Utility ratepayers on hook for more than $3 billion in San Onfore nuclear plant costs

A deal was reached Thursday between the operators of the shutdown San Onofre nuclear power plant and consumer advocates over who, ratepayers or plant owners, should pay for billions of dollars in costs related to the plant's closure.
A deal was reached Thursday between the operators of the shutdown San Onofre nuclear power plant and consumer advocates over who, ratepayers or plant owners, should pay for billions of dollars in costs related to the plant's closure.
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Southern California utility ratepayers are 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. That's one part of a proposed agreement reached Thursday between two utilities and consumer advocacy groups.

The Utility Reform Network (TURN), California Public Utilities Commission's Office of Ratepayer Advocates, Southern California Edison (SCE) and San Diego Gas & Electric met behind closed doors in San Francisco to work on the agreement on 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.

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.

Another part of the agreement lets customers off the hook for more than $1 billion in costs associated with defective steam generators at the San Onofre nuclear power plant.

"Under the proposed settlement, customers would pay about $1.4 billion less than Southern California Edison and San Diego Gas and Electric wanted," said Matthew Freedman, an attorney with TURN. "This represents a huge win for consumers."

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.

What Freedman called a "huge win" for consumers, is the difference between what SCE and SDG&E wanted, $4.7 billion, and what the proposed settlement has customers on the hook for, $3.3 billion. 

"In a nutshell, Southern California Edison is getting out of future litigation and hearings into how they screwed up potentially, so they're giving up $1.4 billion that they asked for," said Ray Lutz with San Diego-based Citizens' Oversight. Lutz said he was one of the parties to the on-going litigation but not part of the closed-door negotiations.

"This agreement was set in stone when we showed up for the meeting" Lutz said. "I think the proposal needs more review, but on its face it's a pretty good deal for ratepayers and about the best deal that we could imagine." 

Money collected between when the plant was shutdown in January 2012 and when SCE announced it would permanently close the facility in June 2013 will be returned to ratepayers.  

But ratepayers won't be getting checks in the mail or a big credit on their utility bills.

"Those amounts will be credited against rates and other amounts that the utilities seek to collect," Freeman said. "So it becomes essentially an offset to rates.  There won't be something that says 'this is your rebate for San Onofre.'"

Freedman said the money is credited against other SCE and SDG&E rate increases that are pending before the CPUC

TURN's Freedman said under the proposed agreement, customers will share in any money recovered by SCE and SDG&E from Mitsubishi Heavy Industries, the manufacturer of the defective generators or from an insurance company, Nuclear Energy Insurance Limited.

Freeman said under terms of the settlement:

SCE customers would receive refunds of approximately $480 million by the end of 2014 and SDG&E customers would receive $121 million. 

SCE and SDGE&E would not be allowed to charge ratepayers for some of the incremental costs to inspect and repair the faulty steam generators in 2012. SCE shareholders would be responsible for $99 million.

SCE and SDG&E would refund any money from ratepayers since January 1, 2013 in excess of the actual operational costs of the nuclear plant. 

"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 statement regarding the settlement. "Our customers will pay for replacement power they received."

"We have worked closely with key consumer stakeholders to resolve the San Onofre ratemaking questions in a manner intended to fairly balance the interests of all parties," Litzinger said. “The settlement also provides a clear road map for SCE to pursue claims against Mitsubishi for the defective replacement steam generators it supplied for San Onofre."

CPUC Commissioners must approve the proposal. 

“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.  "The proposed settlement will come before the CPUC for consideration after a public hearing to evaluate it closely.”

CPUC Commissioner Mike Florio said it was "encouraging" that the parties reached a resolution after an 18 month proceeding.

" If approved, it would save us another two years of litigation and offer ratepayers a more expeditious relief,” Florio said. 

Lutz, with Citizens' Oversight, said the CPUC commissioners have been "leaning toward" a settlement rather than continued hearings.

"Rather than continue with the on-going CPUC proceeding, Edison waved the white flag and decided to eat those costs ($1.4 billion)," Lutz said.

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. 

The replacement steam generators were installed during a $670 million overhaul in 2009 and 2010. 

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.  

TURN and other consumer groups, wanted millions of dollars returned to ratepayers. TURN also requested that the utilities be prohibited from collecting any costs for the replacement steam generators, and "to share with customers any proceeds received from insurance and from Mitsubishi, the manufacturer of the defective steam generators."

But SCE and SDG&E said customers, who benefitted from the nuclear plant's energy, should pay the costs for the failed generators, the replacement power and other plant costs. 

Thursday's proposed agreement would split those costs between ratepayers and the utility companies.