ML20093F326
| ML20093F326 | |
| Person / Time | |
|---|---|
| Site: | Shoreham File:Long Island Lighting Company icon.png |
| Issue date: | 07/18/1984 |
| From: | Eacker E LONG ISLAND LIGHTING CO. |
| To: | Atomic Safety and Licensing Board Panel |
| Shared Package | |
| ML20093F311 | List: |
| References | |
| OL, OL-4, NUDOCS 8407180327 | |
| Download: ML20093F326 (101) | |
Text
-
q
.p UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION DCt heter:
Obhc Before the Atomic Safety and Licensing Board
'84 Jul.18 Af0 M6 In the Matter of
)
) Docket No. 50-322-OL 7,
LONG ISLAND LIGHTING COMPANY
)
and 7: '.. m, s;
) Docket No. 50-3 22-OL ~4 % ' '"
(Shoreham Nuclear Power Station, )
(Low Power)
Unit 1)
)
AFFIDAVIT OF EDWARD W.
EACKER Edward W. Eacker, being duly sworn, deposes and says as fol-lows:
1.
My name is Edward W.
Eacker.
I am Treasurer of Long Is-land Lighting Company.
My business address is 250 Old Country Road, Mineola, New York 11501.
2.
I make this affidavit in response to the July 3, 1984 motion of Suffolk County and New York State for leave to submit a financial contention, and its attachments, including particularly the affidavit of Michael D. Dirmeier, in the NRC's Shoreham pro-ceeding, NRC Docket 50-322(OL).
This affidavit has two primary purposes.
The first is to provide support for the proposition that New York State public utility regulators -- the Department of Public Service and the Public Service Commission -- allow electric utilities to collect revenues sufficient to permit the safe and reliable operation of their systems.
The second is to demonstrate that information of the type presented in the Suffolk County /New York State papers was available considerably earlier than they suggests that much of it was available by late 1983, and 8407180327 840716 PDR ADOCK OS0003ag 8
i i
A
, virtually all of it by the end of February of this year.
This af-fidavit will not, in general, comment on *he accuracy of the facts asserted in the Suffolk County /New York State papers about specif-ic aspects of LILCO's financial condition, even though they are in material respects inaccurate and misleading.
I.
ADEQUACY OF FUNDING FOR SHOREHAM OPERATION 3.
Substantial portions of the Suffolk County /New York State papers are directed to the argument that, absent further borrowings or rate relief, LILCO will~not have available to it ad-equate funds to operate the Shoreham plant safely.
These argu-ments are misplaced.
Even if, as the motion alleges will occur, LILCO were to experience a cash shortfall, this does not detract from the fact that the New York State Public Service Commission (PSC) has the responsibility to set rates that will provide ade-quate revenues to permit the safe and reliable operation of the systems of regulated utilities, including LILCO, in New York State.
It has been my experience that the PSC, while it seldom, if ever, provides utilities the rate of return on their investment to which they believe they are entitled, nevertheless is cognizant of the need to provide adequate revenues to support operating, fuel, maintenance and capital requirements for operating utilities.
4.
The New York State Department of Public Service, the parent organization of the PSC, has recently reaffirmed this poli-cy of providing adequate revenues for safe and reliable power
i plant operation in the course of normal ratemaking proceedings, in its response to a. questionnaire sent to all State public utility commissions by the National Association of Regulatory Utility Com-missioners (NARUC).
In that response, covered by letter dated April 26, 1984 from Frank Berak, Chief, Rates and Valuation Sec-tion, Power Division (Attachment 1 to this Affidavit), the Depart-ment stated that the normal ratemaking process provides for:
1.
ensuring adequate revenue to cover the costs of meeting NRC safety require-ments.
(Q & A 1).
2.
meeting the costs of compliance with NRC requirements, orders and directives, including specific adcitions, altera-tions or improvements at operating nu-clear power plants (e.g.,
replacement of safety-related equipment, fire protec-tion equipment, security equipment, spe-cial qualifications for electrical equipment).
(Q & A 2a-2c).
5.
The Department response to the NARUC questionnaire also states that the PSC allow [s] for the costs that utilities ask for, but it is the utilities' re-sponsibility to spend funds properly.
Utilities are expected to spend the amcunts necessary to cover the total cost of operation.
(Q & A 3a).
In addition, the answers to the questionnaire indicate that PSC staff members monitor nuclear power plant performance on a con-tinuing basis, ordering special audits if problems are encoun-tered.
Thus the PSC assures, indirectly, that monies to be spent on nuclear power plant operation are not spent elsewhere.
(Q & A 3a-3c).
I r
sv <
~
1 i
_4, 6.
The PSC is particularly sensitive to nuclear power plant performance and outages since nuclear outages generally increase utilities' total fuel costs.
Thus the PSC indirectly acts to as-sure that utilities spend the necessary amounts for proper op-eration of their nuclear plants.
(Q & A 4).
The PSC has estab-lished performance incentive plans with respect to nuclear plant operation (Q & A 6), and will penalize utilities for excessive I:
outages (Q & A 7).
7.
The Department specifically anticipates the phasing-in of Shoreham's construction costs within a 2 to 5 year period.
(Q
& A 8a, 8b).
However, the Department does not intend to permit any phasing-in of costs to impact the availability of adequate funds for safe plant operation; the allocation of adequate funds 4
for this purpose would be enforced by the PSC's general regulatory authority to issue safe and adequate services.
(Q & A Sc).
II.
TIMELINESS 8.
The affidavit of Mr. Dirmeier relies on six documents, four of them dated in May or June of this year (Dirmeier Attach-ments C-F), one dated February 21, 1984 (Dirmeier Attachment B:
Form 8-K) and the other dated March 30 (Dirmeier Attachment A:
Form 10-K) for the purpose of documenting LILCO's current finan-cial condition.
Suffolk County and New York State assert that the events involving LILCO's financial condition did not become fo-cused until after publication of LILCO's May 30, 1984 " Position Paper" (Dirmeier Attachment D) (Memorandum at 4-5, 25-29).
These
, -~
1 i
' l documents are several months more recent than the first public documentation of the current financial difficulties facing LILCO.
Any assertion that LILCO's financial difficulties have begun, or even become manifest, only in the past several weeks is either naive or disingenuous.
The general outline, if not the exact present details, of LILCO's current difficulties were all being disclosed publicly by LILCO and by other sources in the latter months of 1983 and in January and February of 1984 through a vari-ety of means.
These include: (1) forms filed with the Securities and Exchange Commission, which are publicly available and are served also on New York State authorities; (2) papers filed in various rate proceedings before the New York Public Service Com-mission, to which the State of New York (represented by the Attor-ney General, the Consumer Protection Board, and the PSC Staff) and Suffolk County are parties; and (3) reports in the public press.
No purpose would be served by an exhaustive repetition of all the details of this process; but various examples will suffice:
a.
As a result of the damage to emergency diesel crankshafts in July 1983, the proposed commercial operation date for Shoreham was slipped beyond April 1, 1984 and hearings before the PSC on present electric rates were suspended temporarily to determine its impact.
Form 8-K, October 24, 1983 (Attachment 2,
- p. 1).
b.
Standard & Poor's placed LILCO on its " Credit Watch" list, with negative implications in November 1983.
Form 8-K, December 5, 1983 (Attachment 3, p. 1).
l
. c.
Governor Cuomo, having become involved in Shereham in February 1983 by indicating that he would not impose a State emergency plan on Suffolk County, convened an ad hoc commission chaired by SUNY-Stony Brook President John Marburger to evaluate Shoreham in the summer and fall of 1983.
The Marburger commis-sion's report was not issued until mid-December.
However, rumors circulated about the contents of the report during its prepara-tion.
One story, carried in the New York Times of October 17, in-dicated that the draft report indicated that if LILCO investors were required to absorb $1 billion of the cost of Shoreham (then projected to be $3.5 billion), LILCO would be driven to bankruptcy (See Attachment 12).
A second rumor, this one carried in the November 20 Newsday, indicated that one of the options being con-sidered by the Marburger Commission was a LILCO bankruptcy; LILCO's stock dropped over 12% -- from 14 1/4 to 12 5/8 -- the day that report circulated.
See Attachment 12.
A third report, in the New York Times of November 22, reported that consideration was being given by unnamed " officials" to whether reorganization of LILCO through bankruptcy would help or hurt Long Island.
Felix Rohatyn, the financier, was quoted in the article as calling bank-ruptcy "not at all unthinkable."
One of the Marburger panel mem-bers was quoted in the same article as advocating that LILCO stockholders be taxed with part of the cost of the Shoreham plant through an unspecified " imaginative approach."
The December 2 edition of Newsday featured a long article on a potential LILCO bankruptcy.-
See Attachment 12.
The report of Governor Cuomo's
' Shoreham Commission, when it was finally released on December 14, 1983, did "little or nothing to relieve the present uncertainties respecting Shoreham."
Form 8-K, December.22, 1983 (Attachment 4,
- p. 3).
A week later, Governor Cuomo announced that New York State would intervene in the NRC hearings to oppose the emergency re-sponse plan being proposed by LILCO.
Id.
d.
On December 10, 1983, Duff & Phelps reduced the rating on LILCO's First Mortgage Bonds, General and Refunding Bonds, and Preferred Stock, and on December 19 withdrew their com-mercial paper rating.
Moody's downgraded the Company's commercial paper to "Not Prime."
Both D&P and Moody's accompanied their downratings with gloomy predictions of LILCO's financial status.
As LILCO reported:
D&P noted that the outlook for the Com-pany indicated " extended and deeper financial strain, and increased risks related to the Shoreham nuclear plant with delays and fur-ther politicizing of the Shoreham issues."
Moody's attributed its action to uncertainty surrounding operation of the Shoreham plant and the recovery of the investment in the plant and concern that "further erosion of cash flow and coverages excluding AFUDC could 4
seriously impede financial flexibility."
- , p. 4.
As of December 16, 1983, the Company had cash and short-term investments estimated to be sufficient to meet its cash requirements to the end of May 1984 without additional exter-nal financing., p. 5.
At the December 21, 1983 meetiag of the Board of Directors, the Board decided that the ab-sence of favorable developments in the near future could affect the level or continuation of subsequent dividends on the common J
stock., p. 5.
--- =
' e.
In December, Citibank, N.A. notified LILCO that it would be resigning as a trustee under the Company's mortgage be-cause of a conflict between its roles as trustee and creditor to the Company.
Form 8-K, December 23, 1983 (Attachment 5, p.
1 and attached Form 8 (December 27, 1983).
This resignation was soon followed by those of other banks.
f.
In December 1983 one of the banks involved in the Revolving Credit Agreement of the Tri-County Resource Trust notified LILCO that it would not extend the maturity of the obli-i gations under that Agreement beyond the current maturity date of September 1986.
Form 8-K, December 29, 1983 (Attachment 6, p. 2).
At the same time LILCO disclosed that as of December 29, 1983, it 4
would have to borrow $700 million to complete planned 1984 con-struction and other capital requirements but that it could not l
predict with certainty that such funds could be obtained.
Id.
g.
On January 5, 1984, LILCO filed a Form 8-K containing the following passages:
The Company had expended approximately
$3.2 billion on the Shoreham unit as of 4
December 31, 1983.
The Company expects that gross expenditures for Shoreham will be ap-proximately $677 million in 1984.
Additional delays beyond 1984 are estimated to cost an additional $40 to $45 million each month, al-most wholly for carrying charges, including insurance, taxes and overhead expenses (de-pending upon, among other factors, the out-come of the Company's pending application for rate relief).
Because of the continuing dif-ficulties in obtaining an operating license for Shoreham, the prospect exists for further delays and uncertainties, further increases in its costs and severe financial strains for the Company.
o 9
For several years a major portion of the Company's earnings have consisted of Allow-ance for Funds Used During Construction (AFC).
This condition is expected to contin-ue until the completion of Shoreham and its inclusion in rate base.
AFC is the cost of funds invested in a construction project ex-pected to be recovered from customers over the service life of the project through reve-nues when the project is completed and in-cluded in rate base.
Such AFC does not rep-resent cash earnings.
Therefore, the Company is heavily dependent on external financing until Shoreham is adequately reflected in rates.
There can be no assurance as to the amount or the timing of such rate relief from the Public Service Commission of the State of New York (PSC).
Some members of Governor Cuomo's study commission and, according to some newspaper reports, various government officials have suggested that Shoreham be totally abandoned or indefinitely mothballed.
1.ny such outcome could well have a serious adverse financial impact on the Company and, unless the PSC grants to the Company prompt and adequate i
rate increases, could jeopardize the contin-ued financial viability of the Company.
The Company's 1984 financing plan calls for the sale of an aggregate of approximately
$700 million of debt and equity securities.
However, given the various adverse factors l
now impacting the Company, no assurances can be given regarding the Company's ability to raise sufficient' funds in 1984 and in future years in order to meet its construction and other capital requirements and operational needs.
To the extent the Company is unable to raise such funds in 1984 or in subsequent years, the Company's initial response would be to reduce the level of its capital and op-erating expenditures.
In addition, the ab-i sence of favorable developments in the near future could affect the level or continuation of dividends on the Common Stock.
The compa-ny can give no assurance that such measures will ne sufficient in the circumstances, nor can it now predict what other measures it l
might then take.
. Form 8-K, January 5, 1984 (Attachment 7, pp. 2-3).
At the same time, the Company disclosed that all of the banks in the Tri-County Resource Trust Credit Agreement had refused to extend that Agreement beyond the current maturation term of September 1986.
Id. at 3.
h.
In a Form 8-K dated January 10, 1984, LILCO dis-closed that it had withheld $26.2 million in real estate tax pay-ments to Suffolk County for Shoreham, which had been being taxed as an operating reactor (Attachment 8, p. 1).
The same document announced that the Board of Directors had directed the Company's management to develop a program of austerity measures to minimize cash expenditures, id. at 2.
1.
The Company reported the following description of its financial status in its February 21, 1984 Form 8-K (Attachment 9, pp. 1-2):
The Company's present 1984 financing plan calls for the sale of an aggregate of approximately $700 million of debt and equity securities.
The Company had on hand as of February 20, 1984 cash and short-term invest-ments of approximately $214 million.
The
$214 million on hand includes gross cash pro-ceeds of $52.5 million from the direct sale of $5,000,000 shares of Common Stock in January 1984 and approximately $10.4 million in proceeds from the sale of Common Stock through the Company's Automatic Dividend Re-investment Plan in February 1984.
Given the various adverse factors now impacting the Company, no assurances can be given regarding the Company's ability to raise sufficient funds in 1984 and in future years in order to meet its construction and other capital re-quirements and operational needs.
To the ex-tent the company is unable to raise such funds in 1984 or in subsequent years, the Company's initial response would be to reduce
. the level of its capital and operation expen-ditures.
In this connection, to conserve cash, the Company has announced that it would reduce its non-fuel related operations and maintenance expenditures, estimated at ap-proximately $250 million in 1984, by $100 million without significantly affecting cus-tomer survice and that it has suspended con-struction payments for its share of Nine Mile Point.
2.
For additional information relating to its suspension of payments, see Iten 5f below.
In addition, the absence of favorable developments in the near future could affect the level or continuation of dividends on the Common Stock.
The Company can give no assur-ance that such measures will be sufficient in the circumstances, nor can it now predict what other measures it might take.
After giving effect to the suspension of payments for Nine Mile Point 2 but before giving ef-fect to the proposed austerity program, to additional financing, to any change in divi-dend policy, or to other cash conservation measures, the Company estimates that the $214 million in cash and short-term investments on hand as of February 2, 1984 is sufficient to continue the Company's operations only into early summer of 1984.
The same Form 8-K also reported that the PSC Staff had proposed to allow only approximately $2.3 billion of the approximately $4 bil-lion anticipated to be spent on Shoreham into the rate base, and the Company's offers to permit disallowances of up to $500 million in return for a change in posture by New York State and Suffolk County in the Shoreham licensing case (id, at 2-3).
In the mean-time, the Company projected the following financial posture:
The Company has expended approximately
$3.2 billion on the Shoreham unit as of December 31, 1983.
The Company expects that gross expenditures for Shoreham will be ap-proximately $634 million in 1984.
Additional delays beyond 1984 are estimated to cost an additional $40 to $50 million each month,
/
' almost wholly for carrylag charges, including insurance, taxes and overhead expenses, de-pending upon, among other factors, the out-come of the company's pending application for rate relief.
Based upon a fuel loading date of Octeber 1, 1984 and a commercial operation date of July 1, 1985, the cost of Shoreham is estimated at $4.1 billion.
Because of the continuing difficulties in obtaining an op-erating licer.se for Shoreham, the prospect exists for further delays and uncertainties, further increases in its costs and for severe financial atrains for the Company.
Id. at'3.
The same Form 8-K also reported that the Company had suspended payments on February 9 for Nine Mile Point Unit 2, in which it had already invested approximately $570 million, and dis-closed the existence of potential legal liability for future pay-ments or impairment or extinction of its current investment.
Id.
at 7.
The same Forn 8-K disclosed further downgrading of the Com-pany's securities.
Id. at 8-9.
j.
On March 6, 1984, LILCO announced the following ad-ditional measures:
(1) institution of internal austerity measures including elimination of nearly 20% of the Company's employees, compensation reductions for remaining employees, and severe re-strictions on normal administrative expenses; (2) elimination of cash dividends on common stock for the balance of 1984 or until such time as the company's financial condition permitted their restoration.
These events were widely reported by newspapers at the time.
See Attachment 10.
9.
In rate proceedings before the New York PSC to which suffolk County and New York State (represented by three agencies
\\
0 a -- the Attorney General, the PSC Staff and the Consumer Protection Board) were parties (Case No. 28553), LILCO's witness, Thomas H.
O'Brien, was questioned extensively on LILCO's financial condition on January 31 and February 2, 1984.
His testimony (excerpted at 1), which both suffolk County and the State heard, graphically depicted LILCO's financial condition:
a.
Absent further financing or other measures, LILCO expected to run out of cash by June 1984 (Tr. 3181).
With auster-ity but no further capital, the company would run out of cash in August or September (Tr. 3200).
b.
On February 2, Mr. O'Brien opined that if LILCO were to skip even one dividend, he doubted whether LILCO would be able to maintain access to financial markets, either through sale of securities or borrowing from banks (Tr. 3507-09), and reaf-firmed that without additional financing the company would run out of cash in June 1984.
(Id.)
10.
In short, each of the elements to which the pending Suffolk County /New York State motion now points -- cash shortages, downgraded securities, threats not to permit full recovery of Shoreham's cost, austerity measures, omitting stock dividends, withdrawal from Nine Mile Point 2 -- all were matters in the pub-lic domain by March 6, 1984.
The use of more recent documents by Suffolk County and New York State to document these matters should not be understood to suggest that full information on them was not 4
available publicly, or that Suffolk County and New York State were not aware of it in fact, at the time the events were occurring.
i s
s I
- A
~
- i
+
In my judgment it would be.very difficult to believe that respon-sible County.and State officials could have failed to have been aware on a day-t'o-day' basis.of these developments as they were oc-curring, by.means of daily press accounts, SEC filings, testimony in proceeding's to which they are parties, and other contacts with LILCO.
Edward W.
Eacker Subscribed and sworn to before me this
__ day of July, f
State of New York.
1984, in the City.of s-Notary Public My Commission expire.s:
/
4*
7 x.
\\
5
=
Je t-
- ~
d f
s/
' \\
\\
t s
e r
qu' s.
,1~
s -
e 4
f 7
s d
d'.
9 0
t a
e ATTACHMENT 1 h
)t
7 * ~
.6
)
F "3'
STATE OF NEW YORK DEPARTMENT OF PUBLIC SERVICE
'i THREE EMMRE STATE PLAZA, ALIANY 12223
.suc samvics -
o
.lo,.
en n
..v... u...
c.
SoWAAo 8, t.AAMIN j'
CA%utt.CAmmeNeToM MAm m g
i ia.
J.MN J. Mtu Ibst a sanow 4.sanny, an.
am.av.uaso
.w.
s
.,v cossuany s. aooi.sn j
April.26, 1984 I
Mr. Michael Foley Director of Financial Analysis National Association of Regulatory Utility Commissio'ners P.O. Box 684 Washingteri, DC 20044 Dear Mr. Foley i
Enclosed is the comple d questionnaire on current
(
~
ratemaking treatment of nuclear costs in New York State.
Very'truly yours, i
o-k FRANK BERAK Chief, Rates and Valuation Section Power Division FB:re Enclosure
l t
1 NATIONAL ASSOCIATION OF REGULATORY UTILITY C0m ISSIONER$
SURVEY OF STATE PUC'S AND FERC'S HISTORICAL AND CURRENT RATEMAKING TREATMENT OF COSTS OF COMPLYING WITH NUCLEAR REGULATORY COMMISSION SAFETY REQUIREMENTS QUESTIONNAIRE M ave specific rate-setting authority and 1.
Does the PUC h
responsibility that may be used to ensure adequate revenues to cover the costs of meeting NRC safety requirements?
Yes No x
w Please explain, with examples:
While we do not have specific rata-setting authority to meet NRC safety recuirements, the Commission general rate making process assures that such costs are met.
i f
~
Il or the FERC respons please substitute the "FERC" acronym in place of F
"PUC" within each question, l
l
=
l
[. ', '
2-2.
a,.
Does the PUC provide specific cost allowances in general rate orders or other directives to assist the utility in meeting NRC safety requirements, orders, and directives?
Yes No x
i i Please explain, with examples:
Within the regular rate making i i
process the Commission makes allowances for all the necessary and prudently incurred operatiner costs 1
including NRC safety recuirements.
j J
2.
b.
Has the PUC received requests for funds to cover specific additions, alterations dr' improvements at,cperating nuclear plants; e.g., repl_ac of safety-related equipment, replacement of steam generators or other equipment items?
I i
Yes x
No I
1 Please explain, with examples, including the types of equipment involved:
We receive such recuests on a recular basis.
Examules are fire protection eculement, security eauiement, special qualification for certain electrical ecuipment.
i l
I
?
3 2.
c.
Historically, have utilities with operating nuclear plants that i
have requested revenue allowances for NRC safety requirernents always received such allowances?
l l
Yes x
No Please explain, with examples:
same as 2.A.
2.
d.
Have there been instanegs in which utility requests, referred to
' n itern nos. 2.b. and/
T.c., above, have been denied by the i
PUC7
~
Yes x
No Please explain, with examples:
In a recent order the commissioss denied rate makine treatment for monies to have been contributed for the clean up of Three file Island.
The i
l Cormission concluded that the companies had failed to show that such contributions would he in the best interest of New York State ratepayers.
l u
3.
a.
Do the PUC rate orders and revenue requirement allowances specifically and categorically direct the utility to spend certain amounts to cover the total costs of nuclear plant operation?
Yes No x
Please explain, with examples: Through the requiar rate making i
process we allow for the costs utilities ask for, but, it 4
is the utilities' responsibility to spend funds croperly.
Utilities are expected to spend the amounts necessary to cover the total cost of operation.
i 3.
b.
Does the PUC assure-itsl1f t5 rough audit or otherwise that revenues to meet costs nuclear plant operation are not reallocated to other costs at the utility's discretion?
Yes No x
i
]
Please explain, with examples:
commission staff menitors nuclear plant performance on a continuine basis.
If problems are encountered, special audits are ordered.
Thus indirectly it is assured that monies to be spent on nuclear plant operation are not spent elsewhere.
i l
3.
c.
Referring to a utility that has both nuclear plant (s) in operation and nuclear plant (s) under construction, does the PUC provide guidance and/or exercise enforcement to assure that nuclear operating funds are not diverted to nuclear construction?
Yes No x
If yes: Guidance
- and/ or Enforcement (Check one or both) l Please explain, with examples
- -If as a result of staff's I'
monitorine crocedure eroblems are found, the earticular utility is cited and the commission institutes a erudency
.oroceedine.
6
~
M i
l 1
.g.
l 4.
Does the PUC provide guidance and/or exercise enforcement that would-g'ive any higher level of priority to total nuclear plant operating costs vis-a-vis total non-nuclear facility operating costs?
Yes No x
If yes: Guidance
- and/or Enforcement (Check one or both) i l
Please explain,' with examples:
As a general poliev all crenerating units are under Comission surveillance, but staff is eseecially 1
cognizant of nuclear plant cutages.
The reason is that these 1
outages generally increase the utilities' to'tal fuel costs.
l Thus the Ccmmission indirectly assures that the utilities -
spend the necessary amounts for the proper operation of their nuclear plants.
i 1
5.
0,oes the PUC provide guidance and/or exercise en?orcement to assure
~
that individual NRC orders and directives for modifications or additions.to an operating nuclear plant would receive priority as to available utility funds?
Yes No x
i If yes: Guidance
- and/or Enforcement (Check one or both)
Please explain, with examples:
Similar to 2.A. and 2.C.
1 l
l
)
i
=
W m
em ey
,.w m
8 l
6.
a.
Has the PUC established any operating perfomance incentive plan (s) applying to. nuclear plant operation that can have a '
financial effect on the utility?
l Yes x
No Please explain, with examples:
For Niagara Mohawk Power i
Corporation the Commission ordered (C. 27741 II - Opinion 83-17) the modification of the FAC such that the variation from the forecast of total fuel cost be passed through to the ratepayers in the following manner; first $50 million of variation - 80%, next,550 million of variation - 90%,
and over $100 million of variation - 1004.
This would provide. adequate incintive to minimize fuel cost in the sion feels the utility has the ecst conf range where the co' 6.
- b.. If yes to 6.a., above, entify the nuclear plant (s):
(1.)
Nine Mile Point 1 (2.)
(3.)
(4.)
)
1 e
- OO v
. - -v---
--y,,
,,-,.w-..-y,,y ww---, - - -
,,,--+-w-,
w-wwe--ve-e,--
- .r----w-e--ee
- ---m a
6.
c.
If yes to 6.a., above, do the provisions of such plan (s) l encourage the utility to maintain the plant in consercial operation rather than to reduce power level or shutdown?
No Yes x
Please explain, with examples:
coeratincr the nuclear elant would result in lower total annual fuel cost.
i
=
W t
j e
e e
O e
r i
10 7.
Do nuclear plant reductions in power or full shutdowns result in the imposition of any penalties from the PUC (such as disallowance of replacement power costs)?
No Yes x
If yes, what is the type of penalty or penalties? (Check all that apply.)
a.
Disallowance of replacement power costs (1) full disallowance (2) partial disallowance x
b.
Reduction in rate of return
- Pleash,specifytype
- ' partial pass through of c.
Other FAC the first $100 mill on increase over ant.ual forecast fue'l cast to me recoverec Irom sne ranspayers.
Please explain situations that result in penalties, with examples:
If the actual fuel cost for a certain year exceeds the PUC's forecast in any amount up to $100 million the excess can only be partially. recovered through the FAC.
The precise manner o6 recovery was described in 6.A. ab6ve.
There have been two instances where it was found that outages of Con Edison's Indian Point II plant had'been prolonged unnecessarily due to this utility's actions.
The monies spent for replacement power relating to these extended outages was found to be non recoverable from the ratepayers since the utility's actions were judged to have been imprudent.
- _ _.....q
11 1
,8.
a. Is it considered likely that utilities under your jurisdiction
.5,
i that currently have a nuclear plant (s) under constivction or nearing operation will be directed to phase into the rate base the capital costs for such plant (s) over a period of years rather than all at one time?
l Yes x
No I
Please explain, with examples:
Long Island Lighting company's i
Shoreham Plant is under consideration - the company asked for a three year phase-in within the context of C. 28525 -
Shoreham Rate Making Principles.
I s
7 8.
b.
If yes, to 8.s., above, what would be the most likely period of the phase-in? (Check one.)
i i
~
x 2 to 5 years 6 to 10 years l
11 to 15 years other, please specify:
years
(
Please explain, with examples:
Staff's proposal for the-j l
Shoreham Plant is for a four year phase-in.
The State's Consumer Protection Board's proposal was initially for a three year phase-in, later modified to five years.-
[_'I_~_E' ~_ _. _ - _,._ _
-.~EE
__.__.[__,
_ _... _ _. _ _ ~ ~ _. _ _ _ _ _., _ _,.
y_
.s 12-Assuming a phase-in of nuclear plant capital cost recovery, does 8.
c.
the possibility exist that such phase.in could impact the-l availability of adequate funds for safe nuclear plant operation?
I' Yes No x
t If such circumstances were to exist, please describe the PUC's 1
l existing authority to enforce the allocation of adequate funds I
for safe nuclear plant operation:
General reculatory authority to insure safe and
'l adequate service.
5 4
REQUESIFbRDOCUMENTS 1.
Please provide citations to, and copies of, the State statutes, regulations and other legal authority that define PUC responsibility 1
to provide adequate funds for safe operation of a nuclear plant in accordance with NRC standards.
None i
t o
13 2.
P,leaseprovide' citations to any Federal statutes, cases, or other legd authority that the PUC uses in meeting its responsibility to provide adequate revenues for meeting the costs of NRC nuclear safety standards, orders and directives.
Mnne t
j 3.
Please send copies of PUC: orders that specifically address the utility's need to cove'r the safety-related costs of operating a nuclear plant, 'de are particularly interested to know whether or not 4
any such orders refer to thegulility's ability to satisfy, from a j
financial standpoint, NRC ated safety requirements, orders and directives; please include such'd'ocume' ts.
n None l
l
?
l
-,.v._--.
.-.,.-.__v
....--,,,--,.,,m.-,,-..
^'
I
-4 r
4.
Please provi'de representative copies of utilities' rate requests that M cally refer to the need to meet NRC safety-related costs referred to above.
None ya...
Person responding to Name Frank serak this questionnaire:
Signaturt Title Chief, Rates and Valuation Section l
Division /0ffice Power Division Cosmission or Agency Dept. of Public Service Thank you.for your assistancs.
Please return this completed questionnaire to:
Michael Foley, Director of Financial Analysis National Association of Regulatory Utility Cosinissioners P.
' Box 684 Wa ngton, DC 20044 Tel hone: (202) 628-7325 i
l I
1 l
j
-'--r-
---se w
etw-w---we-e---im-r
,4,e-weme
->vr---M',y_
e.
-b i
ATTACHMENT 2 I
ATTACHMENT 2 CONFORMED COPY SECURITIES AND EXCHANGE COMMISSION l
Washington, D.C.
20549 i
FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report:
October 24, 1983 LONG ISLAND LIGilTING COMPANY (Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offices)
I
Item 1.
Changes in Control of Registrant i
Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3.
Bankruptcy or Receivership Not applicable.
Item 4.
Changes in Registrant's Certifying Accountant Not applicable.
Item 5.
Other Events a.
Rates The Public Service Commission of the State of New York PSC) authorized interim rate relief effective September 15, 1983, equivalent to $90.6 million on an annual basis and designed to provide approximately $43.4 million in additional revenues by March 31, 1984.
The Company had requested interim rates to provide $64.3 million by the same date.
This interim relief is subject to refund pending a final determination by the Commission on the Company's application for permanent rates.
Hearings on the permanent electric rates have been suspended temporarily in order to allow the parties to determine the impact on the Company's filing of the slippage of the Shoreham commercial operation date beyond April 1, 1984.
Based on procedural decisions made by the PSC, it appears that the Company will be permitted to update its rate presentation to reflect, among other things, a new Shoreham commercial operation date.
The Company anticipates that a decision on the Company's 4
application for an increase in permanent electric rates will be i
rendered in the fall of 1984, and that the interim rate relief discussed above will remain effective pending a final l
determination by the PSC on the Company's application for permanent rates.
In the proceedings on'the Company's request for $11.8 million in additional annual gas revenues, hearings have been temporarily adjourned in order to allow a negotiated settlement of all issues in the. case.
Settlement negotiations are continuing.
i l
l 1
l 2
b.
Shoreham Nuclear Power Station On September 21, 1983, the Atomic Safety and Licensing Board (ASLB) released its partial initial decision with respect to Shoreham.
In effect, all the issues required to be litigated prior to loading fuel and commencing low-power testing have been resolved in favor of the Company with the exception of open issues involving the emergency diesel generators.
The ASLB also noted that two other issues remain to be resolved, but these will not impact fuel. loading or low-power testing.
The ASLB decision is subject to appeal.
l Damaged crankshafts in the three emergency diesel generators at the Shoreham plant are being replaced with crankshafts of a newer, heavier design.
Other related components such as crankshaft bearings and connecting rods are being replaced as well.
Installation and retesting should be l
completed in February 1984.
Fuel loading may not begin until (a) the three crankshafts have been replaced, (b) al; three diesel generators have been successfully tested. (c) all issues involving the adequacy of the three diesel generators have been resolved before the ASLB (d) necessary administrative work has i
been completed and (e) authorization from the NRC to load fuel has been received.
The Company cannot predict with any certainty at this time the impact that the delay resulting from the developments respecting the diesel generators will have on the Company's estimates of when fuel load could begin, when Shoreham will become operational or the total cost of the unit.
it now appears that the diesel problems have delayed fuel load until the second quarter of 1984, at best.
The diesel l
generators are intended to provide backup power for the plant in the unlikely event that all five transmission lines independently bringing power to the plant fail.
4 i
The cause of the crankshaft damage and failures has not yet been determined.
Fault analysis experts have been engaged to evaluate the cause of the crankshaft failure.
The Company cannot determine until the results and conclusions from the failure analysis become available, whether replacement of the 3
crankshafts and related components will resolve the diesel generator problems, or whether some other remedial measures may be required.
Accordingly, the Company has committed to the purchase of three new diesel generators from a different manufacturer as a contingent measure should the failure analysis or other factors indicate this to be necessary or prudent.
The last of these new units is scheduled for delivery in July 1984.
In addition, a new building is being designed to house these generators.
_ = _ - - - - -.
i l
3 Hearings on the Company's offsite radiological emergency response plan are now scheduled to begin on December 5, 1983.
On October 4, 1983, New York Governor Cuomo, in a letter to the Chairman of the NRC, urged the NRC to reject the company's plan, but at the same time pointed out that he had made "no final judgement" regarding the possibility of developing and implementing such a plan for Shoreham.
c.
Litigation On October 11, 1983 a New York State Supreme Court Justice refused to grant a temporary restraining order against the Company and several commissioners on the PSC that would have prohibited the Company from declaring or paying dividends on its common or preferred stocks, including the dividend payable on j
November 1, 1983 and would have suspended the interim electric i
rate increase granted by the PSC in September.
The proceeding was brought as a class action by a business association and several commercial and residential ratepayers against LILCO and the PSC.
Instead, a hearing on a request for a preliminary injunction against the Company and the PSC has been scheduled for November 4, 1983 in State Supreme Court in Albany on the same issues.
The Company believes that this case is without
]
merit.
Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, and Exhibits i
l None e
m-
.y----
,,,---,r---
..c.
. = _.
l 4
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY Registrant Thomas H. O'Brien By THOMAS H. O'BRIEN Senior Vice President Dated:
October 24, 1983 1
S I
e e
ATTACHMENT 3
ATTACIIMELIT 3 SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of
- the Securities Exchange Act of 1934 Date of Report:
December 5, 1983 LONG ISLAND LIGHTING COMPANY (Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 l
(Address and telephone number of Principal Executive Offices) m
O s
Item 1.
Changes in Control of Registrant Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3.
Bankruptcy or Receivership Not applicable.
Item 4.
Changes in Registrant's Certifying Accountant Not applicable.
Item 5.
Other Events a.
Ratings of Securities:
On November 28, 1983, Standard & Poor's Corporation (S&P) placed Long Island Lighting Company on its "CreditWatch" with negative implications.
S&P's CreditWatch is intended to alert investors to potential changes in ratings of securities.
In the November 28 issued of "CreditWeek," S&P attributed this action to reports by the press which disclosed " preliminary findings" made by New York Governor Cuomo's Commission studying energy, economic, and safety issues related to Shoreham. No report is scheduled to be released prior to December 15, 1983.
The rating agency noted that the purported findings are
" rumor at this point and not binding in any event."
S&P took action, however, since uncertainty could be heightened as to whether the plant will be allowed to open in the event the newspaper accounts proved to be accurate.
l Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, and Exhibits None
- s..
SIGNATURE Pursuant to the requirements of the Securities Exchange
- Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY Registrant By Thomas H. O'Brien THOMAS H. 0'BRIEN Senior Vice President Dated:
December 5, 1983 i
(
\\
\\-
)~
k
\\ -
r 1
h t'
. \\3 P
M
_\\
\\,
t b.
_ \\
. (, ) t s,~
'.' \\ ' ~'
), Ds. -
s 3
~'
7 o
e i
ATTACHMENT 4 I
e y.
,.,n,,,
,a y
'?
ATTACIIMENT 4 CONFOPltED COPY SECURITIES AND EXCHANGE COMMISSION i
Washington, D.C.
20549 1
1 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 s
Date of Report:
Decertber 22, 1983 d
LONG ISLAND LIGHTINC PMt? 'qY (Exact name of' registrant as
',p o: sf' d in charter)
New York 1-3571 11 - 1019782 (Stata of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
s 250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offh.es)
W
-s.,
- i n
4 v.
,e-g a
y-y
=v--
y-a-
i Item 1.
Changes in Control of Registrant Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3. ~ Bankruptcy or Receivership Not applicable.
Item 4.
Changes in Registrant's Certifying Accountant Not applicable.
Item 5.
Other Events a.
Shoreham Nuclear Power Station:
4 On December 14, 1983, the panel appointed by New York Governor.Mario Cuomo to report on energy, economic and safety issues relating to operation of the Shoreham Nuclear Power Station (the Panel) issued its report.
The Governor held a public meeting on the Shoreham issues on the following day in Suffolk County, New York.
Members of the Panel' represented dramatically opposing positions on nuclear power in general and Shoreham in particular.
As a result, most of the approximately 300 page report is devoted to the viewpoints and opinions of individual members or groups of members with very little. consensus on the questions reviewed by the Panel.
The report includes 10 " points of agreement," with the caveat that, "Not every member agrees with each point and the reader must consult Section V, the ' Views of Panel Members' for clarifications of the positions of individual members."
'These points of agreement included the following:
4
- Suffolk County's position that no emergency preparedness is possible for Shoreham was a result of " governmental, not purely scientific or technical processes," although this position was taken after the County had commissioned studies of " reasonable quality";
- Nuclear power is not inherently unsafe
- The Shoreham plant in hindsight should probably not have been built:
i l
. ~.
. ~..
2
- The Company did not adequately prepare for its role as nuclear power utility owner and operator;
- The Nuclear Regulatory Commission should consider feasibility of offsite emergency planning before construction of a nuclear plant begins, and in the context of Shoreham, the Panel supported Governor Cuomo's recuest to the NBC that a low-power license should not be issued until the issue of offsite emergency planaing has been resolved;
- Whi' the significant investment in Shoreham creates an incer ze to license, "it is not obvious that failure to oper
. would be tantamount to economic suicide for the Stat-or the region";
- Economic analyses submitted to the Panel indicate an economic advantage to operating Shoreham instead of abandoning it; however, these analyses did not take into account further delays which may occur;
- An economic analysis taking these recent delays into account should be undertaken immediately;
- The Panel expressed reservations about the feasibility of implementing the Company's offsite emergency plan without assistance from county government
- Without Shoreham, there is sufficient generating capacity on Long Island for at least the next decade:
- If the plant is eventually licensed to operate "an objective inspection program" by a firm satisfactory to federal, state, and local governments and to the Company would either reveal problems to be corrected or " confirm the assertions of previous inspections that found little cause for concern."
Nine questions were considered by the Panel and " answers" were discussed to the extent an answer could be agreed upon by panel members.
Among the areas considered were the State's responsibility and authority for offsite emergency planning; the economic impacts of operation versus abandonment of Shoreham; the need for Shoreham's generating capacity; and whether the State should take action to ensure operation of the plant.
The Panel found that the aresent worth penalty associated with abandonment of the Shoreiam plant would be approximately $1 billion with a further loss of $565 million in tax revenues which otherwise would be paid by LILCO to Suffolk County
3 j
municipalities.
The Panel noted that even simple changes in the many long-range assumptions in the analyses reviewed by the Panel could have a significant impact on the results of the analyses.
The Panel noted that Shoreham's generating capacity will not be required until 1998 according to their Starf analyses.
At the same time, it was noted that without Shoreham's capacity the Company would be "more heavily dependent on oil-fired capacity for the next 15 years."
On the issue of the State's role in emergency planning, the Panel noted that no federal law requires State and local governments to participate in emergency planning.
Furthermore, the Panel opined that State intervention in the offsite emergency planning process was not warranted at this time.
The Panel report offers little or no new information with respect to the Shoreham situation.
Although the findings of the Panel are merely advisory and not binding on the Governor or any federal, state or local agency, the absence of clear and credible solutions to the problems considered by the Panel, particularly the absence of a recommendation for State intervention in the emergency planning process, dces little or nothing to relieve the present uncertainties respecting Shoreham.
On December 21, 1983, the State of New York, at the direction of Governor Mario Cuomo, submitted a brief to the Atomic Safety and Licensing Appeal Board, challenging the conclusion reached by the Nuclear Regulatory Commission earlier this year that a low-power license could be issued without either resolution of the offsite emergency preparedness planning issues or even a predictive finding that these issues will ultimately be resolved in favor of the license applicant.
In a December 20 press release, Governor Cuomo indicated that the State will oppose the offsite emergency response plan submitted by and to be implemented by the Company, in the pending licensing proceedings.
Governor Cuomo also noted that he had previously assembled a special cabinet level working group to develop short intermediate and long term actions designed to "investigage the impact on rate payers and the Long j
Island community whether the plant opens or not" which is in the process of formulating options for his consideration.
e 4
j.
b.
Ratings of Securities:
On December 10, 1983, Duff &-Phelps (D&P) reduced the ratings on the Company's First Mortgage Bonds, General and Refunding Bonds, and Preferred Stock.
On December 19, D&P withdrew the commercial paper rating.
On December 15, 1983 Moody's Investor Service, Inc. (Moody's) also reduced the ratings assigned to the First Mortgage Bonds, General and Refunding Bonds, Preferred Stock,.and unsecured Pollution Control Revenue Bonds.
Moody's also announced the Company's commercial paper rating would be rated "Not Prime."
As previously reported, Standard & Poor's Corporation (S&P) placed the Company's securities on "CreditWatch" as of November 28, 1983.
D&P noted that the outlook for the Company indicated
" extended and deeper financial strain, and increased risks related to the Shoreham nuclear plant with delays and further politicizing of the Shoreham issues."
Moody's attributed its action to uncertainty surrounding operation of the Shoreham plant and the recovery of the investment in the plant and concern that "further erosion of cash flow and coverages excluding AFUDC could seriously impede financing flexibility."
The current ratings of the Com and its commercial paper by Moody'pany's principal securities s, Fitch Investor's Service, Inc., (Fitch), S&P and D&P, are as follow.,:
Moody's Fitch S&P D&P First Mortgage Bonds
- Bal BBB BB+
10 General & Refunding Bonds
- Ba2 BBB-BB 12 Pollution Control Revenue Bonds (unsecured)
Ba2 BB Preferred Stock ***
"ba3" BB+
BB-13 Commercial Paper Not Prime F-3 Fitch is the only rating agency which still considers the First Mortgage Bonds and G&R Bonds as investment grade securities.
Not Rated l
- The Company's Preferred Stock is no longer considered l
investment grade by any of the four rating agencies.
.=
i 5
c.
Financial Condition:
.In 1983, the Company raised approximately $1.0 billion dollars including the takedown of the full amount of the credit 1
available under domestic and foreign revolving credit agreements.
Subject to the accessibility of the financial markets, the Company's 1984 financing plar presently include the sale of $300 million of General and Refunding Bonds, $150 million of Preferred Stock and~$125 million of Common Stock, j
including sales through the Automatic Dividend Reinvestment i
Plan.
The Company also plans to issue in 1984 $100 million of its Authority Financing Notes in connection with one or more offerings by New York State Energy Research and Development Authority of a like amount of its Pollution Control Revenue Bonds.
However, the recent downratings by Duff & Phelps and Moody's Investor's Service, Inc., which reflect the impact of the New York Governor's panel on Shoreham, adversely affects the Company's ability to access the capital markets.
Among the expected effects of these downratings are increased financing costs to the the Company and a limitation on purchasers of the Company's securities to those able to buy securities that are below investment grade.
While the Company has been advised that there are currently markets for high yield utility securities, such as those of the Company, the Company cannot at this time predict with certainty whether it will be able to obtain all of the capital required to complete its planned 1984 construction requirements and other capital 3
requirements.
At December 16, 1983, the Company had cash and short-term investments totaling $313 million, estimated to be i
sufficient to meet the Company s cash requirements to the end of May 1984 without additional external financing.
On. December 21, 1983, the Board of Directors of the Company declared a quarterly dividend of 50 1/2c per share on the Company's common stock.
This dividend is payable February 1, 1984 to shareowners of record January 3, 1984.
The declaration i
of the February 1, 1984 dividend payment at the current quarterly rate followed lengthy discussion regarding regulatory and political uncertainties currently facing the Company and a i
careful review of the Company's financial condition and prospects.
In addition, the Board decided that the absence of I
favorable developments in the near future could affect the level l
or continuation of subsequent dividends on the common stock.
d.
Rates l
Hearings on the Company's pending application to the Public Service Commission of the State of New York (PSC) for permanent
1 4
6 i
1 electric rates have been suspended until January 23, 1984.
This delay resulted from the slippage in the commercial operation date of the Shoreham facility and its resultant impact on the Company's original filing.
The Company, on December 19, 1983, completed an update of its original filing. The updated filing envisions a rate year of October 1, 1984 through September 30, 1985 and requests permanent rate relief totaling $281 million.
This total includes the interim rate relief plus $188 million or approximately 11.8% above the temporary rates which became effective on September 15, 1983 (see the Company's Form 8-K dated October 24, 1983).
The interim rate relief would remain effective pending a final determination by the PSC on the Company's application for permanent rates.
The Company anticipates that a decision on its application for an increase in permanent electric rates will be rendered by September 30, 1984.
For ratemaking purposes the update does not reflect a Shoreham in-service date in the rate year.
Should Shoreham go into service during the rate year, the Company proposes that the costs of operating Shoreham such as depreciation, operating taxes, operation and maintenance costs would be accumulated in a deferred account.
Fuel savings associated with the nuclear facility would be similarly deferred.
In the proceedings on the Company's request for additional gas rate relief, the Commission indicated, at its December 7, 4
1983 meeting, that it would adopt the Administrative Law Judge's Recommended Decision which approved all aspects of the gas settlement reached between the Company and all active parties.
The settlement envisions gas rate relief in the amount of $3.9 million annually to become effective on January 1, 1984.
This annual relief will provide total rate relici of $5.58 million by March 31, 1985, the~end of the rate year originally contemplated in the proceeding.
On April 1, 1985 the Company will increase the annualized amount of rate relief to $5.58 million.
l Provision has also been made for a second stage filing in the Summer of 1984 to cover the then known levels of property taxes and wages.
An option for a third stage filing in 1985 for i
increases in property taxes and wages is also contained in the settlement in the event the Company has not filed a gas rate case by the time of its third stage filing.
Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, i
and Exhibits None
,-en--
,--,--w,,---
e,-
,e-.-e+
-r---m r-w n,v
,,v--
se
we n--
- - -, = -
7 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY i
Registrant By Thomas H. O'Brien THOMAS H. O'BRIEN Senior Vice President Dated:
December 22, 1983 i
o l
6 0
)
i i
ATTACHMENT 5 y
ATTACHMENT 5 CONFORMED COPY SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 4
FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 l
Date of Report:
December 23, 1983 LONG ISLAND LIGHTING COMPANY i
(Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offices) 4
Item 1.
Changes in Control of Registrant Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3.
Bankruptcy or Receivership j
Not applicable.
Item 4.
Changes in Registrant's Certifying Accountant Not applicable.
l Item 5.
Other Events a.
Bokum Resources Corporation:
The United States Bankruptcy Court in New Mexico has dismissed three of the four counterclaims asserted by Bokum i
Resources Corporation (BRC) against the Company in the pending BRC bankruptcy proceeding.
In these counterclaims, BRC had alleged that the Company interfered with BRC's efforts to sell i
its common stock to others breached a-fiduciary duty to BRC and its shareowners and failed to provide it with sufficient moneys to complete its uranium mine and ore-processing mill and fraudulently induced and coerced BRC to enter into the uranium ore purchase contracts and mine and mill development financing agreements with the Company.
BRC had claimed damages of approximately $55 million for these three counterclaims.
The issues in the remaining BRC counterclaim, the LILCO mortgage foreclosure, a breach of contract suit begun'by BRC against the i
Company and other suits involving BRC and its creditors have not yet been resolved.
(Information on the status of the BRC mine l
and mill properties, the several agreements between BRC and the i
Company, and litigation relating thereto appears in the l
Company's Form 10-K for the year ended December 31, 1982, the Form 10-Q for the quarter ended March 30, 1983, and the Form 8-K dated August 25, 1983.)
b.
_ Resignation of Trustee:
1 l
Citibank, N.A. has notified the Company that it will be resigning from its position as Trustee under the Company's I
Indenture of Mortgage and Deed of Trust (the First Mortgage) effective February 29, 1983.
The Company proposes to appoint a successor Trustee pursuant to the provisions of the First Mortgage.
(L '
l l
-. - ~...
2 Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, and Exhibits None J
l l
l l
l I
3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY Registrant By Thomas H. O'Brien THOMAS H. O'BRIEN Senior Vice President Dated:
December 23, 1983
d O
ATTACHMENT 6 r
I i
CONFORMED COP" ATTACHMENT 6 SECURITIES AND EXCHAlJE COMMISSION Washington, D.C.
20549 FORM 8-K j
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 i
I Date of Report:
December 29, 1983 l
1 I
LONG ISLAND LIGHTING COMPANY (Exact name of registrant as specified in charter) l New York 1-3571 11 - 1019782 t
(State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offices)
~
e
,,-,-,--.m
,m,-
CONFORMED COP" ATTACHMENT SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report:
December 29, 1983 LONG ISLAND LIGHTING COMPANY (Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commissien File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offices) l
. =.
Item 1.
Changes in Control of Registrant Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3.
Bankruptcy or Receivership J
Not applicable.
l l
Item 4.
Changes in Registrant's Certifying Accountant s
Not applicable.
Item 5.
Other Events a.
Shoreham Nuclear Power Station I
Testing of the three emergency diesel generators, the i
crankshafts, connecting rod bearings and pistons of which were re-i placed after cracks were discovered in the crankshafts in August 1983, is proceeding essentially on schedule with completion of such l
tests now expected early in March 1984.
When the tests on the emergency diesel generators have been satisfactorily completed, the i
plant will be physically ready for fuel loading.
Fuel loading, however, is dependent upon a favorable resolution by an Atomic Safety and t
l Licensing Board (ASLB) of all issues involving the adequacy of the j
three diesel generators.
The Company has requested that the hearings relating to such issues begin in February 1984, but it is not clear that they will begin until the summer of 1984.
The Company cannot predict when such hearings will be completed.
The Company is also proceeding with the installation of three additional emergency diesel generators which have been ordered from another manufacturer.
These new additional emergency l
diesel generators are scheduled to be installed in a new specially constructed building and tested by August 1985, at an aggregate cost of approximately $89 million, almost all of which will have been 1
expended before the end of 1984.
If the new emergency diesel generators are needed to replace the existing diesel generators, the approval of an ASLB respecting their use may be required.
The Company will have expended approximately S3.2 billion on the Shoreham Unit as of December 31, 1983.
The Company expects to spend approximately $620 million in 1984 for Shoreham.
Additional delays beyond 1984 are estimated to cost an additional
$40 to $45 million each month, almost wholly for carrying charges, insurance, taxes and overhead expenses.
e
-r-,,--e.
-w
+
1 2
b.
Extension of Credit l
Pursuant to the Revolving Credit Agreement of the Tri-Counties Resources Trust through which the Company finances its nuclear fuel, outstanding loans currently maturing in September 1986 are automatically extended to September 1987 unless each individual bank gives notice by December 31, 1983 that it elects not to extend the maturity date with respect to its portion.
The Company has been advised orally by one of the banks that it intends to give notice of its election not to extend the maturity of its $45 million portion of the outstanding $180 million Revolving Credit Agreement.
At this time, the Company does not know whether any of the other lending banks will elect not to extend the maturity date on their respective portions of this Revolving Credit Agreement.
c.
Liquidity The Company estimates that it will have approximately $278 million of cash and short-term investments at December 31, 1983.
The Company anticipates that dependent upon its ability to access the capital markets, it will sell or issue i
approximately $700 million of securities in 1984.
The Company has been advised that there are currently markets for high yield utility securities, such as those of the Company, but it cannot predict at this time with certainty whether it will be able to obtain all of the capital required to complete its planned 1984 construction requirements and other capital requirements, i
d.
Gas Rate Increase On December 20, 1983, the Public Service Commission of the State of New York issued an order adopting the recommended decision of an Administrative Law Judge which approved a settlement of the Company's request for gas rate relief.
Details of this settlement were reported in the j
Company's Current Report on Form 8-K dated December 23, 1983.
Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, i
and Exhibits Ncne l
l' t
3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY Registrant By Thomas H. O'Brien i
THOMAS H. O'BRIEN Senior Vice President Dated:
December 29, 1983 i
a i
e i
I'
._____-.__-,.._v.
6 9
ATTACHMENT 7
CONFORMED COPY ATTACHMENT 7 SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 8-K Current Report I
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 4
1 I
Date of Report:
January 5, 1984 LONC ISLAND LIGHTING COMPANY j
(Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offices) l
,-.-.--...-,,n
l l
Item 1.
Changes in Control of Registrant i
Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3.
Bankruptcy or Receivership l
Not applicable.
l Item 4 Changes in Registrant's Certifying Accountant l
Not applicable.
Item 5.
Other Events a.
Problems Facing the Company I
Sicce 1973, when the Atomic Energy Commission, predecessor'to the Nuclear Regulatory Commission (NRC), issued a construction permit for the Company's 809 MW Shoreham Nuclear Power Station'in Suffolk County,d regulations, construction l'
New York, Shoreham has experienced the effec:: of revise j
delays and increased. costs.
The increased costs have been due, among other reasons, to design changes, inflation and the construction delays, all of which have resulted in total costs (including carrying costs and taxes) far higher than planned and-far higher than for nuclear plants currently operating.
Despite these problems, the Company has virtually completed construction j
of Shoreham with the exception of three emergency diesel generators, and has received a favorable partial initial decision from an Atomic Safety and Licensing Board.
The Company has experienced mechanical problems with three emergency diesel 1
ger.erators which have since been rebuilt and are being tested.
i These problems have delayed the scheduled date of physical readiness for fuel load until March 1984 or, if new replacement generators must be installed, to August 1985.
In either case, the issue of the adequacy of emergency generation capability i
must be approved by the NRC before fuel loading can take place.
l The Company faces serious problems in obtain!.ng approval of i
an offsite emergency response plan which is a condition to i
obtaining an operating license from the NRC.
Suffolk County has taken the position that an emergency response plan is not possible and has steadfastly refused to participate in offsite emergency response planning and has opposed every effort of the Company to obtain licensing.
While the Company has developed its own emergency response plan, there can be no assurance that-such plan will be accepted in the licensing proceedings or that an operating license will ultimately be issued.
The situation has been further complicated by the issuance of an inconclusive 1
b
o i
2 i
report by a study commission appointed by Governor Cuomo of New York and by the apparent decision of the Governor to oppose any offsite emergency response plan in which governmental authorities do not participate.
The Governor also opposes low power operation before offsite emergency planning issues have been reso?,ed.
l I
The Company had expended approximately $3.2 billion on the Shoreham unit as of December 31, 1983.
The Company expects that i
gross expenditures for Shoreham will be approximately $677 i
million in 1984.
Additional delays beyond 1984 are estimated to l
cost an additional S40 to $45 million each month, almost wholly for carrying charges, including insurance, taxes and overhead expenses (depending upon, among other factors, the outcome of
)
the Company's pending application for rate relief).
Because of the continuing difficulties in obtaining an operating license for Shoreham, the prospect exists for further delays and I
uncertainties, further increases in its costs and severe financial strains for the Company.
j For several years a major portion of the Company's earnings j
have consisted.of Allowance for Funds Used During Construction i
(AFC).
This condition is expected to continue until the i
completion of Shoreham and its inclusion in rate base.
AFC is the cost of funds invested in a construction project expected to i
be recovered from customers over the service life of the project through revenues when the project is completed and included in rate base.
Such AFC does not represent cash earnings.
Therefore, the Company is heavily dependent on external financing until Shoreham is adequately reflected in rates.
There can be no assurance as to the amount or the timing of such i
rate relief from the Public Service Commission of the State of New York (PSC).
j
.Some members of Governor Cuomo's study commission and, according to some newspaper reports, various government officials have suggested that Shoreham be totally abandoned or indefinitely mothballed.
Any such outcome could well have a serious adverse financial impact on the Company and, unless the PSC grants to the Company prompt and adequate rate increases, could jeopardize the continued financial viability of the Company.
The Company's 1984 financing plan calls for the sale of an aggregate of appro:.imately $700 million of debt and equity i
securities.
- However, i
Company'g the company,g ven the various adverse facto impactin no assurances can be given regarding the s ability to raise sufficient funds in 1984 and in future years in order to meet its construction and other capital l
l --.. -. ~... - -. - - -. - - -.. -
3 requirements and operational needs.
To the extent the Company is unable to raise such funds in 1984 or in subsequent years, the Company's initial response would be to reduce the level of its capital and operating expenditures.
In addition, the absence of favorable developments in the near future could affect the level or continuation of dividends on the Common Stock.
The Company can give no assurance that such measures will be sufficient in the circumstances, nor can it now predict what other measures it might then take.
b.
Extension of Credit Pursuant to the Revolving Credit Agreement of the Tri-Counties Resources Trust through which the Company finances its nuclear fuel, outstanding loans currently maturing in September 1986 are automatically extended to September 1987 unless eac4l individual bank gives notice by December 31, 1983 that it elects not to extend the maturity date with respect to its portion...The Company has been advised that all of the banks have elected not to extend the maturity of the notes outstanding under the terms of the S180 million Revolving Credit Agreement.
c.
Bokum Resources Corporation (BRC)
The United States Court of Appeals for the Tenth Circuit, in an order filed on December 27, 1983, let stand the decision of the District Court for the District of New Mexico which affirmed an order of the bankruptcy court placing BRC into involuntary bankruptcy.
(The bankruptcy court's proceedings are discussed in the Company's Form 10-K for the year ended December 31, 1982.)
BRC has given notice that it will appeal the decision of the bankruptcy court which dismissed three of four counterclaims BRC had asserted against the Company in the bankruptcy proceeding.
(See the Company's Form 8-K dated December 23, 1983.)
d.
Financing On January 3, 1984, the Company entered into an agreement with Blyth Eastman Paine Webber Incorporated, as agents, for the sale of 5,000,000 shares of Common Stock ($5 Par Value) at $10.50 per share, for an aggregate price of
$52,500,000.
The closing of the transaction, subject to customary conditions, is scheduled for January 10, 1984.
Copies of the Agency Agreement between Blyth Eastman Paine Webber Incorporated and the Company, and the Prospectus dated January 3, 1984 relating to the sale are filed as exhibits to this Report.
4 e.
Securities Litigation On January 5, 1984 Judge John R. Bartels of the United States District Court for the Eastern District of New York dismissed plaintiff Geraldine Rubin's class action complaint against the Company and the underwriters in connection with the Company's offering in 1980 of its Series T Preferred Stock.
The suit was commenced in March 1983 alleging that shares of Series T Preferred Stock had been purchased in reliance upon an allegedly false and misleading description of the tax status of the stock as set forth in the prospectus.
Judge Bartels held that all of plaintiff's claims were
" frivolous" and ordered that attorneys fees incurred by the Company and the underwriters be assessed against plaintiff and her attorney.
Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, and Exhibits Exhibits Exhibit 1 Agency Agreement relating to the sale of 5,000,000 shares of Common Stock, Par Value S5 Per Share.
Exhibit 28 Prospectus dated January 3, 1984 relating to the sale of 5,000,000 shares of Common Stock, Par Value S5 Per Share.
l
5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY Registrant By Thomas H. O'Brien THOMAS H. O'BRIEN Senior Vice President Dated:
January 5,
984 b
I L
...o_--
. - ~.
___e..
A___._
2.m.-
uu -. _ - - =
me m=4
.._m m.m--_._
.m_.
\\"'
l "
i s
\\
-s s
.g sg-s
\\
\\..,9 g
y r
.',y. l.s.s Is ks N.,
.s:
t i',,
\\
q (w
l 9
l$
'i l
4 t
t I
a 1
4 4
4 h-ATTACHMENT 8
(
}i i
t-3 a
s
- 4. M 1
p S
)'
?
x l
{.
l i
4 1
9 i
t d
4
\\s n
L i
1
\\ ~'.
g I :.
- \\=+%
4
.r.
1%
\\
'h n i
q
,3,
7 %
\\
\\
WMi.,...-._-.1,...,_._,._____._,.._,,,_...,___
ATTACHNENT 8 CONFORMED COPY 1
SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 8-K 1
Current Report a
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 4
i Date of Report:
January 10, 1984 LONG ISLAND LIGHTIllG C0tiPANY (Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
250 Old Country Road, Mineola, New York 11501 516-228-2150 (Address and telephone number of Principal Executive Offices)
x
~~
l.
l Item 1.
Changes in Control of Registrant Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
Item 3.
Bankruptcy or Receivership Not applicable.
Item 4 Changes in Registrant's Certifying Accountant Not applicable.
Item 5.
Other Events
~
The Company announced today that 1n lieu of making
~
payment of approx!cnately $26.2 million of property taxes attributable to tha Shoreham Nuclear Power Station, it would promptly place in escrow an amount equal to not..less than $26.2 million pendi.ng resolution of litigation initiated by the Company in Nen York Supreme Court, Su'ffolk County, seeking raview and correction of the assessments of the Shoreham property made'by the' Assessor of the Town of Brookhaven for the tax years 1976/1977 through 1978/1979 and 1980/1981 through 1983'/1984.
The taxes for the 1983/1984 tax year, approximately
$52.5 million, became a lien on December 1, 1983.
Approximately half of this amount has been claimed as due and payable today which is the last day of the grace period for the payment to the Town of Brookhaven of the first. installment of the 1983/1984 real property taxes.
The Company continues to believe that an operating licensu for Shoreham will ultimately be issued and that the plant will become operational.
Suffolk County, however, has undertaken to prevent Shoreham from operating.
Nonetheless, Shoreham has been assessed and taxed as though it were in
~
operation which it is not.
Suffolk County is one of three beneficiaries of the taxes.
Taxes on the Shoreham property provide 8% of the tax revenues of Suffolk County, 22% of the tax revenues of the Town of Brookhaven and 92%'of the tax revenues of the Shoreham-Wading River School District.- The Company has paid approximately $139 million in property taxes attributable to the Shoreham Nuclear Power Station during the tax: years 1976/1977 through 1978/1979 and 1980/1981 through 1982/1983.
If the. Company is successful in the tax litigation, the Company believes that Suffolk County, the Town of Brookhaven and the Shoreham-Wading River School District.wou'ld be unable to refund the taxes paid _ Accordingly, the Company intends, in the Shoreham property tax proceedings, to establish the inequity of-permitting Suffolk County to benefit from property taxes 9
W t
l 2
collected on Shoreham at the same time as it contends in the licensing proceedings for Shoreham before the Nuclear Regulatory Commission that the plant should not operate.
While the Shoreham property tax litigation presents novel questions for adjudication, the Company believes that fundamental legal, equitable and constitutional principles support the Company's
)
position.
The proceedings to review the tax assessments of the Shoreham property are among numerous other such proceedings respecting all of the Company's properties filed by the Company in 1983 and arior years against various assessing units throughout tie Com'pany's system.
Seven of these proceedings have been filed against the Brookhaven Assessor seeking a reduction of the assessments on the Shoreham property in the past eight years.
The most recent Shoreham-related tax proceeding was commenced in late 1983.
Discovery proceedings are being conducted in connection with the earlier Shoreham-rela,ted property tax proceedings.
The Company does not know when a trial of the assessment cases will begin nor can it predict the outcome.
The Company's First Mortgage Indenture and its General and Refunding Indenture permit the payment of the taxes to be deferred pending good faith litigation challenging the tax assessments.
In this connection, the Company is supplying to both indenture trustees opinions of counsel of the Company that it is in compliance with the applicable provisions of the indentures.
Moreover, as mentioned above, an amount at least equal to the deferred taxes now claimed to be due and payable is to be placed in escrow, in order to assure that the property securing those indentures is not subject to forfeiture or loss on account of the deferred payment of such taxes.
The Company also announced today that its Board of Directors has directed the Company's management to further develop a proposed program of austerity measures to minimize cash i
expenditures.
Such a program involves severe paring of internal operations, limitations of support of industry and community agencies, reductions of inventories and purchases and extensive i
curtailment of a wide variety of commitments.
Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, and Exhibits None
a 3
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
8 LOliG ISLAND LIGHTING COMPANY Registrant i
By Thomas H. O'Brien THOMAS H. O'BRIEN Senior Vice President Dated:
January 10, 1984 O
f
+
1
6 ATTACHMENT 9
CONFORMED COPY ATTACHMENT 9 SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report:
February 21, 1984 i
LONG ISLAND LIGHTING COMPANY I
(Exact name of registrant as specified in charter)
New York 1-3571 11 - 1019782 (State of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.).
250 Old Country Road, Mineola, New York 11501 516-228-2150 i
(Address and telephone number of Principal Executive Offices')
{
l l
Item 1.
Changes in Control of Registrant Not applicable.
Item 2.
Acquisition or Disposition of Assets Not applicable.
l Item 3.
Bankruptcy or Receivership l
Not applicable.
Item 4.
Changes in Registrant's Certifying Accountant Not applicable.
j Item 5.
Other Events a.
New Chairman of the Company The newly elected Chairman of the Company's Board of Directors and Chief Executive Officer William J. Catacosinos outlined his plans for the Company at a press conference held on Long Island on February 8, 1984.
A press release setting forth the principal features of the Company's program is annexed to this Form 8-K as an Exhibit.
Dr. Catacosinos, a member of the Board of Directors since 1978, was elected to succeed Charles R.
Pierce on January 30, 1984.
Mr. Pierce will continue to serve the Company as a consultant.
b.
The Company's 1984 Financing Plan
]
The Company's present 1984 financing plan calls'for the sale of an aggregate of approximately $700 million of debt and equity securities.
The Company had on hand as of February 20, 1984 cash and short-term investments of approximately $214 million.
The $214 million on hand includes gross cash proceeds of $52.5 million from the direct sale of 5,000,000 shares of Common Stock in January 1984 and approximately $10.4 million in proceeds from the sale of Common Stock through the Company's Automatic Dividend Reinvestment Plan in February 1984.
Given the various adverse factors now' impacting the Company, no assurances can be given regarding the Company's ability to raise sufficient funds in 1984 and in future years in order to meet its construction and other capital requirements and operational needs.
To the extent the Company is unable to raise such ' funds in 1984 or in subsequent years, the Company's initial response would be to reduce the level of its capital and operating expenditures.
In this connection, to conserve cash, the Company has announced that it would reduce its non-fuel related operations and maintenance expenditures, estimated at approximately $250 million in,1984, by $100 million without significantly affecting customer service and that it has suspended construction payments for its share of Nine Mile Point
2 2.
For additional information relating to this suspension of payments, see Item 5f below.
In addition, the absence of favorable developments in the near future could affect the level or continuation of dividends on the Common Stock.
The Company can give no assurance that such measures will be sufficient in the circumstances, nor can it now. predict what other measures it might take.
After giving effect to the suspension of payments for Nine Mile Point 2 but before giving effect to the proposed austerity program, to additional financing, to any change in dividend policy, or to other cash conservation measures, the Company estimates that the $214 million in cash and short-term investments on hand as of February 2, 1984 is sufficient to continue the Company's operations only into early summer of 1984.
c.
Shoreham Nuclear Power Station The Public Service Commission of the State of New York (PSC) is currently investigating the prudency of the costs incurred by the Company in the construction of the Shoreham Nuclear Power Station.
Hearings with respect to filed testimony 1
are expected to begin in May 1984 before an Administrative Law Judge.
The Staff of the PSC filed its testimony respecting the prudency of the Shoreham expenditures on February 10, 1984.
Based upon $3.846 billion assumed by the Company in its pending electric rate case to be the cost of Shoreham if it becomes operational in January 1985, the PSC Staff testimony would allow 1
no more than $2.296 billion of the Shoreham cost in rate base.
The Staff would exclude V104.8 million of engineering costs as excessive, S295.8 million of construction labor costs as unreasonable, S610.3 million attributable to avoidable schedule
(
delays, $539.2 million attributable to the emergency diesel generator problems and all costs in excess of $3.846 billion if operation of Shoreham is delayed beyond January 1985.
The New York State Consumer Protection Board, Suffolk County, and Long i
Island Citizens in Action, three of the intervenors in the prudency investigation, in'their filed testimony allege that "a strong presumption is raised that any expenditures on Shoreham in excess of $1.9 billion through 1983 are the result of imprudence."
The Company could be required under certain circumstances to write down the value of its assets in the event the PSC disallows a Company's rate base. portion of the Shoreham costs from the The Com>any is evaluating the impact which any disallowance of the Shoreham costs will have on the Company's financial condition and operating results.
The i
Company cannot now determine the amount, if any, of such l
f t'
t
- ~ ~ -
--.-,--e.,
e 3
i write-down.
The effect, dependent upon many factors, could be substantial.
The Company believes that its direct testimony, filed in 1981 and supplemented in 1983, together with its rebuttal testimony to be filed in April 1984, supports its view that the costs of Shoreham have been prudestly incurred.
In this connection, on February 8, 1984, the Company filed in this proceeding a report by Arthur D. Little, Inc. containing findings based on its independent assessment of the Company's management of Shoreham.
The review by Arthur D. Little, Inc.
was based on the same information contained in documents which the Company has produced in discovery proceedings brought by the PSC over the course of its investigation of the prudency of the management of Shoreham, as well as information provided by the Company to the PSC, its consultants and.other interested parties in a series of interviews held by them with the management of the Company and its contractors.
Arthur D. Little, Inc.
concluded 'that LILCO's decisions and related management processes were prudent under the circumstances that prevailed at that time."
Notwithstanding the Company's belief that all of the costs of Shoreham were prudently incurred, the Company's Chairman has indicated that, as part of a proposal that would ameliorate the impact of including all of the Shoreham costs in its rate base, the Company might be willing to absorb $500
^
million of Shoreham's cost in return for some help from Suffolk County or New York State in bringing the unit into operation.
The Company had expended approximately $3.2 billion on l
the Shoreham unit as of December 31, 1983.
The Company expects that gross expenditures for Shoreham will be approximately $634 1
million in 1984 Additional delays beyond 1984 are estimated to cost an additional $40 to $50 million each month, almost wholly for carrying charges, including insurance, taxes and overhead expenses, depending upon, among other factors, the outcome of the company's pending application for rate relief.
Based upon a fuel loading date of October 1, 1984 and a commercial operation date of July 1, 1985, the cost of Shoreham is estimated at $4.1 1
billion.
Because of the continuing difficulties in obtaining an operating license for Shoreham, the prospect exists for further delays and uncertainties, further increases in its costs and for severe financial strains for the Company.
Some members of a commis.aica appointed by New York l,
Governor Mario Cuomo~to study the. energy, economic and safety l
issues relating to the operation of Shoreham and, according to some newspaper reports, various government officials have suggested that Shoreham be totally abandoned or indefinitely mothballed.
In his press conference on February 8, 1984, the Company's Chairman stated.that, among other options under
e 4
consideration by the Company to reduce its cash requirements, was the abandonment of Shoreham.
Any such outcome would have a serious adverse financial impact on the Company and, unless the PSC grants to the Company prompt and adequate rate increases, would jeopardize the continued financial viability of the Company.
The Company has notified the Nuclear Regulatory Commission of problems that occurred during testing earlier this month with the turbochargers associated with the three rebuilt emergency diesel generators at Shoreham.
When functioning normally, turbochargers provide a power " boost" to the engines i
by pressurizing the flow of air into the diesels.
The turbochargers which sustained bearing damage have been repaired, reassembled and returned to testing on two of the engines.
The third engine, which has completed its high-load test program including a seven-day endurance run, has been i
disassembled for an inspection of its major components and appropriate maintenance as required.
Inspection of the new crankshaft and pistons indicate no sign of failure.
Design analysis is still in process.
However, the inspection has disclosed cracks in the area of the cylinder block and in certain connecting rod bushings of this third engine.
A detailed engineering review and analysis is being conducted to determine the cause and significance of this problem.
Inspection of the other two engines did not reveal similar cracking.
These developments have not caused and are not expected to cause an extensive delay in the testing program and the Company continues to believe that the design review and diesel generator testing program begun late in 1983 will be completed in the spring of 1984 at the earliest.
When the tests on the emergency diesel generators have been satisfactorily completed, the plant will be physically ready for fuel loading.
Fuel loading, however is dependent upon a favorable resolution by an Atomic Safety and Licensing Board (ASLB) of. issues involving the adequacy of the three diesel generators.
Although it is the Company's belief that fuel loading could take place at the earliest in the fall of 1984, the Company cannot predict when the hearings will begin or when they will be completed.
A schedule for the commencement of these hearings may be set following a pre-hearing conference on February 22, 1984.
The Company is also proceeding with the installation of three additional emergency diesel generators which have been ordered from another manufacturer.
These new additional emergency diesel generators are scheduled to be installed in a new specially constructed building and tested by August 1985, at
5 an aggregate cost of approximately $91 n.illion, almost all of which will have been expended before the end of 1984.
There is a possibility that the rebuilt diesel generators may be licensed only for interim use.
If the new emergency diesel generators are needed to replace the existing diesel generators, the approval of an ASLB respecting their use may be required.
Furthermore, if the new emergency diesel generators are needed to replace the existing diesel generators as a precondition for fuel loading, the Company may be unable to obtain the necessary financing or adequate rates to meet its cash requirements pending the completion, installation and testing of the new generators.
On February 15, 1984, Governor Cuomo of New York announced a multi-faceted statewide energy program.
Although details of proposed legislation dealing with all aspects of the program were not immediately available, the energy program is intended, among other things, to develop short-term, intermediate and long-term actions to mitigate the economic impact of Shoreham upon ratepayers and the economy of Long Island.
d.
Litigation In mid-February 1984, Wilfred O. Uhl, the Company's President, Charles R. Pierce, the Company's former Chairman and Chief Executive Officer, and the Company, were served with complaints in two separate actions, each brought in the United States District Court for the Eastern District of New York.
In the first of these actions, the plaintiff, Richard Weiland, alleges violations of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
In the second action, the plaintiff, Ira Joel Cohen, alleges violations of Section 11 of the Securities Act of 1933 and of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Both actions have been brought as class actions.
Also in mid-February 1984, Eva Mumken commenced an action against the Company, Messrs. Pierce and Uhl, Thomas H.
O'Brien, the Company's Senior Vice President-Finance, Michael Czumak, its Controller and Edward Eacker, its Treasurer.
The lawsuit was brought in the United States District Court for the Eastern District of New York as a class action.
Also named as defendants are Blyth Eastman Paine Webber Incorporated, Prudential Bache Securities, Inc., E.F. Hutton & Company Inc.,
Lehman Brothers Kuhn Loeb Incorporated, Philbro-Salomon Brothers Inc. and Price Waterhouse & Co.
Price Waterhouse serves as independent auditor for the Company.
The other defendants or, in certain instances, their predecessors, served as underwriters in various offerings of the Company's Common Stock.
Plaintiff
t..
6 e
Mumken alleges violations of Sections 11 and 12 of the Securities Act of 1933 and of Section 10(b) of the Securities Act of 1934 and Rule 10b-5 promulgated thereunder.
The plaintiffs in the three actions are Common Stock holders of the Company.
In general, in their respective complaints, Weiland, Cohen and Mumken allege that over the years in which each owned the Company's Common Stock, one or more of the defendants, either individually or in concert, failed to make adequate disclosures respecting the cost of Shoreham and the management of the construction of the unit.
The allegations of mismanagement are alleged to be based either upon reports appearing in newspepers or statements appearing in the testimony of the PSC filed in the prudency investigation discussed above.
The plaintiffs, in rheir respective lawsuits, seek damages to be proved in the litigation.
The Company will oppose the litigation.
e.
Shoreham Real Property Taxes On February 1, 1984, the Receiver of Taxes of the Is
)
of Brookhaven, and, on February 2, 1984, the Attorney General.
the State of New York, commenced separate actions against the Company in New York State Supreme Court, Suffolk County, by service of summons and complaints, respecting the Shoreham taxes, payment of which the Company has deferred.
The Company has escrowed funds covering the imposed taxes and related charges.
(See the Company a Current Report on Form 8-K dated January 10, 1984.)
The Town of Brookhaven seeks a judgment for the amount of the unpaid taxes, together with interest and penalties, and the Attorney General seeks an order sequestering funds in an amount necessary to assure payment of the taxes, interest and penalties.
Neither plaintiff seeks any immediate relief.
4 1
I In addition to the steps taken by the Town of Brookhaven and the Attorney General, several legislative measures responsive to the Company's deferral of taxes have been introduced in the New York State Senate and Assembly.
If these measures became law and were held to be valid despite litigation which the Company would undertake, they would compel the PSC to cancel the Company's franchises, place the Company in receivership, permit the Company's customers to withhold payment of their bills for electric and gas service and permit the
{
Suffolk County Treasurer to apply to a court to attach the property of the Company for the purpose of collecting the unpaid taxes.
The Company believes that such measures, if they became law, would be invalid.
h
.r,--
r
__.,m
--,c-
, - - -, _, ~, - - -
_m>-,
i i
7 f.
Nine Mile Point 2 On February 9, 1984, the Company suspended periodic payments for construction of its 18% share of Nine Mile Point 2, a nuclear generating unit under construction near Oswego, New York by Niagara Mohawk Power Corporation as agent for the co-owners.
The co-owners of Nine Mile Point 2, in addition to the Company and Niagara Mohaw'k, are New York State Electric &
Gas Corporation (NYSEG), Rochester Gas & Electric Corporation (RG&E) and Central Hudson Gas & Electric Corporation.
The Company has also annosnced that it had initiated discussions with the other co-owners respecting the Company's continued participation in the Unit.
Central Hudson has disclosed that it has commenced discussions with Niagara Mohawk, NYSEG and RG&E as to appropriate courses of action with a view toward completion of Nine Mile Point 2 consistent with its present schedule.
Central Hudson has also stated that if an arrangement cannot be agreed upon, Nine Mile Point 2 may have to be abandoned.
Niagara Mohawk has notified the Company that it considers the Company to be in default of its obligations to the other co-owners and has demanded payment.
Niagara Mohawk has also advised the Company that it may institute litigation against the Company and that such litigation could result in encumbering, diminishing or eliminating the Company's interest in Nine Mile Point 2.
The outcome of the Company a suspension of construction payments cannot now be predicted.
Niagara Mohawk is currently reviewing the costs and schedule for Nine Mile Point 2, last estimated to be $4.2 billion with commercial operation in late 1986.
This estimate assumed direct construction expenditures of $418 million in 1984.
However, the Company has been advised by Niagara Mohawk that such construction expenditures in 1984 are now expected to reach $615 million.
The Company's share of the total estimated construction expenditures in 1984 is approximately $114 million, of which approximately $11.5 million had been paid prior to the l
decision to suspend payments.
The Company's 1984 financing costs for Nine Mile Point 2 are estimated at approximately $63 million.
The Company had expended approximately $570 million for Nine Mile Point 2 through December 31, 1983, consisting of 1
$348.5 million for direct construction costs, $7.2 million for nuclear fuel for the unit and $214.3 million of financing costs.
j The energy program announced by the New York Governor on February 15, 1984 would include actions to limit the Company's investment in Nine Mile Point 2, the development of options for the co-owners to assume the Company's share of Nine Mile Point 2, involvement of the New York "9wer Authority in the unit and a phase-in of the costs of the fo.lity.
l 1
h 8
g.
Dividend Litigation A New York State Supreme Court Justice in Albany County, New York has dismissed a lawsuit brought as a class action by a business association and several commercial and residential ratepayers against the Company and several commissioners of the PSC.
The plaintiffs had sought to prohibit the Company from declaring or paying dividends on its common or preferred stock and to suspend the interim electric rate increase granted by the PSC in September 1983.
This decision is subject to appeal.
h.
Ratings of the Company's Securities Following the Company's announcement in late December 1983 that the absence of favorable developments in the near future could affect the level or continuation of subsequent dividends on the Company's Common Stock, Moody's Investor Service, Inc. (Mood in January 1984 lowered its ratings on all of the Companyy s) s securities except the Preferred Stock which remained as "ba3.
In Moody's view, since December 1983, when it reduced the ratings on all of the Company's fixed income securities, the Company's prospects for continued financial flexibility and for resolution of the Shoreham emergency response plan im However, in Januar Standard & Poor' passe have worsened.s Corporation (S&P) removed the Com i
s securities from its "CreditWatch."
In February 1984, Duff &
Phelps (D&P) reduced its ratings on the Company's First Mortgage Bonds.
The current ratings of the Company's princi al
?
i securities and its commercial paper by Moody's, Fitch Investor's l
Service, Inc., (Fitch), S&P and D&P, are as follows:
I 7--.,
n--
~
-..n v.~
.. ~,
- -, -. ~
9 Moody's Fitch S&P D&P First Mortgage Bonds
- Ba2 BBB BB+
11 General & Refunding Bonds
- Ba3 BBB-BB 12 Pollution Control Revenue Bonds (unsecured)
Ba3 BB Preferred Stock ***
"ba3" BB+
BB-13 Commercial Paper Not Prime F-3 t
Fitch is the only rating agency which still considers the First Mortgage Bonds and General and Refunding Bonds as investment grade securities.
Not Rated
- The Company's Preferred Stock is no longer considered investment grade by any of the four rating agencies.
1.
Appointment of Successor Trustee Under First Mortgage The Company has appointed J. Henry Schroder Bank &
Trust Company as Successor Trustee under the Company's Indenture of Mortgage and Deed of Trust (the First Mortgage), effective as of the close of business on February 29, 1984.
The resignation of Citibank, N.A. as Trustee was disclosed in the Company's Current Report on Form 8-K dated December 23, 1983, as amended by Amendment No. 1 thereto on Form 8.
Under the provisions of the First Mortgage, the appointment of J. Henry Schroder Bank &
Trust Company is subject to the right of the holders of a majority in principal amount-of the First Mortgage Bonds then outstanding to appoint a successor trustee and to give notice thereof within one year of the first publication of a notice respecting the ap1 ointment of the successor trustee.
Such notice was published on February 8, 1984.
Item 6.
Resignations of Registrant's Directors Not applicable.
Item 7.
Financial Statements, Pro Forma Financial Information, and Exhibits Exhibit 28 - Corporate news release dated February 8, 1984.
r l
l l
?
e O-i 10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY Registrant By Thomas H. O'Brien THOMAS H. O'BRIEN Senior Vice President Dated:
February 21, 1984 4
i
aW2W M pts
= = -
CONTACTS: Ira L. Freilicher, V.P.
Lilco 516/228-2027 A. F.
Long, Pres.
D.
F.
King & Co., Inc. 212/269-555@
J. W. Cornwell, E.V.P.
D. F. King & Co., Inc. 212/269-555d W. C. Neilson, S.V.P.
D.
F. King & Co., Inc. 212/269-555 S. L. Nahum, A.V.P.
D. F. King & Co., Inc. 212/269-555@
FOR IMMEDIATE RELEASE MINEOLA, NEW YORK, February 8, 1984
. William J. Catacosinos, recently elected Chairman and Chief Executive Officer of the Long Island Lighting Company, at a press conference today reviewed the problems presently facing the Company and outlined the following 5-step program for the future of Lilco:
- 1. "We are carefully evaluating our operations to determine what additional cost reduction measures we can take to lower our cash requirements with minimal impact on the services we provide to our consumers.
This will mean hard decisions not faced in the past.
This will.mean hardship, and personal and financial sacrifices among all of us at Long Island Lighting Company including our management, our employees and our shareholders, but these decisions that we have to make will be necessary in order that we continue as a viable entity.
Page 1 of 3 i
The Long Island Lighting Company 2.
- 2. "We are examining our ability to continue to fund the construction payments for the Nine Mile II nuclear project.
- 3. "An evaluation of our Company's ability to continue its cash dividend policy is also underway, and recommendations will be made to our Board of Directors at the appropriate time.
- 4. "Since members of our senior management group will be retiring in the near future, we are acting to reorganize and revitalize our Company's leadership and direction in order to take into account the changing nature of our business.
I believe it is essential to place strong emphasis on our nuclear operations as well as to recognize the importance of our gas system.
- 5. "We will actively seek rate abatement.
Studies are underway to determine means to phase in the Shoreham costs over a period of time with minimum financial impact on our consumers."
Dr. Catacosinos stated:
"We need and ask for the help of our Governor, our County Executives, financial institutions, the consumers and the support of our shareholders.
Above all, we must have the continued dedication of the thousands of Lilco employees who have provided outstanding service to the community for the past 70 or more years.
Page 2;of 3
^2ha Long Is1cnd Lighting Compnny 3.
"On behalf of the Board of Directors, management and the dedicated employees of the Company, we look to the future.
No doubt we have all learned from the experiences of the past.
However, for the resolution of the remaining Shoreham problems and the continued viability of Lilco, I pledge that our energias and attention will be directed to the future and the accomplishment 4
of these goals.
I believe we can and shall succeed.
That is why I am here."
f Dr. Catacosinos said that Lehman Brothers, investment bankers highly regarded for their experience and capability in the public utility field, will assist Lilco in many of its studies and in the program outlined.
In addition, D. F. King & Co., Inc., a well-known consulting and communications firm, will assist Lilco in its corporate and fincncial public relations with respect to the community and the 1
i shareholders.
f
WILLI AA J. CATACOSINOS William J. Catacosinos was elected Chairman and Chief Executive Officer of LILCO by the Company's Board of Directors on January 30, 1984.
Catacosinos, 53, has been a member of LILCO's Board since February 1978.
From August 1969 to November 1983, Catacosinos was Chairman and Chief Executive Officer of Applied Digital Data Systems, Inc. of Hauppauge, Long Island, a company he founded.
In 1980, the NCR Corporation of Dayton, Ohio bought this manufacturing company of terminals and computers for $60.5 million.
Dr. Catacosinos was a founder of Corometrics Medical Syste'ms, Inc., a Connecticut-based electronics firm which pioneered the manufacture of fetal heart monitoring equipment.
In 1974, American Home Products acquired the company for $20 million.
At Brookhaven National Laboratory, Dr. Catacosinos worked consecutively as administrative officer, business manager and Assistant Director of Business Administration from 1956 to 1969.
Dr. Catacosinos has been a management consultant to the Atomic Energy Commission, the United States Congress and the government of Greece.
As Adjunct Professor at the NYU Graduate School of Business, Dr. Catacosinos taught " Management Practices" and " Management of Technical Operations".
He earned his B.S.,
M.B.A. and Ph.D. from NYU.
As a Naval Officer from 1952 to 1956, Dr. Catacosinos's responsibilities included supervising construction of Super Aircraft Carriers at the New York Naval Shipyard in Brooklyn.
He currently serves as a Director of the Stony Brook Foundation, a fund-raising group.
He is also a trustee of the Polytechnic Institute of New York.
William J. Catacosinos and his wife, Florence, live in the village of Mill Neck, Long Island.
They have two sons, l
William and Jamos.
I x
- -.. ~
i j
I t
t i
t ATTACHMENT 10 1
84.03/08 10:38 P02
~6'L E R O HICKS ILLE Ni MiallIIL March 6, 1984 l
The following information has been released to the public:
Dr. William J. Catacosinos, Chairman and Chief Executive Officer of the Long Island Lighting Company, announced today at a press conference an austerity program to conserve cash including the following:
1.
Lower capital and expense budgets totaling more than $100 million for the remainder of 1984.;
2.
A sharp reduction in the number of personnel positions
.within.the Company; 3.
Salary reductions for employees.
In addition, after careful consideration of the Company's
~
cash requirements the Board of Directors determined to omit cash dividends on the common stock for the balance of the year or until such time as the Company's financial condition is sufficiently strong for dividends to be restored.
Specific elements of the austerity program are as follows:
- Elimination of the total of 741 positions at LILCO, 544 i
through personnel termination and 197 through attrition, as well as an additional 246 jobs with outside contractors.
j AA cutback of 50% in Directors' fees.
l
- A cu tback of 20% in ' alaries for Officers.
- A salary reduction of 10% for ennagement personnel now I
earning $35,000 or more, and a 5% reduction for those below that level.
- A cutback of 11% in the Company's 1984 capital budget, and a 22%.ceduction in the 1984 operating budget.
l l
Dr. Catacosinos added that the Company plans to announce in the next two weeks a management reorganization plan.
c;
Netugorksimes
-NEW YORK, WEDNESDAY. MARCH 7,1984-
' 10 A'NN0 LEES Dr. Catammina= said m*a===s
". "he layoffk will be miraserated la
" " " * " ' ' ' ~ " ' ' ' '
DT P l
ice T l
areas not directly related to peakecing and distritmitas electricity, h,e ad.
T00UT1. 8,1SSES o - r pr
- -t _.ea.d m ---ty reia s
-. cod for.e -- i.,
were mot.itai wme cise he seM, S.USPENDS STOCK DIVIDEND aJ* gw,'*ddQ1'*".d""*
= ~-r y - he.acar g its customers for the but of Shoes.
Cost of Shoreham Plant Cited ham s coaaruce==== =tu m pun enters service, but a series of technical as Cause of Utility'sWoes
=ipoukalsabacks have.hyed h 1
plant.
l
. Jobs Will Be Lost
= =ci-r prown of a mmeer or i
other utilities across the country emes similar cost overruns and delays.
ByIDEDSEYGRU30N Shoreham, however, is the most expen.
s,mmedienense rue n==
sive reactor ist the country for its she5 GARDEN CITY, L.I., March 8-The
- I Long Island ughting Company,will At a l
-pmi ***-i= -
Ca, ot., here, D,. c._a the Gas.a.
stock for at least the rest of the year andwillreduceits workforcebyne
~
= - - new - a.rty na. su,,c.e., sac,,,c,s,,d,,s,,e ma cosinos
'To FurtherCr.Wa*
the salaries of all maaseere and about "We hope that by doing tais, other 20 peteent of its lower. level employees.
people will step up and any, 'What com la additka, it will rtdice d. rectors' we do to avoid a further crisir.'" he fees.
said.
The utility is faced with nnemeaan "What we're trytag to deis save tMs problems that it trkus to the cost over.
company. For too long, too aiamy pee.
pie have believed that we're not la tres.
r:ns cui the 800 megawatt Shoreham nuclear power plast. At a current ase6 ble. The truth is that we are la trodde mated cost of M.l billica, the plant is 15 '
andit's serious."
timesovertheorigina!meanimes Wau Strost analyets said tiint they Lilco's c.*ha<*= winch wtB affect rahem Page 33,Colume t most of the departmaats la the troubled utility, are part of a pies to commerve casin and save the cmaspany from inest.
vency, Dr. cataraminan sekL e esel.
mated that the plan wouhi save SBN
, millian tids year.
i l
AusterityPlan w.
IsPutForward k
.pg. y W.: Y.-a a ~.
ByLilco Chiei B's'
%W
%c$v y.% c;R ~
M ra=*h==d Fresa Page A1 hN M"/$c' -
e
,w My g.
Iaqi' foreseen the austerity plan and
.D Eg,;T-[
that the daciaian to stop dividend pay.
NM.
g mestedkinatsurprise them.
L.$qJ4".
- "We expected the dMdend to be cut, 3r and the only. question wee whether it g
would be an omission," said Scott Sar.
e; a I
thrius, a utilities analyst with Salomon e f.'
,pg,3 g
Brothers. "We're not talking about a. Ng; s
company with.a lot of cash. 'Ibe rate. g:w pg i
payers are going to take it on the chla QR p g -.
p and those in power felt that the stock. hWf m 4J holdershad to take part of the sock."
- U
..a WMSU
. The utility's mm-stock, which payed 5.5 in dividende last year, gs7,ffy,,
,.gg ; +
closed down 1% todayat 6%,its lowest D S
..'L <
pointin more than a darade w,
b M
w-A-'
n for the utility said be 3,h, P,M Ng thought it inne the first time in the 74 Mff y; W year history of the company that it had g i_f miaand a dividend payment. Dr. Cats.
=;,:gos g;;a-ig;t Dr.wduarai.Ca.-.- woecielrea.,at.o.ees ore.es,este y am no ease verommisvu nonim,.es.
. As recently as a month ago Mco n= aman stock was trading at 10%.
had not decided how to proceed with The largest savings under the aus.
1.ilm stock has base falling steedHy Shoreham. He said the utility had re. tartty plan, 3167 milliam wul come since the late IMW's, when it traded la' jacted a proposal to convert it to coal from skipping the dividend pymente,
" the high20's.
and amph==i=d Ido continued comatit. Dr.Estaccetnoe said, Inant to starting the plant.
PreferredDIvidende a=*emma But Dr. Catara=6aan added that the Under the austerity plan aannume=d r
Dr. Ca*=cadaan said the board of di.
compatry muld not afford m condnue,oday, Dr. Ca'aca=6aan said es unuty t
ggg rtetors, which appmed the aumrity program at a moedng mday, had am to the 9 Eliminate a total of 907 jobs. At.
"How long can we hold out?" ha least 544. or 10 percent, of tisn mmpa.
eompesy's
[
asked. "That's the get questice." In. ny's 5,642 employees will ine laid off and.
g for oms of preferred stock was terest paymente and other overhead on 197 will leave through attrition or re. i declaredlastweek.
the plant total $40 millian a month.-
tirement, he said. In addition, the util. '
Dr. Catacasiaan also said Governor ity will eliminate 248 jobs for widch it i
[,",,g Cuomo, who opposee Shoreham, had contracts withotherconcerne.
i crease. A Sr79 millian or 21 perceor, tand ldm me com
,s request for qCut the salaries of managers who rate request le before'the State Public stata aid would om on what Gco Service amme==6am however.
didMthShoreharn.
earn more than 815,000 a year by 10 per.
r the enthacha Dr. catarani.
Aldes to Governor Cuomo said the cent. Thors will be a 5 percent reduc-tico for managers who earn less than n's the -.
stin faced a cash acticos by Eco m intamal com.
$35,000.
o I
shortfall of $100'milItan this year. But darista==.
he dar18aad to predict at what point the is unfortunate and just another 9 Reduce fees to board members by utiuty run out of manay.
Indication of how terrible a mistake 50 percent. The 11 directors now are paid about $15,000.
Al
. Ca'aa=6-said the Shorehant was," said Timo@y J.,Rus.
austerity program wee necemeary for east,the Goverer's counsel.
1 Cut the salaries paid ofScors of the the company to survive, he amphasised Gmemor Cuomo said that he had c
pmay by 25 percent. Dr. catmead-s noe said his salary, Sr75,000 a year, will that there were as pleas to declare the
- poken wie Dr. Cata==6an= MandaY be reduced by 20 percoat. He wtB enra
- 't est me uco chairman had ar.
utsutybankrept.
330 000,310,000 less than his pe=am 1, ma, t== Dr. ca omid he
"'*8 d " 88 C888 * "Id 888 Sff*C8 ear,, Charles R.Pleros.
service
ATTACHMENT 11 i
j
m....
l 2843 l
ATTACHMENT 11 1
NEW YORK STATE PUBLIC SERVICE COMMISSION g
3 IN THE MATTER 4
- of the-5 Proceeding on motion of the Commission as to the rates and charges of LONG ISLAND LIGHTING 6
COMPANY for electric service.
7 I
8 9
MINUTES OF HEARING held at the i
10 Nassau County Police Headquarters, Mineola, t
11 New York, on January 31, 1984, commencing at
?
i 12 l
9.35 a.m.
i 13 i
BEFORE:
I I
t 14 FRANK S.
- ROBINSON, j
I 15 Administrative Law Judge t
i 16 l
APPEARA!!CES :
17 i
(As previously noted. )
1 19 l
I i
00 i
t l
21 l
i 22 02 O
s
-mese
44 O' Brian 00 I
financial form of relief, when will the company run 2
out of cash?
3 A
I think in order to come up with that particular
\\
4 number, we have to have a lot of other assumptions 5
made and I have not done that specific calculation 8
out that far.
7 G
Are there assumptions that would have to be inputted 8
into this analysis regardin future austerity measures?
g A
It's not a difficult analysis.
10 As I indicated earlier, we have just' 11 completed a cash receipts and disbursements schedule 12 whereby we assume that in addition to the. common stock 13 that we sold in January, that we would have been 14 successful in selling both the S75 million of bonds 15 and I believe we used $50 million of preferred stock 18 and that indicated that we would run out of cash, I gy believe, in September--August or September and we le would end up the year having to find a source of l
19 another approximately $250 million.
20 Now, to.do the calculation it can be done l
21 and I just haven't done it.
0 I w uld like to pose four scenarios to you and not 22 23 ask you to answer them because I think you could not provide an answer.
c
- s. ~
1,
- ( s J(
l'N N'f
'\\
45 O'Brien 3201 1
If the company were to skip one, two, three 2
and four quarterly dividends, how much more G and R 1
3 bonds could the company issue before the end of the 4
rate year?
I 5-A.
None.
I 6
'O Then you don't have to do that analysis?
N_
7 A.
-Unless,I am corrected, the common stock dividend is a
not involved in the calculation of the coverage ratio.
l g'
O How much less would the ccmpany have to finance if thS'y skipped one, two, three or four quarterly 10 t
11 dividends?
12 A.
Well, our quarterly dividend, common stock dividend, s
g3 is approximately $50 million.
From that $50 million, s
C 14 you have to deduct: the dividends that are reinvested g's because at the present time a large number.of our s
yhareholders reinvest their ' common stock dividends
['
s ;;g g7 into the, company, so from a cash basis, while we pay-s.
o
\\
gg out" $50'tpillion in common stock dividends, approximatelp
$12 to $14 million of that is reinvested in the Ig f
b
'l i
compqny through tho' purchase of newly issued common 20 y
N' s,
\\-
21 stock..,
\\'
0
'Haveethe amounts.of reinvested dividends declined 22 s
in the' last quarter?
23
?
A.J We will have the results for this period, the c
s
46 O'Brien 3202 fm 1
February 1st reinvestment period.
We declared the 2
dividend on December.
That dividend is payable 3
February 1st, and the results are not in.
People 4
have until, I believe it's 20 days after the date to 5
change their minds.
So we really won't have a final a
answer on how much of the dividends are reinvested y
until towards the end of February.
8 0
Will you expect, based on the uncertainties regarding g
the company since the summer of 1983, that there would 10 be a decline in the number of investments and the 11 dollars that would be reinvested compared to previous 12 quarters?
A.
I think it's reasonable to assume that there will be 13 N
14 some decline in the amount of the dividend reinvested.
i.
15 However, our earlier indications are that it's probably 18 g ing to be very, very small.
You have to realize 37 over the years the participation in that dividend 18 reinvestment program has increased every year and 19 we have had an increased number of shareholders.
20 Right at the moment it looks as though 21 there has been a slight decrease in the number of 22 people in that plan.
Some people are upset because 23 of the decline in the common stock; on the other hand, some people may feel it gives them an opportunity to
--- a
47 O'Brien 3203 l
i 1
avesage down.
2 0
You have nald quite a while ago that based upon your 3
discussions with persons in the financial community,
~ 4 that other,'than the pollution control bond issue and 5
the common stock issuance, you didn't perceive any 6
'significant difficulty in marketing your G and R bonds 7
and your preferred?
Am I fairly paraphrasing what a
you said?
~
9 A.
Yes.
I think today"we can sell preferred stock and 10
' bonds and we would do so if-we did not have this 11 pending testimony coming on the prudency hearing.
M Q
When you say you could sell pr's-ferred stock and G and R 13 bonds,.did.you=mean the dollars reflected in,your 14 testimony en page 32 and;33 and at the times suggested 15.
by your testimony or that these are orders of magnitude
.arot$nd thesc periods ~ that you could issue stock in 16 -
17 whole or in part?
18
~
In other words, are the real proposals or 19 a real ff.nancial plan that we have here or are these sort of what you think you.may be able to issue if 20 c
21 everything sort of works out?
Is this a reasonable
' financial plan today?
~ 22
.N j.
l M-If it-were not for this impending testimony that will 23 h,e coming 'forth on February 10th there is no question
.j
.n.
x ell -#
w
-_..~;.
40 O'Brien 3204 f^.
1 in my mind and some other things of this nature--
2 there is no question in my mind that we could go into 3
the market and sell $75 million of bonds.
The 4
constraint on that number is our coverage test.
5 My recollection is that at the present time 6
at a 16 percent rate, we can sell approximately 7
S77 million of G and R bonds.
So the constraint, there 8
is not a market constraint.
It's a coverage constraint, g
a revenue constraint.
10 On the preferred stock, we would sell the 11 Preferred first because the preferred stock is not 12 only subject to the rate on the preferred stock but 13 it's also subject to the rate on our short-term, and 14 assuming a 16 percent rate on the preferred and 11 per-15 cent borrowing rate on our short-term debt, we can 16 sell something in the neighborhood of $70 million of 17 the preferred stock at the present time.
18 So those numbers are constrained by our gg revenues and expenses, not by market conditions.
If 20 it were not for these constraints, coverage constraints 21 I think we could sell more.
l 22 4
These constraints you have listed would allow you to l
sell two issuances, one preferred and one G and R 23 bond, and all of them by April 1984.
What about the l
l
l Case 28553 3422-1 NEW YORK STATE PUBLIC SERVICE COMMISSION 2
l 3
IN THE MATTER 4
- of the -
5 Proceeding on motion of the Commission as to the rates and charges of LONG ISLAND LIGHTING 6
COMPANY for electric service.
l 7
8 i
\\
3 MINUTES OF HEARING held at the 1
i 10 Nassau County Police Headquarters, Mineola, New 11 York, on Thursday, February 2,1984, commencing 12 at 9:35 a.m.
13 14 BEFORE:
15 FRANK S. ROBINSON, 16 Administrative Law Judge 17 i
l APPEARANCES:
1 (As previously noted.)
19 20 21 22 23 P=4scNf REPORTING $2RVICE. $NC.
I5 O'Brien 3507 e,
1 company, and at that time, some of the shareholders i
2 avail themselves of the opportunity to buy additional 3
stock from funds over and above the amount they received in dividends.
4 5
So on a cash flow basis, you have to net 8
that out, and the savings ~would be probably more in y
the neighborhood of the outflow of cash,would be reduced by the net cash effects, which would be in g
the neighborhood of $140 million, $150 million, on an 9
annual basis.
10 G
So that over the years 1984 and 1985 that could give 11 LILCO 280 to 300 million dollars of additional cash 12 l
if y u were to skip dividends for that length of time?
13 A.
We have already paid the February dividend. So you 14 w uld be talking about seven dividends rather than 15 i
eight dividends.
18 G
It would be slightly less?
p l
A.
Ie is an ariehme uca1 ca1cu1auon.
O In your opinion,!!r. O'Brien, if LILCO were to pass even a single dividend, would it be able to maintain access to the financial markets?
A.
I don' t know.
It is certainly rather questionable.
Obviously, it would prohibit us from selling any common stock at any sort of a reasonable price.
It Pameoser Rapostene Samvecs. IMc.
86 o' Brian 3508 r'
I would' obviously have a severe impact on our ability 2
to sell preferred.
3 We probably, in my opinion, would not be 4
able to access the preferred market.
We might be 5
able to sell some bonds.
8 G
But not the amount of bonds that you currently have 7
in your plans for 1984 and 1985; 'would that be a fair a
statement?
g A
I think prudence would dictate that if we did not pay to the dividend, that we would have to assume that we 11 would not be able to obtain money in the external 12 markets, either from the sale of securities or borrow-13 ings from banks.
14 0
.If that were to occur, what options would the company 15 have to finance their needs over 1984 and 1985, even 16 net of what you would save in terms of dividend paymentn?
A If we were excluded from raising funds externally, 17 18 the only alternative would be to look to the company gg internally, and that would require severe trimmina in all ur expenditures, and obviously, the amount of 20 21 money that might be saved there would not be sufficient 22 accomplish the work that has to be done to continue t
safe and adequate service to our Customers.
The alternative then, would be, I would PARSONT REPORTING SERVICS INC.
- l.
.87 O'Brien 3509
.e 1
assdme, to go to the only other source left, which 2
would be the Public Service Commission, and ask for 3
a very, very substantial increase in rates immediately.
4 g
You could use the line of credit that you have already 5
drawn down, couldn't you, and that would give you i
8 three or four hundred million dollars?
7 A
The numbers that I have quoted earlier, which assume j
8 that we do no other financing other than the common 9
stock we' sold this year, would result in our using up 10 all of that money that we have drawn down, the whole 11
$270 million we had at the end of the year, and would 12 result in our being short or required to raise 13 approximately $375 million in the latter part of the 14 year.
15 Right now, assuming there is no additional 18 financing done other than the common stock we have 17 done this year, this company will run out of money 18 sometime in June.
19
.Now, we have been operating on the assumptio n 20 to the extent that we could sell the preferred and the 21 bonds, which may no longer be a valid assumption.
If we do those, that will take us into August or September.
22 Right now, I think, pending the filings in 23 the prudency case, we have to assume that the only Panoon? Maposteme $savics. Inc.
O 9
1 ATTActingyy 33 4
ATTACHMENT 12 New York Times, 10-17-83 S.aoreaam 1 area:':0 Lilco Je :ai..ec.
v-cover.
the economic assumptions used in By MA1 THEW L.WALD The study was prepared by profes-developing the study. He commis.
sional utility analysts borrowed by sion, created by Governor Cuomo in n.f.cag Island Lighting Company the commission from the New York May to study the economic and safety e
c+Y be hsnkrupted if it were forced. State Energy Office, the Consumer problems posed by the 80kmegawatt to absorb as umch as $1 billion of the Protectica Board and elsewhere. De reactor, is sharply divided on
$3.5 blL.un estimated crat of its 13 members of the commission got whether the plant should open and Shoreham auclear plant, according to the study at the end oflast month, and who should pay forit, the draft report by the staff of Gover.
are using it and other materials to ne report noted, "In L11co's situa.
nor Cuomo's special commission on draft their own report. That final re.
tion, the common stockholders have Shoreham.
port, originally due at the end of Au.
an investment of approximately 32 De report, issued last week, also gust,is nowpupposed to be finished billion at the present time @ased cid r ~I'N' conel t if the,=. actor were before Nov.1.
July 1983 balances). Shoreham in.
(s( c
.,,.$"Decti
- *t aband Lilco allo ieri to col.
The chairman of the commission, vestment to date is about $3 billion.
from tv.*y"ers Dr. John H. Marburger, who is prest.
exceeding the equitybalance by some q...,,,y ove eral years, tne Jent of the State University of New
$1 billion."
I be driven into York at Stony Brook, LI., said in a According to the report, "A $500 W""
it were permitted telephone interview last week that at millionwrite4ff would have someim.
U * ' " - ".M er to
- t each year on the least some of the members of the
^"M G #- "
partc etit had yet to re-commiuion disagreed with some of Continued on Page De
New York Times, 10-17-83 (con't)
Cwst Threat to Lilco Cassinand From First Basiness Page In general, according to utility es.
pact on uco's ability f-*, a unlity can expect to be al.
dends. uidmaisiy, to pay divt.
o caarse nis - f-me e com-would beimely to recover and beable capital cost of a plant, plus an author.
!aed rate of return,if the costs were to marketcommon stock a However,it said, a $1 write.. incurnd pmdendy. De Public Serv.
I off"would be likely to have far more ice Cornminian has conmed a pro.
j ca=ritne to deternaine whether Shore.
serious ---
= includingW term dividend omissilon and, if the ham, which is costing 10 times the company survived, a long and difft.
amount budgeted, was constncted cult recovery in terms of availability prudently, or whether some portion of of equity funds."
the cost was incurred because of A Lilco sP*===== Judith Brab.
frami-mm==na smam ham, said on Friday that even a tem.
Eco curnedy puts es nnat price porary in 6.,y e in dividends of Shoreham at $3.4 billion, but ac.
would bring insolvency, because it knowledges that that estimate does would probably make it impossible not takeinm account aH of the delays for the company to borrow money that the company now expects. Be.
from convenuonalsources.
cause more than 83 bt!! ion has al.
ready been spent, interest charges
_ -._... -and other overhead costs on the thus.
far unproductive investment now come to more than $1minian a day.
At one point last manth the cotn.
pany had said that it expected com.
mercial operation by Jan.1,1905, which would have put the cost at about $3.5 billion, but more recendy, Lilco has said that it cannot predict a startup date.
he staff report noted that along
(
with the possibility of disallowing I
some costs forimprwiane= "it is also arguable that costs should be disal.
Iowed if the costs were facurred for l
excessive capacity, if the costa ex.
coed the value of the investment, or if the plant is abandoned." Suffolk County is seeldng abandonment be.
cause, officials there say, it would be Impossible to evacuate residents of the twievinniiaresin the event of a radiation accident.
A vice president of Lilco, Ira L.
Freilicher, insisted, however, that 4
the discussion was " absolutely aca.
domic."
i
'No Evidenes'ofImpredesee "Under no circumstances can we i
envision our absorbing anything in the way of a loss," he said in a tale.
phone interview. " Absolutely no evt.
dence has been turned up that we wereimprudent,"he said.
l Asked to comment on the study's l
findings, Mr. Frielicher said, "aer.
tainly, an amount of 81 billion or more is out of thequesdon.We have notgot studies which spect what amount i
undera billionwe absorb."
The company is now seeldng to re.
cover $153 million on two canceled projects: twin reactors proposed for upstate in partnership with the New York State Electricand Gas Corpora.
tion, and an 80knogawatt coalplant, planned fut Jamesport, L.I. Fouow.
l ing established precedent in New York, Lilco asked the Public Service Commianian for perudselon to amor.
time the recovery over 10 years, and include la customers' rates a profit on theunamortised halenes.nocompe.
afs authorised rate of regern is now 12.5 percent,
y711-quus a.
Reports of Bankruptcy Option Send LILCO's Stock Plunging Cy Alast J. War studying such cetiene as a takeover of cy respoese plan p oposed by Ltiro IJ1ro spokseweenan Jan FA*ren
- and A bast 3th & H shoreham, or of 11140 6ta if, by the that usee utitty workers as sanetitute. no.ed that the drep is the a
Iems Island Ughting Co. stock Num' New York Power Authority; mcthball-for Su5alk County ec:ployesa. In his stack metad 6 its lowest level is = ore than ing the plant for use in case of a change statement, honever. Cuo=a esii *1 ton-stock b'ce was not e neord.
fallen 29 per cent Sem its in wor 13 energy mahts; or pmdding tinue c:y cppnaitico to LIILOPs proceed. highest level this year. 817.875 e share.
eight years yesterday as Wan Street U140 into bankruptcy and nerganisa-acg on its ewn."
reached La Februar,'.
te news reports that one of the tion.
L11rtys stock was the Gr2rth most Wall e.reet asalysis who fol:ow IJL.
Oev. Marie Cuomois consideri:3 Cuomo es!d that anar bearings on hoevtly traded on the New York Stock CO's fortacza also emulth doch was a the brehese nuckv p; ant is a long le:and he will decide *as to the ne xt Encha ge yesterday, with 1.953.700 reaction to press "Any word of I
LILOO bankruptcy.
steps appropriate to ecatinue my ecm-ahares changing hands, and it dediced bachruptcy cr div causalon haa e
'the utilit/s necek Mt $1.75-or 122 mitzoent to protect the safety of the nei-as utility stocks in senaeal and the over. way of g your stock three points per cent - to 812 83. Its lowest point dentsofloc.gislarderdto ia*=i-the ett stock market scored gains.
dewe."
Danierte Nta, an analyst einee January,1975. L1140 maid in a costs which result ee=2 the construction The previcca votame remrd for trad-with the invest:r.ent Srm of Smith Bar-atatement that the dochne "is attribug. of the Shoreham plant, regarCeas cf ing in LIILO stock was 1.2 mijton ney. Harris L'pha:s & Co.
able b press coverage resulting an:n whether it ever operates.*
shares os rek IS - the day Cuomo But blark Lanis of the Salomoa speculation about a forthessmas report Cuomo refuand to say whether he fa. ju:= ped into the Shoreham safety plac Brothers tamtment 8rm said that th of Gov. Marie Cassee's cesamissies vond operetsen er abandanment of the controversy by sayica that he would not drop was as overreaction. "Nothing ths.
l P ant or whether he would send a repre-i=poon a s'ata scorgency response p'.as damental has changed
- he esid. He said stadying beeham.*
C meanwhfie ancounced he aestative t a fedeni licemains boeda on ScNotk. which centecds that evacua-he expected utro stock to move up g"*"hdd a I,& leering os bre-1 hearing nest c:enth ta Bght en emergen-tian of Long lefand is irepose.ble.
some. barring no new developensata.
h m mi noe. I the m.da h is,seeiwe ihe --e on. L.e expect. -
- --- ~ -
i m port He said the time and place of the hearicg would be arranged eiwrtIy.
At its Snal meeting Saturday. the governor's ec=Ma eencluded that i
the at te should consider having IJ140 ateckholdsre er.d state tarpey-ehere the east of the plant, me= es.
i at more thas $34 billice, with l
utilit/s c *-o,'the group afse l
eoecluded that Cueno sheeld not eser-L rula Susolk Ceecty and draw up as in-i state eenergency response
(
plan far the plant. The federal gevers-I meet meest appeeve such a plan for the area wittua 10 mi3ee of a nuclear plant i
hedere the plant ces receive a Adl oper-ating license.
Cuosmo's advisers had sheedy been i
M
h THE NEW YORK TIMES Tuesday, November 22, 1983 1
needed its operate the plaat, whether er not the state moperates..
Island before acting.
"Weinteed to go ahand and prove our De et=6an is now due m W case on those final hurdles,,, she said.
mi Dec.15, and Mr. Det Giudice said "We would prefer to have the involve.
the h h Hkaly 2 announce Ms Plans before his State of the State mee.
f mentof Suffolk and the state."
in January.
Miss Richn=n said "the state gov.
the Lemus of safety, state offt.
?,9O @
ME ernmant han on five separate occa.
cials are cocaldertng the question of i
,y Ug Q3ly[{
sic.in" ernmined wbother to proceed who shou!d pay for the plant and how with the building of Shoreham, and the impact on ratepayers could be re.
~'
"has each time dancluded that the d"#"d lr,grrtWe Or DCgDT plaat was la the best toterest of the The state officials said that ender
'L Iw s a wr su m
one proposal, the New York Power Au.
state.*
thority would buy a controlling interest No r=rmepem= rrs= 5affem in uico, and then reorganae the findings of Study Panel Said pr.n= a. sones, a de,uty suffoix
- =r and *aan-tho de6t.
- to Affirmintent to follow Co ty esecuuve, mid that unions Mr.
under anomer pmpanai, the piant cuomo acted rorcefuuy against the wouid be coin 9ieied and the= moth.
Suffolk Cou.rttyWishes plant, the Nuclear Regulatory Com.
balled at Federal awp-== unra it is mi i_ wouid 3,,e it a,,,
i m o,er..
o g,,,,,,,,,,,,,,,,,,,,
ate, despite the Governor's paastve op.
posiden.
bly 2 the Poww Authority, of ulco's 18
. EyM BABBANEI, percent share of Nine Mile Potat 2, a "He has the power to shoot thent
.rt
, pgang under mn=trucdon up.
State officiale onid yesterday that down/' Mr. Jones said of the Governor.
-~
~
Governor Cuomo was maHhaly to take "If they see the governor stand on the any steps to help open the Shoucham side much longer they will lic==a the f
nuclear power plant, now that a com-plant."
state, reuevmg ulm of that rinancial ;
snission he appointed has raised doubts premure.
SuffolkCounty has refused toparth$
Officials are also considering,
shout the plant's ma===nico and emer.
Sancy planning pate in an emergency plan respered to whether the reorganization of the util. :
ity through a bankruptcy praraading -
g The officials cautioned that the Gov.
open the $3.4 billion plant, and in Feb.
would help or hurt the economy of I. mag emor had not decided what to do about ruary Mt.o==nn said he"would not be ratand the sm<nesswett plant, neartng com.
a party to any effort to impa==" a plan Felix G. Rohatyn, the financier, said plation in Suftdtk County, and said that on the county.
he had been asked by Mr. Cuomo to be had not yu read the com-t== saws in May, though, he appointed the Imk ins financmg questlers, and had ud
- repcot, commtmalog to study the entire issus,
, bankruptcy "is not at
. Det they said that the coinmtmanan's once more, raising the possibility that draft Padings dearla==d over the ween.
he might reverse himself..
Leon J. Campo, one of the 13 mem.
end, vertirmed a position long held ty But now, according to accounts of a bers of the Shoreham panel, said that the Governor-that the state abould Commi*alon meeting Saturday, the the group had agreed the sttte and the not impose its wn! on Suffolk Canny panel concluded that suffoth County stockholders should share tae of the and take ovwE'"CIplaudag had acted reasonably in refusing to costs of the plan
- through an > utgina.
work on emergency plans and that no tiveapproach"to the problem Few Fannmente Bemeftte Feud surr===ful evacuation could take place The n=nmtasion also concluded that s
there were few, if any, economic bene, di Ws liability ust as ha pated Bts in opening the plant instead of said that the Governor in the decis;on snakmg " he said. "Nor.
c;bandoningit.
,, g,
,g mal business as usual wiu not serve the Officials said Mr. Cuomo was also we see it." He said Mr. Cuomo might IsW ngton. We are fearful of ask for sc,we additional analysis after Mkee nditions."
considering ways to reduce the impact reviewing the report, and that he of the plant on customers. The options planned to mest with gruups on long under study, they said, lecluded a state takeover of the Long Island Lighting Company, an " orderly" bankruptcy of the utility, or mothballing the plant.
Jan K. Hickman a spokooman for the utility, said it would continue to seek the final Federal approvals
.IC draft report by Governor osene's panet on sharonom giva
.. spport to views long held by pleif.
critics.Newe analysis,page BL
a NEWSDAY, 12-2-83 LILCO's Dire Option:
Bankruptcy By Stuart Diamond New York City out of fiscal chaos and is sue, IJILO has been scrambling to fin-and Allson Mitchell
"
- head I the Munici al Assistance ish its reactor while maintaining its P
Corp.
financial health and c=1mmg jittery in.
Once it was never discussed. Like a For ' weeks, Rohatyn and other mem-vestors in a politically charged climate.
deadly form of cancer, the bankruptcy of bers of the Cuomo administration have LILCO's stock yesterday dropped to the an electric utility was considered too been searching for ways to shield rate-lowest level in eight years, $12.125 a dire to mention.
payers from some of the costs of the long share. It expecta to be nearly 470 million But now, faced with the escalating Island Lighting Co.'s $3.4-billion Shore-in the red at the end of this year, its costs of nuclear power plants like Shore-ham nuclear power plant, which an advi-bonds are now rated as speculative by tam, economists, public officials and sory commiasion to the governor predicts Standard & Poor's and much ofits earn-utility analysts are begmnmg to whisper could end up with final price tag of $4 ings over the past few years has not been about bankruptcy for utilities troubled billion.
cash but credita on rnoney it expects to by their ventures into nuclear power, al.
Gov. Mario Cuomo is also eramtmng earn when Shoreham opens.
though experts caution it is still only a whether to attempt to force abandon-LIICO officials warn that a bankrupt-remote and risky possibility, ment of the plant because, some ofHeials cy, unprecedented in the electric utility "LIILO is not New York City. I don't say, the marginal savings of runnmg it industry, would have dire consequenas start with the notion that bankruptcy is may not be enough to J'ustify overriding for the local economy. In an interview unthinkahle," said investment banker local concerns about the plant's safety. yesterday, LIl40 senior financial vice Felix Rohatyn, who once helped guide While the state officials study the is-president Thomas d'Brien expressed, frustration at discussion of the subjeci by the state, saying,"If Mr. Rohatyn will be quiet and the governor would go ern someplace, we'll be line.... gov-The goverrior talking about bankruptcy has got to jar investors' confidence... The i
governor could be of great service now
' A coalition ofIong Island legislators has demanded ju.t by being silent."
that LILCO president Charles Pierce resign. Attorney -
Frank Murray, Cuomo's chiefstaff en.
General Robert Abrams has indicated that he would ergy adviser, said Cuomo has yet to I fight to make stockholders, not ratepayers, pay for l
make a policy decision on LILCO's fate Shoreham if the plant is abandoned, although that and Rohatyn's commenta cannot be as.
would be a break with traditional state procedures.
l cribed to the administration.
Ar.d aides to Cuomo are exploring everything from a Meanwhile, LIICO has been assuring New. York Power Authority takeover of the company, its investors that a recent favorable fed.
inclu ' a forced change in management, to - most n.il licensing board hearing means that drasti y - the bankruptcy of LIILO.
Shoreham will operate despite the oppo.
Proponents of bankruptcy say that a relatively brief sition of Suffolk County and the state's period of confusion and pain would spell years of eco-
- Continued on Page 47 nomic relief for ratepayers by moderating the sharp s
rate hikes that Shoreham might otherwise trigger. In-e vestors, not consumers, would be forced to swallow the
--Continued fmm Pass 6 costa of the plant, and the utility's management would deliberations: But state officials, fearful that drastic be put in the hands of a court-sppointed trustee.
rate hikes to pay for Shoreham would prove fatal to the "The short. term consequences could be painful, but long Island economy and spur a grass roots rebellion not overwhelming..-. It would not be the horror that among their constituenta, seem increasingly less in-we'd thought it to be," said Karen Burstein, former clined lo permit bustness as usual-or even the sur.
b f the State Consumer Protection Board and a viral of 14140.
of Cuomo's advisory panel on Shoreham.
others say bankruptcy could lead to more power failures, delayed utility bookups to new homeowners, higher electric rates set by bankruptcy judges instead I
of state regulators and industry. wide fmancial distress.
Iltilities borrow more money from Wall Street than Any other American industry.
. - - i
l i
l I
4 4
< :: 2 u.
525 Stock Prices *',
5300 -
i 5400
- M-L
~
s2si &
l34ag(
Me
)
is12.ul interest Owed am-Paper Earnings jyj_$
2m In Millions In Millions i
o l
i3 i
1974_A i
200
-20 1
1975-A M,
1976-A s:
7g 8 4'
100 internal Cash 1977-A 1978-A l
4 L
'm
- in Milhons 1979_ A_.
ao i
all
- o.,. I l N
0a$$
y' o
-so 1
istz2374 75 7s77 is7s so si s2 s3 isrz is 74 is is 77 is is so si s2 e3 s4 is72 is 74 is 7s riis is so si si sa s4 is727324 is 7677 7: rs so si s2 as a4 1982,- 888 l
.s:q e u-
")
w l
1983 - 88 i
.,u;'5fibst;00,v...t sx &m.> + - * + W
-e.....
s%.. t w. >-.
an ancyyant' 1N1,.9NCh' W.5 'be "puis t J: -
^G.:
l
.,.1
. \\ W,4i 4 G 7 :i n d W ?2 R.Y :LC.4i.?k'rMUs J (.
M?k:,
~
is M
anet'sE expenses and as dwidendsE '
,,,;..,,.,."Q
)
_ -.-$W h"
)-4 m
esmkoschiseycomprisemoneye desbesy-soranoner 1-
".,4 mein gir d
espnot be coNeded unts Shorehant and Nine Mie 2 is Constuceda;s
. M semin0s'are instead,11nencing chages p the;,) paper be the.
milhed 444. -
t
.SJ
. i *Ihi)[hkMk.M Salomon M
.h'
,h' hp.}$, lh,g,; y LILCO's Dire Option: ~Bankruptc'y
NFWSDAY, 12-2-83 "As a result cf a severe austerity
,n:t caly will new service extensions be inde 'tely stponed (con,t) bnt also the company will have a substantia reduced capability to react to contingencies such as outages
, caused by ice and wind storms," he said. In the year ending Sept. 30, ULCO made 13,711 new gas and elec-tric bookups and the utility says it prurides emergency l %nkru.i "No responsible person I know of,is advocating responses within 20 minutes to a halfbour barring ma-as a responsible policy, because it will jor storms.
2ne6t n y," said Ira Freihcher, vice president of Who would provide power? Some companies UILO. "It has the potential to cost the custcmers more emerge from a bankruptcy reorgamzation intact. But a money, cause temporary chaos on long Island while key Cuomo aide argues that in the case of the lang the situation is being worked out and do a lot ofdamage Island Lighting Co., a bankruptcy could make it easier to the Ieng Island economy."
to bring in the New York Power Authority to take over Here is a look at some of the questions that a utility LIILO's facilities and provide power to long Island. "It bankruptcy would raise:
would be easier for PASNY because it would be logical 1
How would it happen? According to Freilicher, for a state agency to do something in that case," the.
LIlf0 would not file for bankruptcy voluntarily. And adviser said, likening it to the creation of the Munici-under state law, the Public Service Commission has pal Assistance Corp. to do borrowing for New York City avenues to force a bankruptcy since it is required to when it lost access to credit markets in the mid 1970s.
utilities the rate hikes necessary for operating ex-Who would set rates? According to Robert Viles, a and a reasonable rate of return on their invest-lawyer who helped redraft the U.S. bankruptcy code in ments. Only if the PSC finds that some of the ity going bankrupt. plated the case of a regulate 1978, no one contem company's costa were catised by imprudent manage-The consequence, he said, is that ment can it charge them to the investors. And analysts the law is vague on whether the bankruptcy judge or say LILCO would have to be penalized for up to $1 the state's regulatory commission would set rates dur-billion of its Shoreham investment before it would be-ing a reorganization -or'what criteria a judge would come insolvent.
use to set ratas.
LIILO has $260 million in cash from excess bor-rowing this year as a cushion in case the utility cannot
. But a crucial imponderable is how the credit mar-kets would react. Some expegts predict that not on borrow the $700 million it figures it needs next year.
would all utility stocks across the nation be downgra Would the lights go outt Normally the sale of a ed, but the state's bonds would suffer as well because New York would be rceived as violating an implicit firm's product or service is haltad or substantial 5y cur-regulatory contract r reimbursement of prudent ex-tailed when it goes bankrupt. But experta say a regu*
penses. That would result not only in higher rates over lated electric utility can t go out of busmess, because it the long term for all electricity consumers, but a penal.
provides an essential service. "It's unlike a company ty to state taxpayers who would have to contend with that makes widgets and you can go out and buy some-higher borrowing costa. In addition, som.e experts sug.
one else a widgets, said John D son, chairman of the New York Power Authority. "You have to keep the gest that whatever agency or corporation which suc.
lights on*"
ceeds LIILO would be unable to borrow money needed to build new plants and buy equipment.
What are the benefits and risks? Proponents of Others argue that the effects would r.ot be as ex-bankruptcy argue it would help ratepayers by forcing treme. " Investment banker hype," says Wilson, argu-stockholders to pay off the debt. "There would be win.
,ing that there would most likely be a " modest jolt' in ners and there would be losers" said John Wilson, interest costs and a dip in utility stock prices for a short president of J.W. Wilson and Associates, a Washing.
time following a bankruptcy. Subsequently, he said, ton-based economic consulting firm."The beneficiaries investors would scrutinize utilities individually, with would be utility customers, who conceivably would not only those with plants in a similar situation to Shore-have to pay the same level of bills they would pay oth.
ham permanently affected.
erwise.The losers would be the stockholders of the com.
Perhap the most disturbing part of a bankruptcy, pany."
for public officials, is that it is a gamble. In the 104 As a result, a utility bankruptcy would have to be years since Thomas A. Edison perfected the light bulb handled though a section of the federal bankruptcy no investor. owned electrical utility has ever gone code, Chapter 11, that allows companies to tarry on.
bankrupt. As a result, no one can agree what would their business while they reorganize. Under such a re.
happen.
organization, the company would be granted a morato.
Although General Public Utilities appeared close to rium on repaying debt. During that time some cash insolvency several years ago because of the 1979 nucle-would be raised by eliminating or cutting stockholder er accident at Three Mile Island, banks, regu'atory dividends and defernog property tax payments to local agencies and the federal government worked out a joint governments - for LilLO $184 milhon annually. De.
rescue plan. At the time, Theodore Barry & Associates, ferral of property taxes could force increases in tax a pnvate consultant, studied bankruptcy and conclud-rates fer other property owners.
ed:"The uncertainties associated with bankruptcy pose Some experta say a bankruptcyjudge would be like, risks to ratepayers, regulators and investors. These ly to appoint a trustee to run the company and work out noks, which cannot be completely quantified, should be I
a plan under which the banks that lent money to avoided.
I Lil40 are repaid, though perhaps over a longer period in LILCO's case, the only certainty is that a of time and at lower interest rates than they had ex.
bankruptcy would be matested in court, by either pected.
irate stockholders - the largest stockholders include l
One key question, however,is how much of an aus.
financial institutions such as Mernll Lynch and l
terity program the judge.would impose and how it Chase Manhattan Bank - or bondholders. "I would would affect stafflevels and maintenance. Robert Stew.
imagine there would be grounds for a suit. They l
art Jr., an attorney in the law department of the Okla.
would be confiscating our property," said Herbert homa Gas and Electric Co., argues, in a wornt-case Jaffe, a director of the Association of Investors in a
scenario contested by others, that a utility would be New York Utilities.
4 i
forced to reduce the workforts to a minimum.
The average LIILO stockholder owns 250 to 275 i
sharea. About a third of the stockholders are from long Island and almost two. thirds live,in New York State, accordine to comment officials and financial reports.
- _ -