VIA FAX & HAND DELIVERY

February 2, 2000

The Honorable George Pataki

Executive Chamber

State Capitol

Albany, New York 12224

RE: Proposed Sale of Nuclear Power Plants in New York

Dear Governor Pataki:

The undersigned organizations commend you on your commitment to link energy with environmental and public health issues, particularly with respect to air quality and reducing pollution from fossil-fueled power plants and vehicles.

Today, we are writing to draw your attention to several key policy issues related to the proposed sale of nuclear power plants in New York. These issues include: (1) the public process used for the divestiture of nuclear power plants by their current owners (2) plans for the decommissioning of nuclear power plants, and (3) the operation of nuclear plants under competitive market conditions.

Our concerns, which are elaborated below, lead us to the following recommendations:

1. That the sale of nuclear power plants, be they investor-owned or publicly-owned, should be conducted in a transparent manner guided by publicly disclosed criteria that have been developed in a deliberative process by a publicly accountable entity.
2. That any sale of nuclear power plants should not be coupled to the guaranteed recovery of the remaining stranded costs associated with those facilities. Instead, the Public Service Commission should open up a separate proceeding on nuclear stranded costs with the objective of mitigating those costs so as not to distort emerging electricity markets.
3. That any prospective owner of a nuclear power plant be required to fully disclose their plans for plant decommissioning prior to any sale and that periodic reports on those plans and any changes be made to a publicly accountable New York entity.

5. That you appoint a balanced panel of citizens (including Native American, public interest and environmental groups and representatives from the affected communities) that will periodically review the operation, maintenance and structural integrity of the nuclear plants operated under competitive market conditions and issue periodic reports as a way of ensuring that electric deregulation does not adversely effect the safe operation of the reactors.

Honorable George E. Pataki

February 2, 2000

Page 2

These issues have long-term consequences for the economic well-being of several New York communities, the public health of current and future generations of New Yorkers and the quality of sensitive environmental resources. We are convinced that these issues require immediate policy guidance at the highest levels of state government and should not be dealt with in a piecemeal fashion by the various state bureaucracies responsible for energy, land use, economic development and environmental quality.

(1) Process for considering nuclear plant divestiture

The New York Public Service Commission (PSC) deserves to be commended for recognizing that the integration of nuclear power into competitive electricity markets raises issues that warrant special attention. In late 1998, the PSC launched a collaborative proceeding (Case 98-E-0405) to discuss how New York's four investor-owned nuclear reactors (Nine Mile Point Unit One, Nine Mile Point Unit Two, R.E. Ginna, and Indian Point Unit Two) should be treated in the restructured electricity market. [A primary purpose of this proceeding is to reach a decision on how to implement a PSC staff recommendation that the nuclear plants also be subject to the competitive electric marketplace.]

However, before this collaborative proceeding concluded and before the PSC could set policy on this important matter, the Niagara Mohawk Power Corporation (NiMo) and the New York State Electric & Gas (NYSEG) announced that they had reached a deal to sell their ownership in the Nine Mile Point One (NMP1) and Two (NMP2) nuclear reactors to AmerGen Energy Company LLC, a joint venture between PECo and British Energy. In late August of 1999 - soon after NiMo and NYSEG had made their announcement - the PSC opened up a Section 70 (Case 99-E-0933) proceeding to review the proposed sale of NMP1 and NMP2. In a letter dated January 26, 2000, Mr. Kevin Lang, counsel to the Staff of the Department of Public Service ("DPS"), advised that the DPS Staff will ask the Commission to dismiss the PSL § 70 petition filed by Niagara Mohawk, NYSEG and AmerGen, on the grounds that the sale of the Nine Mile nuclear plants on the terms proposed would not be in the public interest. The case will soon enter the litigation stage.

Complicating matters is the fact that it is still not clear whether Rochester Gas and Electric (RG&E) - which has exercised its "right-of-first-refusal" and matched AmerGen's original offer to buy all of the NMP1 plant and a controlling interest in NMP2 - will continue to pursue the purchase or be allowed to do so. RG&E plans to bring in Entergy Nuclear Inc., a subsidiary of the Entergy Corporation based in Louisiana, to lease, operate, and maintain the reactors.

The fact that RG&E has indicated its willingness to match the Amergen bid for the power plants strongly suggests that the ratepayers’ interests have not been fully captured in the private negotiated arrangement between Niagara Mohawk and Amergen. A more deliberative and understandable process would have been for the Public Service Commission to have supervised a

Honorable George E. Pataki

February 2, 2000

Page 3

competitive bidding process using publicly disclosed criteria for the divestiture of these assets.

Indeed, such a process has been used by utilities for the divestiture of their fossil fuel power plants. Clearly, a transparent and competitive process would be fair to all participants and assure that ratepayer interests were appropriately considered.

(2) Impact on emerging electricity markets

As noted above it is virtually certain that the value of the nuclear power plants would be greater if subjected to a competitive process than was obtained through the private negotiations between Niagara Mohawk and Amergen. Still, we do not expect that the current owners of the power plants will be able to recover through divestiture anything near to the amount they invested in those plants. In fact, the AmerGen offer, $163 million for full ownership of NMP1 and for a 59% share of NMP2, is well below the current book value (1997) of these plants, $354 million and $2,837 million respectively. This offer would recover only seven cents per dollar of book value of these plants.

How responsibility for the remaining sunk costs of these plants is allocated can have a significant impact on emerging electricity markets. The issue is of such magnitude that the Public Service Commission needs to open a separate proceeding in which information on market impacts – for all classes of customers: industrial, commercial, small business and residential – of alternative stranded cost policies can be considered.

(3) Decommissioning Method and Timeframe

There are several public policy concerns related to decisions about the decommissioning of nuclear power plants. The process of decommissioning a nuclear power plant is complex and highly uncertain. Estimates of the costs of decommissioning have varied by more than an order of magnitude over the last 20 years. Two important reasons for the variability of cost estimates are: a) the uncertainty about the cost of managing and/or disposing of low level radioactive waste; and b) the lack of consensus between the NRC and the Environmental Protection Agency as to the standards for residual radiation at the site when it is released for other uses.

In addition to these uncertainties, the cost of decommissioning is influenced by the timing of the dismantlement of the principal components of a nuclear reactor. NRC rules allow for deferral of dismantlement for up to 60 years. The economic benefits of postponing decommissioning are related to the time value of money. Delaying the decommissioning of a nuclear plant until a later date is cost effective when the escalation in decommissioning costs is less than the expected earning from the investment of the decommissioning fund.

Honorable George E. Pataki

February 2, 2000

Page 4

(4) Decommissioning Funds

Clearly, there is the potential for the new owners of nuclear plants in New York to choose a decommissioning strategy based solely on their financial considerations rather than on the long-term economic and public health interest of the surrounding communities. It is certainly possible that the existing nuclear sites in New York could be turned into long-term nuclear dumps while the out-of-state owners of the plants earn interest on the decommissioning accounts. Moreover,

if those decommissioning accounts exceed the cost of actual decommissioning the plant owners will be able to pocket the difference.

Furthermore, there is considerable disagreement as to the standards for residual radiation at decommissioned sites. It is possible that following the decommissioning of a nuclear plant that, evidence will lead to more rigorous standards for residual radiation. It is further possible that the new owners would be incapable of or unwilling to, further remediate the site to the new standards.

(5) Nuclear Safety

Final concern relates to the potential for cost cutting under competitive market conditions that could jeopardize the safe operation of New York's nuclear power plants. We are particularly concerned about Entergy and AmerGen's plans for acquiring multiple U.S nuclear power plants and how their approaches to consolidating engineering and support services might affect nuclear safety. Entergy Nuclear has recently been cited by the NRC for 14 violations and slapped with nine fines totaling more than $525,000 for problems at four of its reactors in the past three years. British Energy (BE), AmerGen's parent company, has already been criticized by the United Kingdom's Nuclear Installations Inspectorate (NII) - the equivalent to the U.S. NRC. Last week, the NII ordered BE to halt its job reduction program until the company could demonstrate that the cutbacks would not affect safety. NII made the announcement on January 28, 2000 after publishing a safety management audit of the company containing 103 recommendations to maintain or improve its operations at several of its nuclear facilities. Regardless of which company owns and operates New York's nuclear power reactors, the competitive pressures facing them will be similar to those confronted by BE in Britain. The NII's criticism is particularly troubling since there are important structural issues that need to be investigated and addressed at New York's nuclear plants.

We appreciate the opportunity to bring our concerns to your attention. We believe that these issues are of such significance to the citizens of New York that they need to be addressed prior to any decision by the PSC to allow the transfer of ownership of nuclear plants in New York. We look forward to your reply and would be interested in meeting with you as soon as possible to discuss these issues and what actions might be taken.

Sincerely,

Ed Smeloff

Pace Energy Project

Nathanael Greene

Natural Resources Defense Council

Kyle Rabin

Environmental Advocates

Brian Flack

New York Public Interest Research Group

David Hepinstall

Association for Energy Affordability, Inc.

Harvey Wasserman

Citizens Protecting Ohio

Michael Mariotte

Nuclear Information and Resource Service

Scott Cullen

Standing for Truth About Radiation (STAR)

Gwynn Schroeder

North Fork Environmental Council

Bill Smirnow

Nuclear Free New York

Jeff Beller

Biofuels America!

John Stouffer

Sierra Club, Atlantic Chapter

Marilyn Elie

Indian Point Project

Maureen Gaffney

Orange Environment, Inc.

Margo and Daryl Schepart

No Escape

Jay M. Gould

Radiation and Public Health Project

Gordian Raacke

Citizens Advisory Panel (CAP)

Susan Griffin

Chenango North Energy Awareness Group

Mark Jacobs

Westchester Peoples Action Coalition

Andi Weiss Bartczak, Ph.D.

Hudson River Sloop Clearwater, Inc.

Rose Marie Williams

Cancer Awareness Coalition

Judy Pannullo

Long Island Progressive Coalition

Fred Schaeffer

Metro Justice

Bill Labine

Renewable Energy Works!

Michele Riddell

Safe Legacy

Elinor Weiss

Social Action Committee of Temple Beth El

Norm Cohen

UNPLUG Salem Campaign

Mark Dunlea

New York Greens

George Rubino

Coalition Against Millstone

Maria Martinez

Susquehanna Clean Air Project

Phillip Sullivan

Catskill Alliance for Peace

Christine Shahin-Wood

Kids Against Pollution

Jon Dember

Energy Plus Cooperative of the Southern Tier and Finger Lakes

Phil Hopp

Citizens United for a Responsible Environment

Alice Slater

Global Resource Action Center for the Environment

Walter Simpson

Western New York Sustainable Energy Association

Roger Snyder

Sound & Hudson against Atomic Development (SHAD Alliance)

Chris Olney

Conservation Catskill Center for Conservation and Development

Manna Jo Greene

Hudson Valley Sustainable Communities Network

Lex Liberatore

Citizen Action of New York

Doris Delaney

PROTECT

Christopher R Jones, M.D., Ph.D.

Salt Lake City, Utah

Elmer Bertsch

Niskayuna, New York

Gary and Connie Fargnoli

Whitney Point, New York

Kathleen Tucker

The Health & Energy Institute

Geoffrey Welch

Ramapo River Committee