ML20041E507
| ML20041E507 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 02/05/1982 |
| From: | Backus R O'NEIL, BACKUS & SPIELMAN, SEACOAST ANTI-POLLUTION LEAGUE |
| To: | NRC COMMISSION (OCM) |
| Shared Package | |
| ML20041E499 | List: |
| References | |
| NUDOCS 8203110024 | |
| Download: ML20041E507 (11) | |
Text
UNITED
- STATES OF AMERICA NUCLEAR REGULATORY COMMISSION TO:
Director of Nuclear Reactor Regulation RE:
Construction Permits CPPR-135 CPPR-136 e ********************
IN THE MATTER OF Public Service Company of Docket Nos. 50-443 New Hampshire, et al 50-444 (Seabrook Station, Units 1 and 2) e ********************
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
. I 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 indicating no further financing authorization would be forthcoming for Unit 2 in light of present cir-cumstances.
8203110024 820225 PDR ADOCK 05000443 G
v.
2.
Reduction of the bond rating on PSN!! 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 PSNil 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.
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, PSMH 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 wst of the facility was estimated to be 1.545 billion. 'Ihe nest recent wat estimate, provided by Dr. Richard Ibsen of ESRG, is 7.63 billion.
~
f 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 future or should predictions not be borne out."
582 F.
2d at 93,. note 9.
One reexamination of PSNH's rinancial qualifications has already occurred.
In March, 1979 the Seacoast Anti-Pollution League requested a Show Cause Order on financial qualification grounds which was danled 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 necessary capital.
In other' words, Mr. Denton, as a
" fundamental" assumption, relied on the " existence of a rational regulatory environment."
(Decision, Slip Opinion at 18.)
In light of the validity of this " fundamental underlying assumption" Mr. Denton 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 has historically supported Seabrook, starting with its own Certificate of Site and Facility issued in January 1974.
- The NHPUC is constutionally required to permit rates designed to alloN PSNH to earn a fair rate of return, that is, a return necessary to attract capital for its operation and future needs.
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- - 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.2 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.
r 2In its January 11, 1982 rate decision, the IEPUC allowed PSNH a 171 return on j
aIuity, a::cng the highest ever allowed to an electric utility in the United States.
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5-This event clearly establishes the fundamental fallacy in the syllogism on which the NRC has previousi f relied to find the cpplicant 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 to permit the construction of Seabrook Unit II.
The NHPUC states on pages 120 and 121:
"The Company's financial position is caused by its commitment to the construction of Seabrook, and can therefore be improved only by changing this 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 of only one of the uhits; delaying one or both of the units: cancelling one of the units. "
n
- Furthermore, the NHPUC has backed up its statements with an appropriate order.
It states on page 122:
"If during the next six months PSNH'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 Seabrock 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 NHPUC said would prevent it from 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 PSNH no longer has " reasonable assurance" that it can and will obtain the riecessary funds to construct the facility.
It is therefore absolutely clear it is no longer financially qualified within the meaning of 10 C.F.R. 550.33(f).
3 It appears the la!PUC 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 invest:::nnt grade. See the attached article from the Wall Street Journal, January 18, 1982 discussing PSNil's bond rating, and the effect of the decision of the N!!PUC.
7
. III. PSNH FACES A CASH CRISIS WHICII PRECLUDES A FINDING THAT IT !!AS A " REASONABLE FINANCING PLAN IN THE LIGIIT OF RELEVANT CIRCUMSTANCES."
In 1982, PSNI! assumes the following financing:
PSNH ASSUMED FINACINGd (000's) 1981 1982 1983 1984 1985 1986 Com on Stock 69,866 64,000 74,400 54,800 40,200 Preferred Stock 30,000 30,000 30,000 Zong-Term Debt:
Term Ibte Ibliover 25,000 50,000 50,000 50,000 50,000
'Ibrm Note,Wiition 25,000 Eurodollar Pollover 28,000 Eurodollar Rollover 27,000 Eurobond 30,000 Barclay's 'Ibrm tbte 20,000 Banker's Acceptance 25,000 G & R Financing 140,000 90,000 120,000 120,000
'IUPAL 174,866 309,000 244,400 254,800 210,200 50,000 Source: b2fPUC 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 PSNit'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 por hour, the payroll at Seabrook alone is 3.9 million dollars a week.
At a 35% ownership level, PSNil I
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, PSNII has outstanding more than 23 million shares of common stock, with a dividend of $2.12.pe; 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 PSNil's financing plan.
As noted above, PSN!! suggests 309 million will be needed during 1982.
To meet this, PSNI! plans to raise 64 million through new issues of common stock.
At $14 a share, this represents nearly 4.6 million new shares to be issued this year.
There 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 i
4In 1971, the year before the first application for Seabrock was filed with the NI!PUC, PS:UI's stock sold above $30.
O.
.. 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 in 1982 will be the issuance of its second mortgage bcnds, 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 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 this Commission yield the conclusion that the Company tends to overestimate its revenues and underestimate its costs with some regularity.
Thus we must assume that the Company is actually worse off than their financial forecasts would indicate.
Given the less favorable future conditions that this Commission expects and unforeseen events that may have a 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 financing and unable to meet current obligations."
(Page 105)
U-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 BY;
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' Robert A. Backus February S. 1982
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two tmits under construction at Seabrook.
defer for a couple of months, but over the air ume *=== Aum. shs e = n..
Pn G-is 'Under various state laws nonetaries of long run, we must seG beds." Mr. Harrton
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I5 1some pension plans arent aUowed to. buy said.
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- A'hnnrit that have ratmgs less than invecrment Charfes Bayfess. AnnaMat vice preskient g gg g glm, Z%$ $ gi" des
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av si.= vnn aw w a u grade. Standard & Poor's, citbr " prospects of Pub!!c Service, said this yeanthe utility is
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< '".nancial postticut." lowered the rating on its mWan of that a long4erm beds. Most of l%$010 Z', E 3 ", + (,
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2 ageneral and reftmdug bonds to double-B.
the rest would be rmhed through the sale of aggggy gga g
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..plus from triple B-mmus. the bottom invest. common and preferred stock.
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4Lst year. Pubile Service had to razse ersnamed & Poofs also lowered the rat. only s151 million hem =* much of the 5-w'"' g,$',',f,J, h2,5 ';',
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5 lltng on Pubbe Service's preferred stock to nanctor burden was tesnparartly taken over O C' N. $ Q EQ* Q sasc - meesa.mn ww.,a n n
_:3 bltbe ranng ce !!s Srst mortgage Snnds to' double-B-mtms frtsn double B and. lowered by the enn=a* that espanded their inter
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$$ $ $ $ d, B mmas from trtple B.
Mr. Scotto of Starmbrd & Poor's said re-g 58 34 tma y ** y -1,
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have been " posture." but said: "Earnbgs gllE y
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I'.ather utilities have band rathgs below in.
and cash Saw cannot be czpected to mean-
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4 -i llyestment grade. They are United Ulaminat. Ingfady improve at least until the first Sea-If."".", U,i" ' * * * * * ' ' " " " " " ' " " " " " " ' -
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E otog Co. of New Haven. Conn., and General brook tmit is placed in serytce."
- Pubiie Ut1:1oes Co. of Parsippany. N.2 uoodrs avestors Service ae.. the ot**r
- .;factitty.which cwns de Three MUe it!nnd nuclear major bond raung agency. for several years &M Gbh hSh has rated Public Servtra of New Hamp-i
- nnanctag ce Seabrook nuclear reaaor, shire's general and rernding, beds aa, M11TOring the Concern a.
- wmen ememry ts expected to cost sa.s bu. which it said is generany regarded as befow f,,. Ilon. has been an overvrbelming burden for investroent grade. !! rates the !!rst mort-ber Fed Policy, Rates
- Pubne Service of New Hampsmre. Althougn gare beds Baa, as newest
- Pubbe Service started with a 50% interest in grade.
invenenent n,, w,,, E,,,.,,,y,,,,, 3,,ff 3,,,,,
..ae piant two years no it sold 15% to other Public Service can't issue any more crst NEVI TORK ReDecung de nervousness
",?iew England udllties because it coukb't af. retrage beds because those can't be se-in the credit markets over Federal Reserve n'
'lord the funding. Eartier !ast week the New cured oy ccustruction work still in progress. System ;milcy and inter
.Hampstire Public Uti!!ces Cornmission op and the completed properdes already are
- 'dered it to sell an add! conal 7". Interest be. mortgaged. Mr. Scotto sam!.
handfuj of corporate and municipal debt is.
Bach a cause of doubts 11 could Mamme more than He said the lowered rannt stU1 contams sues are it.heduled for oIfering this week.
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"the undertymg assumpaan that somehow s oi c a ad*r'""'
J. Michael leve, chairman of the utilldes me c mpany mu :nanage to see us way *** * =* un,a,,,,,,L,,,,,
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- mnmtulon. said Friday: "Further-financ-cagh me anancmg' of Seabroot.
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Ts, r i; imul the situanan is improved, either by thetngs for the second t=1t won't be approved g
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[ mer umes buy 2r in cr the ecmpany Boatmen's Banedtares Proposal
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... choosing to delay further construccan at the ST. IDUIS-Boatmen's Banc: hares Inc. is'.",,,U.'.2.,."f,$..n.,."c',','l"m',l0' "
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agreed in ;rme'ple to.cqmre Farmers 4
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r, Robert Harrison. pres 2 dent of Pub!!c Ser-Mert?'ults Bank. Cape Girarteau Mo. The a
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price wasn't disc!cr,ed..
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j;vice, said "we mH have to coutmue to seH Boatmers said the aption reqtures a el""a'm"a.'".* "s'n' ~'*v"Of eT *'""*"
- long-term debt" to Saance the company's definrtive agreement and regulatory ap.
yaxamer EEF e onstruccan program. The Crst of the 1.- preval. Farmers & Merchants Bank, with c
i lll154.(Dokilowan reactors at Seabroot is assets of about s13 mtHice, would become '" " " " " * " ' '
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ll: scheduled for completion earty in 1984 with Boatmen's lith bank mhcMu y, the bank **==a m 4,U,=o"',,%,o. mr
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., the seccad scheduled for ISS6. Wilth be WdTr company said.
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.411: hose secawses h.rve been sold. This arnosncement appears.ns.t mauer of record Chasu
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