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The Hottest Seat in the House
NU gambles that new top dog Morris can save the day
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Business New Haven
1/26/1998
By: BNH
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Perhaps no Connecticut company has endured more trauma or faces a less certain future than Northeast Utilities. The Berlin-based utility provides electricity through subsidiaries in New Hampshire, Massachusetts and Connecticut. Michael G. Morris was named chairman, president and CEO in August to guide the company through its nuclear-generated woes and into the potentially stormy waters of a new deregulated environment. Morris has 25 years' experience as a utility executive; he was president and CEO of Consumers Energy & Gas, a $4.3 billion subsidiary of CMS Energy of Dearborn, Mich. BNH asked Morris to address the utility's financial and regulatory challenges, deregulation and nuclear power generation issues.
When you were interviewed for the job, what was attractive to you considering all of NU's difficulties?
That was part of the attraction. Consumers Energy hahe technology has turned around now that you can use natural gas. Jimmy Carter forecast in 1972 that by 1990 there would be no gas production in the U.S. - zero. We made a huge forecasting mistake.
Even a gas-generating plant takes a long time to come on line. Are we talking about Canadian electricity or from New York, and is there power transmission into this area for that?
Quebec Hydro will be a major competitor. Some of the New York power will be competitive. Is there sufficient capacity to import all of that energy? The answer is no.
So we would have to build new transmission lines?
And if you think it takes a long time to build gas-fired generating capacity, you should see the time it will take to build an EHV transmission facility.
Well, doesn't that moot the issue of these costs being stranded, if there isn't going to be any real competition for ten years anyway?
No, there will be plenty of competitive power that comes into the marketplace. Like any supply-demand situation, as long as there is an overhang, prices will come down. And there is an overhang in the marketplace. There will be plenty of competition.
Which consumers will benefit most?
In any competitive marketplace you will get volume discounts for volume buying. But the way the states are going about doing this, with an eye toward savings for residential customers, everyone will benefit. One of the beauties of this issue is called “securization.” Securization is taking the current capital invested in the facilities and the regulatory assets that are going to be stranded by this model, and replacing the current cost of financing that with AAA-quality securization bonds. And all of those refinanced savings will be passed directly to the ratepayers.
In the Massachusetts model, was there some portion of stranded costs that weren't being allowed?
No, the Massachusetts model provides for 100 percent of the defined stranded costs. All the things we call stranded costs are already in the rates. This isn't a new cost item; there won't be any argument about money that was written off at Seabrook II. The shareholders have already suffered that loss.
When the state auditor's report was issued on the Millstone plant claiming past problems at the site, that seemed to get highly politicized very quickly.
Customers in Connecticut are not paying for the power we are buying to replace the power that isn't being produced at Millstone. They are not paying the increased expenses we are incurring to bring the Millstone units back on line, and they shouldn't be asked to and they won't be asked to.
What about the decommissioning costs?
It's an interesting debate. According to federal law, nuclear power plant operators are required at the end of the operating life to totally de-fuel, dismantle and decommission the facility so the site can be put back to a pre-power plant use. You're authorized to recover from your customers a decommissioning charge. Over the years at Connecticut Yankee, we were under-recovering what we were forecasting we would need to spend to decommission the plant. So the debate today is over our forecast that it will cost $427 million to decommission that plant.
What have you collected?
$225 million of it.
Isn't the argument from state officials that it shouldn't cost $427 million, and that the high costs are the result of NU mismanagement?
Right. The attorney general's view of it is that there was not sufficient radiological control at the site, and therefore Connecticut customers should not pay the total bill. What's in the $427 million for radiological control is about $12 million. There's a proceeding in front of the Federal Energy Regulatory Commission to determine how much we are going to recover to decommission Connecticut Yankee. This debate has been held in other jurisdictions over other decommissioned plants. Yankee Rowe cost $400 million; Fort St. Vrain in Colorado cost $350 million; and the Trojan plant in Oregon cost $400 million. Connecticut Yankee is going to cost $400 million, plus or minus, to decommission.
At the time of the auditor's report, headlines such as 'Nuclear Nightmare' must have made you folks pretty unhappy. What was the source of that kind of response?
The source of most of the comments that caused everyone to feel justifiably concerned came out of the attorney general's office.
The governor was pretty vocal as well, we recall.
The governor joined in on that issue in a justifiable sense as well. Because if that were true, we should all be alarmed. What we were asking the governor and the attorney general to do is gather the facts before we come to those conclusions. Now, months later, many of e viewed more like your typical utility. Our multiples will be based on the analyst's view of how successful we'll be in that competitive model in New England.
Where do we stand with Millstone and what is the likely time frame?
The units are off line and we can't bring them back on line with our own management decision; we need to receive the authority of the NRC. We continue to make reasonable progress toward that end. I would hope that some time in the first quarter, and no later than the second quarter, we bring the first unit back on line. Financially, we're prepared to weather that storm. Then there are a number of evaluations that have to be done by third parties. All of those evaluations will raise an issue or two. We'll have to react to those issues. We don't know how long that evaluation and reaction process will take. I feel comfortable that will happen in the early part of '98. And when that does happen I think you'll see some very positive reaction out of Wall Street.
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