1982-08-25 Special Called Meeting

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Date Subject: - Ori inator's 8/18/82 HL&P RATE INCREASE 1~I~ 2 Poe 6 r~{ials • a return on the unamortized balance of its investment less accumulated deferred taxes. However, 73% would be recovered during the five-year period between 1983-1987. We recommend disallowance of $388 million actually attributable to the Project, including $324 million for plant and $64 million for nuclear fuel, whether categorized as an extraordinary loss or as an item in the rate base under "Construction Work In Progress", as explained below. The reason for disallowance as an extraordinary loss is that HL&P in testimony filed with the City as a part of its application admits that no decision has been made by the Company as to whether to cancel the plant. Such a decision is predicated on "appropriate action by the (Public Utility) Commission which provides for recovery of the investment in the Project through rates " Jordan, Vol. 1, p.6. In other words, HLdcP is asking the City and ultimately the Public Utility Commission to indicate the amount of recovery they will be granted before they will decide whether or not to build the plant. Our position is that until there has been a formal cancellation of HL&P's certificate to build Allen's Creek Nuclear Project ("Allen's Creek"), it is untimely and inappropriate to recover any funds for such cancellation. Because the recover of Allen's Creek is disallowed under "Extraordinary Losses", the alternative for recouping funds would be to include it in rate base or "Construction ti'Vork In Progress". However, because the Company has stated that they have virtually ceased investing funds in the Allen's Creek and do not consider it to be economically feasible, such item is not properly included in rate base as Construction j'; ork In Progress. Eliminating Allen's Creek from the case reduces the Company's $336 million rate increase request by more than $90 million. South Texas Nuclear Project Another major consideration for analysis and treatment is the South Texas Nuclear Project ("STNP"). HL&P recently filed with the City a report by Bechtel Power Corporation, the proposed new architect/engineer for the STNP, which indicates an estimated cost of $5.5 billion to complete the project. While blaming Nuclear Regulatory Commission changes in rules and requirements along with management deficiencies of Brown Ec Root, the former architect/engineer and contractor for STNP, the costs for the project have soared from estimates of $790 million to $5.5 billion. The PUC has ignored the reasons for such cost escalations in the past, but our opinion is that the burden upon the ratepayer to finance this project is rapidly becoming impermissible and it is extremely appropriate to address the situation at this time. While the Public Service Department had neither the time nor manpower to investigate all allegations of mismanagement in the operation of the Project, there likely will be a full inquiry as a result of the suit filed by HLacP against Brown be Root. We are recommending certain rate treatment based on the outcome of the court's findings. C.H. Guernsey & Company has made the following reQOmmendations affecting both present and future rate treatment, in which we concur (see Blumenthal testimony): 1) Eliminate the equity portion of Allowance for Funds Used During Construction ("AFUDC") when there was no construction under way. This includes 12/1/79-10/31/80; 12/1/81-3/31/82 (end of test year). For any future rate case, we recommend the exclusion of the period from 3/31/82 until construction commences. The total dollars eliminated from the proposed rate base are $16,312,480. 2) Disallow accrual of the equity portion of AFUDC or additional money invested for any construction until there is Council review in a subsequent rate case. t~-o~