Environmental Advocates

The Pace Energy Project

July 26, 2000

The Honorable George Pataki

Executive Chamber

State Capitol

Albany, New York 12224

Dear Governor Pataki:

We have communicated to you on two previous occasions our concern that the lack of policy guidance on nuclear power in competitive markets has the potential to compromise public safety and distort emerging electricity markets. We have urged you and the Public Service Commission (PSC) to reconvene the generic proceeding (Case 98-E-0405) that was discontinued in July 1999 so the Commission could consider the sale of the Nine Mile 1 and 2 nuclear power plants. As you know, the sale was not consummated. This has created a new opportunity to bring together the parties participating in the generic nuclear case. However, the PSC has given no indication that it intends to reconvene the suspended proceeding.

The lack of a coherent nuclear policy is once again creating potential problems for New York’s consumers. Specifically, Consolidated Edison is proposing to replace the four degraded steam generators at the Indian Point 2 nuclear plant this fall. The cost of replacement is estimated to be between $135 million and $250 million. What is not clear is who will be financially responsible for the cost of replacing the steam generators. In a genuinely competitive market the owner of the power plant would be responsible for repairs, maintenance and upgrades to their property. This way the shareholders of the corporation would be at risk and would exercise due diligence in determining whether the investment could be returned from future sales of electricity.

However, Consolidated Edison claims that its interpretation of state policy is that New York’s ratepayers should be required to pay for the replacement of the steam generators at Indian Point 2 as a strandable cost needed to preserve the asset. If this were indeed state policy it would add several hundred million dollars of additional costs onto consumers who are already paying among the highest electric rates in the country. Moreover, it would crowd out competing power plant owners who do not have the opportunity to have ratepayers subsidize their operations. It is hard to conceive that competitive markets are well served by providing only one power plant owner with a guarantee that its investments will be recovered outside of the marketplace.

This issue was raised in the generic proceeding but was not resolved since the proceeding was suspended before the parties could complete their work. We want to encourage you to prevail upon the PSC to reconvene it generic nuclear case. Alternatively, we would appreciate a clear policy statement from the Administration on who it intends to hold responsible for covering the cost of replacing the four degraded steam generators at Indian Point 2.

Sincerely,