NUCLEAR ENERGY:

Who'll get stuck with San Onofre's $3B tab?

This story was updated at 3:08 p.m. EDT.

The debate over whether to reopen the San Onofre Nuclear Generating Station is over. Now a new one begins: Who will pay the costs that the plant's owner puts at more than $3 billion?

That's the tab for spending on replacement power when the plant was shuttered, operations and maintenance costs, and long-term investments in San Onofre, also known as SONGS, Edison International, parent company of plant owner Southern California Edison (SCE), said Friday.

"The cost-recovery process will focus on four sources for picking up those costs," said Ted Craver, chairman and CEO of Edison International. "The traditional way, of course, is all these costs are passed through to the customers, to the ratepayers in the form of the rates."

In addition, Edison has filed claims with its insurance carrier, Nuclear Electric Insurance Ltd. (NEIL), and is requesting payments from Mitsubishi Heavy Industries (MHI), maker of the failed generators at San Onofre. Some costs might be borne by Edison shareholders, Craver said.

The battle over who foots the bill is likely to be long and acrimonious, said Damon Moglen, spokesman with Friends of the Earth, a nuclear power opponent. One of the key points will be how much blame SCE should bear for failed generators at the plant, he said.

"There's going to be a big fight and a big argument over who's responsible," Moglen said. The situation is likely to be similar to what was seen after the BP PLC Deepwater Horizon oil rig explosion, he said, where "you're going to have companies that are going to point the finger at other companies."

Edison International announced Friday that it would permanently shut San Onofre, ending 16 months of debate over the future of the San Diego County plant. Financial analyses showed the company was reaching a point where it was costing more to keep the facility open than the amount it could hope to recoup (Greenwire, June 7).

The focus now shifts to cost recovery, decommissioning the plant and making sure the state will have enough electricity in the years ahead. San Onofre provided power to 1.4 million homes and also provided voltage support that allowed electricity imports. The grid manager, the California Independent System Operator, said that it already had backup plans in place for the summer but would be working on a blueprint for the next few years. Gov. Jerry Brown (D) on Friday asked for a strategy within 90 days.

"California's top energy experts will continue developing a long-term plan that ensures there is reliability for decades to come," Brown said.

Other oversight is planned. State Sen. Alex Padilla (D) of Pacoima, chairman of the Senate Energy, Utilities and Communications Committee, on Friday said he would hold a July 10 hearing on meeting California's energy needs without SONGS and on decommissioning the plant.

"We now face many unique challenges, which will require careful consideration by the Legislature, Governor Brown, state regulators and utilities," Padilla said. "Of immediate concern is bridging the gap in the electricity supply and demand to serve Southern California.

"We have a solid plan in place for this summer," he added, "but looking out on the horizon, we have critical impacts to plan for, including assisting hundreds of plant employees who face the prospect of losing their jobs, replacing more than 2,000 megawatts of greenhouse gas-free baseload generation, and the costs and process of decommissioning the plant."

The fight over money related to other San Onofre costs was expected to heat up quickly.

The CPUC is expected this July to issue a draft decision on who will bear responsibility for some expenses incurred during the plant shutdown. Those include as much as $529 million spent to buy replacement power and $109 million in repair costs. The agency additionally will look at the amount that SCE customers paid in rates for San Onofre when it wasn't making power, and whether consumers should receive refunds.

There is $1.2 billion in San Onofre costs built into customer rates, Craver said, a number that includes the replacement power and the company's allowed profit on the plant. Additionally, Edison's total investment in San Onofre is $2.1 billion, comprising the $602 million cost of the steam generators, deferred taxes, construction work in progress and nuclear fuel.

Craver didn't specify the time period those amounts cover, and SCE would didn't provide the information Friday. Moglen said it appears that Edison is presuming "that the interest on their investment was to be recouped and was to be paid out over the lifetime of the reactor, which meant through 2022."

Environmental and consumer groups are likely to fight Edison's pursuit of that money, he said. The generators, installed as replacements in 2010 and 2011, were supposed to last 30 to 40 years, he said. Instead, they were shuttered in January 2012 and never generated power again.

SCE might be able to justify some of the costs, he said, like a portion of the replacement power. But customers shouldn't pay for rates that include San Onofre when it wasn't running, he said.

"There is so many ways that Edison is making money for this period, and they're not producing an electron of power," he said.

Craver said how much shareholders will pay can't be known until CPUC rules. But based on precedent, he said, the company advised investors that it planned in the second quarter of the year to declare a loss of between $450 million and $650 million before taxes or $300 million to $425 million after taxes.

Culpability

CPUC President Michael Peevey said his agency would decide "as quickly as possible who should bear the costs of the lengthy outage" of generators at the plant. The CPUC previously has said that it will evaluate San Onofre costs over the next year or more. It also will look at culpability.

A central argument is likely to be over whether SCE took unnecessary risks. Sen. Barbara Boxer (D-Calif.) last month released letters written by utility Vice President Dwight Nunn, who expressed worries about the stability of the generators before they were installed (Greenwire, May 28).

On Nov. 30, 2004, Nunn wrote to MHI that he was "concerned that there is the potential that design flaws could be inadvertently introduced into the steam generator design that will lead to unacceptable consequences (e.g., tube wear and eventually tube plugging)" and that could trigger a "disastrous outcome for both of us and a result each of our companies desire to avoid."

The January 2012 leak was blamed on a computer model that underestimated steam and water flow velocity. That triggered vibrations that caused extensive wear on generator tubes in the Unit 3 generator, where the radiation escape occurred. There also was damage to Unit 2.

Craver, in a phone call Friday with reporters, said SCE raised the vibration and tube wear issues with MHI and that "they subsequently responded back and assured us that those issues had been addressed."

"The manufacturer is ultimately responsible for and qualified for the design," Craver said.

SCE President Ron Litzinger during the same phone call said that "we are the licensee, Southern California Edison. The Nuclear Regulatory Commission looks to licensee as the responsible party." The utility's duty when it uses vendors, he said, it to practice what's known in the industry as "intrusive oversight." The letters written by Nunn in 2004 demonstrate that occurred, he said.

"We have to be very actively involved, questioning, challenging, asking for proof," Litzinger said. "All of those things were in fact done here."

Mitsubishi Nuclear Energy Systems in a statement said that it has "been engaged with SCE in discussions about our obligations under the contract since the issues at SONGS were first detected."

"We expect these talks will continue. Because of confidentiality agreements with SCE and other factors, it is inappropriate to discuss details of our contract with SCE, including any liability or settlement process," Mitsubishi added.

MHI's liability under the purchase agreement is limited to $138 million, Edison told shareholders on March 31. It added that the limitation is subject to exceptions and that "SCE has notified MHI that it believes one or more of such exceptions now apply and that MHI's liability is not limited to $138 million, and MHI has advised SCE that it disagrees."

Moglen with Friends of the Earth said it is clear to him that Edison is responsible for the steam generator failures. While MHI manufactured the units, they were based on SCE's design, he said. The replacement units had several changes from an earlier San Onofre model, including hundreds more tubes and additional tube supports.

"Edison redesigned the steam generators," Moglen said. "They then put the design out for bid. Mitsubishi won that tender. What they won was a redesigned steam generator design.

"The redesign is Edison's decision and Edison's responsibility," Moglen added.

Tubes were added because the new generators had a different metal than the earlier model, Craver said, which was necessary to overcome problems with cracking and corrosion. Because that metal doesn't conduct heat as well, he said, extra tubes were needed to get same heat transfer.

Decommissioning 'a decades-long process'

Decommissioning the plant will cost about $3 billion, Craver said. SCE has contributed to a decommissioning fund that has a balance of about $2.7 billion. Removing the fuel, putting it into storage and completely transitioning the site "is going to be a decades-long process," Craver said.

"Until there's a permanent solution to storing spent fuel rods, it's largely going to be managed by dry cask storage," Craver said.

Craver also revealed that SCE already had removed fuel from Unit 3, where the leak occurred. That shows the company knew it could not be repaired, Moglen said.

The fight over decommissioning is likely to be contentious, Moglen said.

"I'm sure [Edison is] going to argue that that remaining 10 percent [of decommissioning costs not funded] is a significant amount of money," Moglen said, and there will be disagreement over whether customers should foot the bill.

There will be questions, he said, about whether to remove the fuel or leave it on-site in dry cask storage. It is controversial, he said, given that the plant is located next to the ocean in a place prone to earthquakes.

"In a world in which climate change is a reality and sea-level rise is a reality, what does that mean about leaving casks on the beach?" Moglen said.

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