Ratepayer group: Proposed settlement of San Onofre nuclear costs 'theft'

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A ratepayer activist has changed his mind on a proposed  costs settlement related to the San Onofre nuclear power plant shutdown. He now says the plan is a loser for Southern California utility customers. 

Ray Lutz, who heads up San Diego-based Citizens' Oversight, had initially supported the proposed deal when he was briefed on it March 27 in San Francisco. 

But, after spending several days pouring over the documents detailing the agreement, he has reached a different conclusion.

"We are not going to be joining the settlement," said Lutz. "We're going to be pointing out the correct and fair resolutions to this, which is not the midpoint between fair and absurd, the absurd taking and outright theft of $3 billion." 

The proposed deal would make utility customers of Southern California Edison and San Diego Gas & Electric responsible for $3.3 billion in costs for replacement power due to the shutdown of the San Onofre nuclear power plant south of San Clemente.

Another part of the proposed agreement  between the two utilities and consumer advocacy groups would let customers off the hook for more than $1 billion in costs associated with defective steam generators at the plant. But the utilities may be able to get some of those costs back from the manufacturer, Mitsubishi Heavy Industries. 

The Utility Reform Network (TURN), California Public Utilities Commission's Office of Ratepayer Advocates (ORA), Southern California Edison (SCE), and San Diego Gas & Electric met behind closed doors March 27 in San Francisco to work out how the costs would be divided between the utility's shareholders and its customers. Those costs include the purchase of replacement power for the plant and expenses related to defective reactor equipment.

"I believe that TURN and the ORA probably were acting as best they could in the settlement talks,"said Lutz. "I just think they're pushing for a settlement a little too hard and not going for what I think is best for the ratepayers," he said. 

He said ratepayers should not be stuck with costs from the failed nuclear plant.

"Southern California Edison was imprudent, they made a big design mistake and blew it with San Onofre," said Lutz. "The Nuclear Regulatory Commission fined them (SCE) for breaking the rules and SCE is suing Mitsubishi Heavy Industries over the failed generators. The ratepayers are completely innocent here. The ratepayers should not be paying the $3 billion they (parties to proposed settlement) want to cover for this big mistake."

Some of the $3.3 billion for replacement power has already been collected in SCE and SDG&E utility bills starting in February 2012 and, under the proposed agreement, would continue through January 31, 2021.

"This proposed settlement means that customers don’t pay for the steam generator project after the tube leak at San Onofre, leaving SCE financially responsible for its ownership share in the project," said Ron Litzinger, president of SCE, in a March 27 statement regarding the settlement. "Our customers will pay for replacement power they received."

The two utilities had sought about $4.7 billion for costs related to purchasing replacement power during the plant's shutdown and costs associated with the failed generators.

While TURN attorney Matthew Freedman called the proposed deal a "huge win" for consumers, Lutz said it lets Edison off the hook and sticks ratepayers with costs.

"In the case of the San Onofre nuclear plant (and the proposed settlement deal) they want the investor to make their money back even though the thing [San Onofre] failed," said Lutz. "And the customers [SCE, SDG&E ratepayers] have to pay for nuclear energy they never got."

Lutz said Edison is trying to get billions of dollars back from Mitsubishi Heavy Industries, which designed the faulty steam generators.  

"But they still want all of their money back from a failed investment, a return on that investment and they want that money from ratepayers." Lutz said. "It's bad policy because it encourages bad projects."

Lutz said if the proposed settlement deal is approved, it will bring to an end the 18-month CPUC proceeding to determine whether ratepayers, investors, or both should pay for the  costs related to the shuttered plant.

"Southern California Edison would also avoid future litigation and hearings into how they screwed up," said Lutz. 

Under the proposed settlement, money collected between when the plant was shutdown and when SCE announced on June 7, 2013 it would permanently close the facility, will be returned to ratepayers. 

Lutz plans to formally oppose the deal.

"If this settlement is approved by the CPUC, I don't think this regulatory structure works for ratepayers, especially if their money is put into investor's pockets," said Lutz.  

He said the CPUC has been "leaning" toward a settlement rather than continued hearings. 

“I am pleased that the parties have come to a proposed settlement that they believe is in the interest of ratepayers," said CPUC President Michael R. Peevey in a news release March 27. 

"If approved, it would save us another two years of litigation and offer ratepayers a more expeditious relief,” said CPUC Commissioner Mike Florio, in the same release.

The San Onofre nuclear plant went offline in January 2012 after a small radiation leak from steam generator tubes in the Unit 3 reactor. Inspections later discovered the steam tubes at in both reactors were wearing at an accelerated rate and that relatively new steam generators were defective. 

Determining who should take the financial hit, utility shareholders or customers, has been at issue since SCE announced in June 2012 it would permanently close the plant. The decommissioning process is now underway, which is expected to take a decade or more.

While the plant was shutdown, Southern California ratepayers continued to pay for costs of the plant, including the purchase of replacement power by SCE and SDG&E.  

Lutz admitted to being a bit "naïve" about the process, saying he expected to get an update on talks when he attended the March 27 briefing in San Francisco. He was one of the parties to the on-going litigation (intervenor in CPUC proceeding) but not part of the closed-door negotiations, which were not part of the formal CPUC proceeding into San Onofre costs.

"I thought this meeting was going to be a first round and all of the intervenors would be involved in the proposed settlement negotiations," said Lutz."It's all rigged against the ratepayer and for the utilities. This proposed settlement agreement means ratepayers get stuck and SCE and SDG&E can keep their return on the plant's investment and their profits from it."

CPUC spokeswoman Terrie Prosper said it will be at least 30 days before commissioners would vote on the proposal as a hearing on the deal is still pending. 

No matter how the settlement on costs turns out, Lutz pointed out the plant is permanently shutdown. 

"The big success here is the permanent shut down of the nuclear plant, and the fact that no more waste is being generated," said Lutz. "The details of the settlement are important, but pale in importance to this one fact."

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