ML20041A080
| ML20041A080 | |
| Person / Time | |
|---|---|
| Site: | Allens Creek File:Houston Lighting and Power Company icon.png |
| Issue date: | 02/12/1982 |
| From: | Baker B AFFILIATION NOT ASSIGNED |
| To: | |
| References | |
| ISSUANCES-CP, NUDOCS 8202190067 | |
| Download: ML20041A080 (5) | |
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February 12, 1982
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UNITED STATIS OF A' ERICA fG#4 a NUCLEAR REGULATORY COMMIS3 ION Nc'#IIc E
'82 FEB 17 P3:30 9
EF03E THE ATOMIC SAFETY AND LICF2: SING BOARD Q
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In the Matter of 3
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3 HOUSTON LIGHTING & PO'JE3 COMPANY llocket No. 50-466 (CP)
S (Allens Craek Nuclear 7enerating 3
Station, Unit No. 1) 3 INT 11EiORS' PRCFOSED FINDINGS OF FACI M;D CCLCLUSIONS OF LAW ON FINANCIAL QUALI-FICATICUS CONT 3 TION (BIKER 1) IN THE FORM OF AN INITIAL DECISION Introduction.
Various varsions of this contention were submitted by intervenors 3ryan Baker, Elinore Cumings, Steve Doggett, Matthew Perrenod, and TexPIRG. All assert that applicant HIAP does not meet the requirement of 10CFR Sec. 50 33(f) that it demon-strate " reasonable assurance" of obtaining the funds necessary to safely construct the proposed facility.
In Public Service Company of Ne: Hamushire, et al. (Seabrook Station, Units 1 and 2) 7 NRC 1 (1978) the Commission stated:
"It is not enough that the applicant is a regulated public utility....
N ' reasonable assurance' does not mean a demonstration of near certainty hat an ap;licant will never be pressed for funds in the course of con-struction.
It does mean that the applicant must have a reasonable financ-ing plan in the light of relevant circumstances." 7 NRC at 18.
The Commission made its Seabrook determination based on the record in that case, and called for a rulemaking to settle the generic issues raised. This rulemaking is still in progress, so we are left to decide whether, on the record of this case and in light of current relevant circumstances, the financing plan of this applicant is reasonable.
Findings of Fact.
The following findings come from testimony of Applicant'a witness Hollis Dean (HIAP Chief Financial Officer) and Staff's witness Jim Petersen (Senior Financial Analyst for the USNRC).
Five-digit numbers in parentheses refer to page numbers of the hearing transcript in the above-captioned proceeding.
The construction cost estimate for Act;GS at Merch 1981 was 3 2.09 billion, exclusive of interest (Dean, p. 2 following 16723) and Nuclear Fuel In Process S202190067 820212 O$$N uh PDR ADOCK 05000466 0
b FINANCIAL QUA IPICATIONS Findings and Conclusions Page 2 (16741-2). This cost estimate has recently gone up from 31.485 billion in January of 1980 to 1.8 billion in February 1981, then to a current estimate of 2.09 billion.
The latter increase was said to ba due to " stretched-out" construction schedule; Mr. Dean did not know the reason for the twenty percent cost increase the previous year. (16764-6, 16754-6)
Neither,Mr. Dean nor Mr. Petersen was willing to set an upper limit on the final actual construction cost of the subject facility. (16747, 20455)
Mr. Petersen tastified that dramatic construction cost increases have made some projects troublesome for utilities seeking rate increases. (20446)
HL&P's bonds hava recently baen de-rated by Moody's from AA to A (16724).
Mr. Dean testified that "every downgrading eliminates a portion of the market for our securities" and that "any further detorioration in HL&P's credit standing would jeopardize the company's ability to finance its construction program." (16794)
HL&P cancelled its latest proposed issue of 30-year first mortgage bonds because Dean didn't like the interest rates. (16756) The last issue of ten-year bonds went at a cost to the company of over 14%; these were the most expensive bonds sold by HL&P to date and interest rates have been steadily increasing the past decade and a half. Nonetheless, App]icant's financing plan calls for interest rates on first mortgage bonds to be 13 5% in 1981 and decline steadily to 11% by 1991. (16757-60)
HL&P's last propoced issue of preferred stock was not sold'because there was no market for it at reasonable cost. (16761-2)
The market / book ratio for common stock of HL&P's parent company has declined steadily over the last six issues and is down from over 200% in 1973 to 70% for the latest issue.
Dean acknowledged that the percentage of institutional investors was down substantially since 1973 (frou 70% to 30%) based on a "significant deteri-oration" in the stock's value over that period. He also testified that if the trend in stock prices were not reversed, he might be unsuccessful in raising the capital required even for the " stretched-out" construction schedule.
(16778-82)
Nonetheless, Applicant's proposed financing plan calls for stock values to improve steadily to 105% ratio in 1991. (16818-20)
Dean testified that past rate inersases from the Texas FUC have be;n "insur-ficient". (p. 8 following 16723)
In the 1980 rate hoarings Houston City Council raised numerous objections to CWIP financing, and voted an increase less than that granted by the PUC. (16809-10)
That same year the staff of the PUC sought to eliminate the subject facility's C; LIP costs from the rate base. (16810-11)
g FINANCIAL QUALIFICATIONS Findings and Conclusions Page 3 This plant was indefinitely deferred in 1975 subsequent to a bond de-rating from AAA to AA. (16796)
It has been delayed two years following the de-rating by Moody's from AA to A in 1981.
(16724-5)
Mr. Dean testified that the new construc-tion schedule was based on "the maximum amount of new equity financing, initially 200 million of common stock and 100 millien preferred stock, that aan reasonably be obtained in a single year."
His projection calls for the sale of more common stock in each subsequent year than has been sold in any previous year, and for the sale of twice as much preferred stock in each subsequent year as has been sold in any he previous year, and/further testified that "despite the company's efforts to make financing its construction program attainable, major uncertainties still exist."
(16799-801)
The Staff's expert witness, Mr. Petarsen, accepted the Applicant's projected financing, including steady rise in stock prices and decline in interest rates over the next decide, but could offer no evidence that these optimistic projections would be borne out (20498-508):
Q: (by Mr. Baker)
In your opinion, it is more realistic to project that everything is going to get better over the next ten years?
A:
(by Mr. Petersen)
No, I didn't say that it was more realistic.
I'm just saying that it's reasonable in light of what has happened in public utility financing in, say, the past ton years.
Q: When you say " reasonable", does that just mean pocsible or likely or what --
As Yes, I would say -- I wouldn't say likely -- I'm sorry.
Q:
What range of confidence do you have in something happening when you say that it's reasonable? Are you 80 percent sure, 50 percent sure?
As I'm saying that it is possible for this to occur, not that it's par-ticularly -- not that it's necessarily likely. (20509)
Mr. Petersen states that his finding of reasonable assuran ce of financial quali-fi cations rests on two necessary assumptions: that capital will be available at some cost and that the PUC will set rates to cover the cost of service including the cost of capital. (p. 20-2 following 20433) Adopting the A plicant's financial projections as reasonable, he concludes that "the assumptions being used, although not suscept-ible to precise measurement against absolute criteria, are in line with what one might expect under the postulated conditions." (p. 20-8 following 20433)
Under cross-examination, Mr. Petersen defended his " viable capital markets" assamption as follows:
Q:
- Okay, So your assumption here basi ally is speculative, could I say, that you are speculating that viable capital markets will exist, as opposed to....
As Well, I don't know that I'm speculating.
I'm just saying that without assuming that -- the company in order to finance a construction program of this size has to sell securities sooner or latar.
g FINANCIAL qUALIyICATICUS Findings and Conclusions Page 4 So I have to ascume that they are going to be able to do that, because I --
Q:
You have to assume that in order to have things come out right or you have to assume it because it's true?
A:
I have to assume, in order to make the conclusion that I do, that there's reasonable assurance that they can raise the funds. (20468-9)
Mr. Petersen defended his assumption with regard to future PUC action as follows:
It's necessary to make these assumptions when you'ra looking at a future period of eight, ten,' twelve years during which period I cant.ot --
and I don't believe any of us can actually predict what is going to happen.
(20470)
Also under cross-examination, Mr. Petersen testified as to the exact meaning of his conclusien that "the assumptions being used... are in line with the pos-tulated conditions." He stated that the " assumptions" referred to were those finan-cial parameters supplied by the appli cant and outlined in Table 20.2 of his direct testimony. The" postulated conditions" wars said to be the sources of funds as outlined in Table 20.1.
He further stated that Table 20.1 was generated by assuming the data in Table 20.2.
(20510-14)
Conclusion.
We find that Applicant's financing plan, based as it is on the " maximum amount of ne'r equity financing # ensidered obtainable and further assuming a steady improve-ment (contrary to trends over the past decade) in the market for Applicant's stocks and bonds, is too optimistic and obviously self-serving to constitute "a reasonable financing plan in the light of relevant circumstances."
Nor does Staff's analysis m aet the criteria set out by the Commission in Seabrook.
The two basic assumptions necessary to hic analysis, "that rates will ba set to at least cover the cost of service, including the cost of capital" and that " capital will be available at some cost" would clearly apply to any utility whose rates are set by a utility commission, and the Commission has flatly stated that "It is not enough that the applicant is a regulated public util?ty."
Staff's conclusion,' that "the assumptions being used.
. are in line with what one might expect under the postulated conditions" appears on its face to be a tautology, and was shown to be one under cross-examination. The " assumptions being used" were identified as those in Table 20.2, the" postulated conditions" were identified as those in Table 20.1 and it was admitted that the data in Table 20.2 were used to generate the data in Table 20.1.
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FINAMIAL' Q'JALIFICATIONS Findings and Conclusions Page 5 This Board is not convinced by Appli cant's optimistic projections and Staff's circular arguments, and finds that Appli cant HLkP has not demonstrated " reasonable assurance" that it can obtain the funds necessary to safely construct the Allena Creek Nuclear Generating Station, and is therefere not financially quali-fled as required by 10 CFR Sec. 50.33(f).
The Construction Permit for ACNGS is therefore denied.
IT-IS SO ORDERED.
Proposed Findings and Conclusions Respectfully Submitted by Bry
- Baker, Lead party for the Financial qualifications contention Cc:
All parties