ML20040F846
| ML20040F846 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 02/05/1982 |
| From: | Backus R BACKUS, MEYER & SOLOMON, SEACOAST ANTI-POLLUTION LEAGUE |
| To: | Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML20040F844 | List: |
| References | |
| NUDOCS 8202100371 | |
| Download: ML20040F846 (11) | |
Text
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' UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION
'TO:
Director of Nuclear Reactor Regulation-RE:
Construction Permits CPPR-135-CPPR-136 o********************
IN THE MATTER OF Docket Nos. 50-443 Public Service ~ Company of 50-444
.New Hampshire, et"al
-(Seabrook Station, Units 1 and 2)
O ********************
REQUEST FOR AN ORDER TO SHOW CAUSE WHY CONSTRUCTION PERMITS FOR THE PROPOSED NUCLEAR POWER PLANT AT SEABROOK.
SHOULD NOT BE SUSPENDED OR REVOKED This request for an Order to Show Cause is made~on behalf of.the Seacoast Anti-Pollution League, 5 Market Street, Portsmouth, New Hampshire, 03801, an Intervenor in the above captioned.
The relief requested is an Order to Show Cause why the Seabrook construction permits should not be suspended or revoked because of lack of financial qualification on the part of Public Service Company of-New Hampshire, lead applicant for the Seabrook plant.
This request is based on the fact that PSNH no longer has a
" reasonable financing plan in light of relevant circumstances" due to the following:
1.
January 11, 1982 Order of the New Hampshire Public Utility Commission indicatingJno further financing authorization would'be forthcoming for Unit 2 in light of present cir-cumstances.
8202100371 820205 PDR ADOCK 05000443 O
2.
Reduction of the bond rating.on PSNH as second mortgage bonds to below investment grade by Standard & Poor's.
3.
Imminent cash demands far in excess of funds available through operating income or, in light of items one and two above, available financing.
INTRODUCTION The staff and the Atomic Safety and Licensing Board in Docket Numbers 50-443 and 50-444 found PSNH financially qualified to own and operate 50%
of the Seabrook facility.1 By divided vote, the Atomic Safety and Licensing Appeal Board upheld the finding.
The Commission also reviewed PSNH's fi-nancial qualification in Public Service Company of New Hampshire, et al (Seabrook Station, Units-1 and 2), 7 NRC 1 (1978), at which time it established that the " reasonable assurance" requirement of 10 C.F.R. 550.33(f) required an Applicant to have a " reasonable financing plan in the light of relevant circumstances."
7 NRC at'18.
In New England Coalition on Nuclear Pollution v. NRC, 582 F 2d 87, the First Circuit affirmed.
l Notwithstanding these decisions, PSNH's financial condition continues to be appropriate for reexamination since, as noted, under the Commission's Seabrook Decision, 7 NRC 1, PSNH must have a reasonable plan for financing the plant in the light of relevant, and hence changing, circumstances.
The First' Circuit, in upholding the decision IAt the time of the initial decision, the total cost of the facility was estimated to be 1.545 billion. The nest recent cost estimate, provided by Dr. Richard Rosen of ESRG, is 7.63 billion.
3.-
i
.that Public Service was financially qualified, specifically stated that "the NRC is not bound'by the[NRC's previous] decision should circumstances change in.the futu'e or should predictions not be borne out."
582
' F.
2dcat 93, note-9.
One reexamination of PSNH's financial qualifications has~already occurred.
In March, 1979'the Seacoast Anti-Pollution League requested a/Show Cause Order on financial qualification grounds which was denied on November 16, 1979.
In' denying the request, Director of Nuclear Reactor Regulation Denton relied primarily on the ability of PSNH to get rate relief, and thereby to attract investors to provide the nicessary capital.
In other words, Mr. Denton, as a
" fundamental" assumption,rolicd on the "cxistence of a rational regulatory environment."
(Decision, Slip Opinion at 18.)
In light of the validity of this " fundamental. underlying assumption" Mr. Dento7 was able to conclude that, as of November 1979,
'PSNH had a " reasonable financing plan".and denied the request.
I.
THE FINDING THAT A " RATIONAL REGULATORY ENVIRONMENT"'
ASSURES FINANCIAL. QUALIFICATION IS NO LONGER VALID.
A fundamental premise of all decisions' concluding that PSNH is financially qualified to build the Seabrook facility is this:
- The NHPUC h's historically supported ~Seabrook, starting a
with its own Certificate of Site and Facility issued in~ January 1974.
--The NHPUC is constutionally required to permit rates designed to allow PSNH-to earn a-fair ~ rate of return, that is, a return necessary to attract capital for its operation and future needs.
. - The rates will therefore be sufficient to attract the necessary capital, although perhaps at higher cost.
This tidy syllogism, however, is no longer valid, if it ever was.
The fact is that PSNH cannot earn revenues which the NHPUC has allowed it to earn.
Therefore, although the allowed return on equity may be entirely sufficient, the earnings are not, and it is PSNH that has to earn its revenues, not the NHPUC.
In short, the assumption that the NHPUC can solve PSNH's problems, or is constitutionally required to, is without merit.
In its recent rate decision, Docket DR-81-87, the NHPUC, in an exhaustive opinion and report, allowed PSNH rates designed to permit it to earn an additional 28.9 million dollars, against an original rate request for 35 million.
The decision was viewed
" positively" by PSNH, and SAPL is advised that PSNH has not applied for a rehearing as to the level of rates granted, a prerequisite to any appeal.
Notwithstanding the largest rate increase ever granted to PSNH, computed on an allowed rate of return on equity of 17%, Standard and Poors on January 18, 1982, within a week of the Decision, lowered its rating on PSNH's second mortgage bonds from BBB to BB+, below investment grade.
2In its January 11, 1982 rate decision, the NHPUC allowed PSNH a 17% return on equity, among the highest ever allowed to an electric utility in the United States.
. This event clearly establishes the fundamental fallacy in the syllogism on which the NRC has previously relied to find the applicant financially qualified; namely, that an adequate rate of return assures a utility will be financially qualified, if-the regulatory agency has previously approved its construction projects.
The NHPUC recognized this when it succinctly stated, at page 121:
"This Company's problem is not rate of return but cash flow."
The NRC, therefore, can no longer assume that an adequate rate of return, which PSNH has always been allowed, insures that an applicant will be financially qualified to_ safely construct and operate.a nuclear plant.
The fact is, as set forth in part-3 of this request, PSNH faces a cash crisis, which cannot be met by allowing it higher rates.
II.
THE NHPUC NO LONGER SUPPORTS SEABROOK II.
Even if the syllogism discussed in part I were valid, it is no longer appropriate to assume that the NHPUC will allow rates designed l
to permit the construction of Seabrook Unit II, The NHPUC states on pages 120 and 121:
i "The Company's financial position is caused'by its commitment to the construction of Seabrook, and can therefore be improved only.by changing this l
construction program.
The Company has relied for its future health and success on one, and only one,. alternative.
As a result, few options are available to the Company for improving its financial position.
All these options _ involve major changes in the Company's plans for Seabrook.
The options include:
selling additional shares of both units, modifying the Seabrook agreement and selling shares ef.only one_of'the uhits; delaying one or both of the units; cancelling one of the units. "
. Furthermore,fthe NHPUC has backed up its statements
.with an appropriate order.
.It states on page 122:
"If during the next six months PSNII's' bond rating is downrated from its present level of BB+(S.P.)
or BBB. (Moody's) the Commission will condition its financings that will prevent their use toward the construction of Seabrook II...If their rating drops again it will no longer be of investment grade.
A BB+/BBB utility is unlikely to be able to raise the 1.3 billion over the next five years.
A lower ra utilitycouldneverraisethislevelofcapital."ged The event that the NIIPUC' said would prevent it frcm authorizing future financings for the construction of Unit II has indeed occurred with the lowering by Standard and Poors of the rating on PSNH's second mortgage bonds, called General and Refunding Bonds, from BBB, to BB+.
Therefore, by NIIPUC Order there will be no regulatory approval for financing of construction for Unit II.
Since PSNil cannot construct Unit II without new financing, it.is clear that PSNil no longer has " reasonable assurance" that-it can and will obtain the necessary funds to construct the facility.
It is therefore absolutely clear it is no longer financially qualified within.the meaning of 10 C.F.R. S50.33(f).
3It appears the NIIPUC inadvertently transposed the bond ratings for Standard and Poors and Moody's, since it was Standard and Poors that had been BBB and was reduced to BB+, whereas the Moody rating has remained at BA, less than investment grade. See the attached article from the Wall Street Journal, January 18, 1982 discussing PSNH's bond rating, and the effect of the decision of the NIIPUC.
e I
e
. III. PSNH FACES A CASH' CRISIS WHICH PRECLUDES A FINDING THAT IT HAS-A " REASONABLE FINANCING' PLAN IN THE LIGHT OF RELEVANT CIRCUMSTANCES."
In 1982, PSNH assumes the following financing:
PSNH ASSUMED FINACINGS (000's) 1981 1982 1983 1984 1985 1986 Comnon Stock 69,866 64,000 74,400 54,800 40,200 Preferred Stock 30,000 30,000 30,000 Iong-Term Debt:
Term Note Rollover 25,000 50,000 50,000 50,000 50,000 Term Note Addition 25,000 Eurodollar Po11over 28,000 Eurodollar Rollover 27,000 Eurobond 30,000 Barclay's Term Note 20,000 Banker's Acceptance 25,000-G & R Financing 140,000 90,000 120,000 120,000
'IUTAL 174,866 309,000 244,400- 254,800 210,200 50,000 Source: NHPUC Decision, Page 104 On information and belief, SAPL avers that the bulk of this 1982 financing will be required within the first two quarters of 1982 since, PSNH will, within a month, no longer have the benefit of having all construction costs at Seabrook paid by the owners of the facility, while they purchase approximately 15% of the facility from PSNH.
During the past approximately 12 months, this has been the case, while the other owners have increased
. their ownership through a so-called " adjustment" period,
- at a time when PSNH's ownership share has been reduced"to
~
approximately 35%.
Since the Seabrook' construction force is reported to be approximately 6,500 people, and since the average wage ~is reported to be $15 per hour, the payroll at Seabrook alone is 3.9 million dollars a week.
At a 35% ownership level, PSNH will have to, within the month, start paying payroll cost alone of approximately 1.3 million per week.
This amount of payroll costs at Seabrook amounts to 71 million dollars a year.
In addition, PSNH has outstanding more than 23 million shares of common stock, with a dividend of $2.12 per share.
Thus, the dividend requirements for 1982, even if no more stock is issued, is 49 million-dollars.
These, of course, represent major cash requirements, which cannot be met through AFUDC, but only through revenues.
The question, therefore, is whether these, and other cash requirements, can be met through PSNH's financing plan.
As noted above, PSNH suggests 309 million will be needed during 1982.
To meet this, PSNH plans to raise 64 million through new l
issues of common stock.
At $14 a share, this represents nearly 4.6 million new shares to be issued this year.
Thera is no assurance that PSNH can successfully market this many shares.
Its stock, since the rate increase, has been below $14, far below book value.4 4In 1971, the year before the first application for Seabrook was filed with the NHPUC, PSNH's stock sold above $30.
. PSNH must, today, issue new financing merely to meet its dividend obligations, since its total operating income for the 12 months ended June 30, 1981, was only-45.2 million.
PSNH cannot~ issue first mortgage bonds, since its assets
'are fully mortgaged.
Thus, its most important financing vehicle-i i
in 1982 will be the issuance _of its second mortgage bonds, called G & R' financing.
It plans to issue 140 million in 1982, of which nest was to be placed.
in the first half.
These bonds, however, are now rated below investment grade by both major rating services.
Hence, there is no reasonable assurance that these bonds can be sold.-
Therefore, in the light of relevant _ circumstances, PSNH has no reasonable financing plan for the present year, and should i
be found financially unqualified.
CONCLUSION PSNH's lack of financial qualifications is shown not only by the foregoing, but also by the report of the NHPUC in DR-81-87:
" Examination of PSNH forecasts and statements before a
this Commission yield the conclusion that the Company tends ta) overestimate its revenues and underestimate its_ costs with some regularity.
Thus we must assume i
that the Company is actually worse off than their financial forecasts would indicate.
Given the less favorable future conditions that this Commission expects and unfareseen events _that may have a e
negative impact on PSNH, this Commission is forced to conclude the PSNH may indeed reach a point in the near future where it will be unable to secure additional i
financing and unable ta) meet current obligations."
(Page 105)
c
. 4 For the reasons stated, the Director of Nuclear Reactor Regulation should immediately institute a proceeding to show cause why the Seabrook construction permits should not be revoked or suspended due to the lack of financial qualification of the lead applicant, Public Service Company of New Hampshire, in the present circumstances.
Respectfully submitted, SEACOAST ANTI-POLLUTION LEAGUE By Its Attorneys, LAW OFFICES OF ROBERT A. BACKUS e
BY; d
' Robert A. Backus February 5, 1982 l
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esarrgt re.ormJ. Donds issued Dy 1011 reeds and
- Is Clouded by S&P's Cut in Bond Ratings
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.5E MANCHESTER. N.H. - Public Service -
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'Co. of New Hampshire's problems anancing
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its Seabrook nuclear plant are likely to in-r:
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.c' rease as a result of Standard & Poor's
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tonds below investment grade.
W wnuc. as St. Co. my s%. me 6i as
- ' The New Hampshire Pub!!c Utilities
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- Commission, which earner last week had cr-
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I wnuc. Asmir. Co. Ny ins va e4 m
.yfered. Public Service to seu part of its inter-tAST WEEK 14.19 %
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s1 Lest in the Seabrook plant out of concern for PREV W EEX14.14 %
- ags vurre.a. ausi 2.as w w w..
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- the utiuty's Snancing outlook, immediately
,Qk 772.M'
% 5 7 $*"
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" reacted to the rating agency's action by for-
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aum us 3 = o E.
fbidding further ftnnnemg of the second of amount of capital we have to raise, we can Uj $ "*,',",*n 82.h $ $
~=r
.*two units under construction at Seabrook.
defer for a couple of montns, but over the 80.
g EE-
!a 'Under various state laws Sduciaries of long run, we must seH bonds," Mr. Harrison Nv gm g.sws g av s,=, r aum..,.i at 25
!* son 2e pension plans aren't allowed to. buy said.
"; glll @,^,",'" Og ; y y q;"
der
.. 3-bonds that have ratings less than investment Charles Bayless Anancial vice president
=y sim vnrv,
ais w se u U rade. trnndard & Poor's, citing "ru.mi.,
of Public Service, said this yean the utility is
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. for continued deterioration of the company's scheduled m raise 5285.5 munnn, with $180 omia vuneme aum 43s = m a__
E==:
, *Snancial position " lowered the rating on its InHHan of that in long term bonds. Most of
'"' 5 l? i Uj
% Pa 3 ". + '.
O eneral and refunding bonds to double-B.
the rest would be raised through the sale of g g "; g nj g.o If5; g
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3plus from triple B-rninus, the bottom invest. common and preferred stock.
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Last year, Pubile Service had to raise 3',",,'g,,v,',,"l, P,, 'y L. ",,,+8 ment grade.
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Standard & Poor's also lowered the rat. only $151 million barmna much of the 5-sa c,wn. es aum ins m n n.....
5 553 l*tng on Public Service's preferred stock to nnnetng burden was temporarily taken over C ls,"",,."'i sig ; g pg g E
EE ll double-B-minus from doubleB and. lowered by' the cornpantae that evpended their inter-g *,,s,sg g g gw p,rw
.*the rating on us Srst ma bonds to ests in Seabrook. -
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.n s, _i, Mr. Scotto of Srnnrerd & Poor's said re-
- lllQ gs usg 4 s2,7;
';tnple-B-minns from
. Ment rate m!1ngs by the unlities commisst n
-2 Er
- DahidMa~hsad the Electne Utility ww.iem pass er-ew n as n -t w M'
I roup at Standard & Poor's, said only two have been " positive " but said: " Earnings MQlj d'.ii"J J j*
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.'lother utilities have bond ratings below in, and cash flow cannot be expected to mean-wwv'em pass.:
iiws -to n ai SE P, vestment grade. They are United Illuminat.
ingfully improve, at least until the first Sea; n'f",,,""L"".'"."'**"""*"'"""*'"'-
d ng Co. of New Haven, Conn., and Generaj brook unit is placed in servtce." -
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- Pubue Uuunes Co. of Parsippany, N.J.,
Mmors bvestes Service be., aumer
'which owns the Three MUe Island nuclear major bond rating agency, for wveral years Debt CalendarIs Slimi U facinty has rated Pubuc Service of New Hamp-
- Mnancing the Seabrook nuclear reactor, shire's. general and refunding. bonds Ba, b11rrOring the Concern E.::=.
"which currently is expected to cost $3.6 by. which it said is generally regarded as below
- M-
- lion, has been an overwhelming burden for investment grade. It rates the nrst mort-Over Fed Poh.ey, Rates M.
llPubuc Service of New Hampshire. Although gage bonds Baa.,its lowest investment Puhuc Service started with a 50% interest in grade-
~ - ".,
- lhe plant, two years ago it sold 15% to other Pub!!c Service can't issue any more first su e ww. svus, Jovanas. scarf an,.n,r J
NEW YORK-Reflecting the nervousness ZNew England utiuties because it couldn't af. matgage bonds because those can't be se-in the credit markets over Federal Reserve
~~
4' ford the funding. Earuer last week the New cured by construction work stillin progress.
System poucy and interest rates, only a THampshire Pubuc Utilities Cnmrn* or, and the completed properties already are handful of corporate and munic! pal debt is-Bad 0;-
- dered it to sell an additional 7% interest be. matgaged, Mr. Scotto said, sues a.re schedul.ed for offer.ing this waek.
- cause of doubts it could nnance more than He said the lowered rating still contains Tha eernio. m inun, no.cwo
-The-J 25%.
"the underlying assumption that somehow s.n o so on a sucYir y
ca..new an.an cannon i
J. Michael love, chairman of the utilities the company will manage to see its,way
- '" ** """"" Lv"ca-
- rnmmiuton, said Friday
- "Furcer-financ-mmgh de Snancing of Seabuk.
g n,rew pp y ca-m mun
,e no.,
M a tags for the second umt won't be approved c===c5$ cur a*we ca ca-mme carnman enn.
Morg
- gun
%.until the situation is improved, either by the Boatmen's Banediares Proposal
" *'"' """" ~",',J:="-
j' :other utilities buy 1Dr in or the company v
'iEE s
- ,'chandrig to delay further construction at the ST.14UIS-Boattnen's Baneshares Inc.
s25'n.'r* #* $ "n' D,.'.'a~s D "Eri.,w.'."ro j Ame r
s agreed in princ!ple to acquire Farmers &
"""i. m sevm rasin=n eeuw wann.
.md 7,
~"
- l;second unit."
Merchants Bank. Cape Girardeau, Mo. The Hvar+ou.e.c-sze "S"'E "a"m' ueise
~
Robert Harrison, president of Pub!1c Ser-price wasn't disclosed..
"",,g'";,2,*J,'"o' g'l;, m,,,,,em Blytt m
j;vice, said 'we will have to continue to seH
. Boatmer's said the acquisition requires a
- o. zum, we sn riarwan,.nc.n e rn.-
l El1
$ ong-term debt" to finance the company's defimtive agreement and regulatory ap-TA,x g ev jg
... construction program. The first of the 1.- prova!. Farmers & Merchants Bank, with wer=n Prie, La Es aman w introwenunt
$150.000 kilowatt reactors at Seahrook ts assets of about $129 milbon, would become '""' ** ""'O E'*o"",r"'?
Mi'
.cscheduled for completion early in 1984 with Boatmen's lith bank chddiary. the bank
"""""c'88 ^885*"t* C'ro. for frw cMy of he vart.
- the second scheduled for 1986. "With the holding company said.
E= T wf U "'sE2n=I".E U"El r rwenue mana. vu u.a tvncn anne w.E.a.ic ri 1.1 R
.g, Bevill Allthese securrties have been sold. This annosacement aype.srs.u a m.stter of record only.
Cham
_