ML20244E506
| ML20244E506 | |
| Person / Time | |
|---|---|
| Site: | Shoreham File:Long Island Lighting Company icon.png |
| Issue date: | 07/03/1984 |
| From: | Palomino F, Sedky C KIRKPATRICK & LOCKHART, NEW YORK, STATE OF, SUFFOLK COUNTY, NY |
| To: | Atomic Safety and Licensing Board Panel |
| Shared Package | |
| ML20244E495 | List: |
| References | |
| OL, OL-4, NUDOCS 8906200371 | |
| Download: ML20244E506 (35) | |
Text
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UNITED STATES.0F AMERICA-NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Board
.. s
)
In the Matter of
-)
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Docket No. 50-322 (OL)
LONG ISLAND LIGHTING COMPANY
)
and
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Docket No. 50-322-OL-4L (Shoreham Nuclear Power Station,
)
(Low Power)
Unit 1)
)
)
MEMORANDUM IN SUPPORT OF MOTIQN OF SUFFOLK COUNTY AND.THE STATE-OF NEW YORK FOR LEAVE TO FILE A CONTENTION ON LILCO'S FINANCIAL QUALIFICATIONS TO OPERATE SHOREHAM, FOR AN EXCEPTION FROM COMMISSION RULES, AND FOR CERTIFICATION TO THE COMMISSION.
I.
Preliminary Statement.
This Memorandum is submitted on behalf of Suffolk County and the State of New York in support of their Motion for Leave to File a Contention on LILCO's Financial Qualifications to Op-erate Shoreham, for an Exception from Commission Rules, and For Certification to the Commission. w A
D G
II.
Status of the_ Financial Qualifications Requirement.
i Until putatively _ amended on March 24, 1982, see 47 Fed.
Reg. 13750 (March 31, 1982, hereinafter the " financial qualifi-
~
I cations amendments"), the' regulations of the Commission j
required (as a condition to, among other_ matters, the grant of an operating license) a determination that.the applicant for l
such a license is " technically and financially qualified" to l
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l engage in the activities sought to be authorized by-the Commission.
See 10 C.F.R.
S2.104(c)(4), Part 2, Appendix A,Section VIII(b)(4), SS50.33(f),.50.40(b), 50.47(a)(4), and Part 50, Appendix C (1982).
On February 7, 1984 the United States Court of Appeals for the District of Columbia Circuit, in a unanimous opinion, de-1 I
termined that adoption of the financial qualifications amend-j i
ments by the Commission violated provisions of the Administra.
tive Procedure Act, specifically, 5 U.S.C. S553(c).
New England Coalition on_ Nuclear Pollution v. NRC, 727 F.2d 1127 (D.C. Cir. 1984).
Notwithstanding the findings of the-U.S.
Court of Appeals, and in apparent disregard of the advice of
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(a) the Commission's own General Counsel, (b) its Executive Legal Director, and (c) the United States Department of j
Justice, a majority of the Commission's members continue to i
l
believe that the financial qualifications amendments remain in effect.
See, Financial Qualifications Statement of Policy, 49 Fed. Reg. 24111 (June 12, 1984).
In light of the decision in New England Coalition, however, Suffolk County and the State of l
New York believe that the financial qualifications amendments I
are invalid and are of no force or effect.
III. Background.
In September 1981 the NRC Staff reviewed and found adequate the financial qualifications of LILCO to " operate the Shoreham facility, shut it down if necessary, and maintain it in a safe condition."
Safety Evaluation Report, Supp. 1 at 20-1 (Sept. 1981).
Even assuming the adequacy and accuracy of the Staff's review and assessment in 1981, the Staff's September 1981 analysis has been vastly overtaken by subsequent events.
Today, unlike in 1981, LILCO is hovering on the brink of financial collapse and, by any standards, lacks the finan-cial qualifications to " operate Shoreham," to " shut it down if necessary," or to " maintain it in a safe condition."
The j
dS instant Motion seeks leave, pursuant to 10 C.F.R. S2.714, for y](
p.
Suffolk County and the State of New York to file a contention concerning LILCO's financial qualifications to operate the Shoreham plant.
The proposed contention, which is annexed 3-8 t
't s
hereto, ena11enges the utility's qualification to engage in low power testing or full power operation under applicable legal.
standards.
To the extent that the Board, or the Commission, continues to give effect to the financial qualifications amend-ments, Suf folk County and the State of New York, while l
reserving their respective rights to challenge the validity of the amendments, seek, in the alternative, an exception from.the financial qualifications amendments.
10 C.F.R..S2.758(b).'
The facts which justify the granting of the motion involve LILCO's current financial crisis.
An exposition of those facts
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is a necessary predicate to an analysis of any entitlement to the relief sought herein.
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IV.
LILCO's Impending Financial Collapse.
During the past three months LILCO has made disclosures concerning its financial condition which, taken together, make clear that the Company cannot avoid bankruptcy without both (1) a " bailout" of almost $1 billion (S918 million);' and (ii) an agreement concerning rate relief for Shoreham costs -- both of which are beyond LILCO's ability to effectuate.
The revela-tions are contained in (a) LILCO's annual report on Form 10-K, as filed with the Securities and Exchange Commission on Maren 30, 1984; (b) its current report on Form 8-K dated. February 21, i
i i
1984; (c) LILCO's quarterly report on Form 10-0, as filed with the SEC on May 15, 1984; and, most importantly, (d)'a " Position Paper" dated May 30,-1984 and submitted by LILCO to the Governor of New York on May 31.
A.
LILCO's Projected September 1, 1984 Insolveney, i
l On March 30, 1984 LILCO filed with the Securities and Ex -
j j
change Commission (SEC), pursuant to Sections 13 or 15(d) of i
)
the Securities Exchange Act of 1934, its annual report on Form-i 10-K for fiscal year ended December 31, 1983.
This document portrays LILCO as teetering on the edge of a cataclysmic finan-l cial collapse and makes clear that further expenditures on Shoreham will push the company over the edge.
I Thus, at the time of the filing of the Form 10-K. (i.e., on or about March 30, 1984) the Company believed it.only had "on hand sufficient cash and short term investments to continue the Company's operations until the fall of 1984."
(Form 10-K at 6, emphasis added).1/
LILCO projected its inability to operate beyond the fall of 1984 despite the fact that it had
" raised
$911 million through external financing" during 1983.
(Id.)
1/
The facts hereinafter described are set forth in the ac-companying Affidavit of Michael D.
Dirmeier.
(See Dirmeier Aff. 1 3-29). _ _ _ _ _ _ _ _ _ _ - _ - _ _ _
More recently, in its quarterly report to the SEC on Form 10-Q for tne three months ended March 31, 1984, LILCO specifically identified August 31, 1984 as the date beyond which it will not have " sufficient cash and short term investments to continue the Company's operations."
(Form 10-0 at 22).
On September 1, 1984, $90 million of LILCO's outstanding bonds will mature and a payment in that amount will be immediately due from LILCO.
(Id.)
LILCO will default on that payment.
l It is significant that LILCO will run out of cash on l
l August 31, 1984 -- approximately two months from now -- not-withstanding that (i) LILCO raised approximately $63 million of external financing in January and February 1984; (ii) LILCO has instituted drastic " austerity" measures intended to save $100 million in cash; (iii) LILCO has unilaterally ceased construc-tion payments for its share of Nine Mile Point Unit 2 even though such action threatens acceleration of $500 million of outstanding LILCO debt;2/ and (iv) LILCO omitted common stock dividends, which would have otherwise amounted to approximately 2/
The total amount of LILCO's 1984 payments on the construc-tion of the Nine Mile Point plant was estimated at $114 million, of which LILCO had paid only $11.5 million before deciding to suspend payments.
LILCO's financing costs for this project are estimated to be $63 million curing 1984 which LILCO must meet even though it has (Form 8-K, 7) unilaterally ceased making construction payments. '
__m_
_________.__.__..m_
i l
l l
l S180 million, during the remainder of.1984.
Under such circumstances, it was perhaps understatement for LILCO_tolhave stated:
(G]iven the various adverse. factors now im-pacting the Company, little-or no assurance can be given_regarding the Company's-abili-ty to raise additional funds in 1984 and in future years in order to meet its construc-tion and other capital requirements and op-erational needs.
(Form 10-K at 6, emphasis added).
As we discuss more'fullyL below, in its more recent May 30, 1984 Position Paper, LILCO' has made clear that staving off bankruptcy will necessitate governmental. action to (a) bail out LILCO from a $918 million obligation for Nine Mile Point 2, and (b) settle, in LILCO's f avor, certain proceedings pending before the New' York. Public -
Service Commission concerning whether LILCO should itself' bear almost $2 billion of Shoreham cost instead of including'that amount in its rate base.
Indeed, LILCO's own outside auditors,. Price Waterhouse, were obliged to take the unusual' step of qualifying their report on the Company's financial statements by atating that Price Waterhouse's opinion was " subject to the Company's_ con-tinued financial viability." (Form 10K at 49). -Lest'there have been any doubt as to LILCO's prospects,-Price Waterhouse-
_7-L-=______-
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enumerated several specific. matters, the outcome and, effects of I
which on the financial position or results of operations of-l l
LILCO could not be determined.
Specifically,
--That the Staff of the New York Public Service-Commission, on February 10, 1984, alleged " serious l
mismanagement and inefficiency throughout" the i
Shoreham project; j
--That LILCO has been notified that other partici-j L
pants in the Nine Mile Point 2 project consider LILCO to have def aulted in its financial obligations ter the l
project; 1
--That LILCO's suspension of its payments for Nine Mile Point 2.may have' constituted a-violation of LILCO's agreement with. lending banks; that the banks j
have effectively given LILCO a renewable (at the banks' option) 30-day grace period; and that, in the.
1 absence of such a grace period, "other long term debt i
of the Company could become due and payable as a
)
l result of cross-defaults and~resulting rights of ac-l celeration of maturities of such debt";
I l
--That recovery of $118 million in costs of abandoned nuclear projects and Sill.million advanced to'a sup-plier of uranium concentrates were (as evidenced elsewhere in the Form 10-K) uncertain.
1 Accordingly, as stated by Price Waterhouse, LILCO "cannot give any assurance of its_ ability to meet its capital and operating l
l i
requirements."
(Form 10-K at 49, emphasis added).
1
~
1 l
LILCO has stated that it will require $700 million in cash l
3 l
during 1984 to meet anticipated capital expenditures in that year.
(Form 10-K at 46).3/
As of December 31, 1983, the j
3/
The S700 million does not reflect putative savings of $100 million resulting from LILCO's austerity plan.
Company had approximately $275 million in cash and temporary cash investments.
(Form 10-K at 52).4/
Assuming that LILCO is able to save $100 million as a result of its " austerity" pro-gram, the Company would still need S325 million in cash, beyond cash and cash investments on hand as of December 31, 1983, in order to meet its 1984 planned capital expenditures.
Of the
$325 million necessary, LILCO raised approximately $63 million through external financing during January and February 1984 (Form 10-K at 6 ).
Thus, there is a shortage of $262 million.
LILCO has exhausted all its existing lines of credit (Form 10-K at 8), and the Company has disclosed no commitments from any source to furnish LILCO additional financing.
Indeed, as noted, LILCO will be unable to pay the $90 million due on out-standing bonds which will mature on September 1, 1984.
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B.
LILCO's Inability to Obtain External Financing.
LILCO's dire financial condition has completely blocked its access to the capital markets.
Thus, the various ratings services have all substantially lowered tneir ratings of the Company's securities.
Indeed, Moody's Investors Service, Inc.
1 4/
By February 20, 1984 the S275 million figure had dwindled I
to $214 million (Form 8-K at 1); and by March 31, 1984 l
cash and short term investments amounted to only $174 l
million (From 10-0 at 4).
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l l l
1
\\
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j (Moody's) has lowered its ratings of the Company's securities on three occasions:
in December 1983, January 1984 and March l
1984.
(Form 10-K at 9).
LILCO has stated:
"In Moody's view, I
since December 1983, when it reduced the Company's ratings on i
all of the Company's fixed income securities, the Company's i
prospects for continued financial flexibility and for resolu-i tion of the Shoreham safety plan impasse have worsened."
(Form l
10-K a t 9 ).
Neither Moody's, Standard & Poor's Corporation, i
nor Duff & Phelps considers any of LILCO's securities to be of 1
l investment grade.
(Form 10-K at 10).
Moreover, as of March I
i
(
31, 1984, "[t] he Company's commercial paper ratings have all l
been withdrawn."
(Form 10-0 at 26).
By May 30, 1984, none of 1
LILCO's securities were " considered of investment grade" (Posi-
{
l tion Paper at 46).
The Company has stated flatly:
"In view of LILCO's financial condition, external _ financing is not present-ly available (Position Paper at 1, emphasis added).
C.
The Inadeguacy cf Rate Relief.
l In addition to running out of cash on August 31, the ulti-1 mate recoverability by LILCO of Shoreham-related costs through rate relief is very much in doubt as a result of LILCO's alleged " serious mismanagement and inefficiency throughout the project."
(Form 10-K at 48).
Thus, according to LILCO, the w
New York Public Service Commission (PSC) is " currently investigating the-prudency of the costs incurred by the Company in the construction of Shoreham."
(Form 10-K at 22).
In that proceeding, the staff of the PSC has recommended that "no more than $2.296 billion of the Shoreham costs be allowed in rate base."
(Id.)
Assuming July 1, 1985 is the earliest possible date on which LILCO might hypothetically put Shoreham into service, at an estimated overall cost of $4.1 billion (Form 10-K at 19) the PSC staff's recommendation, if adopted by the PSC, would mean that LILCO would have to absorb S1,804,000,000 of Shoreham-related costs.1/
To the extent LILCO's continuous-ly escalating estimate of $4.1 billion for Shoreham is exceeded, of course, the PSC staff's recommendation, if followed by the PSC, would require LILCO to absorb a figure greater than 1.8 billion.5/
5/
Certain interveners in the proceeding, including Suffolk County and the New York Consumer Protection Board, have also sought to limit LILCO's recovery to approximately $2 billion, resulting in LILCO's having to bear approxi-mately $2 billion in costs.
(Form 10-K at 22).
6/
Indeed, because of the " uncertainties concerning Shoreham and the Company's financial condition," other proceedings before the PSC, concerning how to treat Shoreham for rate-making purposes, have been suspended indefinitely.
(Form 10-K at 4, emphasis added). _ _ _ _ _ _ - _ _ _ _ _ _ - _
The importance of the prudency proceeding to LILCO's fi-nancial viability cannot be over-stated.
Indeed, LILCO has re--
cently made clear that a settlement of the prudency proceeding, on terms favorable to LILCO,-is an underlying assumption of a l
LILCO proposal to stave off bankruptcy.
(Position Paper at l
50).
The terms which LILCO has proposed, and which have been rejected by the Governor of New York, involve an absorption by-LILCO of only $250 million -- instead of between: $1.8 billion and $2.2 billion -- of Shoreham-related costs.
(Position' Paper at 51).
I Furthermore, should LILCO be granted non-Snoreham related rate increases, such increases will not help stave-off finan-cial disaster for LILCO.
According to the Company's own figures, even if 100% of pending non-Shorehem rate relief re-l quests are granted, LILCO will still have a cash deficit'of
$43.3 million in September 1984, and a deficit of almost $61 million in December 1984.
(Dirmeier Aff. 119).
The fact is clear, therefore, that circumstances exist in this case which demonstate the this particular electric utility has no assur-ance of being able to obtain rate relief adequate to assure safe operation of a nuclear facility.
- l i
1 a
L
D.
LILCO's Default on Nine Mile 2 Obligations.
As noted previously, on February 9, 1984.LILCO " suspended" l
payments for its 18% share of construction costs of Nine Mile j
1 Point 2, a nuclear generating unit under construction near l
l Oswego, New York.
The cotenants of Nine Mile, in addition to i
LILCO, are Niagara Mohawk Power Corporation, which acts as l
agent for the cotenants, New York State Electric and Gas Corpo-l ration, Rochester Gas and Electric Corporation and Central i
Hudson Gas and Electric Corporation.
(Form 10-K at 27).
As a result of LILCO's unilateral suspension of payments due, a
" Niagara Mohawk has notified the Company that it. considers the Company to be in default of its obligations to the other cotenants and has demanded payment."
(Form 10-K at 27).
]
LILCO's share of construction costs for 1984 is approximately
$114 million, of which LILCO had paid only $11.5 million before 1
it unilaterally suspended further payments on February 9, 1984.
In other words, LILCO has left the other cotenants of Nine Mile with a shortfall of $102.5 million.
As a result, Niagara 1
Mohawk has advised LILCO that Niagara Mohawk "may institute i
l litigation against the Company.
[which] could result in encumbering, diminishing or eliminating" LILCO's interest in j
Nine Mile Point Unit 2.
(Form 10-K at 27).
As of December 31, 1983 the cost of LILCO's share of Nine Mile was $585 million.
j (Form 10-K at 27). ;
It now appears that the estimated cost of completing Nine Mile Point 2 will amount to $5.1 billion.
(Form 10-Q at 8).
LILCO's share (18%) of that figure amounts to almost a billion dollars ($918 million).
On May 30, 1983 LILCO disclosed that, 1
in addition to requiring concessionary rate relief for Shoreham l
(by settling the prudency proceeding), the Company will also need an immediate governmental (i.e., New York Powe:' Authority) bailout from its $1 billion participation in Nine Mile Point 2.
i (Position Paper at 4-5, 52).
In the absence of a billion-dollar-bailout,.LILCO's sus-pension of payments for Nine Mile Point. has made LILCO subject to the acceleration of all its debt relating to'that project --
approximately $500 million as of December 31, 1983.
- Thus, counsel for the banks who made loans to LILCO for purposes of j
l Nine Mile Point 2 has questioned whether LILCO's suspension of
)
payments for Nine Mile Point 2 violates the terms of LILCO's debt obligation.
(Form 10-K at 57).
In order to forestall k
immediate acceleration of LILCO's debt, however, LILCO and the lending banks for Nine Mile Point have agreed that, only for so long as holders of two-thirds of the Nine Mile Point 2 debt continue to agree, no default on the debt will be declared for successive 30-day periods beginning April 27, 1984. -(16.)
In effect, the lending banks, with LILCO's consent, have placed _ _ _ _ _ _ _ _ - - - - _ -
LILCO on a'30-day leash.
Banks holding LILCO debt in excess'of one-third of the debt incurred.for Nine Mile Point 2 are able to accelerate all of LILCO's $500 million debt outstanding at the end of any 30-day period.
In short, not only is LILCO~
going to default on its $90 million September 1, 1984, bond pay-ment, but a cataclysmic call on.all its Nine Mile. Point debts--
even before September 1 -- is dependent on the good graces of lending banks from month to month.
The foregoing facts present a financial picture which is totally at odds with conditions which existed (oriat least were portrayed by LILCO to have existed) when the NRC Staff made.its financial qualifications assessment of LILCO~in September 1981.
First, the Staff's 1981 assessment was premised on " total esti-mated construction costs [for Shoreham] of $2.2 billion."
(SER, Supp. 1 at 20-2).
Present, but continuously escalating,-
estimates are that Shoreham costs will be almost double that amount.
A change of such magnitude in the anticipated. cost of Shoreham, without more, warrants a renewed inquiry into LILCO's financial qualifications to complete construction and to oper-ate the plant.
Second, an evaluation now of the very same financial char--
acteristics which were assessed by the Staff in 1981 makes i
l. _ _ - - _.
clear that LILCO's present financial qualification to operate Shoreham is an issue not only of legitimate contention, but as to which there is serious and substantial doubt.- Among the factors considered by the' Staff in 1981 in determining that, at that time, LILCO was financially qualified, were:
(a)'LILCO's overall financial strength; (b) its recent financial perfor-mance; and (c) the near-term financial outlook.
(SER Supp. 1 at 20-3).
Given LILCO's current financial condition, ru) impartial observer could reasonably conclude at this time any-thing other than that LILCO is financially weak, that its re-cent performance has been poor, and that the near-term finan-cial outlook is abysmal -- if, indeed, there is any future for the Company at all.
A utility with "overall financial strength" does'not default on multi-million dollar contractual obligations to make construction payments, as LILCO has done with respect to Nine Mile Point 2.
Nor does such a utility institute " austerity" measures that adversely affect service to its customers, as LILCO has done.
(White Paper at 46).
A financially strong public utility does not suspend payment of common stock dividends as LILCO has done.
No enterprise'can reasonably be considered to be financially strong when none of its securities are rated as investment grade, as is the case with LILCO, and _-_____-
where " external financing is not presently available," as is the case with LILCO.
The audited financial statements of a'fi-
'l i
nancially strong company are not qualified by it's auditors to the effect that the auditors' opinion is " subject to the 1
Company's financial viability," as are LILCO's.
Finally,.and most.significantly, a financially strong company is not one that can avoid bankruptcy only if it receives a billion-dollar-bailout f rom the government ' and concessionary rate relief.
In short, even if LILCO's financial strength was satisfactory in'1981 when reviewed by the NRC Staff, at present such "stength" is non-existent.
Similarly, whether as a result.of." serious mismanagement _
l ar.d inefficiency," as alleged by the PSC staff or otherwise, there can be no dispute concerning the quality of LILCO's re-cent financial performance.
Clearly, such performance is in striking contrast to that found by the Staff in 1981.
A company.that raised almost a billion dollars in external fi-nancing in one year (1983) cannot be predicting that_it will l
J run out of funds--with absolutely no new source of.
]
i financing--nine months later and still consider its recent fi-nancial performance to have been a success.
Successful recent-financial performance would not have necessitated (i)_the elim-ination of 741 positions at LILCO; (ii) the cutback of 246 jobs
.. i
with outside contractors; (iii)Lsalary reductions ranging from 5% to 20%; and (iv) an 11% cutback in'the Company's capital budget,.all of which were part of the Company's recent'"auster-ity program."
If the items being cut.back in LILCO's'"austeri-ty" plan constituted " fat," then LILCO's recent: performance can properly be criticized as " wasteful and inefficient."
If these-items were not fat,.the cutbacks are themselves proof-of~finan-cial failure.
Similarly, the cessation of dividends on LILCO's-common stock speaks for itself.
Finally, despite whatever the Staff may have concluded in 1931, in light of LILCO's current need for a billion-dollar-bailout and concessionary rate relief in order to avoid bank -
ruptcy,noimpartialobservercouldreasonablyconcludethkt
~
LILCO's "near-term outlook" is anything - but abysmal.
Moreover,.
LILCO exists from month to month by the grace of its lenders as a result of LILCO's def ault on its obligations for Nine Mile -
Point 2.
LILCO is committed to a spending program of $700 million during 1984, even though it has no foreseeable means of funding that program beyond August 31, 1984--roughly 60 days from now.
The Company can-no longer obtain externalLfinancing for its operations.
The Company's own auditors have-raised-the question of' LILCO's " continued financial viability"--a simple statement that speaks volumes concerning LILCO's ne'ar-term
outlook.
Finally, there is not a shred of evidence that LILCO can avert a default on the S90 million bond payment that be-comes due on September 1.
V.
The Pending, Motion.
A.
The Exception.
As noted earlier, if the Board continues to give effect to l
the financial qualifications amendments, despite the ruling of 1
l the United States Court of Appeals, the instant motion seeks an exception from those amendments for this particular proceeding.
The Commission's regulations provide as follows:
The sole ground for petition for waiver or exception shall be that special circumstances with respect to the subject matter of the particular proceeding are such that application of the rule or regu-lation (or provision thereof) would not serve the purposes for which the rule or regulation was adopted.
10 C.F.R. S2.758(b).
For the reasons discussed herein, Suffolk County and the State of New York submit that special circumstances exist with respect to the ongoing Shoreham operating license proceedings such that giving effect to the financial qualifications amendments would not serve the purpose for which the amendments were adopted. _ _ _ _ -
The regulatory history of the financial qualifications amendments suggests that the Commission believed that financial qualifications review was' unnecessary for regulated public utilities because such enterprises "will-be able to meet the costs for safe construction and operation of a nuclear..
facility."
Financial Qualifications; Domestic Licensing of Production and Utilization' Facilities, 46 Fed. Reg. 41,786 (1981).
The basis for such a conclusion, in the Commission's-view, was.the following:
[s]uch utilities tre usually regulated by state and/or federal economic regulatory agencies, and generally recover costs of constructing. generating facilities through' the ratemaking process.
As a result, reasonable costs necessary to meet a utili-ty's oblig ations.
. are normally recovered through this ratemaking process.
Id.
Subsequent to the D.C. Circuit's decision in New Englan3 Coalition, on March 28, 1984, the Commission issued proposed rules (substantially "re-adopting" the financial qualifications amendments) in which the Commission purported to refine further its justification for the financial qualifications amendments.
Elimination of Review of Financial Qualifications of Electric.
Utilities in Operating License Reviews and Hearings for Nuclear. - _ - - _ - _ _ _ - _ _ _ _ _ _ _ - _ _ - - _ _ _ - _ - -
i Power Plants, 49 Fed. Reg. 13044 (April 2, 1984).
There, the a
Commission stated:
The Commission believes it reasonable to conclude that, as a general rule, the rate regulation process assures for regulated electric utilities.
the ability to j
meet the costs of safe operation of a nu-clear power facility.
49 Fed. Reg. at 13045.
The Commission stated further:
Under the financial qualifications reviews at the operating license stage conducted under the original rule, the Commission has found in every case that the I
state and local public utility commissions could be counted on to provide all reason-able operating costs to licensees, including costs of compliance with NRC re-j quirements associated with safe plant I
operation.
As a result, electric utilities I
applying for operating licenses have invariably been found financially quali-fled.
Id.
However true the foregoing statements may have been with respect to the industry as a whole, or indeed with respect to LILCO itself in the past, under existing circumstances it can-not be said (i) that LILCO will " recover costs of constructing generating facilities [i.e., Shoreham] through the ratemaking process"; (ii) that " reasonable costs necessary to meet
{LILCO's] obligations" will be recovered through the ratemaking -
'j
,o y
i process; (iii)' that the New York-PSO can be " counted on to q
provide all reasonable operating costs" to LILCO;1and -(iv) 4 that-LILCO today would " invariably" be found to be financially qual-ified.
As noted previously, the Staff of the New York Public Service Commission has allege $ " serious ' mismanagement anS inef-ficiency throughout"1the Shoreham project, and:has proposed to:
disallow f ron LILCO's rate base al least. $1,800,000,000 ofl Shorehan-related expenditures' -- a disallowance.that would in-3 crease, dollar-for-dollar, with any-increase in construction costs.beyond $4.1 billion.
Interveners in the prudency inves-tigation have-proposed disallowance of all sums in excess of
$1.9 billion.
Any disallowance, even in amounts less-than those propose 3 by the PSC Staff and other parties to the. pro-ceeding, has the potential, by LILCO's own admission, to "jeop-ardize the Company's ability to.neet its financial obliga-1 tions."
(Form 10-K at 23).
Thus, the public record and LILCO's own statements make clear that important underpinnings.
'I for the adoption of financial qualifications amendments are i
simply not present in this particular case.
This conclusion is underscored by the facts that'LILCO:
j j'
is projected to run out of cash on August 31; has no access to i
l 1 l 1
i
i l
external financing; is in default. in its Nine Mile' Point 2
.i payments; is' solvent only by the grace of its lenders.who have the power to force LILCO into bankruptcy on 30 days notice; and is. projected to default on a $90 million bond payment which is due September 1.
Indeed, the Company itself has madeLit clear i
to the world that LILCO will go bankrupt'unless someone else j
l assu;nos its $918 million obligation for Nine Mile Point 2 and,=
{
additionally, the prudency proceedings.are setti d on terms which LILCO deems favorable.
These conditions make it impossi-ble for th? Commission to find that LILCO is qualifies finan-cially to operate Shoreham.
In summary, the adoption of the-financial qualifications
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ameninents sere pre:nised on the assumption that a pablic Lutili-1 ty has the financial strength to engage in the. activities for which it seeks a license fron the Commission.
Regardless of' the nerit such an assuinption night haie been generically, under the special (anS perhaps unique) circumstances which'e<ist in the case of LILCO, no valid purpose would or could.be served.by applying those amendments in this particular proceeding.
While denying relief on the merits in another proceeding, at least one Appeals Board has recognized the principle of granting an.
exception from the financial qualifications amendments upon a prima facie showing of special circumstances warranting such' _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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treatment.
In the Matter of Commonwealth Edison Com2ang (Byron
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Nuclear Power Station, Units 1 and 2), Unpublished (Appeal Board), June 14, 1984.
In the foregoing discussion, Suffolk
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County and the State of New York have presented more than a prima facie case for the granting of the exception sought herein.
l B.
The Motion for Leave to File a Financial Qualification,Contenti,on.,,,,,,,,,,,,,,,,
1 The standards go/erning the granting of a motion for leave l
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to file a new contention are set forth in 10 C.F.R.
S2.714.
That provision ce.jaices a " balancing of the following factors":
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l (i) good cause, if any, for failure to
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file on time.
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The availability of other means where-by the patitioner's interest will be protected.
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The extent to which the petitioner's
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participation may reasonably be ex-pected to assist in developing a sound i
record.
I (iv)
The extent to w'lich pe titioner 's in-I terest will be represented by existing parties.
(v)
The extent to which the petitioner's participation will broaden the issues or delay the proceeding.
10 C.F.R. S714(a)(i).
As we demonstrate below, a balancing of i
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Good Cause Exists for Filing a Contention,at,This Time.
The f acts which ' demonstrate that LILCO is not qualified-financially to engage in the activities for which it' seeks'a'-
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license from the Commission have only_ begun to unfold during April, May, and June of 1934.- On or about March 30, 1984 LILCO I
filed its Form lO-K with the SEC. 1Thus, contents of that; document were.not publicly available until early April.
As discussed earliar, the Form 10-K portrayed a company that.was-on the ropes financially and which,~in the absence of addition-
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- al sources of financing, was expacted to rut out of cash so.ne-j y
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ti:ae "in the f all" of 1984.
(Form 10-K at'6).
It was not.
until May 31, 1984, however, that LILCO made the startling rev-elation that, in order for LILCO'to stave.off bankruptcy, it.
would require both (i) a billion-dollar bailout from its in-j i
volvement in Nine Mile Point 2; and (ii) a settlement in its q
3 favor of the prudency investigation being con 3 acted by'the New.
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York P30.
Tnis need for a billion-dollar-bailout, ' coupled with' i
concessionary rate relief, was publicly revealed for the first
.j time in a May 30, 1984 " Position Paper" submitted by LILCO to
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Governor Cuomo on'May 31.
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TYas, in its Position Paper, LILCO made a proposal to the Governor of New York which, in LILCO's own words, " assures a continuous electric supply, minimizes rate increases and saves LILCO from bankrugtcy."
(Position Paper at 4, emphasis added).
A necessary condition of LILCO's proposal, and hence of avoiding bankruptcy, is "that LILCO's share, past and present, in the 741ne Mile Point 2 nuclear plant is assume 3,by,others,."
(Position Paper at 5, emphasis adie3).
LILCO proposes that the
- 434 York P u2r 42thority or "other state bonling agencies" unlertake this ball-out.
(Position Paper at 52).
As noted earlier, as of December 31, 1983, LILCO had investeS 5585 million (inclu3ing payments for fuel and debt service) in Nine Mile Point 2.
Since then, it has paid $11.5 million in January 1984.
LILCO is still obligated to pay $65 million in financing costs for Nine Mile Point 2 during 1984 I
(For n 10-K at 27), even thoujh it has alresiy lef sulte1 on
$132.5 million of 1934 construction paynents for the proj ect.
Thus, without cur ing the def ault, by the en1 of 1984 LILC3 will have investe1 1 total of $651.5 million wnich it requires having someone el_se_ assume if LILCO is to avoid bankruptcy.
Even more alarming, as revealeS in LILCO's recent report to the SEC on Form 10-2, it now appears that the total estimated cost for completing Nine Mile Point 2 is to be $5.1 billion.
(Form l _ _ _ _ _ _ _ _ - - _ _ _ - - _
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I 10-2 at 3).
LILCO's share of toat 3nount (18%) is estimata3 to
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be 5918 million.
Assuming that soneone else is found to ball J
LILC3 out of its Nine Mile Point 2 involvement, that so.neone
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else will hsve to incur obligations of at least yet another
$256.5 million (beyon3 the pay.nents LILCO will have made by the eni of 1934) before the project is completed.
In short, the I
critical fact that was unknown to anyone until LILCO released q
its Position Paper less than three weeks ago, is that someone else must be found to pick up almost a billion dollars of "past and present" LILCO obligations in order for LILCO to avert ban k r Jp tc y.
The Position Paper also revealed, for the first. time, that not only would LILCO r equire a billion-dollsr-bailout, but that 1
i the bailout 43uld have to be coupled with rate relief, I
s a t i s f a c tqr,y,,t,a,,LI,L C,0, that would grant LILCO the right to recover virtually all of its Shoreham-related costs, despite the position taken in the New York PSC proceeding by the PSC Staf f and other interveners.
Thus, the Position Paper states:
I Two measures farm the foundation of l
this proposal (to save LILCO from 6a'n~krupt-cy).
The first assumes that LILCO is re-lieved of its past and future obligation for Nine Mile Point 2 and that its cash in-vestment in that plant is returnei to the Conpany.
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The secani measure crucial to the sta-bility of the Co npany is a settlement of the proiency case.
(Position Paper at 50, emphasis added).
Any settlement of the pruiency case, much less settlement on the terms necessary for l
LILC's survival, is beyond LILCO's ability to effectuate on its own:
there are the PSC staff and other interveners, including Suffolk County, to contend with.
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The Position Paper also :nakes clear that a billion-dollar-bailout, coupled with a s?ttlenent of the pru3ency proceeding, is the only alternative for LILCO.
According to that document:
"In view of LILCO's financial coniitton, esternal financing is not presently assilable, and the Conpany's current estinates j
sh)w that it will run out of cash in Septenber 1934."
(Posi-l tion Paper at 1).
Ailitionally, the Position Paper reveals, again for th+ first ti:ne, that no additional austerity.neasures are E.t a s i bl e.
Thus, in LILCO's own words:
"Other austerity
- nessures so.1 suspension of preferrel dividends cannot solve LI LCO ' s f ina nc i al c r i s i s, n o r can t,b,eg,av,e r,t,t,b,e,,t,h r,ea t,o f, l
ban k r up t,c y,. "
(Position Paper at 47, emphasis added).
Finally, until the Position Paper was issued, the public was ignorant of the ef fect on LILCO's customers of the Conpany's nach-touted " austerity plan."
That document - _ _ _ - _ _ - _ _ _ _ _ _ _ _ _
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i reve31ei, however, that LILCO's customers are, indeed, already suf fering as a result of the austerity program which became i
necessary because of the Company's earlier financial excesses.
1 In LILCO's words:
"The effects of LILCO's financial crisis are presently being suf f ered by its custo'ners, who are subject to longer service response times and reduced customer service under the austerity plan."
(Position Paper at 46).
In short, the Position Papir disclosed information that hai previously been solely althin LILCO's knowle.lge:
- namely, not only that LTLC3 was teetering on the brink of bankruptcy but also that the Company requires the affir. native action of third pa,c,ti,e,s (over whom LILCO has no control or influence) to stsee oCC disaster:
a biliton-dollar-bail-out and concessions in the prudency proceeding.
That information ca:ne to light caly recently.
EJen,.nore recent1.y than that, when Governor Cuano rajecte3 LILC3's proposal on June 5, 1934, it 03:ame J
knosa that s.ich a f fir: native action was not forthco.ning.
In lii3 t of all these recent develop.nents there is na reasonabla h
basis tn conclu3e that Saffolk County and the State of New York were dilatory in seeking to challenge LILCO's financial quali-fications, or that there is not good cause for filing the an-nexed contention at this time.
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No Other Means Are,vallable to Protect the Interests o f S u f f o l_k,C,o,un t y,,a,nith,e,,S,t a te _o f, _Ne w Y,o r k.'
As the foregoing
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discussion evidences, the full extent and' imp 1'ications of-LILCO's precipitous financial decline did not become apparent-until tha public' release of LILCO's May-30,'1984 Position Paper.
It was only then that the public became aware'that i
LILCO's continues economic viability was subject to two' conditions wholly outside of LILCO's control:
a billion-dollar-bailoot by the New York Power Abthority; and a.very favorable-to-LILCD settlement of the pro 3ency hearings, to which the PSC,.
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Suffolk County and others would have to consent.
The County an1 the State share a legitimate interest in assaring that a noclear plant does not beco.ne irra31ated until its-financially.
tro2 bled owner has denonstratel the financial capability to op-o I
erste soch a plant and, at a minimu.n, to decommission and
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s decontaminate the plant, without endangering the citizens of the State and County.
Saf folk County and the State of lied York l
contest LILCO's financial capsbility to perfort safely any of-
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those tasks.
There is no evidence that LILCO's financial goal-ification to operate the Shoreham plant will be' reviewed, eval-i unte$, or even considered by the NRC, unless-the proposed con-tention is a$aitted.
Thos, there is no oth(. means of i
protecting the interests of the County and the State in chosing' l
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i a financially qualifisi conpany responsible for the safe oparstion of Shoreham in this peacesling.
1 3.
Th e Co un ty,a nd,th e,,S t a t e,q f,;te,s f{qCg,C a n,B,g,qiae gte.1 t o As s i s t,1,n,De v e l goi ng,a,Squ nd,,Re,qqr,d,.
The County's past his-f i
tory, and the State's recent participation, in this proceeding demonstrate their ability to assist in the development of a sound and complete factual record.
The County has already engaged expert consultants who have commenced an evaluation of l
LILCO's financial coniition an3 its ability to con 3uct the a:Livitie s for which LILCD seeks a license f ron the Connission.
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3af f 914 County anl the State of New York would subnit testima.
ny, by Janshel K. '4a3an an3 i41chael D.
Dirmeier and likely ad-Sitional witnesses, in support of the proposed contention.
Their testinony would detail the grounds for denying LILCO an operating license until, at the very least, it has' demonstrated its financial qualifications to engage in tne activities for which it seeks a license from the NRC.
To deny admission of the proposed contention an3 thereby bar the County's and State's participation in the develop:nent of a f actual' recor 1 concerning LILCO's financial qualifications to operate Shoreham would, contrary to the NRC regulations, result in-an inconplete recor.i whlch would be silent with respect to issues which are critical to LILCO's ability to operate and the Shorehan plant.
in conformance with the Cornission's regulations. - - _ _ - _ - _. _ _ _ _....
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4-Th3 C' 41tZ'_S.a qq,qt q t t',s,1 q t gr qs t s,i,q,t h e,P r,o,p,qsqq l
Co n t e n t iqn,fi,1,1,1!o t,b e,,Ad equ a,te l,g,Re gt,e s e,n te q,by,O th e r P a r t i e s.
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No other party has submitted contentions or otherwise given any indication that it intends to bring the question of LILCO's fi-nancial qualifications to the attention of the Commission.
1 Thus, there is no basis for balieving that the County's and State's interesta in the resolution of the issue presented in the proposed contention will be represente3 by any other party.
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5.
Any Delay,I,n,th e,P,r qc e ed,i.ng s_i,i,Ou twe,i,qh,ed,bg,the, Impor ta_n,ce,qf,tjie Issues to be A1dresse3.
Given the issues that renain to be resolved in this operating license proceed-q ing, inclaiin] the adeguscy of the TDI Diesel generators, off-I site Energency Planninj, and LILCO's Motion for a Low Power Licensa, an1 LILC3's Application for an Ege.nption fron the Co n nission's Regulations, the proposed financial qualifications j
contention is not likely to have a material impact on the leng th of these proceedings.
Moreover, the regulations governinj tha 3rsnting of leave ta file a new contention speak i
of " balancing" the factors under consideration here, inclu3ing the delay factor.
Given the spectre of a contaminated plant being tested or operated by a utility that (a) is projected to be insolvent in 50 days; and (b) faces bankruptcy in the ab-sence of both (i) a billion-dollar bailout, and (ii) rate I (
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l relief that is not forthcoming, we submit that any potential-j
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for " delay" pales in co.nparison to the potential consequences of ignor ing - LILCO's lack of financial qualifications.
Given the revelations in LILCO's Position Paper, it is no mere doom-saying to suggest that, in the absence of serious consideration J
of LILCO's financial qualifications, the citizens of the State and County could be f ace 3 with an. irradiated plant whose owner j
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.t down, or clean it up safely:
i cannot afford to' operate, shut
- s or in conformance with the NRC's regulations..
The question is:
J Can this Board or the Connission'in good conscience cast.the' citizens of Lonj Island to sach a-Cate because the NRC would not even consider wnether LILCO has the financial wherewithal 1
to aval3 such a calamitous result?
We respectfully suggest.
J not.
C-R'39 9 0 l9.9..t,h e,ge ca r,q.
Whether the pen. ling inotion requires a're-opening of the-J l
recard is a question 'nore of abstract proce-3 ural theory than of.
j practical importance.
As the Brenner Board previously observed.
in this proceeding, "the additional test of the criteria for reopening the record adds little, if any, practical import to the application of the factors for a late-filed contention in the circumstances of a truly new contention."
In the matter of
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,1 153 Mad.I i.qht i i3,,qo,112ppi (Shoreham Nuclear ' Powet Station,
.I009 t
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Soit 1) 17 NRC 1132, 1134 (1983).
Tais.is because, as the ac ean se Boar 1 no tel, ' the reopenir.g f actor s of significance of the i.ssue and whether the issue,uresen.ts genuinely triable f acts are inherently ~ part of the calculus of f actors for ruling l
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I'o the
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on the admissibility of a late-filed cesntention."
d extent the Board admits the proposed, financial qualifications
.s contention, it will also have iniplicitly determined that a ire 4
opening of the recor,1, it indee3 necessary, is warrante.1:uoder e.Ki3ti13 circunst:soces.
D.
Ce r ti f ic a t iori to the Comtission.
Because of the -Jrive public interest R.ttilaqt'to the l
prispeft if havia,3 LI..LD 3per atinj a noclear pisat.ialer circ inst $oces palat t aj t) its Einancial in eitity toldo-so uaf ely aa l in co if >r naace with th e TC 's ' regalat t sos, in the A
event the instant 4.7 tion sq3 petition ar.3'3enied, Suffolk County and the Stata af ilow York hereby nove, parsaant to 10 C.F.R.
SS2.718(i) and 2.730(t), that the Board's order denying such inotion and petition be certifie.] to the bonnission.
Proupt C91nission raviw of such denial is necessary 'to prevent detri;nent to the public interest and additional. delay-and expense.
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l Respectfully sobmitted, Martin Bradley Ashare Suffolk County Department of Law Veterans Mernorial Highway y
Hauppauge, N or 11788 5
e 1
Herbert H.
B )wn l
Lawrence Car Lanp'if l
Karla J.
Letsche Cherif Sedky KIRKPATRICK, LOCKHART, HILL, C9RISTOPdSR & PHILLIPS 1900 MJStreet, ti. ;f., Suite 800 Nashington, D.C.
20036 Attorneys for Suffolk County b.
Fablar, G.
Palomino special Counsel to the governor of TJew York Stata 3 < 3:at'i.ve Ch ainber, Roo n 22 9 Capitol 3.liliing
, Albany, New York 12224 Jatei:
- 4ashinJtoo, 0.0.
Att%coey for Mario 742 Cosmo Joly 3, 1984 Govet'nor of the State of Tiew York
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