The Pennsylvania Utility Commission made regulatory history today, ruling unanimously that capital costs arising from the nuclear accident at Three Mile Island last year must be paid by the utility and not by its customers.
Previously, the principle has been that those who use electricity pay all of its costs. Accidents and shutdowns in conventional plants have been regarded as part of the cost of doing business.
This decision shatters that precedent. However, in Solomonic fashion, it also follows a different precedent by requiring the 390,000 customers of Metropolitan Edison Co., which owns TMI, to pay the costs the utility has incurred buying power elsewhere.
Rate hikes to do that will add $3.70 to the average householder's monthly bill and were designed, the commission says, explicitly to avoid the possibility of bankrupting the company.
"The basic conclusion of the commissin in this order is that Met Ed should continue to operate as a public utility," the ruling said. "The commission will provide Met Ed the means of financial rehabilitation.However, we will write no blank checks on its rate payers . . . [Met Ed] must convince its bank creditors that it has the will and the ability to rehabilitate itself."
The decision is expected to rock not only the nuclear industry but also the 60 electric utilities that own or are building nuclear units. It requires their stockholders and financial backers to assume for the first time the risks associated with their choice of power-producing technology.
"Without doubt there will be an effect on the industry," said PUC Chairman Susan M. Shananman. "This says you can't have one part bear all of the costs."
"It makes the nuclear industry more risky," for investors, said Mark Luftig, a utilities analyst for the Salomon Brothers brokerage firm in New York. "Stockholders aren't stupid people . . . They will demand a higher rate of return . . . capital costs will become higher for utilities."
That will make it more difficult for utilities to raise money to build nuclear plants than it will be for other kinds of facilities.
The verdict, which was based on five months of hearings and 4,279 pages of testimony by scores of witnesses, is formally a preliminary one but is not expected to differ significantly from the final version May 23.
Parties to the issue have until May 16 to comment, and William Kuhns, chairman of General Public Utilities Inc., Met Ed's parent firm, said the company would say nothing until then. He noted, however, that allocation of risks was "extremely important" to the company's future.
The commission ruling formally covered three issues: the replacement power costs, the status of Met Ed's permit to operate a nuclear plant and -- the central one -- the assignment of bills related to TMI Unit One, the undamaged sister reacto to the one involved in last year's accident.
Although the prospect that the commission might lift Met Ed's license worried the industry, the ruling held that there was "no imminent and foreseeable threat to continued provision of adequate and reliable service at reasonable rates," and therefore no reason to revoke the permit.
The commission then removed Unit One from the utility's rate base, which is the value of assets for which the company is allowed to bill its customers.
That decision will cost Met Ed stockholders $26.9 million a year in lost revenues. That loss will be more than offset, however, by the rate increase allowed by the commission for replacement power charges.
Mark Widoff, attorney for Three Mile Island Alert, a coalition of area citizen's groups that fought assigning any costs whatever to customers, noted that the new pass-through rates combined with an interim hike granted last February will raise citizen's bills 30 percent.
"The investor is going to be badly hurt, and customers will be very badly hurt, all directly from the accident," he said. "Someone in authority should look at the rationally of investing in these nuclear power plants."
Removing Unit One from the rate base in effect assigns the accident costs to stockholders because Met Ed was relying on income from Unit One to help pay the bills at Unit Two.
Both units have been shut down since the March 28, 1979, accident -- Unit Two from at least $400 million worth of internal damage and Unit One on orders from the Nuclear Regulatory Commission. Unit Two was removed from Met Ed's rate base last June.
The PUC ruling held that Unit One is not "used and useful" in the production of power right now and there is no idea when it will restart. Although it is not damaged, the NRC is keeping it closed in response to pressure from citizens' groups around Middletown, Pa.
"Ratepayers should not pay both the cost of a generating station which is out of service and the costs of replacement generation where the outage is beyond normal expectations and of uncertain duration," the order said.
Commissioner Michael Johnson, the only one of the four panel members who has been involved in these hearings since their beginning, said he felt good about the verdict.
"We've disassociated the commission and the ratepayers from any allocation of costs associated with the accident -- cleanup, operation, everything," he said. "To that extent this is highly unusual, without precedent," he said. h