Nuclear deal slams consumers, as usual
Union Tribune (2014-05-10) Dan Mc Swain
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More Info: Energy Policy
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, Shut San Onofre
, Stop The Unfair Settlement
Nuclear deal slams consumers, as usual
By Dan McSwain
5 p.m.May 10, 2014
FILE - In this Friday, June 7, 2013 file photo, surfers pass in front of the San Onofre nuclear power plant in San Onofre, Calif. The Associated Press
Consumers don’t stand much of a chance in the California regulatory crap shoot.
That’s the main lesson from a settlement that would stick consumers with a $3.3 billion first installment on the bill for shutting down the San Onofre nuclear plant.
Southern California Edison, the utility that broke San Onofre, is spinning the settlement proposed last month as a fair deal for consumers. That’s because $1.4 billion of the cost would be absorbed by Edison and its 20 percent partner in the plant, San Diego Gas & Electric.
Let that sink in for a minute.
Imagine you own a bakery. An engineering mistake destroys your biggest oven. Would customers agree to cough up 70 percent of the oven’s lost value — and buy you a replacement, too?
Welcome to the strange and expensive world of regulated monopolies, California-style.
And we’re just getting started. I estimate the eventual tab for the San Onofre debacle will be at least $13.6 billion, and probably much higher.
That eye-popping figure leaves out billions for rewiring Southern California to replace the giant nuke, not to mention the price tag of millions of tons of additional carbon emissions from conventional generators.
Under a century-old bargain, utilities are granted local monopolies and consumers get public oversight of costs and profits. Regulators, who theoretically are accountable to the public, are supposed to allow profits only on utility investments that benefit consumers, such as electricity generators and transmission lines.
In California, utilities earn more than 10 percent annually on their investments. That’s about 1000 times the return in my savings account, and quadruple the return from a 10-year Treasury.
Utilities argue this premium is necessary to compensate shareholders for taking regulatory, political and operating risk. In practice, these are some of the safest investments on the planet.
This is particularly true when the government pushes certain investments. Exhibit A is the recent craze for solar, wind and other “renewable” energy sources that are dramatically pushing up electricity bills.
Without mandates and lavish tax subsidies, few private-sector investors would go solar.
But San Onofre is producing no electrons today, and it never will.
It’s hard to argue that consumers should pay a nickel for it. And, because it can be fixed cheaply, it’s not clear why we should pay to replace it.
Unless, of course, politicians and regulators representing consumers essentially told Edison to shut down the nuclear plant. This appears to be the case, although nobody will say so publicly.
To be sure, many people are glad to pay higher utility rates. After the Fukushima tsunami and reactor meltdowns, it suddenly seemed more dangerous to run a nuclear plant on the populated Pacific Coast.
Yet California didn’t have a grand safety debate. The public didn’t get a chance to weigh the costs and benefits of scrapping nuclear energy, or to understand where we go from here.
Instead, this very expensive decision was made in secret by a small group of insiders.
San Onofre was built in the early 1980s and licensed to run through 2022, pumping out about 15 percent of Southern California’s entire power supply with zero air pollution.
When premature corrosion jeopardized that life span, Edison got permission in 2009 to replace the failing components, in a decision driven by the politics of climate change.
The president of the Public Utilities Commission was Michael Peevey, a former Edison executive appointed by Gov. Arnold Schwarzenegger, who had pushed a law ordering utilities to dramatically cut carbon dioxide emissions.
At first, SDG&E opposed the project. The San Diego utility was seeking permission to build a $2 billion power transmission line, an upgrade that could replace its portion of San Onofre’s power — and pump earnings to shareholders for 30 years.
But SDG&E abruptly reversed itself and endorsed Edison’s nuclear rehab project.
After all, Peevey and Schwarzenegger were supporting SDG&E’s transmission proposal, and they wanted both projects. I believe Peevey personally leaned on SDG&E executives to change their minds, but he has declined to discuss the matter.
Flash forward to January 2012. A flaw in the replacement components caused radioactive steam to escape from one of San Onofre’s two generating units, prompting a maintenance shutdown.
The components’ manufacturer, Mitsubishi Heavy Industries, said one unit could be restarted safely, and that it could fix the second unit. Given that similar replacements are in operation around the globe, Mitsubishi’s optimism seems warranted.
Still, Edison decided to pull the plug permanently in June 2013, after playing Hamlet for 18 months.
CEO Ted Craver told investors that political and regulatory uncertainty made restarting the plant a bad bet for shareholders, because replacement power and operating costs were burning through $1 million a day.
Clearly, getting money back from a scrapped plant — and getting a huge piece of the action replacing the plant — was a much better bet.
I asked Craver for his cost-benefit analysis that showed consumers would be better off replacing San Onofre instead of fixing it. He declined, saying no regulation or law required Edison to provide such an analysis.
For perspective, Edison asked regulators for permission, and spent years in hearings, before it shuttered a Nevada power plant in 2007 that provided cheap power from burning coal but polluted the Grand Canyon.
One would think an executive would be equally shy about killing California’s single largest asset in its campaign against climate change.
But the political climate had changed.
Sen. Barbara Boxer was lobbying for permanent shutdown of San Onofre. Schwarzenegger was gone, replaced by Gov. Jerry Brown, a famous nuclear opponent since the 1970s.
Craver told me he consulted with Brown and Peevey over the power supply implications of San Onofre’s shutdown. With the matter pending before regulators, all three have declined my requests to talk about whether they also discussed the allocation of costs.
Scientists say there’s a 100 percent risk of climate change from carbon emissions, while the odds of nuclear meltdown are tiny.
With Edison’s decision to kill San Onofre, California has embraced the most expensive possible course. Spending and carbon emissions are already sharply higher, and consumers are paying the bill.