The people who brought Long Island the costly, controversial Shoreham nuclear power plant are going to have to pay for it. The unprecedented $1.35 billion penalty slapped on the Long Island Lighting Company (Lilco) for mismanagement in the construction of Shoreham could affect other projects throughout the United States.
In ruling that Lilco acted ``imprudently'' in the building of the plant, which has yet to begin commercial power production, the New York State Public Service Commission barred the company from passing on $1.35 billion of the plant's final cost to consumers. Instead, the firm and its stockholders must absorb these specific costs, which resulted from mismanagement, according to the PSC ruling.
The final cost for the plant is estimated at $4.2 billion to $4.5 billion, which is more than 10 times the original estimate in 1973, when a construction permit was granted. Power companies are allowed to pass on the costs of a new operation when costs are ``prudently incurred,'' according to state laws. Lilco maintains it spent the money prudently but was stymied by rules changes, construction costs, and delays caused by opposition.
Other prudency cases pending in the US will likely be influenced by this case, observers say. Michael D. Foley of the National Association of Regulatory Utility Commissioners points to the Wolf Creek nuclear power plant in Kansas and Diablo Canyon in California as two examples.
``The bottom line is that the New York commission is going to play hard ball,'' says Mr. Foley, noting that New York PSC is held in high esteem throughout the country. Over the long term, he says, the decision is a healthy one. Management will understand that it will be held accountable.
The ruling was cheered in some corners. State Assemblyman Patrick Halpin (D) of Long Island points out that it is a tremendous savings for Lilco ratepayers, reducing costs by a third.
Although Lilco plans to appeal the decision, Mr. Halpin says he feels the commission's investigation was thorough, lasting over six years, and that the decision stands on ``pretty solid ground.''
There has been speculation about how the decision will affect Lilco financially. Most analysts say Lilco will be able to absorb the costs, but one report says the large disallowance could bankrupt it.
``Things are very, very tight'' for Lilco, admits Halpin. Even if it does not go bankrupt, stockholders will not be getting dividends for a long time, he notes.
The saga of Shoreham has been full of surprises. It is 10 years over schedule, and has been the focus of a CBS ``60 Minutes'' probe on construction abuses. The PSC report says Lilco ``lost effective control [from the outset] over project costs and schedules and did not regain control until at least early 1984.''
The plant, located in Brookhaven in Suffolk County, has been opposed by many politicians, including Gov. Mario M. Cuomo (D) and, until recently, Suffolk County Executive Peter F. Cohalan (R). In May, Mr. Cohalan reversed his two-year opposition to the plant and directed the county to participate in emergency evacuation planning. A state judge has ruled that Cohalan did not have the authority to carry out the order.
If Lilco is able to get the plant operating, there could be some ``creative financing devices'' legislated in New York to help ``dilute the effect'' of the PSC decision, says Michael Oppenheimer, senior scientist at the Environmental Defense Fund in New York City. His group has advocated alternatives to Shoreham, including purchasing power from upstate and Canada, instituting conservation plans, and voltage regulation. An analysis by the fund estimates the costs of the alternatives would be about the same as the Shoreham plant.
There is a bill in the Legislature that would allow Lilco to spread the Shoreham costs over 10 years. It also includes proposals to ease Lilco costs. But, says Daniel Plummer of the Business Council of NYS Inc., such legislation is intended to give Long Island ratepayers immediate relief, not to soften the blow for Lilco.