More Ratepayers Get a Break

IN the past, if a power plant was badly run - or even if it never ran - the people paying the utility bills had to pay anyway. These days, state regulators are forcing utilities to work out creative solutions to share costs, as well as to run more efficiently. The most recent example involves Boston Edison Company, which owns and operates the Pilgrim nuclear power plant. Boston Edison wanted to charge ratepayers an 8.4 percent, $86 million increase to recoup the money it has spent to upgrade its ailing Pilgrim reactor.

Under an agreement with the Massachusetts Department of Public Utilities, however, the company settled for no increase, a freeze on rates for three years, an incentive that ties earnings to performance and safety record, and a $75 million investment in energy-efficiency programs. Ratepayers will see only a small increase in quarterly fuel charges.

The settlement was hammered out between the state energy office, the attorney general's office, the environmental advocacy organization Massachusetts Public Interest Research Group (MassPIRG), and Boston Edison.

``It saves consumers a minimum of $200 million over the next three years,'' says Alan Nogee, energy policy analyst at MassPIRG. ``This is a major victor for consumers.''

``It's a resolution for a lot of sticky issues,'' agrees Rachel Shimshak, director of policy for the executive office of energy resources.

Such arrangements have become more frequent since the late 1970s, when cost overruns for nuclear plants rose astronomically. In a case that went all the way to the US Supreme Court, the Pennsylvania Public Utility Commission prevented two utilities to recover the costs from nuclear plants that had been canceled.

``There's been a lot of dispute over where to draw the line,'' says Richard E. Morgan, an economist with the Washington, D.C., Public Service Commission. ``To what extent have utilities botched something or should have known better and decided to cancel? If a commission determines that a utility made the right decision initially to build plant and conditions changed so that the plant was not needed to the same extent, then what do you do? Make ratepayers pay the whole amount, or some kind of sharing mechanism?''

In Boston Edison's case, the utility will collect a flat cent-per-kilowatt-hour rate for a third of the plant, instead of the traditional cost-plus recovery for large investments. This method, observers say, forces a utility either to keep a lid on costs or to shut down unprofitable plants. Pilgrim is only the third plant to operate under this rate condition: The others include Fort St. Vrain, in Platteville, Colo., in 1986, and Diablo Canyon, in Avila Beach, Calif., in 1988. Fort St. Vrain will be retired next year because mechanical difficulties proved too expensive.

Pilgrim has had a history of management troubles, mechanical malfunctions, and hefty fines from the Nuclear Regulatory Commission (NRC). After a nearly three-year shutdown, during which the utility sank millions of dollars into maintenance and emergency centers in surrounding towns, the plant has recently resumed operating at full power.

Aside from the issue of cost recovery, the settlement also gives Boston Edison an incentive to operate Pilgrim efficiently. The company is allowed to charge a small performance adjustment of between 2 and 2.4 percent over three years. When plant operations exceed 76 percent of its capacity, Boston Edison will be able to raise rates an added $1 million for each additional percentage point above that level. For every percentage point under 60 percent, they'll have to pay back $1 million. If they continue at the same low capacity rate as in past years, ratepayers would save $900 million over the next 11 years, MassPIRG estimates.

``More likely the plant won't reach the standards adopted so there automatically will be disallowances,'' says Richard Rosen, executive vice president of Energy Systems Research Group, a nonprofit research and consulting firm in Boston.

Performance incentives are not new; 45 plants in 17 states have similar versions, says Mr. Nogee. What is unique in this case is a safety incentive that rewards or penalizes based on comparisons with other plants, using indicators such as worker radiation exposure and NRC management ratings.

``We think it's a fair settlement,'' says Mike Spataro, spokesman for Boston Edison. ``It's a compromise that had to be reached. We want to concentrate on where we're going rather than what's happened in the past.''