As the Long Island Power Authority seeks to lower its debt costs, a nuclear power plant that was built by the utility's predecessor in the 1980s and never opened remains an albatross.
LIPA acquired the Shoreham Nuclear Power Plant for $1 from the former investor-owned utility, Long Island Lightning Company, in 1992 and assumed its $6 billion debt.
New York Gov. Mario Cuomo formed LIPA in 1986 with the power to take over LILCO. The takeover eventually happened in 1998 when LIPA issued $7 billion in bonds to purchase LILCO's transmission and distribution system.
LILCO began constructing the plant in 1973 before public pressure turned against the project after a partial meltdown of Pennsylvania's Three Mile Island nuclear power plant in 1979.
The Suffolk County Legislature voted in 1983 that it didn't believe county residents could not be safely evacuated if there was a disaster at the plant on Long Island's north shore, about 70 miles from Manhattan. Ultimately public pressure, further fueled by the 1986 Chernobyl nuclear disaster, kept the plant from opening.
"It has contributed to very high debt loads for them," said Standard & Poor's credit analyst Jeffrey Panger on the never-opened Shoreham plant. "That has been a stranded asset," he said.
"The sooner LIPA can unburden itself from these last vestiges of Shoreham, the sooner it can devote resources to such crucial issues as storm preparation and renewable energy," said St. John's University finance and law professor Anthony Sabino. "Shoreham is a relic of decades past. The sooner LIPA has it totally off the books, the sooner all of Nassau and Suffolk counties can look to the 21st Century."
The New York Department of Public Service recommended on May 15 a LIPA proposal to use excess funds in the utility's depreciation reserve to fully amortize expenses related to the plant by 2025, seven years ahead of schedule. The cost of carrying the plant on LIPA's books generates $112 million in yearly amortization expenses, according to DPS staff testimony from a June 8 hearing. DPS officials also explained how a "substantial portion" of LIPA's outstanding debt of more than $7 billion was issued to refinance debt associated with the construction of the Shoreham plant.
LIPA CFO Tom Falcone said reducing the amortization period on the Shoreham plant acquisition adjustment will have no impact on the agency's rates or credit ratings; he has said he is focused on reducing the cost of LIPA's roughly $7.6 billion in outstanding debt.
The agency was removed from Standard & Poor's credit watch list in March 2014 after a securitization of $2 billion of debt reduced its balance-sheet debt by around 28%. Falcone said while debt is expected to jump to about $7.9 billion by the end of 2018, LIPA is also investing in more infrastructure projects that will allow customers to be better served.
"We are making a lot of progress," said Falcone. "We are on the right track."
Moody's Investors Service rates LIPA Baa1 with a stable outlook; Standard & Poor's rates it A-minus with a negative outlook.
Investor-owned PSEG-LI took over LIPA's operations in 2013 after the utility drew criticism for its response to Hurricane Sandy.
"There's no doubt that overall the debt -- its role in adding costs -- has been a drag on the regional economy and individual businesses and families," said Lawrence Levy, director of the Center for Suburban Studies at Hofstra University on Long Island. "Clearly the debt service saddles ratepayers with extra costs that give them among the nation's highest electricity bills. But the cash from chronically refinancing the debt for everything from operational and capital costs to holding down rate increases has offset some of the burden."
Former LIPA CEO Kevin Law said the Shoreham Nuclear Power Plant symbolizes a sad chapter in Long Island history and that the project should have never been allowed to proceed to the point it did given the evacuation challenges.
"It's really unfortunate that the old LILCO was allowed to do what they did and saddle ratepayers with some of the highest rates in the country for a plant that was tested and never operated," said Law, who was president and CEO of LIPA from 2007 to 2010. "This certainly does go down as the biggest boondoggle in Long Island history."
Law, who is now president of the Long Island Association, created a Shoreham Advisory Committee in 2008 in an effort to determine potential uses for the decommissioned plant site. The former LIPA chief suggests having the state sell the land to a renewable energy company who could place wind turbines or solar panels at the site. He said tearing the plant down is unrealistic since it would cost at least $100 million.
"That would be a very poetic ending to this Shoreham nightmare," said Law, adding that in addition to renewable energy usage, parts of the land could also be utilized as a park or business usage such an outdoor waterside restaurant. "Right now it's a $7 billion mausoleum."
Levy said the Shoreham plant often comes up in regional planning discussions as a possible deep-water port to ferry people and goods across Long Island Sound to the mainland. He has also heard suggestions for the site being an ideal staging area to construct major wind energy projects for nearby Rhode Island and Massachusetts.
"The problem is that the property is fairly remote," he said. It's unlikely that expanded road or rail access is feasible due to costs and likely community opposition, Levy said.
The Cross-Sound Cable was installed in 2002 connecting the former Shoreham plant to New Haven, Conn. Falcone said the infrastructure already in place at Shoreham also allows LIPA to operate a small power plant at the site along with some warehouses. He said uses like this allow LIPA to save costs that would otherwise be needed to build new facilities.
Anthony Figliola, vice president of Uniondale, N.Y-based consulting firm Empire Government Strategies, said it's unfortunate the plant never opened.
Nuclear is "one of the safest and most reliable power sources," he believes, saying the plant could have been a boost for Long Island.
"The death of this plant before it even flipped the switch is a perfect example of how the lack of education or any energy policy can create a flood of hysteria and have people believe the worst will happen," said Figliola, a former deputy supervisor for the Town of Brookhaven in Suffolk County. "This has been a $7 billion burden that Long Island ratepayers have been carrying around."