Corporate Profit and Nuclear Safety
Strategy at Northeast Utilities in the 1990s

Northeast Utilities Company adopted a new competitive strategy in the mid-1980s. Curtailing outlays on nuclear operations meant high risk that the Nuclear Regulatory Commission would close the plants because of prolonged outages. This is just what happened in 1996. This book describes ten years of corporate performance preceding the shutdown.

Paul MacAvoy and Jean Rosenthal describe ten years of corporate performance preceding the shutdown, detailing aggressive executive decisions, mounting regulatory actions in response to increasingly severe operational failures, and - at the same time - overall improvement in corporate earnings, stock prices, and executive pay packages. They relate the complexities of managing declining nuclear plant operations under ever more pressing budgetary targets. Their discussion of the increasing risk of outages raises the issue of the tradeoff of profit and conservative management of hazard operations. All the more timely in light of the massive 2003 East Coast blackout, "Corporate Profit and Nuclear Safety" represents a powerful and cautionary commentary on industrial practices that goes to the heart of effective corporate governance.

List of Figures vii
List of Tables ix
Preface xi


Chapter One: Strategic Challenge at Northeast Utilities 1


An Overview of Strategy and Performance at Northeast Utilities 2
Chapter Two: Northeast's Competitive Strategy 7
Visions of a Changed Future 8
The Strategic Response 10
Financial Conditions at the Beginning of the New
Competitive Strategy 13
Constraints: Price and Safety Regulation 18
Alternative Strategies: Other Electric Utilities Cope with
Threats of Deregulation in the Mid-1980s 22
Comparative Nuclear Strategies: Pacific Gas and Electric 26
The Northeast Competitive Strategy in Context--Was
It at Inception the Dominant Strategy? 27


Chapter Three: The Nuclear Power Context for the New Competitive Strategy 31


The Complexity of Nuclear Power Systems 31
Safety Regulation at the Nuclear Regulatory Commission 35
Self-Regulation in the Nuclear Industry 37
Safety Culture and "Management Style" 38
Cost Containment in the Context of Safety Regulation 41
A Conceptual Framework for Analyzing Responses
to Regulation 45
Initial Results: The 1990-91 Millstone Nuclear
Plant Shutdowns 48
Nuclear Regulatory Commission Early Warnings 53
The LRS Report and CT DPUC After-the-Fact Appraisal 57
Strategic Focus: Acquisition of Public Service of
New Hampshire 57
Initial Results: Financial and Nuclear Plant
Operating Performance 61


Chapter Four: Revisiting Competitive Strategy in the Mid-1990s 64


Northeast Strategy and the Competitive Threat 64
The PEP Process for Improving Nuclear Plant Performance 73
Operating Problems at Millstone in 1993 75
The Strategy of Northeast and the Board of Trustees 79
The Financial Success of Cost Containment 80
Strategy and Management Compensation 83
Another Look at Alternative Strategies 86
Chapter Five: Northeast Strategy and Regulatory Shutdown of the Millstone Plants 88
Failing Operations at Millstone 88
Shutdown at the Millstone Site 97
Increasing Public Concern 98
The Role of the Board in the Northeast Utilities Collapse 101
CODA: The End Game 105
Strategy as the Cause for Shutdown 108


Notes 113
Bibliography 135
Index 147