Wall Street is likely to hit nuclear utilities with a 20 percent rise in the cost of new capital unless the utilities are permitted to charge their customers for accidents like Three Mile Island, a Senate subcommittee was told yesterday.
William G. Kuhns, chairman of General Public Utilities Corp., the parent firm of the Pennsylvania utility that operates Three Mile Island, said the extra charges would be the investment community's price for having to swallow the costs of replacing lost nuclear power with electricity from oil and coal.
At the moment, Pennsylvania regulators are not permitting those fuel costs to be passed on to consumers, which means the company's stockholders will have to pick up the tab. That will make the company's bond and stock issues less desirable on Wall Street unless it pays more interest.
Kuhns estimated after the hearing that the surcharge could be $200 million a year industrywide and said consumers would eventually have to absorb it anyway. That amount assumes the traditional pattern of a$10 billion yearly construction budget and about $1 billion a year in finance charges, Kuhns said.
However, another witness, Carl Walske, president of the Atomic Industrial Forum, told the Senate, nuclear regulatory subcommitee that the utilities are unlikely to order any more nuclear plants until the question of financial risk is resolved.
Kuhns said: "It has never been suggested that risks of this nature should be laid on the stockholder." To do so would set a precedent in which Wall Street investors, wary of the risks from any nuclear plant accident, would jack up their finance charges to nuclear utilities for any construction whatsoever, even of nonnuclear facilities, he said.
The rise, Kuhns said, would be about 20 percent and would ultimately go into the rates that customers pay "so consumers wind up paying one way or another."
He and other industry spokesmen said it would be better to arrange some to distribute the "consequential damages" from any nuclear accident-in short, the costs of replacement power-in some nationwide pool of consumers. "The more we can spread it out, the more equitable it would seem to me," Kuhns said.
Subcommittee chairman Gary Hart (D-Colo.) said he was "dumbfounded" by Kuhn's view."This is not an act of God or a natural disaster. If the costs go to the consumer, what lever is there to guarantee [company] performance?" Hart asked.
Kuhns suggested that utility management personnel be held responsible in the future, but that customers will have to pay this time. "it would do no good to bankrupt GPU and destroy 177,000 stockholders," he said.
At stake is $24 million per month for replacement power and $8 million monthly for other fixed costs at Three Mile Island, Kuhns said. It will be $14 million less when Three Mile Island 1 returns to service, but TMI 2 will be out for at least two to three years, he said.
Walske, head of the atomic forum, the nuclear industry trade association, said utilities had ordered nuclear plants on the assumption that consumers would handle all replacement power costs under the fuel adjustment clause. "Now they [utilities] are a uncertain as to whether they'll be bankrupted or not by even a low-risk accident," he said. "You're unlikely to see more new orders of nuclear power plants until this question of risk sharing is resolved."
The Pennsylvania Public Utility Commission last week froze rates for six months at Metropolitian Edison Co., which owns Three Mile Island, suspending a $49 million rate increase previously granted.
The company will be expected to recover the costs of cleanup and damage to its property from insurance, which the commissioners indicated they thought would prevent the firm from going bankrupt. Earlier Pennsylvania Gov. Richard Thornburgh told the subcommittee that his decision not to order an evacuation from the area around Three Mile Island was "the toughest decision of all." The question preoccupied him for 10 days, he said.
His biggest problem was the same one that angered the Nuclear Regulatory Commission in Washington: getting complete and accurate information, he said. There was a "garble gap" between Harrisburg, Pa., and Washington, while Metropolitan Edison, he said, "issued statements in the early days that proved to be something less than accurate."
Thornburgh said he remained convinced that mass evacuation would have caused more death and injury than it would have saved.
"If I knew then what I know now, I still would not have ordered an evacuation," he said.
He proposed that the federal government license utility company executives, requiring them to be competent personally to operate nuclear power plants.
Sen. Alan K. Simpson (R-Wyo.) asked whether inspections conducted at Three Mile Island 2 by the Nuclear Regulatory Commission March 19-23 and again March 26, two days before the accident, had spotted the fact that crucial auxiliary pump valves were closed. That error, uncorrected for eight minutes, contributed heavily to the accident.
GPU President Herman Dieckamp admitted that "those two valves should have been open. It clearly was a failure on our part that they were not open."
An NRC spokesman said later that although the inspection results had not been written up at the time of the accident, personnel involved in it were still on the scene at Harrisburg and were able to inform officials there that nothing they had seen was involved in the incident. Routine inspections do not normally deal with valve positions, the spokesman said.