Subchapter J. CONSTRUCTION COSTS OF ELECTRIC
GENERATING UNITS

§ 57.101. Purpose.

 The purpose of this subchapter is to:

   (1)  Promote and obtain information concerning the management efficiency of electric utilities engaged in major construction projects.

   (2)  Encourage electric utilities to seek and secure contractual agreements for construction and procurement which will minimize construction costs. The contractual agreements shall be consistent with considerations of quality, reliability and life cycle costs.

   (3)  Gather information about electric utility construction practices and construction management programs, so that the Commission is able to arrive at carefully reasoned decisions about the prudency of utility management, when construction costs are considered in a rate case.

   The provisions of this §  57.101 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

 The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

   AFUDC—Allowance for funds used during construction.

   Auditor in charge—The Commission designee charged with the responsibility to track construction progress and costs. The auditor in charge is granted reasonable access to the construction site and to relevant oral and documentary evidence under 66 Pa.C.S. §  515 (relating to construction cost of electric generating units).

   Beginning of construction—To begin clearing or disturbing the land or the first act in erecting thereon an artificial structure; or the first act in adding to, modifying or altering an existing generating unit. The term does not include action necessary for the purpose of gathering survey, geological, environmental or similar data. In the case of work performed on an existing unit the term does not include actions necessary as a prerequisite to but not actually involving work on the generating unit.

   Construction—Work performed on an electric generating unit which is expected to require the affected public utility to incur an aggregate of at least $100 million of expenses which, in accordance with generally accepted accounting principles, are capital expenses and not operating or maintenance expenses.

   The provisions of this §  57.102 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

 A utility required under 66 Pa.C.S. §  515(a) (relating to construction cost of electric generating units) to submit an estimate of the construction costs of electric generating units shall file the following information with the Commission as part of that estimate:

   (1)  An estimate of total costs.

   (2)  An estimate of the following costs:

     (i)   The cost and quantity of each category of major equipment, such as switchgear, pumps, diesel generators and the like.

     (ii)   The cost and quantity of each category of bulk materials, such as concrete, cable and structural steel and the like.

     (iii)   Manual labor.

     (iv)   Direct and indirect costs of architect/engineering services.

     (v)   Direct and indirect costs of subcontracts or other contracts involving major components or systems such as turbines, generators, nuclear steam supply systems, major structures and the like.

     (vi)   Distributable costs.

   The provisions of this §  57.103 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

   The provisions of this §  57.103 adopted January 9, 1988, effective January 10, 1988, 18 Pa.B. 181.

 (a)  A utility which is involved in the construction of an electric generating unit as defined in 66 Pa.C.S. §  515(d) (relating to construction cost of electric generating units) and is the construction manager of that electric generating unit, shall have a construction management program. A description of the construction management program shall be filed with the Commission when the utility files its construction costs estimate under 66 Pa.C.S. §  515(a) as prescribed by §  57.103 (relating to estimate of construction costs).

 (b)  A utility which is required to file a description of its construction management program shall include the following in the description:

   (1)  A statement of the duties, responsibilities and procedures of the construction management program’s organization and personnel.

   (2)  A list of reports which are forwarded to executive level utility managers from the utility construction management organization. For purposes of this subchapter, executive level management includes the level of vice president and higher. The list shall include the title and a brief description of the report to be included on the list.

   (3)  The schedules and controls used in planning construction activities, with the project milestones and, if requested by the auditor in charge, copies of critical path network diagrams.

   The provisions of this §  57.104 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

 (a)  A utility which is involved in the construction of an electric generating unit as defined by 66 Pa.C.S. §  515(d) (relating to construction cost of electric generating units) but is not the construction manager of the electric generating unit, shall have a construction monitoring program. A description of the construction monitoring program shall be filed with the Commission when the utility files its construction cost estimate under 66 Pa.C.S. §  515(a) as prescribed by §  57.103 (relating to estimate of construction costs).

 (b)  A utility which is required to file a description of its construction monitoring program shall include the following in the description:

   (1)  A statement of the duties, responsibilities and procedures of the construction monitoring program’s organization and personnel.

   (2)  A list of reports which are forwarded to executive level utility managers from the utility construction monitoring organization. For the purposes of this subchapter, executive level management includes the level of vice president and higher. The list shall include the title and a brief description of the report to be included on the list.

   (3)  The project milestones and if requested by the auditor in charge, copies of the critical path network diagrams.

 (c)  Although a noncontrolling owner may not have the authority to establish or change the construction management procedures, the owner shall monitor the progress of construction and, if necessary, take action to compel the construction manager to use prudent and proper management procedures.

   The provisions of this §  57.105 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

 A utility which is involved or becomes involved in construction as defined by 66 Pa.C.S. §  515(d) (relating to construction cost of electric generating units), shall file quarterly construction reports with the Commission.

   (1)  Quarterly construction reports shall be based upon a calendar year quarter and be received by the Commission no later than 45 days after the end of a calendar year quarter.

   (2)  Quarterly construction reports shall provide a detailed schedule of construction and cost milestones and shall notify and explain an occurrence which causes a deviation from cost projections, including AFUDC, in excess of $5 million.

   (3)  The acceptance for filing of the quarterly reports by the Commission does not constitute an approval of cost or schedule changes.

   (4)  Unexplained inconsistencies or unexplained substantive changes in the construction progress reports or in the methods used to track progress and completion may be considered as evidence of management imprudence.

   (5)  The utility shall provide other documents or information concerning construction, as may be requested from time to time, by the auditor in charge.

   The provisions of this §  57.106 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

 The following guidelines represent recommendations and are nonbinding on the public utility involved in a construction program as defined in 66 Pa.C.S. §  515 (relating to construction cost of electric generating units). The following guidelines are not intended to include all actions which a prudent management could or should take but are intended to provide guidance to a utility engaged in a major construction program:

   (1)  The extent of a construction management or monitoring program by a utility should be commensurate with the financial risks of the project.

   (2)  The utility should have a management or monitoring program designed to recognize problems, react to them in a timely fashion and mitigate the effect of those problems.

   (3)  The utility management or monitoring program should provide information on the status of expenditures and cash flow requirements to upper level management.

   (4)  The utility management or monitoring program should provide meaningful reports on construction progress and completion to upper level management.

   (5)  The utility should have a management program which coordinates the diverse elements involved in large construction projects, including but not limited to: scheduling, licensing, design, engineering, construction, procurement, quality control, quality assurance, vendors, consultants, systems turnover and startup testing.

   (6)  The utility management program should ensure that utility staff has the training and experience, which is necessary to successfully oversee the particular construction project. The utility should also review the training and certification of contractor personnel.

   (7)  In the case of a nuclear unit, the utility should ensure that construction management treats Nuclear Regulatory Commission regulations as minimum requirements and not as ultimate goals.

   (8)  The utility should ensure that construction is adhering to quality assurance/quality control standards generally accepted by the respective construction industry.

   (9)  The utility construction management program should be able to evaluate the effectiveness of its own organization and should require periodic internal or external audits of the project. Evaluations of the utility construction management program should be forwarded directly to upper level utility management.

   (10)  The utility construction management program should define its own organizational and personnel responsibilities as well as have review and approval authority over the organizational and personnel responsibilities of other groups involved in the project.

   (11)  The utility construction management program should ensure that its own personnel are knowledgeable about the organizational and personnel responsibilities of the diverse groups—for example, architect/engineer, constructor, subcontractor, Nuclear Steam Supply System (NSSS) vendor and the like—involved in the project.

   (12)  If possible, vendors and contractors should be selected by competitive bidding. A utility should maintain documentation on the rationale used in the selection of the vendors and contractors.

   (13)  The construction management program should ensure that construction personnel are aware that cost and schedule considerations are not more important than safety and the application of sound engineering judgment.

   The provisions of this §  57.107 issued under Public Utility Code,66 Pa.C.S. § §  501, 515, 1301 and 1308.

   The provisions of this §  57.107 adopted January 9, 1988, effective January 10, 1988, 18 Pa.B. 181.