Long Island Lighting Co. v. Public Service Com'n of State of N.Y.

• Decision Date: 30 December 1987
• Parties: In the Matter of LONG ISLAND LIGHTING COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Respondent, and Robert Abrams, as Attorney-General of the State of New York, et al., Intervenors. (And Three Other Related Proceedings.)
• Court: New York Supreme Court — Appellate Division

Page 615

523 N.Y.S.2d 615

134 A.D.2d 135

In the Matter of LONG ISLAND LIGHTING COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Respondent,

and

Robert Abrams, as Attorney-General of the State of New York,

et al., Intervenors.

(And Three Other Related Proceedings.)

Supreme Court, Appellate Division,

Third Department.

Dec. 30, 1987.

[134 A.D.2d 137] Robert Abrams, Atty. Gen. (Adrian F. Johnson, of counsel), New York City, intervenors.

Paul, Weiss, Rifkind, Wharton & Garrison (Edward N. Costikyan, of counsel), New York City, for Consumer Protection Bd. and another, intervenors.

David E. Blabey (Lawrence G. Malone, of counsel), Albany, for respondent.

Anthony F. Earley, Jr., Hicksville, and Shea & Gould (John B. Grant, Jr., of counsel), New York City, and Hunton & Williams (Edgar M. Roach, of counsel), Raleigh, N.C., for petitioner.

Before MAHONEY, P.J., and MAIN, MIKOLL, YESAWICH and HARVEY, JJ.

YESAWICH, Justice.

These consolidated CPLR article 78 proceedings arise out of a prudence review undertaken by the Public Service Commission (hereinafter the PSC) to determine whether costs incurred by Long Island Lighting Company (hereinafter LILCO) in the creation of the Shoreham Nuclear Generating Facility (hereinafter Shoreham) exceed the reasonable and prudent cost of the facility because of LILCO's imprudence, mismanagement and gross inefficiency. The PSC majority of four commissioners concluded that some $1.395 billion of Shoreham expenditures were imprudently incurred, and excluded this amount from LILCO's rate base. Three dissenting commissioners would have precluded LILCO from recovering at least $1.875 billion in Shoreham costs from its ratepayers. LILCO protests the disallowance and also the PSC's refusal to reopen the record for the purpose of receiving additional evidence; the Attorney- General, the Consumer Protection Board (hereinafter the CPB) and the County of Suffolk urge adoption of the dissenters' opinion.

The Shoreham project began in 1965 when LILCO's board of directors approved plans to build a 540-megawatt nuclear power plant on the north shore of Long Island at a cost then estimated to be $124 million; commercial operation was expected to begin in 1973. To date, Shoreham's cost exceeds $5 billion and it has yet to operate commercially.

In 1979, the PSC became sufficiently concerned with continuing construction schedule The PSC found that LILCO had committed a series of serious management errors and had failed to deal effectively with pronounced engineering, labor, procurement and regulatory problems (Matter of Long Island Lighting Company--Phase II, PSC Opn No. 85-23 [Dec. 16, 1985] ). In its decision, the PSC cited LILCO's failure to engage in systematic project planning; confusion of responsibilities, primarily between LILCO and its architecture/engineering firm, Stone and Webster; failure to establish, organize and staff systems to enforce construction schedules or implement cost control; an injudicious shutting down of the project in 1971; failure to resize the secondary containment area when the reactor's size was increased; reliance upon an unworkable procurement process cycle to purchase materials, supplies and equipment; deficient oversight and monitoring of Stone and Webster's engineering activities and in the planning and scheduling of the construction; lack of control over, and unreasonably numerous, design changes; inefficient and ill-considered resolution of hydrodynamic load problems; poor labor management, resulting in low productivity; mismanagement of regulatory matters, including a harmful lack of cooperation with the Nuclear Regulatory Commission (hereinafter NRC); understaffing of quality assurance forces; and failure to adequately supervise the acquisition of indispensable diesel generators.

delays and the alarming escalation in costs of the controversial nuclear generating facility to initiate a prudence investigation. An extensive examination of LILCO's management of the Shoreham project, made by the staff of the Department of Public Service (hereinafter Staff), with the aid of outside consultants, led to a hearing which yielded over 11,600 pages of testimony and nearly 2,800 exhibits, and culminated in a comprehensive opinion and order by the PSC issued December 16, 1985, which in large part adopted the recommended decision of the Administrative Law Judges (hereinafter ALJs) who conducted the hearing.

The record discloses that LILCO's difficulties began in 1968 when it ignored the warnings of its vice-president of engineering, who recommended deferral of the Shoreham project because of unfavorable regulatory and economic climates. Instead, LILCO's board of directors authorized construction of an 820-megawatt nuclear reactor. However, when the reactor was redesigned, the size of the secondary containment area was not enlarged. While there was still room enough for the physical apparatus, space was so cramped that workers were in one another's way, adversely affecting the pace and cost of construction. There was no evidence that LILCO evaluated the adequacy of the secondary containment's size prior to concrete pour.

Oversight of the Shoreham project was initially delegated to Stone and Webster. LILCO retained Stone and Webster on the recommendation of its executive vice-president, whose son-in-law was the Stone and Webster representative credited with obtaining the Shoreham contract. Stone and Webster received a substantial cost-plus contract without prior approval of the board of directors, a violation of LILCO's policy on contract commitment.

In August 1971, two weeks after a Federal court decided that the Atomic Energy Commission was subject to the National Environmental Policy Act of 1969 (Calvert Cliffs Coordinating Comm. v. Atomic Energy Comm., D.C.Cir., 449 F.2d 1109), LILCO ordered Stone and Webster to halt its engineering and procurement work indefinitely, despite having a goal of completing 80% of the engineering work without interruption; at that point engineering was only 55% complete. The project was effectively shut down until LILCO finally obtained its construction permit in April 1973. When planning was resumed in September 1972, Stone and Webster assigned new, relatively inexperienced engineers to the project. Because of this, coupled with the engineering hiatus, the project fell far behind schedule; engineering drawings failed to keep ahead of construction, LILCO lost priority with its suppliers leading to procurement Construction began in June 1973, but incomplete and inadequately checked engineering drawings hampered progress. In an effort to reduce its grave state of delay, LILCO developed an expedited construction schedule which contemplated two work shifts, but construction unions refused to work the second shift called for in the plan. Not only did this schedule fail almost immediately, but worker morale was badly deflated by goals now impossible to achieve. Nevertheless, LILCO retained the unworkable schedule, causing the project to slip even farther behind.

problems, and time that could have been devoted to bringing designs into compliance with new regulations was dissipated. Again, LILCO did not perform the studies needed to appraise the advisability of a shutdown, nor did it ascertain whether engineering was sufficiently advanced to support construction once the project resumed.

With ample basis for doing so in the record, the PSC found that the project's rate of progress continued to worsen due to LILCO's failure to enforce monitoring and control techniques, required by contract of Stone and Webster, which would have enabled LILCO to pinpoint problem areas and identify solutions. Instead, LILCO knowingly left such matters as low labor productivity, engineering and procurement delays, quality assurance and reactor building congestion largely uncorrected.

In May 1976, to overcome the construction gridlock, LILCO established the Unified Construction Organization (hereinafter UNICO) consisting of its own and Stone and Webster's management personnel. UNICO, a construction monitoring group, was to provide coordinated leadership. When little improvement was had, a task force of select LILCO and Stone and Webster personnel was formed. The task force, after assessing the situation, reported:

There are no generic constraints which caused the poor production and productivity which are being experienced in the piping area. Neither is the cause individual incompetence. Rather, the causes are comprised of a combination of poor planning, inadequate direct supervision, cumbersome procedures and organizational arrangements, inaccurate controlling and reporting systems, a lack of organizational leadership, and a serious antagonism between Stone & Webster and Courter [the piping contractor].

The task force assumed responsibility for a portion of the reactor building and through careful scheduling and close supervision obtained dramatic improvements in piping production, then the chief construction activity. In December 1976, the task force was disbanded and its report was referred to Stone and Webster, which inexplicably did not implement similar practices. Within a month thereafter construction progress fell below pre-task force levels.

In 1977, in response to the suggestion of an outside management consulting firm that neither LILCO nor Stone and Webster was providing the leadership that Shoreham required, LILCO undertook to superintend the construction. Unfortunately, LILCO's supervisory personnel did not possess relevant nuclear construction experience and they continued to rely primarily on Stone and Webster's inadequate reporting and management systems. LILCO also experienced chronic labor productivity problems. In 1977 a work force sampling revealed a direct work percentage of 21% (compared to an industry average of 31.5%) with 8% of hours wasted through late starts and early quits and 42% lost to...