      And I reviewed the final draft, the final text last evening.
21 j Q    As chief operating officer of GPU, are you f a. .i' ia:t                        _      ,
22 with the financial structure of Pennelec?
  /~
(
(h  /            23 A      In general terms, yes.
24 g      How many shares of Pennelec preferred stock are outstanding?
            -                            ...........-..,..oce,so,...,,.,,....... . , . , . , . . . , . . , ,
 
203 s
1,                A    I do not happen to know that number,but that's a llh I
2i matter of record.
I 3                g    Are the outstanding number of preferred shares the 4          same now as they were as of December 31, 1978?
A    I cannat testify specifically to that.                    Again, I 5
6          think that's a matter of record, and we'd be happy te provide 7          that data.
a                  g  Would you agree, subject to check, that the number i
9i I
of shares outstanding is in the range of 2.8 million shares?
10                  A    yes.
11 O    Who are the owners of those preferred shares?                    Is 12          it GPU?                                                                ,          hk 13                  A    GPU does not own the preferred stock of any of its 14          subsidiaries. In general, we find that the principal owners of 15 ,        preferred stock are those kinds of institutions that can l
16 '        benefit most from the tax treatment of preferred dividends.
17                  g    Do individuals also own preferred shares of e
18          Pennelec?
l A    It would be my guess that there are scte indic# dual 19 l 20          owners of Pennelec preferred stock.                It would not be ny guess 21 that they me a significant fraction, however.
I 22      I g    Do you know the order of magnitude of the number 23          of shareholders of Pennelec preferred stock?
24                  A    No, I do not.
25                  g    Has Pennelec been paying dividends to date to
 
204 1    those preferred shareholders?
2            A    Yes.
2            G    Has it been paying dividends on its common stock?
4            A    Pennelec has made some dividend payments to GPU, 5    the holder of the Pennelec common stock.
6            G    When was the most recent dividend payment made?          .
7          A      I could not cite the specific date, but I think' 8    within the last few months.
              *9              G      Do you know the order of magnitude of the dividends 10    per share?
11            A      Dividends per share?
n>
: s.          12          G      Yes.                                            ...
13          A. No, I do not.
14          4      Do you know the total dollar amount?
l l
                ~15            A    I do not know the exact amount. Again, that's 16    something that we can produce for the record.
17 G    Do you have an order of approximation? ,
I
'                18            A    I would have to say I would be strictly venturing 19    from memory an estimate, but I think that Pennelec during this 20    calendar year 1980 will be paying approximately 15 million in 21                            -
dividends.
I f
l 22 G      Is Pennelec presently- capable of paying its debts
      )          'a as they become due?
24          A      Yes.
25 G    Do you perceive that it's probable that Pennelec
                                                      ---    .        . - . . . . .            I
 
205 f    a will continue to be able to meet its debts as they beccme due 2    for the foreseeable future?
3            A    I perceive that as being probable. I would have 4
to add, however, that we are in a condition which requires us 5
to be extremely careful about expenditures and commitments, and 6
are in effect having to take measures to constrain the extent 7
of Pennelec's construction programs so as to insure that        '
s    can live within Pennelec's means.
9            0    When did you become the chief operating officer of 3
i 10    GPU?
A. I am not absolutely certain on that.      I think the 11 12      date is about 1974.                                      .
13            G    When did you become the acting president of Met-Ed?
14            A    About one year ago, or a little -- let's say -- yes 15            G    Cid you become acting president of Met-Ed before cr 16      after the TMI-2 nuclear incident?
17            A    After.                                  ,
18            0    Who was the president of Met-Ed before you became l
19    acting president?
20              A    Walter Creitz.
21            O    Is Mr. Creitz no longer with the company?
22            A    Mr. Creitz remains on the payroll of the ccr.pany.
23            0    When you became acting president of Met-Ed, did 24    your duties as chief operating officer of GPU increase,      or did 25      you continue in that job the same as you did before?
 
206 1              A    I continued. I have been sharing my time between 2    these various duties.
3              g    Has the time that you've dedicated to GPU affairs 4      increased, decreased or stayed the same since you became 5      acting president of Met-Ed?
6            A    It is very difficult to separate those duties in I    an absolute way, in a sense that many of the affairs of GPU' 8    are the affairs of Met-Ed, and vice versa.            I think it's fair to say that to the extent that I have spent additional time on
              'O      Met-Ed affairs, obviously that time had to come from some other 11 source.
12              g    Did the    time expended oh' behalf of General Public 13      Utilities Service Corporation increase, decrehse or stay the 14      same since you became acting president of Met-Ed?
l 15 A    I do not know the exact time charges and the 30      manner in which they have changed over that time period.
17 g    Would it be reasonable to assume that,your time l
18      dedicated to both GPU and GPU Service Corporation decreased as l
19 you took on the responsibilities of acting president of Met-Ed?
I og l              ~
A    I think that is a reasonable presumption.        Again, f
1 21 when one recognizes the degree of overlap of the areas of l
interest between GPU and the service company and Met-Ed, it r~$
(    <        n3 may well be that the changes are masked within the precisicn
                'l of possible time allocations.
0    When yc    became acting president of Met-Ed, did l
l
 
207 1    you personally assume all of the duties previously carried out 0
2    by Mr. Creitz, or were some of those duties delegated to others:
3            A      At the same time that I became president of Met-Ed, 4    we assigned Mr. Floyd Smith to be senior vice-president of 5    Met-Ed and to be the manager at Met-Ed, and in many ways 6    Mr. Smith takes care of the day-to-day activities and functions 7    at Met-Ed that are not performeo oy me.
8            g      Would it be fair to state then that your role as
  ~
9    acting president at Mat-Ed right now is to handle the extra-10    ordinary problems that are facing the company?
11            A. Certainly that's the area where I make the majcr 12    contribution.
9 13            0      Could you tell me specifically what you do as 14    acting president of Met-Ed?
15            A      I work closely with Mr. Floyd Smith, who is handlin:
16      the day-to-day affairs. The principal areas that I function 17    on that is directly related to Met-Ed are oversigh,t of its 1
18    budgeting and spending activities; maintaining a close over-i 19    sight of its cash position; work very closely with Mr. ' Arncld 20      on the management of the Three Mile Island problems, v:hich 21 l  Met-Ed is a 50 percent owner of that station. I think th se 22    are the areas where I have the greatest degree of invciverer-l 23                  I do not involve myself at the levels of the 24    transmission and distribution operation or the A and G func-25 tions within Met-Ed. Those are largely taken care of by
 
208 Mr. Smith. If there are any problems, we can discuss them cn O.      3
                                                        ~                            ~
2 occasion, but these are not of a significant neture.
G      Is it fair to st 'e that Mr                        Smith assu=ed the 3
4 responsibility that had been previously carried out by 5      Mr. Creitz before the incident occurred?
6              A    He assumed some of them, in effect; not all of them.
7              4    Which ones did he not assume?                                          ,
8              A    At the time of the accident or before the accident, 9
Walter Creitz was directly responsible also for the cperaticn to      of Three Mile Island.              I do not today consider Floyd Smith tc 11  ! be carrying the same degree of responsibility for Three Mile Island that Walter Creitz was, because I work very closely
()    12 13      with Mr. Arnold on that matter.
14              g    Any other duties that Mr. Smith has been relieved-15      of as compared to Mr. Creitz?
16              A    I think that's probably the most definitive 17      differential.
18              g    What are the duties of Mr. Smith righi ncw?
19                    MR. RUSSELL:              I think the question has been 20 l,    answered several times.
21                    MR. SHILOBOD:              I submit not.            I'd like scue 22 ,    detailed information.                              ,
I think there was an attempt by the
()        23 ,                JUDGE CASEY:
24      witnees to describe his duties, what might be residual duties, 25      but I'll permit the question and direct the witness tc answer
                                  ~ ... ~.... .. ,.    ,,,,,no,,~,a  ,.n.,,,u,y  ,,,,. ,,,,,,,,
 
t 209 1    so that it's clarified once and for all.                            lll 2                    THE WITNESS:  Mr. Smith takes care of the day-to-3    day management activities -- leadership, direction, coordina-          i 4    tion of the various functions of Met-Ed in his role as the resident manager at Met-Ed. His time is devoted primarily to 5i 6
the areas of supervising the T&D or line operations activities,;
7      the division and district offices, the A&G functions.
8'                  BY MR. SHILOBOD:
9            %    What's A&G?
10              A    Administrative and general functions. These include the accounting and the office    of the controller, and 11 the like. He also supervises the residual activities,in foss        h 12 l 13      generation that exist at Met-Ed. In general, he conducts on a
      '4      day-to-day basis the responsi'ailities for Met-Ed operations 15      with tP _ principal exception of the nuclear operation.    .
16      -
And secondly, since Mr. Smith has less background 17      in the financial matters of Met-Ed, those tend to be areas 18      where he turns to me most often for these day-to-day efforts.
19              G-Does Mr. Smith also assume Mr. Creitz's previous 20      responsibility with respect to the various regulatory proceed-21      ings in which Met-Ed may be a participant?
22              A    I think his responsibilities there are nct -- when 23    you say " regulatory," IpresumeyoumeanthePublicUtility4h 24 ; Commission and not the Nuclear Regulatory :Commiss'icn?
25l            g    Yes.
 
210 s                                    1                  A    I think his responsibilities are quite analogous 2          to those which Mr. Creitz parried out.                  I should point out, 3          however, that in these trying times since the accident, there 4          has been considerable more participation in regulatory affairs 5l by the GPU level people, particularly Mr. Hafer, Mr. Graham, 6          the GPU treasurer, Mr. Kuntz, and myself.
7                  %    Does he also participate in other legal proceedings 8          that may be undertaken by Met-Ed or to which Met-Ed may be a 9l party to the extent that Mr. creitz would have also as I
i 10 ! president of Met-Ed?
11 '                A    Metropolitan Edison has its own counsel, in-house t
12 !
counsel, Mr. Robert Heist, who for day-to-day supervision i
For items of significant : - gal 13 l reports to Floyd Smith.
l li ! initiative, however, those in general are carried out under the 15 '          supervision of the GPU general counsel or other outside counsel 16          that we may hire for specific problem areas.
l                                      17                g    Is Mr. Smith also ultimately responsible                -
for la handling labor matters that Met-Ed may encounter?
19                      I would not say that Mr. Smith has full and direc:
                                                !,        A I
20 t responsibility for legal matters.                        Again, as a matter of --
l 91 I'm sorry,'it's labor.
G 22                A    Ch, labor matters?              Yes, he does; labor relations.
  '-                                    '3 4    Does Met-Ed also have its own preferred share-
                                                  .l 44
                                        ~
i
.                                                    holders?
                                        '5 l
A    Yes, it does.
l
                                                                        , . ... . = =    m.=-...  ==e=.  .. ...==e eeea
        --ve,-  --r,-n - ,--. , ., ,,
 
211 1            4    Does Mr. Smith deal with Met-Ed's preferred          Ih 2      shareholder issues, also?
3            A    He may on occasion answer a letter from a 4      preferred stockholder. He participates as a member of the 5      Met-Ed board or directors when it comes time to make a 6      determination on the payment of a preferred dividend.
7 Q      Does he also participate in attempts to solve 8    Met-Ed's cash flow problems?
8 A      He certainly does, in the sense that he is the 10      on-site manager tio is maintaining first line visibility and 11      cognizance over the spending levels, manning levels, personnel h
12      reduction efforts and the like. And in that sense, he has a 13      very direct role in maintaining, contributing to all or' the 14      elements necessary to maintain Met-Ed's solvency.
15              g    Does he also have ultimate responsibility as far 16 as Met-Ed is concerned for customer relations and relations I
with the creditors of Met-Ed?                        e I8                  He has direct responsibility for custcmer relaticn-A I8 '
ships. When you say " creditors," our principle creditcrs thers 20      are the 45 banks that are ... ambers of the revolving cred'.:
21                                                            as having a agreement, and I would'not characterize Mr. Smith primary role with respect to thoso creditors, but      culd ra: hor 1
93
      ~
say that Mr. Graham handles those matters.
24 G      Does Mr. Verrochi presently perform any services 25 for Met-Ed?
 
I i
212 1
g    Mr. Verrochi does not today perform any services l
2          for Met-Ed that I would identify.
2                g    Are there any other Penelec employees that today 4          perform services for Met-Ed? When I say " employees" right 'ew                      n 5          I'm asking about officers.
6                A      Officers?    I would say no.
7                g      Are there other employees of Penelec other than 8          officers that are performing services for Met-Ed?
9                A      There can be on occasion opportunities when Penelec 10          is called upon for some assistance.                          And for example, in .he 11-        event of a storm which requires the introduction of additional 12 ,        line crews, it is standard practice for us to call upon cur 13 I        own subsidiaries or even neighboring utilities to gite an 14 !        assist to restore service to the customers.
I 15                        Another example that I can think of is at the ti a 16 :        of the accident, Met-Ed called upon.a fair number of ,eople                  c 17          from the Penelec remote reporting maintenance organization tc la          assist in the accident response of Three Mile Island.
19                      But in general, these as of today are =iner 20 f interactions and generally associated with some kind of i
21          special or emergency condition.
22 l              0      What arrangement exists for the payment fcr such o
w          23 ;
i servicer from Penelec employees?
l 24                A      When Penelec provides those kinds of services ,
25          think the costs are billed to Met-Ed for their, paytent.                        :
 
l 213 I    would prefer to defer in detail to either Mr. Donofrio or 2    Mr. Wertz of Met-Ed -- Mr. Donofrio of Penelec or Mr. Wertz of 3    Met-Ed for the detailed nanner in which such compensations are 4    handled.
5                  MR. RUSSELL:    Mr. Donofrio is one of the witnesses 6    who will be appearing in this proceeding.
7                  BY MR. SHILOBOD:
8            G    What ic presently the most pressing issue facing 9  Met-Ed?
In                  MR. RUSSELL:    I have been wondering -- Your Honcr 11    please -- what proceeding we're involved with in a number of 12    these questions, and haven't-interposed objections, but I 13    would interpose one on the grounds of relevancy at this point 14    to this question.
15                JUDGE CASEY:    Well, it has general relevane,-    I 16    think the question may be a little bit too broad, thcugh, to 17                              Could you be more specific and evoke a proper answer.
la rephrase your question -- what is the number one management 19 priority that Met-Ed has?      Is it a financial consideratica, or 20      is it reorganization or something of that nature, if there is 21    such an A-No. 1 priority item?
22                  MR. SHILOBOD:    That's what I thought my ruestien 93
    ~
1 didn't think that the  .1: ness indicated to the witness.
    '4
    ~
misunderstood me.
25                                  If I may speak to the questien, I THE WITNESS:
 
l l
214  i i                                                                                                          i
    -          1        don't know that it's meaningful to think in terms of just one 2        priority. Certainly a number of things combine, and thus I 3        find it difficult to end up with an absolute separation into 4        one priority.
5                      But I think Met-Ed's principal problems are to 6        deal with the ramifications of the accident at TMI-2: to insure 7        the health and safety of the public on a continuing basis froc 8;      sny things that could result from TMI-2; to arrange for the
            -    9        cleanup and the identification of financial resources so that to        cleanup can be done; to maintain continuity and reliability cf 11!        electric service to Met-Ed's customers; and to return Three i            !
s            12 [        Mile Island One to service.                                              .
I 13                      Now, in a sense, you can say that most of those are 14        direct results of the accident at Three Mile Island Two, and 15        if you wish, you could then say that that was the principal is problem. I would add that those problems all combine into --
17        and our ability to deal with those problems are controlled and I8        constrained by the necessity to maintain Met-Ed's cash 19        continuity so that we are not expending more than.we have 20        available to meet these obligations and objectives.
21                      BY MR. SHILOBOD:
l          @      Will those problems disappear if and when this d        management combination is allowed to go into effect?
94                    No, they will not.
A 25 g    Would you continue to operate as operating
                                          ,-,.............r..... -,,....,.,.,,...,u,. ,,,, ,,,,,,,,
 
215
:            vice president of the ccmbined management organization if and 2            when it is allowed to go into effect?
3                    A      I'm sorry, I do not understand.
i 4                            MR. RUSSELL:  Could you repeat that question?
5                            BY MR. SHILOBOD:                                      ;
i 6                    g      Will you continue to serve as operating president .
                                                    .                                  I i            of Met-Ed or of the combined management organization if and            ,
a            when it is allowed to go into effect?
I i
A      No, I would not.
9l 10                    g      Is Met-Ed itself presently able to pay its debts 11 l            as they become due?                                                  .
h 12                    A      Yes.                                      -
l G      Are you familiar with the recent restriction of        -
13 l 14 ;            credit to Met-Ed by the various banks that are members of the 15 I            revolving credit agreement?
16                    A      Yes, I am.
I 17 6      When did the restriction of credit cccur?
18                      A      I can't cite the exact date, but it was a matter 19            of a few weeks after the last rate order, which was May 23, i
20 l 1980.                So that would make the revised definition of credit i
21            availability sometime early in June.
22
              ,          G      Is Met-Ed repaying the member banks on schedule k
    +J as required to the extent reqtlired by the revolving credit 4
agreement?
25                    A      Met-Ed's credit requirements are remaining within
 
216 n
i    the defined credit availability. That does not necessarily 2    mean that Met-Ed is repaying, because as of today, Met-Ed's a    credit requirements have not exceeded the amount available, 4    and thus have not been required to be forced downward as the 5    credit availability moves downward. So, I think it may be just 6    a semantic question on the repayment.                            I 7                  I think the more general way to say it is that as 8    of today and since that change, Met-Ed has been staying within 9    the limits imposed by that credit agreement.
10            0    Can you state with a reasonable degree of certainty 11    whether or not Met-Ed will be able to continue to currently I
      \
(~'#
  \-                  pay its debts as they become due over the next twelve months?
12 l i
13                  We have filed with the Pennsylvania PUC forecasts 14      of Met-Ed's cash requirements, and we have updated those i
is      forecasts as time has gone on and has reality has taken the l
16      place of forecasts. And in general, those forecasts continue 17    to show that Met-Ed will have difficulty staying within the la    cash or the credit available in a time period sometime late 39    summer or early fall of 1981, absent any rate relief, and even 20      with a continuation of' the cutbacks that we put in place over 21 , the last few months, and that this subject is a central part cf 22    the ongoing Met-Ed rate proceeding.
l
  ''            23                  So, the degree to which Met-Ed can remain within 24    the credit available to it is a function of the degree to which 23 Met-Ed can serve its customers with limited construction effcrt:
 
217 1  and the degree to which the PUC responds to the rate re'_ief 2    requirements and cash flow requirements that Met-Ed has and 3    is outlining in the ongoing rate proceeding.
4                    JUDGE CASEY:  Mr. Shilobod, can I interrupt yccr 5  cross-examination for a moment to clarify a point in my own 6  mind with Mr. Dieckamp.      Mr. Dieckamp, would you tell re, to 7  what degree the two operating Pennsylvania utilities are 8  autonomous in their operations?      To what extent can they 9  decide policy -- that is, their boards of directors -- te be 10 ,  carried out by the officers, without clearing such matters 11 with
{) the holding company in Parsipanny, New Jersey?          Can ycu h
12    explain how that works, for my benefit?                -.
13 j                THE WITNESS:  The manner in which that works is by 14    means of the membership of the boards of directors cf the 15 individual subsidiaries. Those boards of directors apprcxi-16    mately are composed of half people from GPU or the GPU service 17 company and half people from the subsidiary.          -
18                    Mr. Kuntz, who is the chairman of General Pnblic I8    Utilities, is also the chairman of the board and chief-20    executive officer of each of the operating subsidiaries.        Sc, 21  within that forum of the board of directors, we have the 22    mechanism for establishing policies and plans for individual 23 subsidiaries. And by means of the overlapping membsrship ::.
24  the subsidiaries, we have the mechanism for at leas: striling
      ~S to achieve a degree of uniformity in our policies.
 
I                                                                  218
              )        1                      JUDGE CASEY:  In effect, what you're saying, if 2          the Met-Ed or Penelec board of directors were to arrive at a 3        decision with respect to a policy or a proposed corporate 4        action, that GPU would have already participated in that 5        decision by virtue of having its directors sitting on the 6        board of Met-Ed or Penelec?
7                      THE WITNESS:  Yes, and by recognizing that Mr.
S        Kuntz is the chairman and chief executive officer of that 9        subsidiary.
10                      JUDGE CASEY:  So, there's never any time lag where 11 i the Met-Ed board would have to go back to the parent'in l' '\                      l 12          Parsippa6y for specific approvals?    It's all done at the bcard
              )
13        meetings of the operating utilities?      Do you follow ce?
14 THE WITNESS:  I would be careful about the word t
15          "never," in the sense that there are occasions when we think l
16          that an issue can be sufficiently important that we want      to 17 l      review it with or seek consensus or approval from ,the GPU 18                                        So, in that kind of an event,    here level board of directors.
19        could be what you would describe as a time lag or an inter-20          action, and let me give a specific example.
21                      For example, the undertaking of a project to 22        construct a large generating facility, which might ir vel te I
l        ;
chich ir N.    '
93
                        ~'
today a commitment in the order of a billion dellars, N          turn would also have a direct impact on the requirerents cf i
__ke 25        the parent corporation to seek additional equity and the
 
219 is the kind of thing that we go to the GPU board of directors 1f 2              for approval, in addition to approval by the subsidiary board i
3              of directors.
4                          JUDGE CASEY:  Very good, that clears it up for me.
5              Sorry for the interruption, Mr. Shilobod. You may prcceed.
6                          BY MR. SHILOBOD:
7                      %    You indicated that if you achieve the rate relief i
8l that you request, I presume on the time basis that you request, 9I that het-Ed will be able to meet its debts as they become due 10              under the revolving credit agreement. What about with respect 11 l to debts other than those outlined in the credit agreement?
  )
12 Can you state with a reasonable degree of certainly whether i
13 l            Met-Ed will be able to currently pay its other debts as they 14              become due over the next twelve months?
I l
15 l                    A    When I say " live within the revolving credit l
16              agreement," that means, meet all of its obligations and pay all l      17              of its debts within the amount of cash available either from 18              its internal sources or from the revolving credit agreement.
l 19              So, these all tend to sum into the revolving credit agreeren:.
l l
20                            Now, there are perhaps one or two exceptions t:
1 o,
j that that I might cite.
i For example, we do have scre chl;;E-t l
22              tions to the Department of Energy for enrichment sercices whit-are not paid up currently, but upon which we have a agreema.h.
        ''' 3 24            with the Department of Energy for extension of these paymen:
s          times and associatdd interest charges to go with that.
 
220
()            1                      But in general, all of Met-Ed's transactions and 2        obligations sum into the revolving credit agreement, because other than those monies available from internal sources, monies 3
4        available from cuntomers, everything is derived from the 5        revolving credit agreement.
s                      Now, again, I should make an exception there with    -
7        respect to insurance recoveries for activities at Three Mile 8        Island Two.
9'                G  To what extent did the various creditors reduce 10        Met-Ed's borrowing capacity following the most recent reduction 11 l in lines of credit?
i O*  ,        12 i                A    Prior to the May 23 order, the revolving credic i
13 !      agreement made available to Met-Ed, I think, approximately l
14 !      a hundred or a hundred and ten million dollars out of the f
15 '      available 293 in the total available portion of the revolving 16 ,      credit agreement at that time.
17                      After the May 23 order, the banks felt that they la        were not able to lend beyond that which they considered a 19        reasonable security, and they defined that as being some 20        fraction of Met-Ed's uranium inventory, Met-Ed's accounts 21 i receivable, and Met-Ed.'s deferred energy balance.          And I think i
22    ; the deferred energy balance was characterized as a security in
(              23    ; the sense that the Commission had made statements concerning 24        the recoverability of those deferred costs.
25                      And so, the amount of credit available to Met-Ed as
 
221 1
a function of time is the sum of those three elements with the O
2    deferred energy balance being the variable one, because it is 3    reducing each month as we amortize'that deferred energy balance 4    in accordance with the rates provided in the May 23 order.
1 g
5                  What is the order of magnitude of the presently 6    available unused credit?
7            A      I would have to refer to something. I think as of 8    today, in round numbers, it is roughly 20 million dollars.
9    But again, I would have -- let me just say that there was a 10 l recent letter signed by Mr. Floyd Smith sent to the PUC about f
Il i mid-December, which gave the status of Met-Ed's cash position
        !                                                                      h 12 !  as of November 30. I don't know whether I have  that.
l MR. RUSSELL:  We can get that and supply that after 13 l l l  :t : the luncheon break.                                                      ,
l  15 l                JUDGE CASEY:  I think Mr. Dieckamp said, "about l
l  16      mid-December."    We haven't reached mid-December.
17 I                THE WITNESS:  Excuse me, I'm off a mon,th. I'm 18      trying to get to Christmas fast -- mid-November, as of 19      September 30 -- October 30, excuse me. I'm not too quick here.
20      If we can supply that, that will not only show you the position 21    as of October 30, but it will also show you the forecast thrcugl 22                          Now again, we are updating that on a month the end of 1981.
23 basis.
24 BY MR. SHILOBOD:
25 g      When you indicate that Met-Ed will be able to
 
            .          ~-                __ _.      .-        ..        ._        --
222 O)            I        currently meet its debts as they become due, did you include in 2        that consideration of the probable liabilities associated with 3        cleanup costs?
4              A    That is a function of time, and a function of the 5        rate at which the cleanup program will be conducted.        We 6        currently are in a mode where we have reduced the level of 4
7        effort at Three Mile Island to about 50 to 55 million dollars a      a year. We would expect that about 60 to 65 percent of those 9      expenditures will be recoverable by insurance, meaning that 10        there's about 15 or 20 million dollars' deficiency between the 1
11        expenditures and the insurance recovery.
l'y k/  y 12                      Met-Ed's portion of that then is somewhere arcund 13 i      seven to ten million dollars on an annual basis.      Our cash 14 I      forecasts include that effect. But now again, that will
,              15        depend -- that will change dramatically when the insurance 16      monies are exhausted. As of the end of 1980, we will have 17        exhausted about 200 of the 300 million dollars of insurance 18        that was available.
l f
19                    And at the current or the projected level of 20        program, the remaining 100 million of insurance would last fcr 21      roughly three years. So, the issue becomes the timing fcr any 22        reacceleration of the cleanup program. Our current plan,
('s
    " -            23'    hcwever, is to not reaccelerate that program, absenr any 1
24      cmergency, until such time as.the resources for that cleanup 25 program are in place, identified and in place.
 
223 1
0      If it should be necessary to accelerate the                              l 2      cleanup at Three Mile Island, would that adversely affect 3      Met-Ed's ability to currently meet its debts as they become                                ,
4      due?
l 5              A      It would certainly adversely affect it, as it would                        ,
6      adversely affect the position of all of the owners of Three 7
Mile Island.
8                      JUDGE CASEY:      Wait a minute.            Are you in ccmplete 8      control of the schedule for the cleanup operations, or are you 10      being directed by the Nuclear Regulatory Commission,                            scme II outside agency?                                                                            ,
12                                        Yes.          It is possible if not probab THE WITNESS:
13 that we could receive direction from the NRC to take some 14 i
actions that would require us to accelerate, expand the level i
15                                                                So, in a sense, it is of spending at Three Mile Island Two.
16        not at our sole, total discretion.
17                    On the other hand, I think as we go forward,                e all I
I 18 parties, including the NRC, will have to recognize that se 19      will not be able to protect the health and safety of the public Ml        if the resourcer is not there to do the job.                          So, these will
    ~1 all, I think, have to 'corkbine into an effort which has 22                      .  .
internal continuity to 19..
                                            .I 23 BY MR. SHILOtOD:
E                                                        g 21 G    Ic Penelec currently contributing funds to assist 25 in the cleanup of Three Mile Island?
I
 
d 224
()                    1                  A      To the extent that the expenses at Three Mile 2
Island are not covered by insurance, Penelec carries its 3      pro rata share of those costs.
4                  %      Has Met-Ed paid all of its pro rata share of the
'                          5      costs to date of the cleanup?                                            .
6                  A      Yes, in the sense -- when you say " paid," one        ,
7 could attribute some pcs' ion of Met-Ed's outstanding 8
indebtedness as having been the result of payment for costs 9      associated with Three Mile Island Two or Three Mile Island one 10      or other things that are not currently covered in ratemaking.
11                  %        Is Met-Ed currently incurring debt to General
()          ;
12 1
Public Utilities Service Corporation for services rendered with 13        respect to these activities?
l 14                    A      GPU Service Corp. is not a creditor.
l                        15                    g      GPU Service Corporation incurs expenses in 16        rendering service to Met-Ed in some fashion or another, does t
17      it not?
s 18                    A      Yes.
19                  0      And Met-Ed does reimburse the service corporatica i
20        for expenses, is that correct?
21                  A        yes,      ,
22                    S And are all of the pa.yments due the service ID
(/                    23      corporation by Met-Ed presently paid?
24                  A      Met-Ed is in good standing. There is no unusual 25 l
or extraordinary or special lag there beyond what our ncr:al
                                                                                      ''''a'''=a
  . - - _ _ _ _      _.__              __ _ .-        _J^""^""''''X"""*^**""a"~~
 
f
        !                                                                            225 1
i
: 1.                practices have been for years.                                      I 2,                      G    To what extent, whenever there is an assignrent of i
3l the ecsts related to the cleanup, to what extent are they i
4i ir.;=ediately parceled out among the various operating cc=panies?
I 5i                      A      I would answer, "immediate" in the sense of cur s                normal accounting practices. In that sense, immediate. Now, 7I whether that billing is weekly or conthly, again, I would 3 i              defer to a more knowledgeable individual from the acccunting 1
  -  9-                organizations to give you details on that.
10 I                            Sut there is no separate fund or no separate t
11                deferred account sh'ch is introducing any extraordinary or 12 ;              special lag between Three Mile Island billing and any, crher i
13                billings between the service company and the subsidiaries.
14
* G      Is Met-Ed currently paying d3 ridends to preferred i
i 15 '              shareholders?
r i
l  16 !                      A      Yes, it is.
I 17 l                      0      Is it currently paying dividends to its cc==on is                shareholders?
19                      A. Met-Ed has made no dividend payments to SPU --
I l
20                  certainly not this calendar year, and I'm not sure that - ty i
21 i              have since the o-ci?ent.
i 22          '
uCDGE CASEY:  Let me interrupt. Perhaps I am 1
i 23 f mistaken.                Did Met-Ed declare a 25 cent per share dividend i
1 24                scme time during the last six month peried?
i THE WITNESS:  No.
    'S l          ,
t li                          -
 
4
'                                                                                                                                                226 r
t
(),            1                                        JUDGE CASEY:                  On its common stock, I'm talking 2'    about.
3                                        THE WITNESS:                  No.      Absolutely not.                      Met-Ed, within 4    the last month or two, I think, paid a preferred dividend.
5    Met-Ed has made no common stock earnings payments to GPU during 6    this calendar year, and in fact Metropolitan Edison, during 7    this calendar year to date is in a net loss position on - '
8                                        JUDGE CASEY:                    GPU, of course, is the only common 9    stockholder of Met-Ed?
10                                        THE WITNESS:                    That's correct.
I 11                                          JUDGE CASEY:                  Do you know the amount of the dividen.
(            12      that was declared on the preferred stock by I/et-Ed?                                                                  ,,
13                                          THE WITNESS:                  I think it might.have been about 14      two and a half million dollars, something of that nature.
15                                          JUDGE CASEY:                  Thank you.
IG                                          THE WITNESS:                  There is a record on that, and I 17      think a record of some discussion of that subject in the rate J
                  '8    case.
19                                        BY MR. SHILOBOD:
20 G                        Would it be fair to state that unless Met-Ed 21      achieves the rate relief that it's requesting from the 22      Commission, it will en' danger its ability to currently pay its 23    debts as they become due?
24              3,                        7.m afraid that I would have to agree with that.
25      To the extent that we do not have money coming in, we are nc:
enaseseMwc A s 76d o r p6 0 TI M,'        ,* A AA D A M V #717 7 A 1.7146
 
227 1    able to pay money out.                                                h 2            0      Is it your belief that the proposed manace. vent 3    combination will assist ?!ct-Ed's abilities to meet its debts 4    as they become due?
5            A. I don't look    o the management combination as 6    havir. a material impact on that necessary balcncing of r.oney 7    in and money out.      I do look to the management combination as I
8i a gerieral strengthening of our ability to serve all of cur 9    customers in Pennsylvania.
10            G      In the first year after the combined management 11    agreement is placed into effect, will there be a net cost cr 12 ! a net benefit resulting therefrom?                          -.
13            A.      I am not sure on that kind of a cash ficw hasis, 14    when one recognizes that there will be some startup costs, 15      there will be some moving expenses, initially, during the IG      early phases of the combination, and some of the savings that l
17 references have been made to are cost avoidances and    ,    thus 18    would not reduce the current levels of spending; and further, 18 that some of the benefits that we see in the combi .aticns are 20      ones that do not instantaneously but rather result crer a 21                          And so, I thi'1k it's very dif ficult Oc period of time.
2'-    identify the specific dollar impact with respect tc the          -
93
      ~
going levels of effort and spending in the two companies.            h JUDGE CASEY:    Off the record for a moment.
25 (Discussion off the record.)
 
228 1              JUDGE CASEY:  We will declare a recess now until 2  1:45 p.m.                                                                                  ,
3              (Whereupon, at 12:33 p.m. the hearing was                                      ,
4  adjourned to be reconvened at 1:45 p.m. this same day.)                                    )
5 i
I                  6 7                                                                                                I i
i j                  8 g                                                  .
10 f                11 Q    .,
                  ,2                                                                                        -
;                13 14                                                                                                    !
i 15 16 17 s
18 19 20 21                        .
22 23
,      )
94 25 l
 
229 Osl 1
AFTERNOON SESSIO!!                                  lll
( 1 : 4 5 ,a .= . )
2 3                JUDGE CASEY:  On the record.
4 Before the luncheon recess, Mr. Shilobod was engaged 5    in the cross-examination of Mr. I!erman Dieckamp.
6                You may resume with your cross-examination, Mr.
7    Shilobod.
8              MR. RUSSELL:    With your permission, gentle.en, cculd
      -  9  I clarif y, for the record, one of the open items frc.9 this to    morning, that Fir. Dieckamp was going to provide over the lunch 11    hour?
12                JUDGE CASEY:    Certainly.                          .,          lh 13                MR. RUSSELL:    Thank you.
14                JUDGE CASEY:    Go right ahead.
15                MR. RUSSELL:    Mr. Dieckamp, this morning, I believe 1G    there were questions open to you to supply answers Oc concern-17    ing Met-Ed's outstanding obligations under the Revolving Credi; e
18    Agreement and its borrowing limits under the Revolving Credi 19    Agreement.
20                THE WITNESS:    Yes.
21              MR. RUSSELL:
* llave you gotten the informa:icn tha:
22  was requested?
22              THE WITNESS:    Yes. On the basis of the inf :rma nic:. k 24  that we've been able to get fr.om the Treasury Depart.an: cf -
25    the 7PU Service Company, otet-Ed's current borrowi.gsn            _nder ths
 
2                                                                                                                                                                              22; 4
A l
()                                                      :  Revolving Credit Agreement amount to approximately S69 millicn, 2  against an of ficial established level of credit availability 3  of $80 million, which number did not yet recognize the added credit availability with the pledge of receivables that has l                                                            4 5  been approved by the Pennsylvania PUC and by the SEC, but for 4
6  which the bank has not yet provided formal recognition.                                                                .
7                We would expect that that will increase the Met-Ed 1                                                            a  available debt ceiling by about S20- or $25 nillion.
9                MR. SHILOBOD:                                              525 million additional, or --
10                THE WITNESS:                                              Additional.
11                MR. SKILOBO.D:                                              All right.
()                                                      12                T!!E WITNESS:                                              Over and above the SGO million -- and
!                                                          13  I'll characterize it as $22 million to $25 million.
14                So that gives Met-Ed, as of, I think, the end of t
15  October, an available debt capacity of about $100 million, j                                                            16  against which it has borrowings of about $70 millicn; so abcu-e 17  a $30 million cushion is currently available.
l                                                                                                                                                                    e 18                JUDGE CASEY:                                              Mr. Dieckamp, did you say S20- to $25 j                                                            19  million --
20                THE WITNESS:                                              Additional.
21                JUDGE CASEY:                                              -- additional, on top of the 530 mil-22  lion?
()                                                    23                THE WITNESS:                                              Yes -- as a result of the pledge of
                                                      '      24  receivables.
25                JUDGE CASEY:                                              Is that the actual value of the l
COMMONWEALTH REPo8tTING COMPANY (717: 761 7150
 
3      I                                                                        231 1
receivables, or is it a discounted anount of the receivables?lll 2                THE WITNESS:    I think it is a discounting of :ne 3    actual amount, and I think it's approximately 80 percen- of 4    the actual level of'the accounts receivable.
5                JUDGE CASEY:    Thank you.
6                MR. RUSSELL:    All right, thank you, Mr. Diechamp.
7                JUDGE CASEY:    Mr. Shilobod.
8                              CROSS-EXAMI!IATIOt1        (Resumed) 9              BY MR. SHILOBOD:
10          Q    Has Penelec exercised any of its borrowing capacity 11    under the Revolving Credit Agreement?
12          A    So far, no.                                                  lll 13          Q    llow much is the line of credit available to Fenelec 14      at this tine?
15          A    I am not sure of the exact portion of the S293 mil-16      lion available that is available to Penelec.
17                perhaps, Mr. Donofrio can give us this nurber.
18          Q    You're indicating that $293 million is a/ailable to 19      the combined group of companies covered by the Revolting 20      Credit Agreement?
21          A    There is a total of $293 million available to the 22    system; this is the three subsidiaries and GPU.
23                Initially, there were established limits foreachllh 24    of the subsidiaries. The sum of those limits originally 25 exceeded the $293 million.
CO MMONWEALTH_R EPoRTING_C ohiP AN Y 6717 76_1 70"O
 
232 4
(            1                As of today, with the redefined Met-Ed basis, I'm 2  not quite sure where that addition actually ends up.
3                Now, the amount available to Penelec, again, I will 4  say, is approximately $100 million -- unless Allan has a --
5                MR. DONOFRIO:                $120 million.
6                THE WITNESS:              S120 million?
l 7                MR. DONOFRIO:                Yes.
8              BY liR. Sl!ILOBOD:
* 8 Q      S120 million?
to          A    For Penelec.
11          Q    And none of that's been utilized; is that correct?
12          A      That's correct.                                            ,
Q      And nor has Penelec been been required to rely upon 13 l 14  the pledging of its accounts receivables or any additional 15 credit --
16          A    Right.
17                --
is that correct?
Q                                                              s is                That is correct.
A                                                        .
19 0      I believe I asked you this question before, but I'n 20  not sure what your answer was.
21                Specifically; how many months or how many years will 22    it be af ter the proposed management combination is placed into 22  effect, will it be until there's a net savings for the systcr~
      /
24 A      I don't know.              I don't know that I can be specific.
25                It would be my judgment that in the second year,
                                      -a.mnuu,ea tw arenorma ,.nu..uv        ,,,,,y ,,,,,n
 
i 233 5                                                                                        ,
1        there will be definite savings.                                      lll  '
2                      I would have to caution, though, that it would be 3        difficult to identify those, because of the moving base from              ;
I 4        which we will be    t. _ ing to make that charac terization.            !
5                      But as we look at the kinds of opportunities for t
i 6        operating efficiency, the kinds of opportunities for minimizinc 7        or eliminating duplications of ef fort, we certrinly expect to            {
i 8
I see not only net savings, but also cost avoidances.
9l              Q    Do you have any idea o' the range and magnitude of f
to I        the savings to be realized in the second year?
11 I              A    No. As I sit here now, I do not have a specific 12 i number.                                                            ,
i 13 l            0    When did you first see any -- did you ever see any 14        siecific numbe'rs as to the range of savings?
15              A      Well, I have seen -- well, I'm aware of the analysis 16        that suggests savings potentials of the order of $18 million, 17        being a combination of anticipated cost avoidances in the e
I la          future and savings with respect to the actual. level of opera-l 39          tions that we're running at now, as we go forward.
20 0    When did you first see those figures?
l I
A    Oh, I can't pinpoint that date too sharply, but my i
22          memory would suggest of the order of six months ago.
23 l            Q    So that would be around the middle of the year?
y~ !                        - ic"r to six months ago.
I        A    Ye I
5 Q    Woula          ave been about the time that the annual l                $
w.uuu m .,
 
234 6
();    I    review was presented to the Public Utility Comnission?
2          A    Well, the annual review, as I recall the last one, 3    was in September, and I think, in that meeting, we did identify 4    an $18 million savings potential.
5          Q    There was cn annual review publication issued in 6    late June 1980; is that correct?
7          A    Is that when it was, in June?
l l
3              MR. DONOFRIO:        June 26th.
9              THE WITNESS:        Oh, all right.
10                Excuse me -- yes, that's what I'm referring to.
11                BY MR. SHILOBOD:
i
()    12 '        Q    And that would have been approximately the time that        ,,
13    you saw the S18 million, for the first time?
14          A    That falls within my band of four to six months ago, 15    yes.
16          Q    Did you participate in the calculation of the i
I          17    savings of $18 million?
e l          18          A    No, I did not.
i 19          Q  Did you review the calculation?
i l        20            A  Not in detail.
21          Q  Whenever you refer to cost avoidances, specifical'y, 22    what do you mean?
,          23        A    I mean costs that one would expect to incur if you 24    had to maintain two separate entities to operate, Met-Ed and 25    Penelec, but which when you don't have to maintain tuo separa e MUV,1NWr al T64 GF#O63 TINA (*OMes A NY e717 788 7150
 
22 5 7
1        entities, you do not incur those costs.                            (g) 2              Q    And as I read your direct testimony, I perceive that 3        when you look a t this planning, you look at it on the basis s
            }
4        of the overall system, as a cystems savings, rather than on a 5        company-by-company basis.
6                  Is that correct?
7              A    No, not -- no, I would not say that, because I think 8        the savings, as such, do not particularly have significance, in 9        a composite system sense; they only have significan:s in rela-10        tionship to the cost of service for the individual groups cf 11        customers.
12                  So while we may on occasion speak of the c        posi:e lll 13        number, I think its true significance relates to its irpac:
14        on indivudal sets of customers.
15              0  Now, you indicate that in, maybe, the sec nd, tha:
1 1
16        there's a net savings.
17                  I presume, then, there's a net expense in the firs:
s 38        year.
19                  Isn' t that correct?
l 20      I A    I'm not sure of that. I only say it tha: ta 'f in ths 21        sense of a range of uncertainty in the summation cf :he Ocs s 22 I and benefits.
23 Q  Do you remember whenever I took your der:si icn,      llh
        '4 along with that of Mr. Kuhns --
5                Yes.
A COMMO7WEA\LTH REPORTING COMPANY 717 761 7'*0
 
8                                                                                                                                          23q i
i
()                      I          Q    -- in Parsippany, New Jersey?
i 2          A    Yes, I do.                                                                                            '.
l                                                                                                                                                i i
3          Q    Do you recall whenever I asked you about what the                                                      !,  ;
i 4    impact would be on Penelec customers of this combined manage-i 5    ment operation, and you stated that there would be no impact 1'
6    on Penelec customers?
7          A    Well, I don't know the exact context of that; if you ,
1 8    could reference me to the transcript, perhaps I would know                                                          ,
3  better what you're referring to.
10          Q    Page 71.                                                                                                ,
t 11          A    Page 71.
()                    12                MR. SHILOB'OD:                                    If the Administrative Law Judge l
13    wishes, I --
l 14                JuoGE CASEY:                                    I issued an order that that deposition i 15    be incorporated into the present record in these consolidated                                                      !
l 1G    cases, and I'm not sure that the Commission's file folders con i i
17                                                                                                                        :
tain this.
L 38              Is that an extra copy?                                                                                    i IU              MR. SHILOBOD:                                    This is an extra copy.
20                JUDGE CASEY:                                    All right.
I            MR. SHILOBOD!                                    If the Administrative Law Judge would 22    permit me, I'll have a copy of it marked as an exhibit --
23
(                                        JUDGE CASEY:                                    If you wish.
                    '                                                                        -- and placed into the record.
MR. SHILOBOD:
25                                                              All right.
JUDGE CASEY:
                                                #*nuveawuera s TH grpogTINA (*OMP ANY e717e 7fg t .7 t MO
 
337 9
I I
I 1                        MR. SHILOBCD:      I have here a copy that I'd like to ggg 2! hand to the Reporter and have it marked as JARI Exhihit Number a
3              1.
4                          JUDGE CASEY:      Very well.
5,                                                  (Whe reu pon , the document was
            '                                              marked JARI Exhibit Number 1 6                                                    for identification.)
7                        MR. MESSER:      Excuse me, Judge -- are you missing 8l Pages 71, 72, 73 and 74, in that copy?
l JUDGE CASEY:      I'll let you know in a mcment.
9l    i l
10 '                      MR. SHILOBOD:      Mr. Russell, do you want to reciew I
this document before I give it to the Reporter?
11 l t
12                        MR. RUSSELL:      No.                                          lll 13 '                        JUDGE CASEY:      I have those pages.
14                          MR. MESSER:    All right.
JUDGE CASEY:      That's at the very end.
15 l i
16                          !1R. MESSER:    Yes.
I 17                          JUDGE CASEY:      Thank you, s
38                          BY MR. SHILOBOD:
19 Q    I was referring, specifically, to the disc;ssion Or
      'O lPage71.
      -          l        A    Yes -- and the question?
i 22 l Q    I asked you if you recalled telling me, at t'.a      r  t :.a.
23            that the management combination would not have ar.y ;mpact a:lll i'
all upon Penelec's rate payers?
25 A    Well, as I read the reference on Page 71,          .he line i
l cc vcNweersoowc co~omy          .m v sm .7 ma
 
238 1
10 of questioning related to strenghtening and combining efforts
!(}
a in the area of rate case management within this ccmbined 2
i 3    Pennsylvania management.
4                I think, in the context of that, my answer toward 5  the bottom of the page was meant to reinforce the position that 6  the combination will not impact, at all, the rate that Penelec 7  customers would be paying by virtue of this combined effort o..
* a 8  rate making.
f 9              That does not mean -- I would not interpret -hat to 10  mean that the combination would not result in any benefits to 11    the Penelec customers.
(}            12                As I read this, it is, rather, to reassert that the 13    combination, as such, does not, in any way, blend together or 14    confuse the rate making for Met-Ed and Penelec.
15          Q    Who will pay the cost of the combination?
16          A    Those who utilize the sources and services a tailable 17  from this combined management.
18 Q    Which would be whom?
Is          A    The custometh of Penelee and the customers of 20    Metropolitan Edison.
21 Q    Upon what basis would there be a sharing cf these 22 costs?
23              To a first approximation, or the base situation, all
      )                        A
                    ,4 costs,  whether man-hour labor costs or mauerial costs, will
                    '5 be charged directly to each subsidiary, to the extent that
                                        - COMMONWEAL.TH REPORTING COMPANY q717, 761 7150
 
x .
I
        ;                                                                                        23?
11      l 1            those costs are clearly identifiable as being incurred forthqgg 2            benefit of that subsidiary.
3                          To the extent, then, that that leaves over some 4            costs whose classification is somewhat ambiguous or eco minute 5l            a detail to bother with all the accounting, those costs will 6            be allocated in accordance with the formula set forth in the 7            affiliate agreement that has been filed and is the subject of
                                            ~
I 3i this hearing.
l
  -  9'                  Q    How is benefits going to be defined, inscfar as eacP to !          of these participating ccmpanies are concerned?
I l                    I don' t know that we have attempted to concentrate 11 A
i 12 i          on benefit in terms of trying to be extremely specif(c abcut lll 13 !          the bookkeeping of those benefits.
I I
I think we have, rather, said that the benefits will 14 i i
15 l          accrue to the companies as a result of what we see f rom a 16 l          strengthened management group, a more uniform set of                  clicies 17            across the Pennsylvania companies and customers, a more consis-e 18            tent and uniform set of policies and approaches whic? rill shew 19 up in the rate making area, a more concentrated ef f rc cn 29            standardization and improvement in work practices.
21                          A number of dreas that we see will just fl:              fror l
      ,, ' this approach, which we think will result in benefi:s 1                                                                          c b o : .-
23 i
groups of customers.                                                            lll e4 I'm ta lking a bout the a s sig nmen t. of the ccais of l!        Q 25 combi na t ion. Those costs of the ccmbination will be assignal I
i rouvnNwras TW A rpoOTING (*OMpa NV 1717* 741 71 H'.
 
12 240-1    to the various companies, based upon the benefits received?
2              A                    No -- well, on the basis of work performed.
3              Q                    !!ow do we decide who receives the benefits, in order 4    to establish the allocation of expenses?
4 5              A                    When Mr. Verrochi is working on a matter that relates                      '
6    directly to Metropolitan Edison, he will charge the man-hours                                                ;
i 7    associated with that ef fort to Met-Ed; when he's working on a    matters of direct relationship to Penelec, he will charge 9  directly to Penelec.
10                                    Now, on those occasions when he's working on some 11 l  general overall policy matter that equally applicabic to heth, taee xt=a or errore ~111 eroe=817 de                                            1 toc =eea oo ene e 1=  r O                                      ''
13    the formula outlined in the agreement.
14                                    The same is true, then, for all other offices-in 15    the combined management, or for any other employees who are 18    working for a company other than the one that they happen to l
17    be on the payroll of.
18 Q                  We made previous references to the Revol/ing Credit I8    Agreement, and you mentioned it in your direct testimony.
20                                      Do you recall the date on which that agreement tras 21 cntered into?                                              -
22 A                  I don't rect 211 exactly, but I think it was prcbably O                                          '
eroona aeme er 1979.
Q                  And which GPU companies were parties to the agree-25 ment?
CoMMoNWCAL.TH HEPoRTING COMPANY 4717 768 7150
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241 13                                                                                            ,
i 6
1              A    All three of the subsidiaries and the parent com-                g i
2        pany.
3              Q    Prior to that agreement, isn't it a fact that Penelec 4        had its own line of credit, separate and apart from that of 5        GPU and Met-Ed?
    -    6              A    Yes, I think that's true.
7i              Q    Isn't it a fact that af ter the TMI incident, bu r I
8        before the Revolving Credit' Agreement was entered into, GPU                  !
9        had scme of Penelec's lines of credit extended to it -- that i
10        is GPU?                                                                      !
4 11              A    I'm not sure that I know exactly how          .o characterize l 12 l that.                                                                        g,)
13                    I think that we had general policies where, on 14        occasion, we would have joint participation in some of the                    ;
i 15 '        lines of credit.                                                              !
16                    I think it would be best,if that subject was to he i
17        pursued, that it be pursued, perhaps, with Mr. Graham, wno la        would be far more knowledgeable of that than I am.'
19                    Those needs for lines of credit --                                !
Q 20                    MR. RUSSELL:  Could we --
21                                    Excuse me.
MR. SHILOBOD) i 22                    MR. RUSSELL:  Could we go off the record for just a 23 mcment?                                                                lll
          '4
          ~
JUDGE CASEY :  Had you completed your questi -          1r 25 would this --
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14                                                                              242
()      1 MR. SHILOBOD:      I'll let him go off the record.
All right; we'll go off the record.
2                JUDGE CASEY:
3                (Discussion off the record.)                              .
i 4                JUDGE CASEY:      On the record.
5                Continue, Mr. Shilobod.
6                BY HR. SHILOBOD:
7          Q    Those lines of credit were needed as a result of            l 8  the accident at Thrce Mile Island; isn't that correct?
        . 9          A  No.      It was a general need    across the system for to ' credit, as they began to incur higher costs for replacement                i i
power.
11 I asked you a question a few moments ago, and I'm
()      12            0 13  not really sure whether your answer was, yes, or, no.                      .
I asked you whether or not, after the accident, but
                                      ~
14 15  before the Revolving Credit Agreement was entered into, GPU 16  had Penelec's lines of credit extended to cover it, the parent 17  company?
i                      -                                                        e l
18            A    My answer is that I am not sufficiently aware of 19  that detail to testify on it, and would suggest tha t tha t be 20  asked of Mr. Graham, the GPU Treasurer.
)
i 21            o  Are you familiar with the negotiations of the 22    Revolving Credit Agreement?
Only peripherally, not in great detail, because in
()        23            A 2    that time period, I personally was still very much involved 25    in the details of responding to the accident.
COMMoNWCAt.TH REPORTING COMPANY .717 761 7150
 
15
        !                O    Does Mr. Donof rio have the information concerning    lh l
24          the negotiations of the Revolving Credit Agreement?
3                A    He may have it.
4                      Again, I think we would probably find, however, that 5          Mr. Graham would be most knowledgeable about the details of 6          that negotia tion.
7                      JUDGE CASEY:  Was there a single officer of the a,        company, or one of the companies, placed in charge of that i
3l effort, Mr. Dieckamp, do you know?
10                      THE WITNESS:  I don' t know that we took any stees 11          to officially appoint someone as a single officer in charge, 12          but I think it would be fair for me to say that !!r. G;ahan,          h 13 f Mr . Condon, Mr. Kuhns and the General Counsel, Mr. Liberman, 14          were all intima tely and very heavily involved in the negotiation I
15          of that Revolving Credit Agreement.
16 !                    JUDGE CASEY:
All right.
I i                                .
17 '                  BY MR. SHILOBOD:                                    ,
s 13                      Considering your prepared testinony, on Page 11, you l                        Q 19 lindicated that Met-Ed wanted to spend more money on nuclear 20 bpintenance and operations before the TMI incident, but cla s 21
                . afraid to do so because of the expected regulatory respc.se.
22                    What regula tory bodies were you referring ::?
i 23 !            3    7.m referring to the State Utility Conmissicn.
24 Q    The Pennsylvania State Public Utility Commissicn?
25 l            A    For one.
COMmNWCAATH REPORTING COMP ANY e717 7G17 50
 
244 16 O.            i                  o                                  sew fear was based upon the study of comparative operating costs 1 re a veer te timeer, 1 e taerea ta e tat-2 3    at other nuclear facilities.
4                                                    Is that correct?
5                    A                                No, I would not quite say that.                                                The study of the 6      comparison with other facilities was simply to provide for us                                                                                                              i
[
7      an awareness of industry practices and industry experience, and!
8      to give us a sense of where we stood relative to the industry,
          -  9    in a more general senss.
10                                                    The comment concerning regulatory acceptance of such 11      expenditures, rather, relates to our own experiences in rate 12      cases in getting such O&M expenditures recognized fully and on 13      a current basis.
14                                                      Let me go on to say that I think that comment has 15    no great significance, other than to indicate that it was a 16    matter of concern to us that the levels of expenditures and 17      the acceleration of ^ these levels of expenditures that we were 18      experiencing might not get covered in rate making.
19 Q                          How long had Met-Ed' been operating nuclear power 20      plants before this incident occurred?
21 A                          If we take operation                                in the strict, sense, it would 22      go back to, I think, the second quarter, or so -- the first 23 l  or second quarter of 1974, when TMI-l was brought to critical;
      )
                *4 and if you take operation in a broader sense, it would go back 25    a few' years before that, when Met-Ed personnel were heavily f 0MVONWFAI TH stEPORTING COMPANY . e7175 761 7150
 
                                                                                              )
245 17 1
involved in the start-up and testing of the Three Mile Island lll 2      Unit 1 Plant.
3            0    In any of that time, did the Public Utility Cennis-4      sion specifically refuse to allow operating costs or main-5      tenance costs of any of the nuclear power plants, in any rate 6      proceeding?
7                  MR. RUSSELL:    You're talking about Met-Ed now?
8-                MR. SHILOBOD:    Yes.
9                  MR. RUSSELL:    And Pennsylvania?
10                  MR. SHILOBOD:    Yes.
11                  JUDGE CASEY:  Met-Ed is the operator of --
12                  ?!R. SHILOBOD:  Three Mile Island.                          4h 13                  JUDGE CASEY:    -- Three Mile Island, Unit ::ucher 1, 14      which first went on line in the second quarter of 1? 47 15 THE WITNESS:    Yes.
16                  JUDGE CASEY:    Thank you.
        "                    THE WITNESS:  I would not characterize the .anter 18 directly as your question would indicate,        but I would he in that 18      willing to say that I think if one looked at any year 70        time period, there was a lag between the amount alic.:ed in
        ?!
        ~
rate making for operation and maintenance expenses,          as con-
        ~'
trasted with that which was actually spent.
3 BY MR. SHILOBOD:
          - z Q    Are you stating that the non-recovery of e: jenses I        'S
          ~
was a result of regulatory lag?      Is that wha t you ' re tal.-.in?
e
_._-                          msm
 
7 18                                                                              246
()      1              A  I'm sure that's a contributor.
2              O  Were you also saying that there would be specific 3      disallowance of operating and maintenance expenses of nuclear 4      power plants?
5              A  I can't be specific about it, but I think if one i
l l
6      examines the record, you will find that in the rate cases, in I
                                      ~
T      the totality of recognition of operating and maintenance 8:    expenses, there is record of not having fully accepted our 9l claims for the operating cost of nuclear plants.
10              Q  Was --
l          11 I            A  Again, I don't. plan -- the testimony is not intended
()      12      to make a great point about that, only to say that that was a 13      matter of concern to us.
14 Q  You indicate that it was more than a matter of con-15      c e rn .'
l 16 f                You indicate that you didn't make those expenditures i
17 because --
s 18                  I don' t shink -- does the testimony say that?
A 19                That'.s what I reed.
Q 20                  Nould I be incorrect --
21                                        I'd be happy to look at that.
A What page is that?
2''
Page 11.
l                            Q                                                  ,
TN      03 A  Page 11.
(_) >
              '              Q  If I was incorrect in my interpreta tion, you may sc
            ,0 advise me.
{
(*OMMONWEALTH REPORTING COMPANY 1717' 768 7150
 
247 19 1            A
                          " ...but we were concerned about rate regulatory          gg 2      response, under those circumstances."
3                I have a hard time interpreting that to say anything i
4      other than those specific words.
5                That does not say that we failed to spend the money          ;
i 6      necessary; in fact, the record will show that spent in excess          !
7      of what was allowed in rate making, and the record will furtherj 8      show that we spent in excess of industry practices.
9                MR. SHILOBOD:      Mr. Russell, these references to 10      exhibit numbers, on Pages 17 and 19, I take it, are references 11      to those exhibits that were passed out this morning; is that 12      correct?
13                  MR. RUSSELL:    Yes.
I4                  MR. SHILOBOD:    All right. I thought that they were 15      something from a previous rate case, because I didn' t have 10      those exhibits, and I wasn' t sure what they were.
1 17 JUDGE CASEY:    Those exhibits were marked this morning, e
38 for identification.
39 BiR . RUSSELL:  Yes.
        'O
        ~
MR. SHILOBOD:    Yes.
        'l
        ~
BY MR. SHILOBOD:
        '2
        ~
: l.      Q    Mr. Dieckamp, on Page 19 of your testimony, you 3
ll ref er to the capitalization of the GPU Nuclear Corporat          c 9;
l I $50,000, l
25 '1 A    Yes.
CoMMONWCALTH REPoR73NG COMPANY 1717 761 7150
 
20                                                                                    248 !      j l
()      1            Q    Who made the decision on the level of capitalization 2      in that instance?
3            A    There is an SEC requirement that there be some 4      minimum capitalization for a subsidiary of this type.              .
5                  The management of GPU made the decision that we 6      should not provide more than the minimum required.
7            Q    How was the minimum required determined?                        ;
I~
8            A      I don't know, specifically; again, I think it may 9    rela te to a minimum requirement of the SEC -- and I don' t know
                                                              ~
10      whether that's in specific dollars or not.
i                                                                                !
11                  We can. elaborate on that for the record, if desired,i i
t f
13 '            Q    I think that I would forego a substantial amount of ;              .
14 i    cross-examination right now if we could have some elaboration                    .
t 15      on that.
16              A    Fine.                                                              ,
17                  JUDGE CASEY:    How the amount of $50,000 was --
s              1 18                  MR. SHILOBOD:      Determined as being adequate.
19                  JUDGE CASEY:    -- determined?
20                    MR. SHILOBOD:      Yes.
21                  JU DGE CASEY : - Why didn't you ask what was it supposed 22      to cover?
23                  What cost was it supposed to defray?
l()
24                  MR. SHILOBOD:    Yes.
25                  JUDGE CASEY:    Was this a token posting of capital, COMMoNWE ALTH REPORTING COMP ANY 4717* 761 7150
 
l l
I    l 21                                                                                          249!
f I      such as the statute might require for the incorporation of a                          I t
i 2        new life insurance company, something of that nature?                              l 3                    THE WITNESS:            Well, I --
4                    JUDGE CASEY:            Under SEC regulations.
5                    THE WITNESS:            With the undersrandi ;g that I do not 6      pose as an expert in this area, it is my understanding, though, 7      that it is in response to some minimum requirement for capitali                      -
l 8      zation under SEC rules.
  -  9                  If one looked beyond that, then, to see what might it 10 ,    be used for, it could be used for 'some minor pieces of equip-                      l 11 l    ment or supplies, or something of that sort, but it is not                          l 12        intended to be a source of funds to cover the operati,ons of              _
13        the nuclear plants.
U                      BY :IR. SHILOEC'):                                                    i Q      Are you familiar with the ramifications of under-                      f i
i 16        capitalization in a corporation?
l II A      I think that depends upon the purpose of that corpor-;
18        ation and its obligations, aspirations and functions.                              l.
19 Q      And the purpose of GPU Nuclear Corporation is to 90 operate and maintain nuclear power plants.
      ~l Is that corr 6ct?
      '2 A      The purpose is to provide operating and maintenance n''      and construction services for the owning utility.                            G.
      ~
Q    Who had undivided interest in the plant; is that 25 not correct?
 
s 22                                                                                        250 1            A  Right.
2              Q  The GPU Nuclear Corporation, is it being created to 3        provide a corporate shield to operations?
4            A  Absolutely not.
5            Q  Well, what's the purpose of creating the Corpora-6      tion?
e 7            A    It's created for the purpose to establish one organi !
8      zation with single-minded dedication to the safe and ef ficient 9      operation of those nuclear units.
10                  It's also provided so as to enhance our ability to 11      attract and maintain the requisite level of skills, both in 3          12      depth and breadth, that nuclear operations require.
{~J
  ~    ,
13                  We feel -- and I think we're supported in this judg-14      ment by a number of the investigations af ter the accident        --
15      that the ability to provide such capabilities is enhanced by 16      having larger, stronger organizations with single-minded, 37      single-purpose set of objectives.
,                                                                                  s 18                That was the ur.derlying rationale for the establish-
                                          ~
I9      ment of GPU Nuc1 ear.
20 Q  Why do you need a nuclear corporation to achieve 21      those ends, rcther than a division?
22            A    I don' t think there 's anything magic about that at A                23 all.
(/      ,
i I
                  ' I
                      !            For example, we could have done          a depar. ment of 25      the GPU Service Corporation.      It was our feeling, thct4h, tha CoMMoNWE/.LTH REFoRTING COMPANY 1717e 7617150
 
I 251 23 If in the overall picture of things, it would help to provide                      lll 2          this group with a clear identify, a clear separation f rom 3  !      other functions and activities of companies, to be able to 4          provide this group with a greater stature of being able to 5          reside within the organiza tion at a -- of an organizational              !
6          level similar to the other subsidiaries, and to just have thosej          !
i 7i things that give an organizational entity a feeling of identi-1 I
8' fica tion and purpose.
      -  9                      I don't think there's anything beyond that that is 10 ! fundamental about this particular structure.
I l
11 !                Q    After the nuclear incident, did Penelec find it i
12 I        necessary to curtail its own maintenance operations?                  llh 1          i i
A    I'm uncertain of the specifics of that.          I :culd 13 !
t 14            have to think, however, that in recognition of the prchler.s 13            that we anticipated in terms of limited access, if any, to the 16            capital markets, there was a need for Penelec to operate as 17            effectively and as efficiently as possible.
18                      I would have to believe that that probably have 18 caused it to constrain some activities, both at the Opera:ing 20 and maintenance and at the construction levels.
          'l on the other hand , Penelec, by virtue of their caly 22            25. percent participation in Three Mile Island and, see ndly, 23 by virtue of the f ac t that they are able to serve a .afer            h 4          fraction of their load with their own coal-fired gena'.arin:
          '5 station and, thus, incurred less expenses for replaceren: ::::ce r ,
i l                    _
                                      - , -  ru m =renmm cnupisy __2,7 7m-,,,e                _
 
24                !                                                                                252 with the outage of the two Three Mile Island units, were under
(},              I less financial stress than the other two subsidiaries and, 3      thus, the degree of constraints on expenses in construction 4      have been not as tight has it has been on the other subsidiar-5      ies.
6            Q    On Page 31 of your testimony, you emphasize that ycu 7      do not plan to have either Met-Ed or Penelec construct facil-8i  t ities for the other.
9j                Do you recall that?
i A    Yes, I do .
10 l l
11            Q    Were you present during the oral presentation of i          12      the annual review to the Public Utility Commission, at the end          ,
s      ,
13      of June 1980?
14            A    Yes, I was.
15            Q    Do you recall discussion presented b*f Mr. Kuhns, I 16      believe, to the Commission, indicating that as a result of the 17      probable construction of Sewerage VII, that the need for any 18      additional construction by Metropolitan Edison could be delayed 19      for a substantial period of time?
20            A    Yes.
21 Q    Who is building Sewerage VII?
22            A    Perhaps we should back up, thoug h , and eJaberate
()                23      on what those words mean.
24                Those words are not meant to say, for exanple, cha:
25      Penelec would construct, manage the construction and opera te
(*tW vnNWFa
* TN R F po nT t h." (OMPANY 4717' 761 7150
 
I 25                                                                              253 1      plants which were jointly owned with others.                      (l) 2                    Those words are, rather, meant to say that Penelec 3        would not be building facilities and owning facilities for the 4        benefit of Met-Ed and Met-Ed customers.
          '-          Q      So --
1 6            A      Now, in the case of Sewerage VII, our planning there.
7      tends to shif t a little bit with time, as we analyze the load 8      and capacity requirements for the various subsidiaries.
      . 9                  I think, as oi today, Sewerage VII, which has 10        recently just been pushed back in schedule by about two years, 11        would be jointly owned by Penelec and Jersey Central, and there u
12        would be no Met-Ed participation in the Sewerage VII plant, lll l
I  participation in the sense of ownership.
13l 14            Q      The production from the Sewerage VII would be avail-l 15      able for use according to systemwide needs, as I beliete is the IG        present practice; am I correct?
17            A      Well, that's a matter of practicality. Once we heck s
18        togetlier the sv7 tem, whether it be within GPU ar within PJM, 19        there's no .,ay in which we can trace each kilowatt or kilcwat:-
20        hour and show its exact relationship between this plant and 21        that customer.
22                    On the other hand, everything tha t we do in terns cf 23      construction obligations and investments, have to he shown:llh 24      have a direct relationship to the needs of the particular ss:
I i
25      of customers that are carrying the cost of that inerenent of
        .. _.                    m
 
26                                                                              254{
()        I    construction.                                                        f i
2                So, again, while Sewerage VII would be justified 3    completely on the basis of the needs of the Penelet customers, 4    that doesn' t mean that on some occasion there might be a kilo      'l 6
5    watt flow from Sewerage VII to Met-Ed.                              !
l 6                And let me just go further to say that this situation l 7    is very dramatically shown when today Penelec is able to pro-3    vide something like 85 or 95 percent -- 85 or 90 percent of thh
        -  8    energy requirements of its customers from its own coal-fired to    s ta tion s , while Met-Ed is only able to provide about 50perceng 13    of the energy to its customers from its own owned stations.          l
()        12                So I think, in my mind, there is no question but 33    what the energy accounting and costing mechanism are such as          !
i
          "      to constrain the relationship between owners and the benefi-          -
15    ciaries of such ownership 16                Clearly, there is.no washing together of them today, 17    under these emergency conditions.
s Q As presently planned, I take it Sewerage VII would 19 be helped by Penelec and operated by Penelec.
20 Is that correct?
91 A  Part of the management combination has as one. of its 22    basic objectives the further building of a strong technical h
\_/
            '3
            ~
and operating and en,gineering and maintenance capability in n                                                                  we
            ~
                , coal-fired generating stations and, as part of that plan, 25 would have Penelec manage the design and construction of the COMMONWEALTH REPORTING CCMPANY s7175 761 7150
 
27                                                                          255l 1    Sewerage VII plant, and then, subsequently, be the operator.
2                  I might go ahead to point out, also, then, that that 3      is a modification from what our practices were prior to the 4    acciden t,  at which time the service company would have handled '
5    the design and construction phase and the plant would have been!
l, 6    turned over to Penelec for operation when it was ready to          i 7    operate.
8                That approach, for example, was used on the Homer 9    City III Plant.
10                As we now move in this direction of the combined 11    management in.Penelec, and as we move to establish that the 12    combined organi2 -* ions would constitute the center of excell        t 13 ,    for coal-fired p'.16ts, we feel that it is best to combine the 14      operating respons bility with the design and construction 15      responsib il ity.
16            Q    Would it. be fair to state that the planned combina-17    tion is, in part, the result of input by TB&A?
18            A    The way I would say it is that we, of ourselves, 19    arrived at the rationale and basis for the management combina-20      tion.
21                TB&A has worked with us in the process of establishin<
22 , or working out the details of the organizational structure; a::d 23 I would characterize their principal input as being that of ggg 21    bringing to our attention some of the experience that they have 25      observed in other companies, so that a broader range of COMMONWEALTH REPORTING COMP ANY i717' 701 7150
 
                                                                                                      )
256.
l 28 1        experience, and approaches could be considered as we tried to 2        arrive at the proposed structure for the combined Met-Ed an/.
3        Penelec organization.
4              Q    But they did have input in the development of this          a 1
5        combined management planning; isn't that correct?                      .i l
l                6              A    They had input in the manner in which the plan was          !
l 7        to be implemented; correct.                                            l t'
8 O    They also had input as to details of the plan; isn't' 8l that correct?
l 10              A    I don' t of any restrictions on their ability to make ;
13        input.
12              Q    And --
          )        i 13 l            A    I only drew a distinction in terms of the origin or          .
I the pla n.
14 l 15 0    I'm not sure what you said.
16 ;                  The origin, or the idea, came from within GPU and 17        TB&A assisted in the development of the final plan; is that 38 not correct?
I8                    Right.
A 20 Q    Are you familiar with the " Blue Books?"
21 MR. JOLLES:    Maybe you could be more specific?
                      !              BY MR. SIIILOBOD:
i 23                  Did you ever hear of the terminology?
{}
Q I have not heard it in the plural; I've heard
!                      .        A M
l t
                        ^ reference to a " Blue Book," which --
CoMMoNWCALTH REPCRTING COMPANY s717' 761-7150
 
257 29 j
1                  Q  With revisions?                                                  lh 2                    A  Pardon?
3                    Q  With revisions?
4                  A    I guess -- having been one of the early descriptions 5            of the manner in which the combined management approach could 6            be implemented.
7                  Q    Did you review them, the " Blue Book," and its revi-8            sions?
l 9    i            A    I am aware of the original " Blue Book."          I think in 10            would be fair to say that I reviewed it.      I'm not sure that I i
I 11            kept track of each of its iterations, as we worked with TBcA 12
              ,    toward the final defin Ation for the structure.                '
13                        JUDGE CASEY:  Mr. Shilobod, would you mind enlighten-14              ing the Court and, perhaps, the record as to what the " Blue 15            Book" is, or what it's supposed to be?
I6 MR. SHILOBOD:    I can show the Administrative Law 17 Judge -- well, there's a cover letter -- I just happened to s
18 pull one of them out -- referring to a " Blue Book."            It's on GPU stationery.
      'O JUDGE CASEY:  All right.
21 MR. SHILOBOD:  This matter will come up la ter u. :he f
32! hearing.
        '3 l JUDGE CASEY:  Is there a treatise of some kinc, cr
        'l somebcdy's preliminary work sheets, or what is it?
i MR. SHILOBOD:    It's a GPU document on this plan fcr
 
30                                                                                        258 1        a combinatier. of the management of the companies.
All right.                                i 2                      JUDGE CASEY:
3                      THE WITNESS:    Yes, Your Honor, if I might --
E 4                      MR. SHILOBOD:    Here's a copy of it.
5l                      (Handing docu.;ent. )                                    i 1
6                      JUDGE CASEY:    Thank you.                                j 7                      THE WITNESS:    -- if I might elaborate on that, one 8        of the initial actions af ter the management announcement of l
9l a plan to combine the managements was to attempt to identify l
10 l        the kind of organizational structure and arrangement that would i
11          fulfill such a set of objectives and to begin to also analyze
(~g          12 l        the degree to which people transfers would be involved , what  -
(_/ i              i 33 l costs          might be involved in such people transfers, what oppor-i t
14 ~.      tunities there might be for savings, and things of that sort.
I 15 l                    That initial " Blue Book," as it's referred to, was 18 !        subsequently criticized by TB&A.
II                      In my mind, I think it was critized on the basis 18 that the " Blue Book" focused more on the mechanics than on f.he l              38 ! rationale for the organization.
20 I                    so it was a rather incomplete treatise in terms of 21          expounding the purpose of the organization and the rationale 22          behind it and some of the criteria for its -functioning.
1
(~)
23 I
i                Those things, then, got included into the subsequen:
, N_/                  l y~ i' iterations in the workings with TB&A, as this organization was
                ~5
                        ;  developed.
CoMMoNWCAt.TH RCPoRTING COMPANY s717- 761 7150
 
259 31 1                MR. RUSSELL:  And if I might add, to clarify the              ggg 2      matter, there's no secret about this.
3                THE WITNESS:  No.
4                MR. RUSSELL:  This is one of the many dccuments that 5      was made available for inspection and copying in Harrisburg.
6      It was on the list that we had provided at the prehearing 7      conference.
8i                MR. SHILOBOD:    I don't think anyone can reasonably 9    infer that I indicated that it was secret.
10                MR. RUSSELL:  Okay.
11                  BY MR. SHILOBOD:
12 f 1
Q    It was an in-house document, was it not?          _        lll 13                  MR. RUSSELL:  It was a dccument made available for 14      inspection and copying.
15 BY MR. SHILOBOD:
18 Q    But it was a GPU in-house docunent, was it not, Mr.
II Dieckamp?
e I would say that all of our documents are in-house 13 A
IU      documents.
20                  Yes.
Q 21                No don' t make a practice of publishing reports cr A
22      documents; on the other han., when they are called for, cha.
23 are available.                                                          llh 1
Q    Thank you.
25 Now, you indicated that T35A criticized it          eccause
                                @oMMONWEALTH REPORTING CCMPANY (717 't61 7150
 
32                                                                                          260 dealt with the mechanics, ra ther than the rationale.
(}                tj 2          A    Yes.
3          Q    What you're indicating, if -- do I interpret your 4  comments correctly that TB&.            criticism was a matter of pre-t 5  sentation; too much attention was given to mechanics, rather                ,
i 6  than the rationale; is that what you meant?                                !
t 7!        A    Well, I think that TB&A would best be able to                  ,
3    testify and characterize their own criticisms of the original
              . 9  volume of the " Blue Book."
10              I only state my understanding of their criticism, 11    that it seemed to focus on the mechanics of people moving, and ,
(O              12    things of that sr.c, rather than focus, sufficiently, par-        ~
u)  .
13    ticularly for a third-party reader, on the rationale, the pur-14    pose, the objectives, and the like.
15                Now, I . don' t obj ect to --
16                JUDGE CASEY:      So that to summarize, apparently, it outlined what they were going to do, but not why they were 17 s
18    going to do it.
19              THE WITNESS:        I think that's a reasonable charac-20    terization and one of the major criticisms of the first " Blue 21    Book."                      -
22              3Y MR. SHILOBOD:
(}                23          Q  Well, then, TB&H's criticism dealt with concern over 24  what a third party might interpret by reading this document?
25                  Is that a fair assessment of your obset ration?
COMMONWEALTH REPORTING COMPANY 47176 761 7150
 
261 33 4
1                A    No -- I think I would have said it's what a third 2        part might not learn by reading the document.
3                0    When did you first see an actual quantification of 4        the economic impact of the management combination?
5              A    Again, I have trouble remembering detailed dates.
6        I would have to say that some of the moving costs, for example, 7        came to my attention about the time, or as a result of the 8        initial " Blue Book," if my mencry serves me correctly.
* 9                      Beyon.d that, I think I testified earlier that, with 10        respect to the estimated S18 million of potential sa;tngs, that i
11 !      into my awareness roughly six months ago.
12                O    on Page 33 of your testimony, you indica te ,that on l
13        December 17, 1979, Messrs. Kuhns and Condon met separately 14 '      with members of the Ba'rry group and member s of the Commission's 15        Audit Sta f f , relating to the perspective scope of the Barry 16 audit.
1 Do you remember who was present from the Barry grcup 1
i I7 18 and f rom the Commission's Audit Staf f ?
19 A    I don' t think I was in that meeting; so I don't 20        recall, specifically, who was present.
1
        'l Q    Is there a memorandum summarizing the results of 2      that meeting?
          '3 A    1 do not know.
24 0    If there is one, will your produce it?
25 A    Yes.
I                                                . .. ...,
 
34                                                                                                              262 1                Q    You indicate that later, in December of 1979, you
{}
2        advised the GPU Board of Directors of the plan, and it was 3        one of the subjects discussed at the Board's January 3, 1980, l
4        meeting, 5
You then state that some of the Barry representatives f
i 6        also met on January 3,                      1980, with some of the individuals out- l 7        side GPU directors.
I
;            8                      Then you disclaim any knowledge as to what was
          ,9          discussed.
10                      Are you inferring that TB&A had discussed this issue 11        with these outside directors in early January?
l
(}        12 ,
I A    I don' t know whether they did or not; I think                          ~
they 13 I      would be the best witness on this.
l            14                Q    I don ' t understand , ' then, the purpose of your 1
15        comments here.
16                      I could, just as well, say that someone met with 11        someone on any particular day -- I'm not sure what the role-e 18        vance is.
19                A    I think it's specifically identifying some inter-20          actions between the parties involved in this decision, wi: hen:
21        making a, judgment as to whether they did or did not function 22 j    specifically on the decision that was subsequently announced 1
I
()          23        in the hearings here on January 17,. 1980.
24 Q    Are there any records as to who met with . c.cm on 25 January 3, 1980?
COMMONWEALTH REPORTING COMPANY 1717' 761 7150                        r
_,      -,---.--,_m.          .-,- . . . . . , .              -        . . . . - . - - ,--    -.
 
263-35 1          A    Again, I think the TB&A people would be the best 2    witnesses on that.                                                  .
I i
3          Q    Do you have any records --
4          A    I do not have any records --                            !
i i
5          Q    Does GPU have any records?
I j
6          A    I'm sure we have records of which directors we made    .
I 7    appointments for, but we have no records concerning the con-        ,
S versations or the substance of those conversations, at all.
9          Q    Do you have records of with whom it was that the 10    directors met?
11            A  I think the answer to that would be, no, other than i
12    just someone from TB&A.
13 '
I Now, we may have know whether it was Perry Whearon 14    or someone, but I don' t think that was a matter of concern to 15    us,  to identify or constrain the TB&A participants in those 16    meetings; so it's not my feeling that we would have a record 17    on it.
Is                Our only role there was to assist TB&A fn scheduling i
19    meeting occasions with the directors, or some of the directers.
20            0  Is it f air to state that there was a company practice 21    of maintaining interview summary sheets of the meetings with 22      TB&A representa tives?
23            A    Yes, we had a practice of that on matters relatireggg 24    to the on-going audit, and these kinds of memos or summary 25    sheets were made by the individual interviewees.
COMMoNWE ALTH REPORTING COMPANY (7f 7 768-7150
 
36                                                                                                                  264 1                        That practice, to my knowledge, did not extend to                ;
O                            2            our Board of Directors, in any way, shape or form, but we did 3            feel that it was important, in terms of our interactions with 4            TB&A,  to maintain a level of internal communications and aware i            ;
5            ness of subjects and topics of interest.
6                  Q    I'd like to go back to some Met-Ed matters.                      l t.
7                  A    Okay.          -
8                  Q    Whenever Met-Ed put TMI-l on line, did it retire any 9            other plants?
10                    A    I don't recall whether, specifically, at that time,                .
11 ,            but in the reasonable short intervening time period, or ensuing.
I                                                                ,
12              time period, the Crawford Station was retired.
7-s
(                                      1 13                  Q    What was the size of the Crawford Station?
14                  A    Oh, very small; I think it's, what, 60 megawatts, or
                                                                            ~
is              something of that order, 40 megawatts.
16                  0    How many employees worked at that plant; do you 17            recall?
18                  A      I do not know.
19                  Q    Do you have a range of approximation?
20                    A    No, I do not, but we could provide that for the 21            record.                        .
22                  Q      Uere there any other plants retired since the I
23 Crawford Station?
f (.-  ,
24 l        A    By Metropolitan Edison?
25                        Yes?
!                                                    Q COMMONWEALTH RCPCRTING COMPANY <717e 7G1-7150
 
265 37 1        A    Well, does anybody know  -- well, again, we could    lll 2  provide for the record the date of retirements and the number 3  of employees in any such retirement.
4        Q    Would you please provide that?
5        A    I would be happy to.
6        Q    All right.
7        A    Perhaps you could tell me what you want to do with 3  that, so that we can make sure that our information is most
    . 9  responsive.
10        Q    I would just like to know the plants that wer e 11  retired since you put on the nuclear plants, the genera t ing 12  capacity and how many employees were employed station.          4h A    At the retired station?
13 l 14        Q    Yes.
15        A    What about the new station that's brought on?
16        Q    If there were new non-nuclear stations, I would like 17    to have that information, also.
la          A  All right.
1 19 Q  And I'm referring, specifically, to all types of 20    stations other than nuclear?
        'l For Met-Ed, only?
A 22              And its subsidiaries.
Q                                                  .
23              York Haven is the only subsidiary.
A l
24            Coes York Haven operate as a separate ccrpe: ate Q
en tity?
                            -                              -nnauaca
 
38                                                                                    266 1          A  It is a subsidiary of Met-Ed which has its own
{-)
2    offices and its own Board of Directors.
3          Q  Are they separate from the Met-Ed officers and Board 4    of Directors?
5          A  I think they are largely separate.            I'm uncertain as    l 6    to whether it may or may not be one overlapping member.
7          Q  But as a general rule, they are different board; is              ,
I 8    that correct?
              . 0l        A    York Haven has its own Board of Directors.
l 10          Q  When was York Haven acquired?                                      ;
11          A  I do not know.                                                    !
("T          12          Q  Was it within this time span that GPU began to under-
  %-)    -
i i
take nuclear generation --
13 l                                                                              l 14          A  No.
* i is                                                                                '
Q  -- or was it before that?
16          A  Long before that.
i 17              Is there any other subsidiary utility beside York                l' 0
s 18    Haven?                                                                        [
l 19          A  Of Met-Ed?
20          g    yes?                                                                  q l                                                                                                      i l                21              Not to my knowledge.
A 22              MR. JOLLES:    Can we go off the record for a minute, 23
().                please?
        !      24 JUDGE CASEY :  Off the record.
I 25 (Discussion off the record.)
j i
                                    . COMMONWEALTl4 REPORTING COMPANY s 717' 7G l .7150
 
67 39 3      3              JUDGE CASEY:  Back on the record.
2              THE WITNESS:  I'm informed that we should provide 3  some official statement relative to the York Haven subsidiary, 4  as such.
5              BY MR. SHILOBOD:
6        Q    I'm only interested in it if it was acquired after 7  you began --                                                                      ,
8        A    Well, rather than depend upon my comment just ne w ,
9  let us supply a specific statement on tha t, so tha:            -a can 10  clearly dif ferentiate between the time at which York Haven 11 i was acquired versus the time at which it may have been set up 12 , as a subsidiary.
13              MR. SHILOBOD:    If the Administrative Law J-[dge 14  please, I'd request leave to permit Mr. Messer to address a 15  f ew questions to Mr. Dieckamp.
16                I don' t know whether I'll have other additicnal 17  questions or not af ter I've had a more thorough review cf this 18  document, along with the documents that are referred ;n there, 19    too. At this thne, I'm not aware of additional crcss-20    examination; if I have it, I will present it and I cil adcise 21  you.
22              JUDGE CASEY:  All right.
23              MR. SHILOBOD:  But I would like to reques          :c.a t *:r .
          ,4
          ~
Messer be allowed to cross-examination for the day.
25 JUDGE CASEY:  Is this because of your personal COMMONWEALTH REPORTING COMPANY e717 7Gl.7 5 50
 
268' f
1      situation, as far a travel is concerned?
2                MR. SHILOBOD:    No, no.
I 3                MR. RUSSELL:  I have no problem with multiple counseli 4      questioning the Witness, but from the point of view of perhaps l 5      expedit tng matters, are you saying you're going to need a 6      response with respect to York Haven?
7                MR. SHILOBOD:    Yes.
i 8                MR. RUSSELL:  Would it be helpful for you to know 9    that Met-Ed owned the York Haven property for over 50 years 10      before it --
l 11                MR. SHILOBOD:    Well, I don't care about that.            !
gg          12                MR. RUSSELL:  -- created this subsidiary and
  \J                                                                                -.
13      transferred it to --
14                IIR. SHILOBOD:  That's all right.
15                MR. RUSSELL:    So you're not interested; so we can 16      forget about York Haven?
l 17
!                                MR. SHILOBOD:    Yes.
18 MR. RUSSELL:  All right.
19                                All right. I don' t mind cc-Counsel JUDGE CASEY:
20                                      I would hope that you would divide sharing cross-examination.
21 j                      it in a manner where you won't be rehashing many of the things 22      that have already been gone over, if that's possible.
23
{}  '
i MR. SHILOBOD:    I don' t believe he would.
JUDGE CASEY:  Fine.
              '5 Mr. Messer, you may --
i i                                    COMMONWEALTH HEPORTING COMPANY 4717e 761 7150 L
 
269 1                MR. MESSER:        If at all possible, I will attempt to      lll 2      avoid that.
3                JUDGE CASEY:        Fine.
4                                  CROSS-EXAMINATION 5                BY MR. MESSER:
6            Q    Mr. Dieckamp, would you agree with me that part of.
7      the strength of any corporation is its management team?
l 8            A    Yes, I would.
9            Q    Do you consider, as of today, that Pennsyl>ania 10      Electric Company is a well-managed, efficiently run cperaticn?
11            A    Yes, I would.
j 12            Q    Would you agree that PennsylvaniaElectricCcmpa.-I!h 13      is of sound fiscal position,          as a separate entity curside cf 14      the general GPU system?
15            A    I think you would have to be a little more specific l
l i  16      on the definition of        sound."
17                  I think Pennsylvania Electric Company has scme --
18      while it is in a better financial position than our other two l
1 19      subsidiaries, it is not without its share of the prchlems tha:
20      result from its 25 percent ownership of Three Mile Island.
I 21 1              And I would go on to say that those problems are made dramatically clear when we recognize that just wi th i.- : .e 'as:
                                                                              ~
22                                                                            _
23      few months, Penelec was unable to issue First Mortgage .:O r.d s ,
21      by virtue of its inability to find a buyer.
25                So I think we would have to be very careful ir tha:
                            - ,,... ~ r-  r m n e r-n- m -e v e .vn. ,., w v m
 
270
                                                    ~
O              1  c" r cteri= ti "    ' "= ""d i
2        Q    So would you agree with my classification that it 3  would be in a more sound financial situation than Met-Ed?
4        A    Yes.                                                      ;
i 5        0    Now, as I understand it, Met-Ed has two operating          i i
6  coal-fired stations.                                                  j 7              Is that correct?                                            ,
4 3        A    Yes. They have Portland Station and Titus.
9        0    And those are the facilities that you envision will 10  be helped by the increased availability of technological man-11  power and direction, as a result of this merger that you pro-12  pose; is that correct?
[)
s-    ,
13        A    Those --
14              MR. RUSSELL:    This is a misleading question, to the 15    extent it assumes that a merger is proposed.
16              MR. MESSER:  Oh, all right.
l 17              MR. RUSSELL:    There is no such fact on the record 18    as to a merger, l
19              BY MR. MESSER:
20                The combination envisioned by the agreement that has Q
21  been filed; is 'that right, Mr. Dieckamp?
(
I i                22        A    Yes, the management combination.
()              23 Q    All right.
21              Yes, we do believe that it will be in the best A
25    interest of Met-Ed and the best interest of our Pennsylvania COMMONWEALTH REPORTING COMPANY 8717' 761 7150
 
272 1
1 . Companies, and I think, also, not                inconsistentwiththebestllg 2            interest of the Penelec custcmers, to combine all of our 3            fossil generation operations into one organization.
4                      Just as in the nuclear area, this gives us a better                    ,
5; ability to justify and to build and to maintain a staf f of                                ,
i I
6            people with the requisite depth and breadth of capabilities 7            to operate these stations.
Now, while the Met-Ed stations seem a small increnent 8l 9'          when compared with the total stations that Pennsylvania Electric 10 '          now-operates, I wonld have to point ou . that those two coal-11        , fired stations provide almost 50 percent of the energy for the O
I 12 I
Me t-Ed customers.                                                ..          W 13                  Q    The point I'm trying to make -- which I think you
            .i 14 '' have made very well -- is that while the technological flow ef 15            information and knowledge of Met-Ed is not inconsistent with i
16            the operation of Penelec, it is really of very little benefit i
II l' to Penelec.                                                            s 18 Is that correct?
10 II                A    I don't think I said that.        I think anytime ;cu ha.*e o1 the opportunity,to have a broader base of activity and ability il
    'I'}to thereby justify a more experienced and more capable staff, 22 j because of the broader range of activities that you're                        in>ciced 23          in, I think that, then, works to the benefit ofallparties.llh
              !i U
24 ]              Q    Well, maybe I misunderstood your testimony,              'Tr.
    '5 Dieckamp, but it wa.s my understanding of wha t you told              e,  that t                CoMMONWE Al.TH REPo ATING CCMPANY a717 7G1-7 8 50
 
272 g        1    the fossil fuel experience of Penelee would be a great help J
2    to the more efficient operation of the coal-fired plants of 3    Metropolitan Edison.                                                ;
4              Did I understand that part of your testimony correctlP i
5    sir?                                                                i i
6          A    I stand by that.                                        ;
7 Q  And m.y assumption, ba sed upon that answer, was that 8    technological know-how of- Penelee would be important to 9    creating that efficiency in those coal-fired generation planrs.
10              Would that also be a prcper assumption for me to 11 i  make, sir?
e O,
s-12          A    That is correct.
13              And --
Q 14          A    I only went on to say that that 1does not imply thar 15 l there is no net benefits going in the direction of penelec.
16          g    I see, i
17 A    Okay.
la Q    I didn' t mean to make that extrapolationI 19 A    okay.
20 Q    I think, if you pay attention just to my questionin7, l
21 my questioning is involved with the technical ficw of knowledge l
22    from Penelec and Metropolitan Edison and the increased effi-ciency that you foresee in the operation of those coal-fired
()            23 !
I      24 plants, based upon the experience and technological knew-how 25    of Penelec -- that's the point of ny questioning.
COMMONWEALTH REPORTING COMPANY 7176 761 7150
 
273 I 1                    I'm wondering if you can relate to me that if you 2leperceive that to be true, how is the reverse true, that Penelecl l
I 3i        and the technology and the quality of their coal-fired produc-4        tion, will increase because of the participation in the opera-5        tion of the Metropolitan Edison plants?
6              A    Well, I've already commented on that, when I said 7        that I think that anytime that we have the opportunity to have I
3        a broader range of operations which permits us to justify a 9  !    organiza tion wich more breadth and depth, a larger scope of 10        activity, it not only lets us be cost ef fective in maintaining l
11 !      such a scope of capabilities, it also increases the work              !
12        interest of the individuals involved and increases our probab 13        ities of maintaining a good, strong, competent staff.
I 14 '                  And I would go one step further -- that while I have i
15 to agree that when one looks at the size and substance of the          i 1G        Penelec organization in relationship to the roughly 6,000 mega .
17        watts of coal-fired capacity that they operate, it's a much s          a 18        larger operation than that of Met-Ed,'but I would not go so i
19        far as to suggest that Met-Ed has no technical or technolcgical l
20        capabilities to bring to that combined party.
21                    But you' re saying that, as I understand it, the Q
22 l      benefits , flowing from Penelec's technological know-how to 23 ' Met-Ed would outweigh any technological benefit that Per.elec 24 would receive from Met-Ed.                                    .
25                    Would that be a fair assumption, too?
                                                          ~
l
          !                CoMMoNWCALTH RCPoRTING COMPANY '717' 761-7150
 
274
()          1          A      I didn' t say that, but I'll accept that.
2          0    All right. Now, in reviewing some of the documenta-3    tion that I've seen, I've noticed various figures mentioned 1
4    in regard to what I perceive to be cost avoidance and not net 5    savings, which you discussed previously.
6                What I haven't seen is a quantification outside of      ,
7    those figures, or including those figures, on training lag time 4
8    for enployees who are moved to different positions, executives 9    moved to different positions, job responsibility shif ts, and 10    the type of problem that is created whenever this type of 11    combination occurs.
()  i 12                Did you direct, or,. to your knowledge, did anyone at I3    GPU direct any type of time study to determine hou soon, if 14    ever,  that particular problem would be solved, and the amcunt 15 of money that would be lost in the meantime?
16                  I think I should suggest that Mr. Verrochi can be A
17    the best witness on thor.e kinds of detailed questions, but I e
38 would go on to say that I think it's important to observe that IU    we are not combining a fish factory with a brass foundry.
20                  We are putting together two operations which do
                    }
og' exactly the same things and which have people who come tc their l
22      jobs already with knowledge from their own position within O            *3 their own subsidiary.
'      ]        n So while there always will be some degree of ti.e
                '3 associated with a new organization ' learning how to work t.
COMMoNWEAt.TH REPORTING COMPANY 1717 761 7150
 
f'                                                                                    275' i
I              togetherorlearningexactlywhatthepeoplerelationshipsarjlg 2!            policies, or things of that sort, I personally do not see that                i I
1 as a big hurdle, because of the extreme similarity of the 4              functions that are brought together and the prior experience of, 5              the people in those functions.                                                  j i
Q    We/ l,  it just seems to me that if you have an 6l                                                                                            ,
7              extremely competent engineer in the maintenance of a coal-firedt
        }
8 ',          generation plant and he is removed from that plant and taken l
9'            to a Met-Zd plant for the purpose of training improving the I
10              ef ficiency of that other plant, that something is going to be i
11              lost in the transfer, either his attention to the coal-fired 12 :            generationplantwherehehaspreviouslyworked,orviceverth                  -
1 13                          Now, how is tha t not an important consideration, cost.-
I4 [            wise or maintenance-wise, in the decieion to combine the manage-15 ;            ment of there companies?
I 16 i                  A    I'm afraid that I would differ with you very sharply II on that judgment, because I think it can equally be damaging s
13 I'to            a  technical person to be clustered in one environment only i
19handoneatmosphereandone situation only.
20 !                        I think any good, competent technical person expcsed 1
21 j to a variety of situations, a variety of environments, 22 f            inherently learns something and transfers information hac? and il 23 N forth across those various areas in which he is working; andllh we see  cha t as one of the benefits of this organization.
5f                  Q    Acquired knowledge is, no doubt, a benefit, but 'ehere I                  C OM M O N W E A LTH REPORTING COMP ANY 4717 761 7150
 
1  ..  ..
27 6
()                      1  does one get the time to apply his knowledge?                                                                ,
2        A  Well, we are not proposing that we use this combina-t            3  tion, let's say, in the fossil area, as a justification for a i
1                  net reduction in the total number of people necessary to do the 4
l' 5  total work.                                                                                                ,
6            We have only said that we see a net reduction in                                                !
7  relationship to the number that would be required to adequately 3  staff each group individually.
9            Now, we're not proposing to stretch the same number 10  of people more thinly; we're simply proposing that we'll be 11  able to do a better job in covering all fronts and we will not
()                      12  have to suffer the cost and expense of trying to dupl.icate a 13  full range and a full scope of capabilities for each operatien 1
14  on a stand-alone basis.
15 0  Well, then, how is it effective -- well, it's my 16  understanding of your testimony that one of the benefits for 17  Metropolitan Edison -- and also from reading the other docu-
!                          18  ments that I have seen -- is the increased technical ability l                            19  of the people at Penelec to help manage and make more ef fi-20  cient the coal-fired operations of Metropolitan Edison.
21            Now, that's an assumption I've made reading ycur                                            .
22  testimony and reading the literature.                                                              .
23            My' question, then, becomes, does this type of 24 technological know-how and the people involved therewith Only 25 expand at the level of the executive?                                        Is that the oni; place
 
277 1      tha t this transfer is going to accomplish an exchange of infc 2      mation?
                                                                  ~
3            A    oh, by no means.
4            0    All right; and if it's not, that means that the 5      people on the lower levels, the supervisors, the engineers, 6      and so on, are going to Lave to cooperate    ,  doesn't it?
7            A    Yes, it does.
8            Q    And it means that the technological know-i.cw of c..e 9      corporation is going to be used to help the other corporatic..,
10      under your plan, doesn't it?    Is that right?
11            A    Yes.
12 l          Q    All right. And that means that there must.he time l
13 l spent doing tha t, doesn't it?
14            A    yes, 13 l                It must mean that there be employee time detoted Oc Q
16      that concept.
17 A    Yes.
s 18 O    On all levels, from management down to the day-to-fay 19      work force.
20            A    Exactly.
21 Q    Is that correct?
22            g    ye3, k
  ,3 Q    Mow, how does one allocate, then, the amou.t c:.
24 different employee time that is spent solving efficie..cy a 23 l    productivity problems of Iletropolitan Edison in their l
i
 
275 i
()            I  coal-fired plants, by the employees of Penelee?                                                            Mcw does ene 2  do that under your proposed management combination?
3        A    Those employees, when working on a Met-Ed problem, i                4  will fill out their time cards to reflect the Met-Ed time 5  charged.
l 6        Q    And this is the proposal as you understand it, tha:
7  any time that an employee from Penelec spends working on a 8  Met-Ed problem, that employee's time, and so forth, is charged
              *9    to Metropolitan Edison?
10        A    That's correct.
11        Q    Doesn't that seem to you that the amount cf book-(            12  keeping and accounting time is proportionally increased oter 13  what those employees are doing today?
14        A    They're filling out time cards anyway.
i                15              Now, the only question is whether they are maki..g i
16  two entries instead of one, whether they are making a Me:-Ed t
l I7  entry and a Penelec entry, or simply a Penelec entry.
18              Now, I would also go on to say that we see Only a 19  fraction of the people who will be dual charging; te de.*: ses 20  every Tom, Dick and Harry dual charging between Penelec and 21 Met-Ed.                          -
22 O    Nell, it becomes quite a complicated sys:sm, dess ;;
whenever one determines that if you take an engineer 2:
                                                    ~
23  not, 24  a coal-fired production plant of Penelec and have him 100.>                                                          1:
25  the coal-fired production plant of Metrolitan Edisen,. and :hirg-
                                      .....,........o    , , , , , , , , , . . . . , . , . , , . . , , . . . . . , , , , , , , , . . ,
 
279 8
I 1      his time proportionately; that's one step in the process, 2      isn't it?
I 3              A    Well --                                                    I 4              0    I mean, he makes the allocation, doesn't he?
I 5              A    Yes.
6              Q    Under your system?                                          l, i
7              A    Yes.                                                        !
3              Q    And then something has to be doi.e. with that alloca-9      tion, doesn' t it?
10                  It has to go somewhere, and somebody has to separate; i
11        it; somebody has to fill it; somebody has to clock it in; some-'
12        body has to send it to Metropolitan Edison, and an accountan I                                                                            .
13 !      has to enter it there.                                                    i j
14                  All of these functions are created by one person's l
15 time.
16                  Isn't that correct, sir?
II A    Yes.                                      e la Q    And those functions today are not being performed, I9      are they?
0 A    That's not correct.
2I Q    They are not* being performed on that basis?
no A    Penelec, right now, performs exactly those functions
      )
      ~3 l when they charge the time of these people, the kinds of peopic 24      that would be i nvov led , to the owners of Keystone, Conema or
      'S
      ~
Mcmer City.
 
230
()        1              So there are already embedded procedures, techanists, 2  systems, accounting, bookkeeping, in order to do exactly that 3  thing.
4              Now, what we're doing is we're adding one additional 5  entity; instead of having just Keystone, Conoma, Homer City 6  and Penelec, we've got Keystone, Conoma, Homer City, Penelec 7
and Met-Ed.
4 8              Uell, then, excuse me -- you're talking about the Q
* 8 accounting distinction now, for the record, as between the 10  plants; is that right?
11        A    You raised the question about an individual engines:
()      12  charging his time to a Metropolitan Edison Plant.                                  ,,
33 Q    Yes.
l          14 A    I only said to you that that same individual may jus:
15 as well charge his time to Keystone, Conoma or Homer City.
16 j                      Q    At the present time?
I A    Yes.
s IS Q    All right.
38                So the mechanism for keeping track of these kinds cf A
I 20 time charges are already in place with.in the Penele: crganica-21    .                              .
tion.
22 Q    Now --
p) g,
            ~"
A    Already fully checked out, already established, wcr.;-
            ,z
;                ing, long- s ta nd ing .
            '5 Q    They work well, do they?
                                  ~...........,...,,..,,,o,....,.,.,,...,.... . , , . . . . . . , .
 
281 A    I think they work well.
2            O    All right.
3            A    We've been operating the Keystone and Conema plants .    !
4      since the 1568-69 time period.
5            0    And you don' t have any combined management with the      ;
i 6      other peopic who operate that plant, do you?
7            A    We have the Penelec management that's operating 8li plants that Penelec doesn't own.
9                  Now, I don't know whether that's combined nanagement l
10 l or not.
h 11 l                I'm saying if I --
12            Q    There's no af filiation with the other corporaticns 13 ,    or utilities that operate those plants, or receive electricity I
14      from that plant?
15 j          A    Pardon me -- the question?
I i
16            Q    In the conoma plant, how much of that plant dces 17 l    Penelec own?                                        ,
13            A    None.
19                  And you operate it?
Q 20            A    Yes.
    - i          Q    And for whom?
l          i For the joint owners of that plant, who are, or    'c.c 22 l          A h
    ,3 l
    -        one hand, Met-Ed and, on the other hand, the other ner.hers c:
24      the PJM pool.
25 0    And it doesn' t take a management combinaticn agreer.en-
 
282!
i
()      .        I  to operate that plant, does it?
A      In a sense, it does; there's an agreement exactly                            :
2 I
3    like this management combination agreement, that defines the basis for allocation of time and charges to those owners.                                        I 4
i i
5                      So in terms of the gut issues in this affiliated interest agreement --                                                                            ;
6                                                                                                    e t
7                Q    Are you indicating to me --
8                      MR. JOLLES:        Let him answer the question.                              -
* 9                      BY MR. MESSER:
!                  10                Q    Are you indi.cating to me that --                                              1 MR. JOLLES:        Let him answer the question.                                l 11 12                      MR. RUSSELL:        Wait a minute -- let him fini,,sh his 13    answer.
I 14                      MR. MESSER:        I thought he was finished.
15                      JUDGE CASEY:        Well, I thought he was, too, but, i
16    Mr. Dieckamp, if you had not completed your answer --
17                      THE WITNESS:        No -- I'm through.
s 18                      JUDGE CASEY:        All right.
I 19                      BY MR. MESSER:-
20                Q      Mr. Dieckamp, I apologize for interrupting.
21                A      That's all right.
22                Q      Is it my understanding that the combined . 2nagemen:
23  agreements that you submitted to this Commission are the same
          )
24  combined management agreements tha t Penelec is functioning 25    under to manage the conoma Valley Power Plant?
                                                    - -.... ..e..-w o e = n o.. .. ,- r e . . . . .. . ,,,,. ,.. ,..n
 
283; 1              A    I didn't say they were the same -- or I should not ggg 2l have ssid they are the same.
3              Q    I see.
4              A    But there are in existence agreements, contracts with 5        the owners of those ongoing stations at Conema, Keystone and            i 6        Homer City , that set forth the basis for charging the costs 7      incurred by Penelee and Penelec people, including Penelec a      management,      and the manner in which they are charged to those 9      owners and the principles, in terms of type keeping and cver-10        head allocation, are not unlike what are described in this af filia ted interest agreement.
11 l 12 i I
Q    Okay. Now, my question is what are the digtinctiolll 33        between that agreement which you're functioning under -- and
                                    "  I meal referring to Penelec --
14 l when I say "you, 15                A      Yes.
I6 Q      -- and the ones before the Commission today?
l 17              A      The only other distinction that I see is that in I8        this agreement we are specifying, also, that these two GPU 19        subsidiaries will have a common set of of ficers and directors, l
20          that is not an element of the agreement for Keystone,      Conema 9  1 or Homer City .
    ~~
Q    Would I he correct in assuming, then, tha    the l
4 23    ! technological benefits that are currently available to Metrllh
      "        politan Sdison, due to the know-how of Penelec, would he 23          available to them with or without the combined management
 
28(
t i
  ,()          I    agreement?                                                                              ,
i 2          A    We would have to establish a more formal mechanism                          ;
3    for the manner in which those resources                      should be applied 4    to Met-Ed.
5                There could be alternate approaches setting up, for 6    example, a coal-fired service company, or something of that 1  sort, but the net result would be the same, that frco Ralph 8  Conrad down through Tom Wolfe, the management efforts of those,
* 9  people would be divided between supervising the work on the                                ,
to    Penelec Station, Keystone, Conona, Homer City and Met-Ed i
11    Station.                                                                                l
(          12            Q  Similar to the conoma agreement?                                      ,,
* 13          A  Yes.                                                                        )
I4          Q  Okay.
15 A    Right now, Ralph Conrad's time is split between those' t
16    multiple functions.            We're adding one additional to that.
1 "'
Q    Yes; I understand.                                                            +
s 38                All right.
A i
I8                MR. MESSER:            Would it be possible, Mr. Russell, if 20 you could furnish' me with a copy, then, of the Conama manage-
* 3 ment agreement?                  -
22                MR. RUSSELL:            Sure.        They are also of public record, r        ,3
(/
s_
filed here with the Conmission.                    We can make copics availabic to you.
                  ~
                '5                                      Thank you, I                              MR. MESSER:
e                                  s=nuunNwral TW QFpORTING ("OPA P .NY          #717e 7 A 1.7 ? "O
 
285 1                MR. CHRISTIANSON:          If you could, send a copy to            lll 2    Mr. McClaren, as well, because it might be difficult to 3    retrieve the agreement from our file.                    ,
4                MR. RUSSELL:  All we'll do is make them available.
5                We will not propose to make them as exhibits.
6                MR. CHRISTIANSON:          No -- and if they are 100-page                i I
7    documents, I would n' t --                                                            i i
8                MR. RUSSELL:  We'll make them available to the par-9  ties of this proceeding,'in general.
10                MR. CHRISTIANSOM:            Yes.      I was just asking that you i
I 11 ' realize that we might not      --
12                MR. RUSSELL:    These fall in the discovery basis,                  lh 13    rather than as exhibits.                                                              )
14                MR. CHRISTIANSON:            Yes.      I agree wholeheartedly with 15    that.
16                MR. RUSSELL:    All right.
17                BY MR. MESSER:                                                            ,
s            .
18
              ,Q    Mow, Mr. Dieckamp,            '.f we again assume that the 19    quality of management is imp ortant to the function of any 20    corpora tion, part of the quality of the management depends, 21    I suppose, on the type support staff management has to conduct 22    their operations --
23        A    Yes.
M                -- is that correct, sir?
Q 5              I would agree with that.
A l
 
                                                    -+ * - -  s-"- n - - " - - -    -1      'f _ -
    .- ..                                                                                                    I 20d    '
I
      )      2        Q    And the type of support staff or the size of support l
2  staff that management would need depends upon the relative 3  size of the entity that's being supervised; would you agree?
4          A    To some degree, yes.
5          Q    And would you agree that the larger a corporation, 6  in terms of employees, the more staff is needed to support or
!            7  to oversee just the employee problem area of any particular i
8  corpora tion?                                                                          ,
          *9            A    You mean that element of the staff that relates to                          .
10  personnel or employee relations?
11          O    Yes, sir.
12          A    I think it's fair to say that it's the func. tion of 13  a number of people.
14        Q    And isn't the size of your engineering staf f also 15  a function of the size and number of generating stations that i
i 16  you have?
17        A    To the extent that there's work relating to those, s                1 18  yes.                                                                                    ff 39              Now, I think I would have to say, though that that --
20  yes.
21 Q    And isn't it also fair to conclude, Mr. Dieckamp, 22  that the potential combination of Metropolitan Ediscn with
(~N
  \-          23  Penelec, in terms of the managenent agreement that is propcsed, 24  would increase the number of employees under the supervision of.
25  ma nagement?
 
i 287l A    Well --
2              Q    Is that correct?                                          l 3                    MR. RUSSELL:    Will you identify which management i
4        you're talking about?
5                    MR. MESSER:    The new combined management.
6                    MR. RUSSELL:    Thank you.
7!                  TIIE WITNESS:    The number of employees in the ccm-      ;
l 8          bined organization, clearly, is greater than that of either 9        Penelec or Met-Ed.
10                    I don' t know, though, that we are suggesting that 11          the supervisory ratio is any different t ha n wha t it is tcday.      t I
12 :                  BY MR. MESSER:                              ,
l  13                Q    But you do --                                              ,
14                A    But I don' t know that the ratio in supervision to l
15 '        employees is changing as a result of the combination.
16                    If anything, it would be my guess that the ratio of 17        supervisor to employee is decreasing by virtue of sthis ccmbina-la ,      tion, and that's one of the sources of potential ccst avoidance:
I 19        or savings.
20                Q    It's potential cost avoidance or savings?
21              A    Yes.
22                Q  And the function of -- the ability of the corscration 23        to deal with the unions and employees has a lot to do ath    t._-
24    i function, doesn't it?
25              A    Certainly.
 
                      -p 258
:      -        I j                  Q    Isn't it also true, Mr. Dieckamp, that the amount cf 2              supervisory personnel needed to interact among all of the coal-3              fired generation systems of both Met-Ed and Penelec, and the 4              supporting staff that's necessary to maintain those systems, is 5              going to increase, under your proposed management co=bination i
6              agreement?
7                    A,    I don't know, again, that the total supervision 1
8            betweta Met-Ed and Penelec, in generation stations, will
                *9l particularly increase.
10                          You see, that's one of the things that trechles ce i
t 11 ' about your line of questioning.                                It would suggest -- it implie s
      )          12 l that Penelec vould be better of f if they were.not Opt;ating 13              1(cystone, Cor.oma and !!cmar Citv                  .nd were crly op2.'a.:ng their 14 l cwn thoucand negawa*'        . .: generation -- and I would assern te i
15              you thc.  ...ac ovuld be absolutely wrong, because they would net 16              then be able to enjoy the full depth and bredth of engineering            ,
i 17              capability and expertise and experience base that is taluable la j to the effective operation af those plants.
I9                            Now, again, when we look at generation, what                    are we 20 { do'ing?
                  ,1 l                          We are adding about 600 megawatts of ::et-El genera-i 22 1 tion to about 6,000 megawatts that Penelec is alrea-l; cper-O,                43 i
:    ating.
{
                    '4 JUDGE CASEY:      Mr. Dieckamp, I think, maybe / cur
                      .i
                    ,3
                    ~        '    interpretation of the thrust behind Mr. Messers ques-ice wa s
 
i I
289, i
I                                                                        I i
1l a little bit too refined.
O  ,
2                  What I gather is that he thinks that Penelec would        i i
3        be better off, period, if it never merged with Metropolitan          j 4      Edison --
5                  Is that it?
6                  MR. MESSER:    Yes, sir.
7                  JUDGE.CASEY:  Not " merged," but combined management.
8                  THE WITNESS:  Your Honor, I'm only --
* 9                  JUDGE CASEY:  Not confining it to just the operation 10      of two coal-fired generating stations.                                  j 11                  TiiE WITNESS:  Well, I go to that one because that 12 l happens to be one of the most ef ficient examples that. avail-              ,
c                                                                          !
13 I    able from which to discuss whether size is a detriment.                l t
14                  BY MR. MESSER:                                              l l
15 Q    Well, I think --
16            A    Which you seem 'o be forgetting.
17                  Well, we don''t have to get into --
Q                                                s I8                  JUDGE CASEY:  While we are on the subject, let me I9      interject for a moment.
20                                Yes, sir.
MR. MESSER:
21 JUDGE CASEY:  I think Mr. Messer sa id that the l    ,,
          -  su ppor t staff would probably increase, even though the number 2:      of directors and of ficers might be curtailed by the combined
      't management.
      '5 Now, I don't know whether that's a valid assumption
 
290 t
1    or not, but I have a concern which is borne out of that.
2                      A former well-known merger in the United States --
3    and that is the New York Central Railroad and the Pennsylvania 4    Railroad -- where the management groups from the New York 5    Central and Pennsylvania Railroad management group did not 6    get along.
1                      I think the news media characterized New York Central 8    a s the " Green Team," that stayed in New York and the " Red Team,"
              *9      stayed in Philadelphia, and never between did meet.
10                        1s there any possibility that this we'lld be a :: pea:
11    of that situation, with your combined management agreement, 12    where you have prominent corporate executives from twg separa e 13    companies being blended into a single team, so to speak?
14                      THE WITNESS:                    Well, I think there's no question bu:
i l
l 15    what one has to be sensitive to those kinds of human relatic .s 16    factors.
I i
17                      I would want to point out several things, however.
l 18                      Now, there will be major operations which do not, i ..
38 any way, involve combinations, except at the very tcp.
t 20                      For example, the Division Manager-in Erie >cill stil; 21    be doing the same job and still have the same people reporting 22      to him, and he won't in any way be impacted by the f act tha
(            a3 the combined organization also has a division manager in i
24                    and who has the same people reporting to hir.
Eastern, 25                        Secondly, the people that we are talking about a:
 
291 l
1 the first few levels of management, that I think can set thelll 1
2              tone for that kind of a problem, are people that, to a degree, 3              have already had a working relationship simply by virtue of 4              the manner in which we have tried to operate and coordinate the 1
5              GPU system over the past.                                                                        ,
t                                                                                                          .
i 6'
I We bring these people together routinely for manage-
      ~
ment meetings; they know each other on a first-name basis; then i                                                                                                          i 8l            function together on        cross-company committees that try to i
* 9              resolve operating problems and equipment standardization prob-i lems, or things of that sort.
10 l 11 !                        So it's not as though we are mixing together people i
12              who somehow have an ingrained basis to be antagonisti,c and                                  llh i
13 :l            who have no prior experience of working together.
I 14 '                        But, again, I would not want to deny that there can 15 l always be some residual pride of organization kind of aspect i
IG                that can be present, but we do not sense, among the pecple l~                that are concerned, that that's going to be a significant fac-33                tor.
l i
19 !                        I guecs that's, you know, about the best ! can say
    'O } about that.
    -                              h*e have no evidence that that's going :o be a I
    ,I
                ! major factor.
I-
    '- i                        JUDGE CASEY:      All right.
24                        THE WIT!!ESS:      Let me Just -- you mentioned somethi                            k I
too, about the support staff; let me just give you scne ncs-25 generation examples.
_._..,.o..-    . . , , , . , , . . . . - , , . . . . . , , ..... ,.. ...-
 
I 292;
(:)          1              For example, on the accounting side, by virtue of I
i 2    the need to maintain separate property records, separate 3    income statements, separate accounting of customer receipts, I              4    and the like, for Penelec and Met-Ed, we will, in effect, have, two separate accounting departmAnts, but you'll end up with i
5 6  one accounting department on policies and procedures, rather 4
7  than having to have two, one for Met-Ed and one for Penelec.              t l
8              I think, in reality, you'll find in an example like 9  that, the number of supporting staff personnel will actually be less for the combination than what it would be for the two
                                                ~
10                                                                              ;
11    organizations, on a t( tal, self-suf ficient, stand-alone basis.
C:)        12                And I think there are many other examples of the same.
33    kind of thing, where we try to take avantage cf the best from i
14    both organizations, to put together a common corporate staff              !
i 15    level of capability in this area of policies and procedures              !
16    and overvicws, improvements of work practices, techniques.
II                Budgeting is another example. We will have a common 1 l
I8    group of people who are able to apply a uniform system of 38    budgeting approaches to both operations, and there will be, 20    inherently -- I don' t see any problems in that.
21                I think there will also be some not improvements in 22    the ability to develop budgeting techniques and provide manage-V              23 ment visibility, by virtue of that common group.
24                            I'd like to ask three quick questions --
JUDGE CASEY:
                '5 and majbc I'm anticipating everybody's cross examination, but
 
293f I
I i  I        part of your objective here to attempt to submerge the identi 2        of the Metropolitan Edison Company, is it because of the adversc 3        national and worldwide publicity connecting Met-Ed with the 4        Three Mile Island accident?                                          :
I.
5                    THE WITNESS:    Well, I think it's true that part of 6      the plan to Weld these companies together -- we propose to            e 1
7      change the name, so that they both carry the name Pennsylvania '
                                                                                      ?
8      Electric Company, with a designation of East and h'est -- how-9      ever, it would seem to me that with the degree to which the 10 l    name Met-Ed has been indelibly etched on the world's mind,      as I
Il ' well as our own foreheads and other parts of the anatomy, thatf
  ;  12 l any illusions that we could somehow era se that piece ~of histor y, 13        I think, would be a littic bit reaching.                              j 14                    I certainly don't think we' re going to have grea t        ,
15      bounties of benefits from anything of that sort, and I think 18        that, clearly, cannot be enough of a motivation to justify this.                                                  e 18                    I think'our feeling is, rather, one tha t "Why should I8      we, a f ter this trauma?"
20                    This is the opportuhity to correct something which
      'l
      ~
really is nothing more than a preservation of the history of l
22      the manner in which these two companies were borne our of 23              .    .
r eorga niza tion.
        ~y I
Why does it make sense for two companies with about
      '5 the same number of customers as Pennsylvania Power and Light
 
294' i
            .                                    I    to operate as two separate entities instead of one entity?
2                  So we just think that we would have better ability i
I 3    to serve the customers, better ability to identify with i
4    Pennsylvania, better ability to receive from the economy; and                          -
5    with past trauma, if there was ever a time to make the change, j l                                                                                                                                              t l                                                  6    this is it.                                                                            j i
7                JUDGE CASEY:        By these two moves, do you think you                  i 8    would also win the confidence of investors and also the finan-9  cial community in New York?                    Is that a possible objective, by 10    putting up a united front?
I 11                THE WITNESS:        I'm -- well, two things:
O,                                      12                  I think the establishment of the GPU Nuclear Corpora-13    tion is a more pioneering kind of an effort, which I think will-14    perhaps attract more attention in terms of a response that the
!                                                15    Nuclear Regulatory Commission, and perhaps the investment l                                                16    communit:y of value there, will recognize that the company has 17    responded in a way which tries to assure the broadest possible 18    range of capabilities to support the safe operation of a l
38    nuclear plant.
i 1
20                  on the side of the electric system, I think the 21    benefits are going to be more nearly felt right here at home, 22    and I don' t see them perculating out                  to the same extent.
- ()
e3 I think we need to recognize, for example, t ha t
            )
24  there will still be Metropolitan Edison preferred stock and 25    will still be Metropolitan bonds.
 
                                                                                              \
i
        '                                                                            295 1
We will not change the names of those securities          h 2l or re-register them, in any way of the cart.
I So I think the external image will perhaps be less 3f 4            impacted than whac we would expect to see right here within 5            pennsylvania and in this regulatory environment.                        l 6                        JUDGE CASEY:      One more question -- and that deals 7            with the nuclear corporation.
8                        THE WITNESS:      Yes.
l 9!                        JUDGE CASEY:      Is this, by any chance, being done in I
10 !          response to pressure from the NRC or the President's Kemeny 11            Comission, or Congressman Ertel's Special Comittee, pressure ,
12 ;
to bring rr. ore expertise into the nuclear generation f.,ield?      h 13                          T!!E WIT!1ESS :  I would not say tha t we're doing it        ,
i 14              in response to pressure.
15 I                        ?ow, it is true that the Kemeny Commission, the 16              Rogovin Commission, the NRC, sense a need for stronger in-17 [ house technical capabilities in support of nucleareoperations, 18              bat I would testify very strongly that this view is one that i
13 I we had before the accident; it is a plan that we had con-20
                , sidered before the accident.
21                        We hadn' t quite gotten to the point of biting the 22              bullet to take the step to do it.      We had made decisions to 23            expand the scope and capabilities of the service companics,
      ,3 but we had not yet gotten to the point of deciding      to form a 5
separate corporation.
l
 
296
()          1              JUDGE CASEY:        Well, your Exhibit Number 5, which 2  lists the proposed Board of Directors and the corporate 3  officers of the GPU Nuclear Corporation, all of these people 4  are already of ficers in one or more of the three companies in                  ;
5  the GPU system; isn't that correct?                                              ,
S              THE WITNESS:        That is correct.
7              JUDGE CASEY:        And how would you go about convincing          .
8  people that the new corporation brings more expertise in the 9  field, if these people were all part of the organization pricr 10  to the nuclear accident?
11                Suppose somebody says, "Is this anything more than
()          12  a cosmetic change in ycur internal management structure?"
13                THE WITNESS:        Well, I would say several things.
14                First of all, Mr. Arnold, at the time of the acci-15  dent, was responsible for design and construction of new 16  facilities and providing some degree of engineering support 17    to operating plants when called upon.                He was not in the e
direct chain of responsibility for cither TMI-1 or TMI-2, o*
38 19  Oyster Creek; so I would characterize him as being a new elemen:
20    in the operational chain of responsibilitics.
21                Mr. Clarke is a new employee, since the time cf the 22    accident. He joined us after 25 years of experience on O    t
            '3 Admiral Rickover's staff in the Naval Nuclear Program.
He
            '4 will be Mr. Arnold's deputy, and the two will occupy whac ee 25 will term the Of fice of the President of GPU Nuclear.
 
I 297 l
t i
1                    The theory of the Board is to provide a mechanism 2        whereby the owning company of the plant have a mechanism for 1
3        oversight on the operations of GPU Nuclear.
4                    Dr. Bartnoff represents the owner for oyster Creek.
5                    MR. Verrochi, af ter the management combination, will 6        represent the Pennsylvania owners for Three Mile Island.
7                    Mr. Cherry, while he is not new, was not in the 1
3        direct chain of nuclear operations before the accident.
9                    He i.s an employee who, from the start of his profes ,
10        sional lif e, has been involved in nuclear af fairs.                    I I
i 11  i He was, at the time of the accident, in charge of          f 12        planning for the system, but his background is very much in i
13 '        nuclear fuels and uranium resources, and things of that sort.
n 14 !                    I guess I would say that while we cannot describe          .
15        this slate as being a complete new group, with the exception            ,
i 16          of Mr. Clarke and, to some extent, Mr. Arnold.
17                    I would go on to say, though, that if I looked at la        the years of direct nuclear background and experience in that 39        group, you would find that I, for one, have roughly 30 years 20          of background in nuclear technology; Mr. Cherry, I trould 21        su spec t , is of the order of 15; Dr. Bartnoff is probably of 22          the order of 35 years; Mr. Arnold is probably 20 to 25, and y-i  Mr. Clarke about 25 years.
24
:              So there's a tremendous experience base of nuclear i
awareness in that group.
1
 
298 1
i          1              Again, the purpose of the Board is to provide over-2  sight to the GPU Nuclear Corporation, so that the operating 3  company can have, with validity, delegated operating respen-4  sibility to GPU Nuclear Corp.
5              JUDGE CASEY:            By the way, did Mr. Walter Creitz have i                                                                                                                              .
6  any specific background in nuclear engineering, or p.nysics, 1
7  or any --
8              Tile WITNESS:            Only that which .he acquired during t .e                        .
9  period when Three Mile Island was having problems.
]
10              JUDGE CASEY:              Was Mr. Jack Herbien the Chief i
11  Operations Officer, so to speak, over those two plants prior 12                                                                                            ..
                    ;            to the accident?
13              THE WITNESS:            Mr. Herbien had a very extensive 14    nuclear background, again, coming out of the Nuclear ::avy, 15    through the early pilot plants that Penelec owned, called l                            1G    Saxton Muclear Station, and then on to Three Mile Island.
17                JUDGE CASEY:            But there has been a shift                    s in his 18    responsibility, and, as I understand it, Mr. Creitz resigned;
'                            30    is that correct --
20                THE WITNESS:            Yes.
21                JUDGE CASEY:            -- as President of Metropolitan Edison Company?
1 0            !
                              ,3
                              ~
TiiE WITNESS:            tie resigned as President of "e: rop:_ -
                              '4
                              ~
tan Edison, that's correct, and he is nowhere in the                                      .a:. age-(
                              '5
                              ~
ment chain.
t
 
l                                                                          299 1                  JUDGE CASEY:      But you say he's still an employee ofl 2      the company?
3                  THE WITNESS:      Yes, he is, because, even though he 4      resigned as President of Met-Ed, we felt that since Mr. Creitz 5      was a very loyal employee for something over 30 years with 6      Metropolitan, and that he was only about two years away f rom 7      the age where he would qualify for early retirement, that it 8      would be only f air for us to provide him the opportunity to 9I                                                      is eligible f or retire-l remain an employee until such time as he 10      ment.
11                  JUDGE CASEY:      Was Mr. Creitz asked to step down as 12      President, by the GPU ma nagement?        Was he asked to rasign --
13                    THE WITNESS:      I think --
14                    JUDGE CASEY:      -- his capacity as President?
15                    THE WITNESS:      I think that I would characterize it 1G        a s saying that in discussions between GPU management and ?ir.
17      Creitz, it was mutually agreed that the kinds of challenges 18      that Met-Ed f aced were not the kind of things that he tas 19      particularly qualified for, by virtue of his background and 20        experience, and that there was an agreement that it would he
  'l best if he were to resign.
22 l 7.ve sort of stirred around whether he <:a s s p ec ' # -
Sl I
    '3 ically directed to resign, but I think it is fair :o say tha_              l
    'l
        )
in the course of that evaluation of where we were and Aa r e te
  '5 had to go, there was a mutual agreement that the l'es: _nteras:
 
[                                                                  300 t.
                                        )
                                              ,      I    of all parties was served by his resignation.
2              JUDGE CASEY:    All right. I'm not going to pursue 3    the questioning any further at this point.
4              I think I interrupted Mr. Messer before he had com-5    pleted his cross -- is that true?      You had additional ques-6    tions?
7              MR. MESSER:    I have a few more questions.
8              JUDGE CASEY:    I think we could go until approxi..ately 9  4:15 this afternoon; is that too early or too late for the 10    participants?
II              MR. MESSER:    I think I may be done before that, i                        \
                'u/                                13
                                              )
Your Honor.
13              JUDGE CASEY:    All right. If you are, Mr. C'.ristianson 14    and Mr. Packard, would you like to begin your cross-15    ex amina tion, or will you have any --
IG                MR. CHRISTIANSON:    Mc do have some cross: conceivably, 17    we could complete it in that time, depending on hcy things gc, 1
13 Your Honor.
IU                JUDGE CASEY:    All right.
20                MR. SHILOBOD:    If Your Honor please, I hace ahcut 21    four additional questions I'd like to pose to the Witness;
                                                    ,~
                  ,es
                                                    ~~
I regret having to do that, however, I got the testincn. ;ess 4
t
                      '~'                            '3
                                                      ~
than 13 hours ago.
                                              )
                                              .I    24 JUDGE CASEY:    I want it understood, when all the 25 active participants completc their cross-examination, includi..?
(                                                                          _
 
301 1    any questions I might havetoclarifytherecord,wewillthedlh 2    have to excuse Mr. Dieckamp.
3                I suppose you were hoping that that would occur 4    today -- is tha t 'right -- or we can have Mr. Dieckamp available:
                                                  ~
5    this coming Monday.                                                        t l
6                MR. RUSSELL:        I'd say, to the extent Mr. Dieckamp        ;
I 7    could be closed today, I'm sure he would be delighted; if it
* 8    is not possible -- I haven't checked with him about what any 9    other availability would be.
10                MR. SHILOBOD:        If Your Honor please, we request than 11    he not be released as a witness, particularly in the light cf 12    the short time period that we've had.                            ,    llh 13                That doesn't mean that we're going to ask for him 14    back, but just that if it should appear to be important, we 15    would like to have access to him.
IG                MR. RUSSELL:        May we go off the record just for a 17    second?
e 18                JUDGE CASEY:        Off the record.
ID                (Recess.)
20                JUDGE CASEY:        On the record.
21                Mr. Messer?
22                BY MR. MESSER:
23 Q    Mr. Dieckamp, would you agree that the primary            lh
/
4 responsibility of management in a public utility, a: least 1:
3  the State of Pennsylvania, presumably nationwide, is to prm/12c
 
302
()          1    24-hour service in supply of energy for its customers, to 2    ensure that that be done and, also, to generate a fair and 3    reasonable rate of return on the investment of the utility?
4            A    Yes.
5            Q    And as a function of trying to accomplish that goal, 6    is it not necessary that management devote its expertise and        .
7    time and efforts to operating the utility in the best manner 8    practicable under the circumstances?
            *9              A    Certainly.
10            Q    And within that context, isn' t it also true that an 11    executive management of any corporation involved in the furnish-12      ing of energy, utilities in Pennsylvania, must devote,. con-13 !    siderable time and attention to ensure the adequate delivery 14    of service to its customers?
15            A    Yes.
16            Q    Would you consider that a fragmentation of an 17    executive's time and duties would be adversely affected by s
18    additional responsibility by the management of two companies, 19    or the devotion of his management abilities to one company?
20            A    I have trouble with the manner in which you have .:
              'l l phrased that question. -
l 22                I think one needs to look at what the manag.: rent ;f 23 l the combined company would be doing.
24                The. President, for example, would have repertin; ::
5    him a Generation Department, which would be not unlike the
 
303 1        Generation Department of any other company of similar size                          lh 2        to the combined group.
3                  It would have reporting to it a Customer Operations                          .
4        Department, not unlike the size of PP&L or Philadelphia                                {
t 5        Electric.
6                  SoIdon't.quiteaccepttheconceptoffragmentation.l 7                  The management is managing functions.                        It just so l
3        happens that the functions now happen to cover property and 9      customers who previously were identified in two separate 10        groups.
11              Q    Well, let --
12                  But the functions are the samo, and not di'ferent,                        h A
l 13 i      certainly.
1 Q    Well, the amount of time that any one person has to 14 l 15        devote to the management of a corporation is finite, is it not?
i 16              A    Certainly.
I 17          -Q      And if we would increase the responsibility of any 18        one executive, we are fragmenting that finita pericd of time, 18        are we not?
i 20 h        A    Yes, but arc we also saying that we're makir.g a l        I 21 '      judgment is capable of managing an organization the size of 22        Penelec and has no capacity to grow, and manage an orgar.i:aticr I
23 f that's one and a half times that sira?                        Is that the judgment i
      ~4' 9
f that we' re making?
    ,O
    '                    Tha t's not the juagment I'm making.
Q
_ _ _ .... _ _ ._~ _=cenorm ,__ ,_ , _ __,,,,      ,,,,,,,a__
 
304j i
O t
1        A    Oh -- but it seems to me when you say, " fragment,"    !
i 2  that's what you're implying, that you now have imposed upon        !;
3  him responsibilities beyond his capacity or capabilities.
4        Q    If we assumed, Mr. Dieckamp, that an executive could 5  manage both Penelec and Metropolitan Edison, with the same 6  type of system that is currently in use at, let's say, Penelec, 7  We could agree, could we not, that the size of the operation          ,
8  would make very little fundamental difference?    Would you 9  agree with that?
10        A    Well, I'm not sure exactly what your qualifier in 11    there wa s meant to say.
(~)/
  ~-        12        Q    Well, my qualifier is meant to say that whether i
13    Penelec increases its size by 25 percent, as long as the other ,
14  management systems remain the same and the input-of that 15    particular executive remained the same, he's capable of                .
16    managing the extra 25 percent, under your theory and under 17  mine; wouldn't that be right?                      ,
18        A    I guess.
l                                                                                        ,
l i            19              Now --
Q 20          A    You know, I think we have to remember now, thcugh, i
2I  when we look at these two, by the formation of GPU Ncclear, 22  gg re of f-loading out of what we previously thought of at Met-
    '          '3 Ed as a major segment of direct management responsibility.
24              I think the other thing we have to remember is tha:
25 despite the fact that Met-Ed has many problems that you may t
 
305 1,        describe as being somewhat more intense than those that Penelt 2          has, we also have the benefit of a considerable amount of 3          assistance in compensation on those problems, by people outside 4          of what we identify as the Met-Ed and Penelec organization.
5                    I speak, specifically, then, as a financial function 6          within GPU.
7                Q    Well, it's my understanding that GPU Nuclear is 8          going to be the operating arm of TMI, in terms of making sure 9l        it operates properly, but it's not going to function in the 10          financia1 end or the coa 1 end of Met-Ed.
11                    Is that correct?
12                A    That's correct .
13                Q    But the Chief Executive Officer -- excuse me -- the 14 l        Chief Cperating Of ficer of Metropolitan Edison Company, ;hoever l
l 15 l it happens to be, still has the responsibility of customer 16          service, customer control, rate service, energy, production, 17          and so on; isn't that correct?                      ,
l 18              A    Yes.
19 0    And the overlay is that in addition to all of those 20          functions which Mr. Verrochi, for example, has with Penelec, l
21 i he would have to fulfill those also for Metropolitan Ediso: .
  ~l                    Isn't that correct?
23 A    Yes.
l,
    ~4 l              Plus, in add ition to tha t, even though you are cff-i        Q I
  ,3
  ~
loading the operating responsibilities for Metropolitan
 
306 O          1    Edison, you are now bringing him into the vortex of the situa-2    tion of dealing with the additional financial problems which 3    Metropolitan Edison now finds itself.
4                Isn't that also true?
5          A    Dealing with it in the sense of budgetary planning, 6    control of expenditures, things of that sort.
7                He, for example, would not be brought into the eye 8  of the storm on funding the cleanup, or things of that nature, 9    in terms of his direct day-to-day responsibilities.
10          Q    But wouldn't you agree that these additional respcn-11    sibilities that he is assuming are different from the ones O,        12    that he now has?
13          A    Well, I think they are dif ferent only in the degree 14    of intensity, let's say, of the requirement for tight budgetary 15 planning and control.
16 Q    And that intensity, by the way, for tight budgetary II    control, is more intense as far as Metropolitan Edjson is 18 concerned then Penelec is concerned.
39                Is that right?
            'O As of today, that's right.
A l
l 21                So one of the additional details, or one sf the Q
              >3 additional issues that Mr. Verrochi, as the Operating Of ficer, i)
  'w/        n3
                ' must accept is the responsibility to deal with that intensity.
l            24 Is that right?
95
            ~
A    Cer ta inly .
 
t 307 I
i 1                    Q    Now, the Booz-Allen report which was referred to, 1
l 2              I believe, in various documents -- I think you spoke a little 2,            bit about it this morning -- of which we have also requested i
l 4!            a copy --
I 5                    A    Yes.
6                    Q    -- never recommended a merger of Penelec and 7              Metropolitan Edison, did it?
I s                    A    I'm no't aware tha t it did.
t 9                    Q    It never recommended a management combination between 10              Metropolitan Edison and Penelec, either, did it?
11                    A    I don't think so.
12        ;          Q    In fact, the only reason for the combination that i
13 I            you propose -- by "you," I do not mean you personally --
14 ,                  A    I understand.
i 15 l                  Q    -- GPU --
16                    A    Yes.
17 Q    -- is the fact that Three Mile Island happened.
l 13 I                        Isn't that right?
l Df                    A    I wouldn't say that was the only reason.
I 20                    Q    Uould you call it a precipitating reason?
21 l        A    I think that's a better characterization.
1 22 Q    In fact, 2f Three Mile I sland hadn ' t occurred --
3 J
arid believe me, everybody wishes it didn' t --
(Il l
M!                    A    I'd sign up for that, to o .
25 f                  Q    -- we wouldn't be here, would we?
 
308 1              A    That's right -- well, that's not clear; I wcn't 2      quite go that far.
3                    It isn' t as though this issue had not been on our 4      mind s .
5                    For example, when we combined our two subsidiaries 6        in New Jersey, we didn't do it because of a Three Mile Island; 7        we did it because we saw an unnecessary duplication of efforts 8        and complications in trying to run two subsidiaries in the same 8'      environment, both of them being of limited size, and we jus:
10        felt it made sense to combine them.
I 11 '                  Now, we were able to combine then there in a full
>                                  l i
12        financial merger sense, which does not seem practica'e here,    -
13 l.but in terms of the management and the utilization of the i
i 14 I      people and the people resources, we can accomplish all cf these 15        things without having to change the financial structure.
16 Q    Well, I believe we can agree, can we not, that until 17        Three Mile Island happened -- from the documentation we've hecn 18        furnished at least -- we did not understand that there wotid 39 be an    cceptable idea that there should be a merger between
                              'O the management of Metropolitan Edison and Penelec.
                                                                ~
21                      Now, is that correct or incorrect?
MR.-RUSSELL:        Again, I would object to the use of s ,/                      0
                                ~3    1 j the term " merger," because --
24                                        Strike the word " merger."
MR. MESSER:
                                ~3 BY MR. MESSER:
4
      ,r  v --, -      - --            - - -    ,  ,- ,    ,  -ev- , ,.              -                    =
 
I                                                                                i 309' i
Combination of management between the two.                  k 1                  Q 2,                  A    Perhaps the record doesn' t reveal it, but I think 3' we probably did have conceptual ideals.                  I would have to agree 4            with you, though, that it was far down on our agenda of the 5            things that we were working on or worrying about prior to the 6            accident.
7                  Q    And would I be correct in assuming that the reason l
8; that it was far down on the agenda was that, specifically, 9            Pennsylvania Electric Company was a well-managed, well-l 10 l functioning, ef ficient, productive, money-making corporation          l 11 ;          withing the GPU system?
12 i                A    go,                                            , , ,
13 l                Q    It wa s those thing s, though, wasn't it?
14                  A    But it was not the reason that this other issue was          ,
f 15 down on the list.
I  16                        You must remember what the total question was.                ,
I 17                        I think I answered the totality of the question.
O                  e 18 Q    I am having some trouble in my own mind, then, Mr.            ;
19            Dieckamp, trying to understand how, with all of the combined Boards of Directors among all of the GPU functioning entitles, 1
20 21 f that you have failed to create, or the Board of Directors has i
22 t' failed to enforce a standardization procedure among the util-h 3'          ities; and you've indicated that the possible benefits is a y^
combination of the standardization procedure.
i 25                        It just occurs to me that with all the common Ecards
 
210 i                            of Directors and officers, that you already have a s andardiza-N-                      I 2  tion procedure -- or is that a misleading assumption on my 3  part?
4          A                  No. I think we say that we have tried, for a number 5  of years, to achieve standardization in areas that we felt 6  made sesse,to be shown to be cost-effective, and the like.
7                            It's very difficult to ensure or convince people 8  that you're not interested in standardization just for its own 9    sake.
10                            on the other hand, achieving full standardiza:icn 11  of important areas and full acceptance of'the standardized
        -                  12    approaches takes a lot more than just the Board of                          i, rec:crs.
13                            You've got to permeate down through the ran%s cd the 14    organization and the supervisory structure in order := achiece is    those things.
16                              I just think that, as I suggest in the testineny, 17    that to the extent that major operations come together under J
Y                                                                                                                        J 18    a common leadership, standardization and the benefits thereof                            4 l
10  can be more readily achieved and more effectively achieved 20    than they can ever be achieved by a committee apprcach, trfi n; 21    to convince people of the values of such standardiza icn.
;                          22                            I think you also have to deal with the issue Of
                            '3 management style.
1
                            *t I don't think that one can manage by havin: the 23    President or the Board of Directors issue edicts en e zery
 
l                                                                                                            :
311',
9 l                                                                                                            ,
1 1        little issue.                                                                            gg 2-                    I think there's a need to make sure that people work
          !                                                                                                  i l      3' together, come together in a judgment, and then truly enlist                                        ,
i 4        their support to an approach or a plan.                                                      .
i 5                      Now, again, I think that's better accomplished if l      6        there's a greater depth in management committed to that than                                l 7        if it's just a few people at the top.
8                Q    Well, see, that's what troubles me, Mr. Dieckamp.
9              A    okay.
10                Q    What troubles me is that I agree with that philosophy, 11 '      and yet what I see you doing is doing exactly what you said
  ,  12 j      you didn' t wsnt to do by committee; and that is, you',,retalkqll l
13 '      about the central management of Penelec and combining it, l
14        making it manage two companies that never functioned very well 15        as one.
16                      You're    taking out and forming another committee, 17          essentially, a new corporation, in GPU Nuclear, to manage 18        another facet of the operation.
10 ,                    It ~seems to me that what you're doing now is precisel_
20          what you don' t want to do.
21                      I am just wondering, now, even considering that ::.e 22 i
executive management or the Chief Executive or Operating I
23 j      Of ficer of Penelec      isgoingtobeontheGPUNuclearBoardcllh
  '          I 24 l      Directors, whether or not he is going to have the ability to I
25 '! give us the in-depth management which he has given the Penelec
 
312
  -          I  service area customers and rate payers.
2                MR. RUSSELL:    If Your Honor please, I have no objec-3  tion to questions being put to the Witness, but I think I must 4  object to what has been a fairly long statement of statements i            5  of f act by Counsel, as preliminary to the question.
6                MR. MESSER:    I agree with that.
7                MR. RUSSELL:    So I would ask the matter he placed 8  in question form only.
9              JUDGE CASEY:    It sounds a little bit as though he 10  was testifying, I'll admit, but I could follow his line of 11    thinking; and I think, even though it is a broad unwieldy O          12  question, that Mr. Dieckamp could respond if he agrees, in 13    general, with that observation, or disagrees, for specific 14    reasons that may be covered in his own testimony.
15                Tile WITNESS:    I would like very much to respond to 16    that question, because, Mr. Messer, I think you characterized 17  the combination of, somehow, more than doubling th,e respon-18  sibilities of Mr. Verrochi, and, somehow, therefore, having l
19    the amount of ef fort available for the management of -ha: jeu 20    relate to as Penelec.
il                I think that if you take that apart, ycu don't find l                                                                        '
22    that to be quite the case.
A N]          o3
              -                One ot Mr. Verrochi's major areas of respcnsibility
              't now is generation, and in that area we are moving s:re 6,022
              'S to 6,600 megawatts -- hardly a .f actor of two.
 
I i                                                                  313 1                  Another major area of Mr. Verrochi's responsibility 2      with Penelec are division operations, customer operations, the I
3      division of fices which contain the customer contact, customer      !
4      service and the line operations for maintaining the lines and      ,
j 5      making line expenses in construction.                              .
6                  Penelec has slightly'over 500,000 customers.            ,
7                  Met-Ed will add about 350,000 customers to tha t --
8      again, not a doubling, but, again, simply, putting under that 9    part of the organization a group of absolutely similar opera-10      tions, each one geographically located.
I 11                  There's no clear, hard distinction between the roles (S    12      or responsibilities of the man here versus the man is-Easton.          '
I 13                  Again, I don' t see a big change in the management        .
14 l load that's involved there.
15                  Again, now, when we go to G&A, the General Adminis-16      trative or the Accounting and Financial sides, yes, we do have I      this requirement to maintain two se'ts of books; on the other 18      hand, we do have the ibility to more efficiently effect common 19      policies and cor:a.on procedures, and economies of scale, and 20      things of that sort.
21                  So I think it depends very much on the manner in
      '2 which you characterize this combination and its impact on Penelec or Met-Ed.
24 ,
BY MR. MESSER:
25 Q    Hell, it will have an impact; will you agree?
 
I 314; x-      !        1          A    Yes.
2          Q    By some factor?
3          A    Yes.
4          Q    And if there is an impact by some factor, that will 5    eliminate some of the depth of time and energy that he will be 6    able to devote to either one of the two companies; wouldn't 7    you agree?                                  .
I 8          A    In principle, yes, but I am troubled by the logic 9    that suggests that somehow Penelec is the optimum sized com-            ,
              '                                                                                i t
10    pany a nd , therefore, there is no ability for that management          !
I.
11    Or that management team, or a combination of senior managers            .
0
  --'-j          12 ,  from Met-Ed and Penelec, to manage a combined operathen that            -
I
                      '                                                                        i 13    is no different than at least a couple of the other companies          j i
14 wi. thin this State.                                                    .
i 15                  So what is unique that requires Penelec to have some !
16    higher level of management concentration, I don't follow, the 17    logic.                                                  ,              ,
18 Q      Well, wouldn't you agree that wh    ~'s unique about 19    the present situation is the fact that we have Three Mile 20    Isla nd , and the uniqueness of the movement of Mr. Verrochi 21    3.,t o that arena, taking away -the depth of management t ha t he i
22    had concentrated on Penelec.
                    '3
                    ~
That's what concerns me.
        )
24                Doesn' t it concern you?
25 h    Again, I pointed out to you that we had separated
                                          -    -__t  .--    _  _.
 
315 1
out the nuclear management role and set that up in a separate l h 2    operation called GPU Nuclear.                                      .
3              And, again, now, if I look at the other large com-4  panies in this State, I find that those companies not only are 5  as large as the combination, in terms of customers and mega-      l 6  Watt hours, and things of that sort, but they also have full      ;
7  responsibility for nuclear operations, which this combined 8  operation would not have.
8        Q    Well, let me --
10        A    So, again, I don't see the great desparity that i
11  comes just because of combination or size.
h
    ,    12        Q    Can I give you one exmmple?                __
13        A    All right.
14        Q    In the Theodore Barry and Associates' report they 15    say that Penelec has approximately 3,600 employee, or there-IG    abouts, and they are producing 6,000 megawatts.
17            The same report indicates that approximately 2,700 s
18  people of non-nuclear application are employed by Metropolitan I8  Edison Company.
20              Now, can you indicate to me how it would be possible 21 for Mr. Verrochi '.o  manage a work force of 2,600 people, pro-22  ducing approximately 600 megawatts of electricity, and not 23  have severe problems in ef ficiency, productivity and manage-l 94 l              ment time of his work force?
25            Well, let's start with the numbers.
A i
 
f I
314 i
I
(~T                    II                                First of all, the Met-Ed people devoted to non-N/                                                                                                                                l 2              nuclear operations, I think you will find today to be somewherel I                                                                                                  i 3              between 1,900 and 2,000.
4                          Q      Well --
5                        A        Secondly --
6-                          Q      -- let me just indicate to you -- are you speaking 7              of the date this was -- September 1980?
I'm speaking as of today.                                              1 a                          A I
All right.
* 9l            ,
Q                                                                                ,
i 10 !                        A      And. what I'm addressing is the fact that when one -                    l l                                                                                                  i
                                  \    removes the nuclear functions from Met-Ed, the residual number *}
11 l      .
12              of Met-Ed employees -- as you stated, non-nuclear employees --
([' .                            l 13              is somewhere between 1,900 and 2,000.
14 '                        Q      All right.            So we have between 1,900 and 2,000 peopl
,                                    I 15 I            producing 600 megawatts of coal-fired energy?
I' 16                                    Is that right?
i 17 A        I also will not -- I will not accept that number,                        :
* l 18              because there's only a fraction of those'. people that are in                                  .
18              the Generation Department.
20                                    Well, that's what you told me.
Q 21 A        No, no --            -
22 l                          Q        I thought you indicated there were 600 megawatts.
l
() ,                  23 A        No, s ir .      I did not characterize it that way --
24                                  All right.
Q 25                                    -- that there were 2,000 people, producing 600 A
a717e 78 3 7150
                                                                    -_-("nM MnNWr Al TH A FPOR71NG (*.OMP A NY
 
317 I
i h
1      megawatts.
2                Q    All right.
t 3                A    I don't think I ever said that.                            ,
4                Q    Well, how many megawatts of power do these 1,900 to        ,
5        2,000 people generate?                                                  .
6i                A    A fraction of those 2,000 people -- and I don't know '
7        exactly, as I sit here -- perhaps 200 produced the 600 megawatt's 8'        of energy that Met-Ed operations.
l 9l If I go through Penelec, I will find, probably, 10 i        somewhere of the order of 1,000 people or more ope;ating the i
11          6,000 megawatt, a generation that they have there --
s-  '1 i                    JUDGE CASEY:  Well, I think that --        .,        lh 13 .                    THE WITNESS:  I would have to check that number.          .
14                      JUDGE CASEY:  Mr. Dieckamp, sir, I would agree, 15          probably, with what you've said, but I think that's an opera-16          tional observation.
17                      I think what Mr. Messer is trying to say in his la        question is that you had all these employees who work for a 1
19        utility that may not be directly and physically involved in 20          generating electricity --
21                      THE WITNESS:- Yes.
22                      JUDGE CASEY:  -- but all of the employees of that 23 l company, excluding nuclears, are involved in operating a        .
I, l
24        utility that only produced 600 megawatts of electricity,      as 25        compared to Penelec, who has -- what is it -- 3,700?
t
 
318i O
(_/            1                MR. MESSER:      3,239, according to the report, Your 2    Honor.
3                JUDGE CASEY:      Yes.
4                THE WITNESS:        Your Honor, I am only suggesting that f 5    those employees, whether it's at Met-Ed or at Penelec, are 6    doing more than producing X megawatt hours of electricity.                    4 l
7                They are serving X customers; they are maintaining                i 8    Y miles of line.
* 9                I'm saying that to imply, somehow, that their 10      deficiency parameter, which is the rate that people per mega-11      watt of capacity operate, is a misleading statement and is not
{[N 12      meaningful in any way, shape.or form.                                --
13                  BY MR. MESSER:
14            Q    well --
15            A    I mean, if you want to pursue this, you should say, 16      "How many Met-Ed people are working in the operations or line 17    depar tmen ts?  How many Penelec people are working in the I                la      operations and line departments?              How many customers do they 19      serve in those line departments?            How many miles of lines are 20      they maintaining, and the like?"
21                  Perhaps, then you could get a better fix of the 22      meaning of this combinacion, but the parameter that you are t .
(,)              20    implying, I don't see a sense to.
1 24 Q    Nell, maybe I'm misunderstanding, but it seems to me 25      that Penelec has a territory almost six times larger to cover I                  -
r nuunuwrai tw arenarine. enu uv    ,y,, u s .., . 3n
 
210 1          than Met-Ed.                                                        lll 2                  A      yes, 3j                Q      And they produce one heck-of-a-lot more electricity, 4          with, certainly, a much lower ratio of employees.
5                        Now, I'm --                                              ,
I        6                  A      Well, I just cannot accept that implied ratio as          :
7            having any meaning whatsoever.
8 0      Well, ' let's assume that's true; somebody still has
* 8 i        to administer and, as you've indicated previously in your 10            testimony, provide some depth of administration to those 11            employees.
12 O
W
('                          A      Yes.                                      --
s 13 !                O      And my suggestion to you, sir, is if you are 14          administering 3,239 employees and increased the number by i
15 l approximately 1,900 or 2,000, that the depth of management i
16 1 that is necessary to properly police and administer that 17            force, e'ither must increase the additional employees or must 18    -
l be lessened by the time spent.
19 A      Well, we have not proposed that all the Met-Ed 20 employees somehow fit under the existing Penelee management 21 l          struc tu re .
I 22 l                        We have proposed that there is a new management structure for the combined operation, which employs an expa.d Il 24 number of managers below the executive level, that is consis-t 25 1          tent with the magnitude of job that has to be done.
mmmumnt ru ernnarmc_r nu,wy_ a, ,1_uia m                )
 
329:
1 And as I stated earlier, it is my judgment, as-you<
2    begin to look at supervisory ratios or numbers of managers per l
3    employee, you would find, probably, some improvement over the' I
4    individual companies as they stand alone today, improvement I
5    in terms of lesser managers per employee, and economy that's                i 6    being received there, f
7                Now, I don't think it's a savings, but at least I 8    think it's in the right direction.
* 8                You see, somehow, many of your questions suggest 10      that we've got this poor little great, competent Penelec II    . group that now, all of a sudden, is saddled not only with their I j 12      own existing job, but all of .the Met-Ed people -- an{that's 13      not true.
14                There's a standard level of management that's con-l 15 sistent with the level of efforts that's beir.? conducted.
I6            Q  What's the increase in costs associated with that I7      management level expansion?
o 18 A  A net decrease from the summation of the individual I8      companies as they stand today.
n l                ~n Q  Do you know what that amount is?
21 A    It's part of the 18 million -- and Mr. Donofrio wil-1 22      be able to testimony in more detail to that when he is in this 2::        .
chair.
      ")
24 l              All right.
                      ;          Q 25 A  You know, I sense that, somehow, we have failed to 1
'                                        muunuwr a. vu o roneysu,. . ,.nuo. u, ,,,,, ,,,,,,,n c-
 
1 i
i l
i 321 l
1            communicate to you how this combination progresses.              llh j
2                  Q    I'm certain of that.                                    ,
l 3                  A    Okay.                                                  ;
  -                                                                                        1 4                  Q    !!ow, Mr. Dieckamp, you've indicated that it's your l
5            understanding that Theodore Barry and Associates was somehow-      l 6            dissatisfied with the initial group.
7                  A    I stated that I thought they had some criticisms of l 8            it.
9                0    Do you know who the representatives of TB&A were or 10            are'that were dissatisfied?                                          '
1 The man who worked most closely with us on the i
11 '                A
(    12            management combination was Mr. Wicker.                  --      l l
13                  Q    And. has Penelec been paying the full return on all 14 ll of its preferred stockholders?                                                +
I                                                                            '
l 15 '                      MR. RUSSELL:    You mean dividends?
16                        BY MR. MESSER:
17                        Dividends.
j                              Q                                              ,
18                  A    Yes.
t 38                        All the way?
(                              Q I                  6
(        20 ll                A    Yes.
il 21 h                      And Met-Ed, also?
Q
          ~~
A    Yes.
93 i
            ~j                  Q    What are your responsibilities in regard to the
      )              i 24 '                            If it's accomplished, what will your respon-
                    !l planned merger?
25            sibilities be after any approval is given to the combined
 
I 222
([            1l management, if any?
l 2          A    First of all, I will no longer be Acting President-3    of Metropolitan Edison.
4                Secondly, I will continue as President of GPU 5    Corporation, as President of GPU Service Corporation and, 6    when fully in force, I will be the Chairman and Chief Executite 7  Officer of GPU Nuclear.
a        Q    Do you have any responsibilities today in regard :c 9  the planned merger, other than being the Acting President cf 10    Metropolitan Edison, in terms of the implementation cf the 11    planning that has gone on previously?
()          12          A    Well, I am one of those members of GPU managemen 13    that has worked work the Penelec and Met-Ed people and The d:re 14    Barry in arriving at the combination plan, management                                ccchina-15    tion plan, and I would, in my role as a member of the 3 card Of 16    Directors of each of those subsidiaries, Met-Ed and ?enelec, 17    and as the President of GPU, would continue to play a rcle in o
is    the management oversight of that combined operation.
39 Q    On Page 33 of your. testimony, which I beliete is 20      Statement A, you. indicate -- and I quote -                              "On Decscher 17,
                'l 1979, Messrs. Kuhns and Condon met separately with                                enhers  f 22    the Barry group and members of the Commission's Audi: S aff
  /~T            ,3 relating to the prospective scope of the Barry audi .
  \,_)
      ,)
\
24              They subsequently advised me that during the :::rsa 25    of that discussion, they had advised that group cf the):ssih;e
                                      -.-....-.....-..,,-,,,so,....,. ,.,,.. ...,, .,,, ,,, ,,,_
l
 
323 1'    management combination for Met-Ed and Penelec, and that sub-2    stantial interest had been expressed in it."
3                                          Who expressed substantial interest in the prospective 4    combination?                                                                                .
5                                      A  I think you would have to ask the principals that      .
6    were in that meeting.
7                                        I think it's fair to say that the statement, as it 8    is, says that that suggested course of action elicited substan-8    tial interest, and people said, "Yes, that's an interesting 10    idea."
11                                      Q  Did you consider, in the work that you werc doing with Theodore Barry and Associates subsequent to this, discus-(    12 13    sion, that the scope of the audit changed?
14                                      A  Well, I guess the simple answer to that is, yes, 13    that is my understanding, that Theodore Barry was directed 18    by their client, the Bureau of Audits, to incorporate the 17    task of assessing                            the management combination, as a task that s
18    they were directed to perform; so, in that sense, the scope 18 changed.
O MR. MESSER:  Thank you.
        *1 That's all .we have, Your Honor.
JUDGE CASEY:  All right. Apparently, this is a gccd
        '3
        ~
time to suspend for today, and we will resume the hearing, Il h
  )
24 believe, at 10:00 on Monday, December 8, since Monday again 25 will be a travel day for certain people.
 
                          !                                                                              324
(}~'                  1                Mr. Dieckamp, I'm afraid I'm going to have to ask
;                      2    you to be present again on Monday morning, since cross-3    examination today has not been completed by the Commission's 4    Staff.
5                We would also ask that Mr. Verrochi and the other                    l 1
6    gentleman, Mr. --                                                                ,
7                MR. RUSSELL:              Donofrio.
8                JUDGE CASEY:              -- Donofrio, be present.
9                MR. RUSSELL:              Is there any desire to block cut any 10    further hearing days beyond next week?
11                JUDGE CASEY:              I would like t'o do that; I don't know 12    whether we can accomplish it today or not, because Ijipn't hate
( )F )
13    my own hearing calendar available to me at the moment.
14                  I think, if we can give it some thought, caybe some 15 ,  selection dates that we can discuss first thing on Mcnday morn-16    ing --
i it                  MR. MESSER:        Your Honor, I hate to -- I apologize s
18    for taking so long on questions I didn't feel'were scing to 19    take quite as long, but if there's another 15 minutes or so 20    of questioning, I wouldn't have any objection to waiting 21    around', 'because I don' tr want to see Mr. Dieckamp have to cc=e
                        '2 back on Monday if ' he doesn' t have to.
23
(  %d )
JUDGE CASEY:            Well, I think the Commission's Staff 24 I would have questions.
MR. MESSER:        Yes.
I                                                    -
COMMONWEALTH REPORTING COMPANY 3717* 761-7150
 
325 l
I''      1                        JUDGE CASEY:      And we just can' t --                  ll 2                        MR. CHRISTIANSON:      Possibly, 10 minutes worth of i
3            questions to follow it up.          We're really not sure how long it    ,
I 4            will take.
5                        We could make a try at preventing the necessity for          ;
6            having him come back next week.                                            i 1                        MR. RUSSELL:      We're prepared to stay here if it's 8            possible to finish up with Mr. Diekamp questioning.
9;                      MR. CHRISTIANSON:      And conceivably, other employees 10            could answer the question follow-ups; he wouldn't have to be 11 i here.
l 12                          I'm not going to be asking the questions, so,Ican'lll
(_ )
l l        13 j          exactly speak as to how it might work out.
8 l
'        14 't                      MR. SHILOBOD:      If Your Honor please, I may have to 15            leavc.
l 16                          I'd just like to request that we get Mr. Conofrio's 17            testimony sometime further in advance than the night before he o
18            appears.
19                        MR. RUSSELL:      We will certainly do our best.
20                          MR. SHILOBOD:      Thank you.
21 1              MR. RUSSELL:      I had asked you at the prehearing 22            conference for some submissions with respect to the authen-l                    i I
l                    l  ticity of several documents; do you have that?                      llh
:    ,4 .i,
            ~
biR. SHILOBOD:    I'll advise you about that tenorrcw.
25            I understand I have a response; I'll have it ready.
wunNWFA0 TMO OfXXSG-W (d.]TOfM gg9 Wg.71gg
 
326 1              MR. RUSSELL:    And is there any additional information
(['
2  as to possible witnesses other parties contemplate calling, or 3  any changes in witnesses?
4              MR. CHRISTIANSON:      We have nothing.
5              JUDGE.CASEY:  Well, we really don't have any infor-        ,
6  mation from the Commission's Administrative Staff as to who, 7  in particular, from the Theodore Barry and Associates group 8  they will be calling to testify..
9              MR. RUSSELL:  Well, at least we are aware of who 10  worked on it, so we'll have some idea as to who the possibili-11  ties are.
12              JUDGE CASEY:  All right.
    ,[ )
13              MR. RUSSELL:    I just want to know if there's anything 14  totally new --
15                JUDGE CASEY:  I see a hand in the audience.
IG                VOICE FROM AUDIENCE:    Not to speak for my client, I
17  the Administrative Staff, but, at this point in time, Thecdcre l
* 18  Barry would expect to have three witnesses, Perry Wheaton, 19  John Wicker and Dennis Shoemaker.
20                JUDGE CASEY:  Thank you.
21              MR. RUSSELL:- All right.      If there's any interes:
22  in finishing up with what's available for Mr. Diechamp, we'd l
(
23  be more than happy to stay and trying to accomplish that.
3
        /
24 JUDGE CASEY:  You would prefer to do that this 25 evening?
COMMONWEAL.TH RCPoRTING COMPANY e717* 7617150
 
327
    ''~
1                THE WITNESS:        Very much, sir, because to come back 2    on Monday takes a whole day, and I'd just as soon get up here i
3    and in a half-hour, or whatever it takes -- you know, depend-4    ing upon your schedule, it certainly would be most welcomed.
1 5                JUDGE CASEY:        All right.
6                Mr..Packard will be cross examining on behalf of 7    the Commission's Trial Staff and will be accompanied by Mr.
1 8    Christianson, as his legal advisor.
9                                  CROSS-EXAMINATION 1
l          10                BY MR. PACKARD:
1 11          Q    Mr. Dieckamp, I'm going to boil it down to two ques-(      12 !
tions, and we may be able to dispose cf this in five,ginutes.l h
                                                            ~
l              !
13                JUDGE CASEY:          Unless the Judge can think of something l
l 14    to ask.
l          15 l.              BY MR. PACKARD:
16          Q    The first question, our concern has to do with l            17    bankkruptcy -- and I'Il just pose it in a general sense, and 18    I think, if you can address it, I may not have further ques-19    tions, or I may have a lot of questions.
20          A      All right.
21 Q      Under this proposed plan or plans, what would '.appen l            22    in the event of a bankkruptcy of Met-Ed?              How would it werk?
23                Specifically, I'm concerned about the debtor in                h
      ~,.
l 24    possession, what he can do, what he cannot do, what kinds cf l
25    problems have been anticipated by this merger plan?
  '                                m m m m,c m o eon or,y c  ,-n u m y ,.,,f yn, .n so
 
328 (O
_j        1        A    Well, Mr. packard, I, clearly, am not an expert on 2  bankkruptcy, but I think we could say a few things.
3              Number One, since this is only a management combina-4  tion, we are in no way changing the financial structure, the 5  financial reporting, the financial accountability, the property, 6  or .any of those factors' relationship to creditors or debtors,                                      .
7  or anything of the sort.
8              We could almost say, from that point of view, this 8  management combination has no affect.
10              Now, with respect to, probably -- I guess wha t you' re_
11  pointing at is the more pragma. tic aspect of who manages the
() )      12  company in the event of bankkruptcy, debtor-in-possesgion,    ,
13  or what-have-you.
14              Again, I could not pose as an expert on this subject, 15  but I must 'say that I do not have a vision of some court 16  driving. up to the offices in Reading with a busload of people 17  who, all of a' sudden, begin to occupy the offices of the O
18  officers and people that are managing Met-Ed.
39              I,  rather, would see that perhaps some court-20 l appointed supervision that the management would be reporting 21  to and accountable to,'during any period of resolution of the                                        ,
22 problem.
[)]
s_ '
23 24 So, again, I think that, perhaps it helps to visualize the impact of tha t, to simply recognize that, indeed, 25 we are still running two entities which are f-inancially                                              :
pontetsemetair A s Tbd D C OM D Yf ha#'t roteO A ngy eg g =p, g a g ,9 9 ag g'g
 
                                                                              .  . 1 l
329    )
I    separate. Wejusthappentohaveacommonsetofofficersanj 2    directors who are managing those two groups.
t 3                I think that's about the extent to which I could        j i
4    elaborate on that matter.                                          l 5                Perhaps we would have.to call on somebody to, you 6    know, respond more specifically to your concern.
7          Q    Well, the concerns I have are the degree to which,      !
i          8    if any, this proposal has anticipated or taken into account          '
        *9      any of the various problems, issues, occurrences which might to    take place in the event of bankkruptcy, and the degree to which, t
11    it does not address it in any way.
(j      12            A    I would have to say, Mr. Packard, that the glans f 13    management combinations were founded upon the presumption that .
I 14    the organization's yield remains solvent, and the plan has in        ,
15    no way been constrained or in no way designed or special con-16    sideration given to how the combined management could respond 17    in the case of bankkruptcy of one or both of the subsidiaries.
s 18                Again, we have been proposing a success oriented 19    program. We have felt that over the intervening period since 20  l the accident, there has been a growing realization of the very, 21    very negative aspects of bankkruptcy, and we felt that our 22    obligation was to try to respond in a way that would put in 23    place the best possible management teamtodowhateverwasi(ll
    /
the discretion and flexibility of that team to contribute toward 25 preventing bankkruptcy.
I                  coumonwe4t.m REFoRTWG COMPANY 47176 761 7150
 
320
()            1 I think one would have difficulty if one tried to
                                                              ~
2  somehow straddle the fence, between an organization that some-3  how was designed for the best possible and most effective 4  possible management, to contribute to the avoidance of 5  bankkruptcy, versus the greatest degree of flexibility if and 6  when bankkruptcy came about.
7            I would find it very similar to posing            a dilemma 8  that would not be beneficial.
            *8            Q  The second issue, or concern, that Trial Staff would to  like to raise is one of timing.
11              Perhaps I can phrase it in this way:
()  .
12              Why change horses in midstream,'when the In_dians  _
13  are on the attack?
14              The question really is, given all the problems that 15  you are currently dealing with or facing, why propose to 16  implement this plan now, even if it, in this long run, might 17  be a very excellent plan?      Why devote the resources, manage-13  ment intention, the financial investment, at this point in 18  time, given all the other things that you have to worry abou-?
20          A  I would agree that this may not be the optimum time; og'
                '  on the other hand, I don't know that when the Indians are on 22    the attack, that that is not a time for some aggressive car. age-
_{ ,
23  ment responses in order to solve the problem.
24            Then, if we go back over the history of this ma::er, 25  it seems to us that the Commission itself anticipated tha:
CCMMONWEALTH stEPORTING COMPANY s717: 761 7150
 
331 I      there would be management responses and organizational changeggg 2;      and, in their order of June-something 1979, ordered us to 3      report on all such plans        in management and organizational 4      changes and approaches.
t 5                  Following up on that, I think a significant initiator 6
was our decision to consolidate our nuclear operations and forN 7      GPU Nuclear, so as to be able to best respond not only to the 8      Three Mile Island, but to all of the nuclear challenges that          l.
9      we were facing, and to be able to do that job better.
10                  That action immediately had the ef fect of reducing i
11        the level of generation engineering and maintenance and tech-12        nical support personnel available for the Met-Ed fossil geneg        ,
13        tion.
14                    That, in turn, then, led us tc> the feeling that we      ,
15        could greatly benefit if, in a manner analygist to the consoli2 l
16        dation of nuclear activities, we, at least within the confines of Pennsylvania, consolidated our fossil-fired dctivities, 17 l
18        again recognizing that once a degree of health is restored, we:
19        expect to see coal-fired generation, a major opportunity ,
20        in Pennsylvania, that we will want to and we'd be called upon 21        to pursue with the ful.1 capabilities that we can bring to that i
22        town.
l l
23                  And, as part of that, wemadethefurtherdecisiorjll 24 to not  just consolidate the resources of Penelec and Met-Ed,
          '5 but to bring in some of the people from the service ccmpanies cot 10NWROfLTH HEPORTING COMPANY 6717n 7617150
 
    *    .                                                              .                                  l t
332 l
who were experts in fossil-fired plants, design and construc-()            I 2      tion and, also, in fossil fuel procurement, so as to indeed 3      what we like to refer to as a center of our excellence for 4      qualified generations within these designed Pennsylvania sub-5      sidiaries.
6                  Having then seen the need to go that far, we were 7      then faced with the question that said, "What prevents us from 8      going the next step further, of a fuller management combina-9 tion?"
30                    The thing that we saw there was that one of the fall-II      outs, or kickbacks from the accident was an extreme amount of 12      customer unrest,      customer unhappiness, certainly the times of
( ]( )*
                                                                                                  -a 13        rate increases that had to be imposed, particularly upon the I4        Met-Ed customers, and that caused a real challenge in terms of 15      being able to continue to convince the customers that they were l
16        being served effectively and efficiently and by a dedicated l                                                                                              -
17      management.
I 18                    So that the thought that came to mind t$en was the l'        one that if you,look back over time, it's probably crue that 20        there was a tendency to select division managers, the pecp*_a
                'l
                  ~
who had the closest intimacy with the customers, on the bas s i
22        of their expertise in terms of line construction or line 23 maintenance, and install this, then, in the form cf ccabina-(~)N x_  j 24 tions, an opportunity to introduce a n                    approach, a new 25 style, where we would somewhat segre                      the functions within l
_      l                  ,-nuunNwr AI TH RFRORTINf*, (*.nMPA NY s797 741 7150-L                                                                                                          -
 
333 1
the operating divisions and give more prominence to the            ,        g 2  customers' service side, or at least a separate degree of 3,  prominence to it, as contrasted with the management of the 4  Line Department, as to how is the best way to string lines and i'
5  put up poles.                                                            ,
6                So you'll also see that embodied as one of the 7  features of the plan.
8                So I think, in a sense, while I agree with you that 9  this may not be the optimum time for this kind of a transition, 10  but when you look back at the number of changes that were 11    triggered by the accident and you ask yourself the question,
(  12    "Do I go part-way, or do I go ahead and make some other chang 13    and go all the way,"    we reached the decision that now was a 14    good time to make this change and, hopeful'ly, get to the point 15  where, with a combined management we have more uniformed 16    policies and more dedication to serving all of our Pennsylvania 17  customers, better identification with the Publio Utility Comnis-18    sion, better identification with all of our customers, and the 19    like, 20                And that was the basis for the announcement that 21    Mr. Kuhns made in his January 17th meno.
22          Q    Does Met-Ed have the final resources, at this point 23  in time, to implement this management plan?                        ggg 24 A    Yes, I think we do. When you look at the costs 25    associated with some of the transfers of people, and things of COMMONWEAt.TH REPCRTING CCMPANY s717' 761 71*O
 
324 1    that sort, while thr=e costs are identifiable, they certainly 2    are not a -- almost a perception -- it's a perceptible fraction 3    of the total cost and burdens of Met-Ed does face.
4              I think our feeling would be -- I don't know exactly ,
5    what the number is, but if it's a million dollars -- I'm just 6    putting that out as a for-instance kind of a number -- we thinic 7    it would be a mistake to let that sum of money interfere with 8, what we see as a rational plan and a reasonably -- what we I
9    think is a constructive step toward improving all of cur 1
I        10    Pennsylvania operations.
11                MR. PACKARD:    Staff has no further questions of Id.
12    Dieckamp.                        ,
13                JUDGE CASEY:    All right. I have a few, and then we 14    will wind up as quickly as possible.
15                Mr. Dieckamp, the GPU Nuclear Corporation contemplates 16    a new company, which will be New Jersey Corporation; is that 17    correct?.
18                TIIE WITNESS:  Yes.
i 19                JUDGE CASEY:    And that New Jersey Corporation will 20    maintain offices in Parsippany, New Jersey; is that also 21 correct?                -
i 22                TIIE WITNESS:. That's correct.
23                              And they will be operating the JUDGE CASEY:
24 Pennsylvania nuclear plant as an absentee manager, under an 25 operating agraement; is that correct?
CoMMCNWEALT11 REPORTING COMPANY v717e 761 7150        ;
 
I 335 I                      THE WITNESS:    Well --                                        gg 2                      JUDGE CASEY:    Except for the fact that they will              {.
3        have their employees operating the plant, physically, in 4        Middletown, Pennsylvania; is that right?
5                      THE WITNESS:      I'm troubled by the absentee charac-6        terization, Your Honor.          I would suggest that to have certain 7        of the central management and support functions located in              -
8        Parsippany is not that much more absentee than having had them l 9        in Reading.                                                                    ,
i 10                      When we look at the need to supply a centralized                  j i
11          f acility of engireering and supervision of some of the activity,              -
i t
12          Parsippany is not a bad intermediary position between Cyster ggg t
33 Creek and Three Mile Island.                                                  !
i 14 i                    In reality, the staf f a t --
15                      JUDGE CASEY:      It may not be in the overall scheme.            :
16          I don't want to cut you of f , but I want to pursue a little bit 17 further.                                                                        ;
I8                      THE WITNESS:      Yes, sir.
19                      JUDGE CASEY:      Wouldn't chis show that the Pennsyl -
20          vania Public Utility Commission will no longer have any regula-tory control, whatsoever, over the operation of TMI-l and TMI-2
(
22          if this change goes into effect as proposed?
23 THE WITNESS :    Your Honor, I would suggest that    thejll
        '4
        ~
              ! would have exactly the same control that they have today, 25          because all of the -- well, first of all, the plant ounership i              l                  coMMoNwcALTH REpoer:NG COMPANY  #717. ,'S t .7 7 50
 
I 336I 4 l      I      will remain, the Pennsylvania ownership will remain with 2      Metropolitan Edison and Penelec; there will be no transfer of 3      ownership.
4                  Secondly, the license from the Nuclear Regulatory 5      Commission will stil.'. be held by Pennsylvania, Met-Ed and 6      Penelec.
7                  To the degree that the PUC supervises the property 8      of Penelec and Met-Ed, that station is still the property of
* 9      those two companies.
10                  All of the costs will show up in the rate case filin :
11      for Penelec and Met-Ed; and in that form, there will ",,e oppor-l 12      tunity for PUC oversight and 1 supervision, if you will.
                                                                                  "        n 13                  So I do not see a dramatic shift there.                    l i
14                  JUDGE CASEY:    Are you saying that Penelec and Met-Ed, 15 or'Penelec East and Penelec West would still be answerable to l 16      the Nuclear Regulatory Commission with respect to the safety I 17                                                                              i of that operation?
18                  THE WITNESS:  They will be the licensced they will        ,
i j          19      have delegated responsibility for operations to GPU Nuclear 20      Ccrporation.
!            21                  Whatever relationship there is with the NRC, Penelec l
22        and Met-Ed will not be totally absolved of.
                                  ^e  meaeio#ea eer11er    we see ene aoera oe oireotcre
.O, 24      as a mechanism whereby the owners exercise due diligence in 25      their delegation of that responsibility.        They will maintain I
COMMONWEAL.TH REPORTING COMPANY 1717 761 7150
 
337!
l l
i i    oversight. They will function relative to GPU Nuclear, just 2    as though it was a department of their own organization.                                    ,
3                  So, in that sense, I don't see any creation of 4    barriers or severances of relrr-ionships.                            We see it, really, as 1
5      just a mechanism whereby we can gain the strength of a dedi-6    cated combined operation.                                                                    ,
i 7                  JUDGE CASEY:      From reading the proposed GPU Nuclear                        !
8    Corporation's operating agreement, I see that the Nuclear 9l    Corporation may also hire outside people, third parties, to 10      come in and operation some portions of that plant.
11                  Is that correct?
THE WITNESS:      That -is a normal part of the operatid
{  12 13      today and would be a normal part of the operation af ter GPU 14      Nuclear. We do use a number of outside contractors in the 15      operations for maintenance activities, for some construction 16      activities.
17                  So, again,. there's no intention of a definite shif t J
18      in our manner of operations.
19                  Our approach, our theory, or our belief is that                        to 20      the extent that it's economically sensible, we could fully . man 21      those stations with our own personnel, so that we'd gain the 22      loyalties and continuity of people that come with that; on the 23    other hand, those kinds of operations, as the nuclear plants, 24 !    have significant peaks and valleys of ef forts, when we go inte
    *s b maintenance outages, and the like, which inherently requires
                            .  .    . . _ . - , , . . . . - . , . . . . . . . ,,,,,4..,,
 
i I                                                                                                                                  338 i
        /      1          outside contractors, and we will always have requirements for 2          some specialty contracts.
3 I                    JUDGE CASEY:            Prior to the accident --
4                      MR. MESSER:          Your Honor, would it be all right if we 5          leave?
6                      JUDGE CASEY:            Yes, you may.
7                      MR. MESSER:            Thank you, Your Honor.
JUDGE CASEY:            Prior to the accident on March 23, 8j 9
l 1979, were there people operating the plant itself that were 10            not on Metropolitan Edison Company's payroll, to your knowl-t 11 :          edge?
l Tile WITNESS:          I would say not operating the plant.
12 l                                                                                                                            ~
                    \
13      i                Again, we would not expect under GPU Muclear to hate I
14 t
people operating the plant.                  We would have people performing i
15            some support fur.ctions within the plant, under GPU Nuclear, l
16            who were outside contractors, just as they were prior to the t                      !
17 '          acciden t.
l 18 -                      We, for example, always have employed someone like l
l 19 Catalyt.c or Krause for maintenance personnel, to assist, bu:
20 ,          they do not end up with operating responsibilities, as such.
21                        They are not licensed by' the NRC, and they ccnduct f
22 [ limited activity.
i
  /~N          ' 3 ''                                            They're independent contractors.
J DGE CASEY:
,Q)    ,
l i
24 }                      Tile WITNESS:          Yes.
l JUDGE CASEY:            You're talking about Catalytic
                                            <-au un..w e a , m o e n o v.u,. , n o,,, ,,,,                                    ,,,,,,,,,',,,,. _
 
339 I
(~ '    1      Construction Company --
2                    THE WITNESS:        Yes.
3                    JUDGE CASEY:        -- of Philadelphia?
4                    THE WITNESS:        Yes, I am.
I 5                    JUDGE CASEY:        All right.
6                    THE WITNESS:        As an example.
7                    JUDGE CASEY:        They are paid for their services --
a      well, they were paid by Met-Ed; is that correct?
8                  THE WITNESS:        Yes, sir.
10                    JUDGE CASEY:        Were you the Corporate Officer who 11        testified in the Year 1978 before Judge Joseph Cohen in connec-(~    12        tion with a rate case, that TMI-2 was licensed and ready to
\_
l I3 l    go into rate base as of December 30, 1978?
i I4                    THE WITNESS:          I certainly testified in that rate 15 case conceining Three Mile Island-2, and to the extent the 38        record supports it, I may well have supported that determina-17 tion on our part, that the plant was ready to be declared s
18 commercial on that date.
        '                    JUDGE CASEY:        Well, before the plant was ready to
      'O be declared commercial, when it was undergoing test operatiens 21 during certain periods; wasn' t it shut down for several months 22 during the summer of 1973, due to defective valves?
23  .
That's correct, in the course of the
              !              THE WITNESS:
C            l 24
[ startup program for the plant -- and the purpose of that s:ar -
25 up program is to purposely exercise various systems of the
                                  ..__ ._~ _ e e -m-c_ en u m      .,t, x , e
 
                                                                                                          ~
I 340-O_          1    plant, specifically some of these safety and relief talves.
2                Some deficiences were found, and it was necessary 3    to modify the plant and to change out those valves.
4                JUDGE CASEY:                Af ter tia Lonerghan man'ufactured 5    valves were removed and replaced with the Babcox and Wilecx 6    valves and the plant went into test. operations again, was it 7    open for a period of more than one month before it went into a    the rate base?
            *9                  Did it start up again before November of 1978?
10                THE WITNESS:                My memory doesn't serve me che exact ll  i time between the completion of that modification and the
()  ,
12 I
declaration of the plant as being ready for commercial service; 33    on the other hand,                  I, would want to remind Your Honcr that 34 I  there's a considerable record about the detailed tes: prcgram 15    and the manner in which that test program was follcwed and 16    executed, in order to arrive at a position that not cnly satis-17    fied the licensing conditions set forth by the NRC, but alsc, s
I8      in our minds, provided a reasonable assurance that the plan l
38      was ready to be declared in service.
20                  I might also just add, if I can anticipate four '.ine                      f 21    of questioning, that the issue of safety and licensing is a 22    matter separate and apart from the judgnent as to whether cr not the plant met the conditions for declaration of co=ercial
[Q '
23 24          .
>                    services.
JUDGE CASEY:                I quite agree with that cbservacion.
t*nuunNwral TH rappORTINf3 COMP ANY        e 717 7 A 1.7 ' *lf)
 
f 341 Yes, sir.                                        h Il                THE WITNESS:
2 JUDGE CASEY:  I'm simply approaching the problem frca 3
the standpoint of management judgment as exercised by yourself i
and other corporate Ot'ficers of Met-Ed and the GPU system,            as
        '      to whether it was both safe and appropriate to put the plant i
6I on line, so to speak,        at the end of the calendar year of 1978, [
7 when less than three months later, there was the nuclear 8
accid ent , or failure, which, apparently, also involvem some
    . g.
          '    kind of a valve failure, at 4:00 a.m. in the morning.
l 10 t                  Is that what happened?
l i
11 '                                                        However, I nist THE WITNESS:    That is correct.
k-            point out that that valve is a ecmpletely different salve,                lh 13 both in terms of its detail of design and i~ts function, than 14 the valves that caused the trouble during the start-up program, 15 and that valve had been exercised numerous times during the 16 start-up program, and there were some problems with it that 17 l
were corrected during the course of the. start-up program, but 18 there was no evidence of a failure mode, that ultimately 19 )
i  caused the accident on March 28th.
20                                                          .
JUDGE CASEY:  Is TMI-2 substantially similar in 9
21 l design to TMI-l?
4 22 THE WITNESS:  I would say, substantially similar, in terms of the major systems, the major support systems and 24 l the mechanisms that contribute to the safety of the plant.
25 There are certainly many detail differences.        There's COMMONWEALTH REPOR71NG COMPANY 67171 7G1 715C      ._ _.
 
_. ._ .___ -.-- --                                        -_        . _ -  = _ -      -      .
=
                                                                                                                                                                                    . l 342' f
            ''                                    I      impervical layouts and details of some of rhe supporting sys-(
2        tems.
1 3                                            JUDGE CASEY:                    Were there management decisons made                  '
e I
4      by people in your organization to the effect th'at the design 5        of TMI-2 should change from TMI-l's design; in other words                                                        ,
l                                                  6      update the state-of-the-art, or make improvements, things of                                                              '
!                                                7        that nature?                                                                                                              ,
8                                            THE WITNESS:                    That is a function of at least two
* 8      major decisions; one, a decision that goes back to the early
  !                                            10          days of the TMI-2 plant, to utilize Burns and Roe as the                                                                    ,
i 11          engineers, whereas, Gilbert Associates have been the Architect
                                                                                                                                                                                ~
( {_.;                                    12          Engineer for TMI-1; and, inherently, when one uses a different designer for a plant, one inherently gets dif ferent apprcaches
!                                              13 14          to certain system layouts, certain designs, certain component 15          selections, and the like.
1
;                                              IG                                              Secondly,,during the time differential between the 17          design of TMI-l and TMI-2, there were considerable changes in
!                                              18          the NRC Regulatory Requirements that caused the n8ed for i
18          designing differences between the two plants.
l 1
20                                              Indeed, the two -plants are dif ferent; however, again, 21          I think if one looked at the real basic elements, the plancs-22          are very similar.-
1 23                                            For example,- the valve that failed on March 28th,
() )
that same valve, of the same design, of the same supplier, is
                                                  ~
l 25 in the TMI-l plant.
                        -                            ~            --                        --
COMMONWEAL.TH REPO.RTING COMPANY +717 76178 5C _ , . ,
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    *y4  Mt-+s    -p w + v y - ya-y.n. gy-2 -v    -4"-W9-'-W"P*'''w'
* F    eTT'    * - *  * * * ' " '      e*-*'*                  ''
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:I 343 l
1                JUDGE CASEY:    It hasn'' developed any problems?        Jg r                THE WITNESS:    I knew --
3                JUDGE CASEY:    -- to your knowledge?                        ,
I 4                THE WITNESS: -- they had had some problems, but not 5    of a nature that suggested that we would experience the kind 6    of thing that did occur during the accident.
7                The principal problem that we had was one associated with the electrical controls of the valves in THI-2, and some            l 8
* 9    modifications were made in response to those observations.          We, 10    in effect, corrected that problem, but we did not correct the a
11    problem that resulted in the accident.                                    l 12                JUDGE CASEY:      Did Met-Ed double its management      (gg
    ,.                                                                        --        g v_
13    personnel and its labor force at Three Mile Island when it                ,
I brought TMI-2 on line, or did you have people who were perforn
                                            ~
14 15    ing the operations function at TMI-l take over TMI-2 at that 16    time?
17              .THE WITNESS:      A number of things.
18                Some people from the TMI-l operation were moved over 19      to TMI-2, over a period of time -- and I would say that that 20      time period extended over, at least, two to three years prior 21 l to the declaration of TMI-2 being in service.
22 S,econdly, a significant number of people were indeed 23 added to the staff -- and I guess I would r.ot quarrel with tjll factor of two.
l 25                        though, I would point out --
Aga r.;,
l COMMONWEALTH REPORTING COMPANY (717, 761 7150
 
344 I I                                      I think you did at least double your
(#
s-
      )                                JUDGE CASEY:                                                          ,
2                                                                                      !
compliment --                                                                      I i
3                THE WITNESS:          Of that order; however, those people            .
i 4  were acquired and brought onboard, again, during this two- to                      P 5  three-year period, because the Met ~Ed provided the operating                      l 6  people,    the maintenance people, during the period of start-up,I I
7  and start-up testing of the plant was extended for p. consid'er-f a  able period of time prior to either the loading of fuel or tha 9
subsequent declaration of the plant being in service.
10                I guess what I want.to say, there was a step change 11 of a factor of two.            It was a ramping'up, over a period of two '
2 to three years, to man that station.
( )_                                                                                            --
3 JUDGE CASEY:          How many times in an expected life-I4                                                                    a'c the outside, span.of, say, 30 years, or, perhaps, 40 years, 15    does a nuclear plant have to shut down routinely for refueling?
0 THE WITNESS:          The normal designs have been to shut I
down the plants annually for refueling; and by refueling, you la    really mean to change out somewhere ih the neighborhood of I8    one-third to one-fourth of the fuel outage, not the total coal.
20                  Over the last couple of years, there has been a 21 tendency on the part o'f plant operators to move in the direc-22      tion of an 18-month cyc1c, to load the coals so that you have
( L;                        enough energy producing capability that you can go 18 months 24 j                            between shu tdoun for refueling, only.
25 JUDGE CASEY:          How long does the refueling operation CO.4MONWEALTH REPoR7tNG COMPANY (7171 761 7150          _
 
345',
1                THE WITNESS:        Well, we usually combine, then, the 2      refueling with major maintenance, major parts of the station.              ;
i 3                  If one were able to just do refueling, alone, that            -
4      operation would probably take something less than four weeks, 5      or of that order, but by the time you add in a large number of ,!          !
6      other maintenance tasks that you want to also do on that same l 7      annual or 18-mcath frequency, and you add in things like the i!
8      major inspections of the turbine machinery, again on a similar
* 9      frequency, then you find that -- I think the industry experi-10      ence on outages will range all the way from as low as six                  ,
11      weeks to three months, or something like that.                              ,
  'q 12                  Today these outages are running a lot longer becauq g of modifications, 13      plants are also faced with installing a lot l
'          14 brought on by the lessons learned from the accident.
15                  JUDGE CASEY:      And this happens about once a year or l
I6      every 18 months --
17                  THE WITNESS:      Yes.
s 18                  JUDGE CASEY:      -- the cycle?
39                  THE WITNESS:      Yes.
20 '                JUDGE CASEY:      You would have a six-week shutdown, 21 perhaps two month's?      -
      -                        TIIE WITNESS :    Yes.
l
            ^3
            ' l' JUDGE CASEY:      And during the outage, as you have        g i
24 termed it, you have to make arrangements for replacement 25 power; is that correct?
COMMoNWEAI TH REPORTING COMPANY e717* 768 7150
 
34k I  i l
THE WITNESS:    Yes, we do.
( '  i              1 2                              JUDGE CASEY:    Replace the megawatts that are not              !
3'        being supplied to customers.
i THE WITNESS:                  -
4                                                    Correct.                                    !
                                                                                                                        !l 5                              JUDGE CASEY:    Is that a regular contingency pian thad          e i
6        you have, by either using purchased power or electricity                                l f
7        supplied by your own company, your own fossil fuel facility, i
8        to replace that loss of power?
                  -  9                              THE WITNESS:      It's a combination of our own facility, 10        except, probably more importantly, it's a future of our parti-11 .l cipation in the TJM pool.
12  i                          The six-member company jointly plan ~their major Ox-)                    l                                                                                -w 13 l station outages so.as to ensure that there will be back-up                                    j 14        energy supplies available when those major baseload stations 15        are out.
16                              Unfortunately, however, many tDmes that replacement 17          energy comes from incremental generation which is oil-fired, s
18        and that is very. expensive in comparison to what the nuclear                            .
19 , energy would be.
t 20                                JUDGE CASEY:      All right, I'm not going to ask anymore 21        questions -- and I'm sure everybody is happy about that.
22 !                              We will --
23 1                                                May I just ask just one or two on MR. RUSSELL:
(-]-
24
                              ,  redirect?
25                                                  Redirect.
JUDGE CASEY:
i                            , COMMONWEALTH REPORTING COMP ANY 47171 761 7150    __  ,_
 
347
^      l                      MR. RUSSELL:  Mr. Jolles has to catch a plane, so lll 2            if he may be excused?
3                      JUDGE CASEY:  You may be excused, Mr. Joller.
4i                    MR. JCLLES:  Thank yoc.
5                                  ggpI' RECT EXAMINATION 6                      BY MR. RUSSELL:                                          .
7                Q    Mr. Dieckamp, it was in late December of 1978, was 8l it not, that TMI-2 was declared to be in commercial operation?
I
    -  9 i
i          A    Late December of 1978, yes -- I think, December 30, l
10 '        1978.
11 Q    Now, if a decision were made at that time not to
(  )
12          declare it in commercial operation, what changes, if any,        lll I3 li would you have made in the level of operation at which the i
I4          plant was operated, say, in January, February or March?
15 A    That declaration made no dif ference to the operating 16 , plan for che station.            He had gone through the tests necessary U            to qualify the plant for full power operation, in accordance 18 with the NRC license.
                            /
19 !                    We would have proceeded to continue to operate the 1
20 ! plant within its capability.              I see no differences that would 21 have in any way enfluenced the subsequent failure that led ec 22          the accident, one way or the other.
O    Doyouforesceanycorreletionbetweenthecommeredlh 24 declaration an December. 30, 1978, and the occurrence of the r
5 l accident un March 28, '79?
COMMONWEALTH REPORTING COMPANY e7171 761 71 *C
 
                        '                                              O
                        '.                                                                                    348 l
i'              A    I do not, again, because we had gone through a
( }~
2        carefully laid-out, fully planned and previously documented 3        test program necessary to check out the various systems and 4        the abilities of the plant to perform in accordance with its                        ,
i 5        specifications, and those had all been completed and the plant l 6        was ready to operate, to the best of our knowledge.
7                    Now, that's not to say that the plant was without an I    ,
8        known deficiencies.                                                                  .
                  -  9                    I think that it's almost impossible to conceive that to        a plant as complex as Three Mile - 1 or- 2, or any other nuclear l 11        plant, can, on any one day, be to the point where there's                                r 12          absolutely no punch list of items that need some correction.    -
m)                                                                                                                  ,
r 13 ''              .
Indeed, it normally then takes a period of time                            !
14        during which these kinds of problems are worked off; however, 15        judgments have to be made as to whether or not those defi-IG        ciencies do or do not impact safety.                                                  .
17                    Again, when we go back to the accident, whatever 18        deficiences were known in early '79 did not truly contribute 19        to the accident, its cause or the operator response, or the levels of uncertainty about system behavior that, in turn, 20 21    l  conditioned the operator response that were the true elements l                                                                                      ,
22        of the accident.                                    ,
23                    Again, this was not a judgment made by me, but a l{}
i
        ,            24        judgment made by the various investigations.
25 MR. RUSSELL:  Tha t's all.
COMMONWEAL.TH REPORTING COMPANY '7276 761 7150
                                                                              - ~ ~    ~        ~ ~~~'
 
a                                                                                    349 9
  -                                    JUDGE CASEY:          My question intended to suggest that 2            there would have been a longer period, longer than 30 days, c 5          perhaps 45 days, and it was started up after the valve work 4
had completed, for the company to monitor the performance of 3            the plant and, perhaps it might have had some effect, or r.aybe 6            not,  on the incident that occurred in March of 1978.
7,                          THE WITNESS:          Your Honor --
3'                          JUDGE CASEY:          But there were tax considerations, D            were there not?
In                          THE WITNESS:          Well, there were Federal tax con-1:              siderations, rate casa considerations --
          'O                          JUDGE CASEY:          Rate case considerations.
I  i.
4h
            !i                          THE WITNESS:          -- test year considerationse 14                          JUDGE CASTY:          Yes.
11                          THE WITMESS:          But, again, I think it's very incor-16              tant  to understand that the declaration of the plant heing in IT              commercial service, of itself, does nothing but chance the IS              bookkeeping.                                                  s u                            It's when we keep capitalizing O&M expenses, we it              begin to take depreciation and we keep taking AFC.
21                          JUDGE CASEY:          I understand, It's wholly separate and apart frcr i
2-                          THE WITNESS:
E              the requirements for meeting the regulations, for perfor:1 g Ji            the tests    - and I think that was the thrust of *1r. ?.usse11 lh 25              redirect question as to whether or not the activities a: -he
      '                                    * 'O < .....:*,.  ,    _- n c .op -  .
4,..
i                                                    _ _ _ . _          -_ __
 
350 plant, the' technical activities at the plant, the levels of 2
operation, the degree of monitoring those operations, would i
3; have, of themselves, been different had the accountants not 0
4]changedthebookkeepingonDecember30th.
5                          Mow, I, for one, have just no ability to suggest 6:            that they would have been different.
I i
7'                        As a matter of fact, if you look at the investment 3k tax credit issue, we had met the test for taking the invest-
                      -    3            ment tax'. credit many months before that declaration of in 10              commercial service on December 30th.
                                            ~
                                          ~
Il j                  So that, of itself, I think, was not a major con-a 12 l sideration and, again, did not really change the technical i
Q>
: w.                    .4 n
                                                              ~
a
                                  , program.
l
                        " ;                          I think one just has to recogn'.ze that when one has
                            . .I 10$$700-to$750millioninvestedinalotofgeneratingstations:
i
                        '' ] rate cases going; the customers are anxious to derive the benefits of that energy production capacity and the company 18 was concerned about getting that plant into rate base.
i
                                  'l l                        I2          :                There clearly is a sense of urgency about solving-2e              the technical problems and getting that plant into a state of 2I
                                      . readiness.              -
                        $22 I still think that one should look back to the-U            f act that early in the spring, we filed with the FCC a detailed r
u' : plan of all of the tests that were going to be performed on l
                                      . that plant and the sequence of those steps. Those steps were r                  . ,,
: 7 . m , y g . - 7 ,,. m
 
351 T                    also specified as being prerequisites for full power, as par of the 11RC full power license.
3                        We performed all of those tests in accordance with 4      <  the plan; so there was no short-cutting of those tests, either
                *lintermsofasequence,aduration,orthelike.                            These were b          all on a pre-announced kind of a basis.
F; 7                        So, again, I don't know of any specific short-cutting that in any way contributed to the accident, but at the same time, I'll have to say to you, that when you have a
                        .i 10          facility of that magnitude, clearly, the organization is II          dedicated to putting it into production.
12                        Again, when you look at the specific item that        g
                "            failed, the specific operator response that magnified the
                "          effect of that failure, and when you look at the level of
                "          industry understanding that contributed to the operator's i
D'          understanding on that response, those things had nothing to do
                "          with the state of the plant, in terms of what we did discover
                '8          during the start-up testing or might have discovered in the 1
!                            next few months of operation, had that been more protracted.
2 ''                    It's a very complicated task --
                  ,.~~
JUDGE CASEY:  I understand that.
l I know you've also indicated in pleadings, in a
\          ,        .
suit in the Federal Court, that the Davis Bessie prchlem l
x  )
l 3
                  ~~
occurred at your plant, and that Babcox and Wilcox did not i
give your people an adequate briefing on emergency procedures; l
l c os. r.w u  -- -
                                                                .c. cc .m - - - r. : r-
 
352 I
t
              -s I'm wondering whether that same state of circumstances existed with respect to T:tI-l?
3                                THE WITNESS:                            It actually --
i 4      I                          JUDGE CASEY:                            Couldn't that problem have occurred 5 ] at TMI-l?
l                                  6l                                *HE WITNESS:                            It absolutely did.      The operators -
: 7. ;            had the same perception of plant understanding.
l                                      l
  '                                S                                Now, if you're interested and want to spend a 9                minute, let me just describe, very simply, what the problem to I              was.
I 11                                  You have this big loop of water that circulating, i
i
                                  '2, and off to the side you have.this device called a pressurizer,
                  )                        'l 13 j I would call it, like a storage tank; it has a static level of I
14 water, and it's what imposes the pressure on the systen.
l' 13 j                              Safety Analysis has always been extremely concerned
                                .          i l                                  M' about the loss of that cooling water, or the loss of coolant 17                  accidents, and, in general, the analyses have always said that                                            '
i if you have a leak from that primary system that's circulating l                                  1e :
i; 33                  water, that is beginning to jeopardize your ability to cool 20            ', that plant, that leak will also be accompanied by a decrease
                                              .I 2ifinthelevelinthatpressurizer,becauseasyoulosewater 22 from the system, it will be made up.by water being forced on:
23                of that pressurizer or surge tank.
                -)                  ,4h So a major fraction of the procedures in the oper-25                ator training were based upon that general analytical i
                                                                                                                                .,.7.
                    .                          ,                              cor.mc w r e.c . u r em :-en cwp.:w I                                ..._I.___.-__-_._._                                    .            -__          _                      _ _ . _
 
l                                                                        353 diagnostic impression that a loss of coolant accident would
:              be accompanied by a decrease in pressurizer level.
3                          Also, there was great concern about ever letting 4              that pressurizer become totally filled with water, because 5            then extreme pressures could be generated, with slight tem-si peratur variations, and challenge the integrity of the it 7I            pressure containing boundaries.
S                          JUDGE CASEY:    It's going solid.
9                          Tile WIT:FSS:  Right. So, what that meant, then, 10    ;
was that as the pressurizer level tends to go up, the operators 11            were trained to turn off the injection of water, outside water, m
12 13 to Emergency Cooling System.
What happened the day of the testing?
e 14                          The pressurizer relief valve stopped opening, just 15            as it did at TMI-2, not previously anticipated.
10                          Mow, when that happens, and you begin to lose water, 17            rather than pressurizer level go down, pressurizer level starts 1
            ~ 18      i      going up, because you generate a steam bubble in some other i
19            portion of the system and you force water out of the cooling 20            pipe into the pressurizer.
2'        '
People had not recognized the unique behavior of 22            the plant or that unique position of the leak.
l 2'                        The operator that day was beckoned on seeing a Ihh l
    .)
H            rising pressurizer-level turned off.      He injected emergency 23            for cooling water -- exactly what the TMI-2 operator did.
l                      't corve  ,.<. ~ :-    c.w.e n  -
                                                                              .5 7ioc
 
                                              )g                                                                                                              354 i
                                          '  'i
        /'                                                                Af ter that experience at Davis Bessie, both B!3f O                                    -,.          and the NRC made note of the fact that that operator response 3
was inappropriate for that specific carrier mode, but did not 4
communicate that learning to other operators at the plant.
Thus, our operators made the same response that the I
6            Davis Bessie operators made.
I i,
7                                The one thing they didn't do, though:
8-                              The Davis Bessie operators, by some means -- and I 9            don't know whether to attribute it to luck or experience, or 10hknowledge, happened to turn off another valve that was in L
il series with the bail valves and ceased the leakage, after i        ,
12 *l 20 minutes.
(.. i                            . ij                                                                                                        -
33l                                Our operators did not take tha~t action until after il
                                        " l two hours and 20 minutes.
33 Also, at TMI-2, the plant was operating at full
                                          ,5      h power, and the Davis Bessie had been operating at 9 percent of 17d j power.
38 'l      3
                                                                            '" hat's the difference between Davis Bessie and the
                                          "            TMI-2 accident.
                                        .,n l
                                        ~i                                Had that inappropriate operator response and that I
                                          ~3-],inappropriateunderstandingofsystembehavior,                                                        as observed a..d v          )
                                          '" i noticed by BMW and the NRC, of Davis Bessie been translated 7
                                            " . . to    . ' our operators or to our plant staff, I think it's very
            *)                              m,
                                                      ' reasonable to suggest that that accident would have ne ter 5" occurred.
cc*.;Mc w E A '.? H : rV. - 7!s r; c cv.p wy              --
                                                                                                                                              -a*-.
h
_        .. _._                  x                                      _.      . .-                                                . _ _ _ _
 
i                                                                                  355 i
i
    -                            So we have had the problem, then, of uncovering                    g 2              detailed sophistications with the behavior of the complicated l
l 3j system.
4 'l                      JUDGE CASEY:  That circumstance that you just 5            described, that's not the only potential mode of failure, is                    8 I
6l            it?
I THE WITNESS:  No, no.              There has to be other modes.-
8                      Again, I think that the designers or the regulators, C'          that make tremendous efforts to try to anticipate all of the 30            failure modes and to p. ovide back-up systems to protect a
II      '
against them, I think those are part of the lessons learned.
32t                      There's been a greater awareness that our engineerin        ,
t
        "              and book paper level study may not have covered every last
          "'            possible combination and permutation.
I '. ' .
One of the major changes after the accident was i        " .i to increase the emphasis on making sure that operating obser-l l
I n 'i vations and operating experience was fully evaluated and broad-
                  ;t i
I la !f      :
cast and distributed throughout the industry, on a more effec-1 tive and more efficient basis.
          .. a And I think that will have to continue to be the n.
        , ' ' I case, because any complexed                system, we ultimately cannot l
1 carn everything about it on paper; we have to learn a lot from experience, as do the operator,                                        gg JUDGE CASEY:  Thank you very much, Mr. Dieckamp.
TIIE WITNESS:  Thank you, sir.
                      !                ccv cv. i  . s" F C * *
* s G C n M M A N # 7 / 76!7 30
 
356 JUDGE CASEY:        You're excused now from this pro-ceeding.
3                              (Witness excused.)
                              ?.
4 !j                          JUDGE CASEY:        We will resume the hearings at 3 l 10:00 a.m., on Monday, December 8, 1980.
6l                              (Whereupon, at 5:19 p.m. , the hearing was adjourned i
i I;                to reconvene on Monday, December 8, 1980.)
i 3,
3 10 ;l e.
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357 jk
      ''        I
                                            .C_ _E_ _R .T _I _F _I _C _A_ _T .E 2
3                  I hereby certify, as the stenographic re,orter, 4    that the foregoing proceedings were taken stenographically 5    by me and thereafter reduced to typewriting by me or under 6    my direction; and that this transcript is a true and accurate !
i 7
                      , record to the best of my ability.
l                8                                COM110NWEALTH REPORTING COMPANY, INC.
1
              *  *                                  ~
kN      e 10                                  John A. Kelly
                                                              -i 11 fk'
      ;"' . 12                                    a* j.-  V '/ /
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                                                                          //
13                                  Arthur Stafford, CVR-CM 14 15 16 l
17 18 l                19 l
20 I                21                            .
l                22 i                          I                                ,
23 l      s i                  24 l
25 COMMONWEALTH REFCRTING COMPANY #717 761 7150 1}}

Latest revision as of 14:48, 23 December 2024

Transcript of PA Public Util Commission 801203 Restart Hearing in Harrisburg,Pa.Pp 148-357
ML20003B459
Person / Time
Site: Crane Constellation icon.png
Issue date: 12/03/1980
From:
PENNSYLVANIA, COMMONWEALTH OF
To:
Shared Package
ML20003B456 List:
References
NUDOCS 8102120136
Download: ML20003B459 (209)
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