Proposed Settlement Agreement for San Onofre Outage

Citizens Oversight (2014-03-27) Raymond Lutz

This Page: https://copswiki.org/Common/M1419
More Info: Nuclear Energy, Shut San Onofre, Stop The Unfair Settlement

PRESS RELEASE -- FOR IMMEDIATE RELEASE

Coalition to Decommission San Onofre Contact: Ray Lutz, 619-820-5321 raylutz@citizensoversight.org

EDISON & SDG&E PROPOSE SETTLEMENT AGREEMENT ON SAN ONOFRE OUTAGE

San Francisco (2014-03-27) -- A settlement conference was called by Southern California Edison, SDG&E and leading ratepayer advocates, the Office of Ratepayer Advocacy (ORA) and The Utility Reform Network (TURN). Those parties worked for the past several months behind closed doors to craft an agreement which was exposed today. The conference was at 10am but the actual settlement was confidential until after the close of the markets today at 4pm ET, and a release by Edison on their website, which you can see in their SCE 8K filing listed on this page:

http://phx.corporate-ir.net/phoenix.zhtml?c=85474&p=irol-secEdison

• Also attached to this topic here: EdisonInternational_8K_20140327.pdf: Edison SCE 8K filing describing the settlement

for March 27, 2014. Other parties of the proceeding attended and reviewed the settlement, and were encouraged to ask detailed questions about it.

In a nutshell, the settlement benefits ratepayers by about $1.4 billion savings over what Edison had originally asked for in the investigation. Key points are:

• Edison will receive no compensation in rates after Feb 1, 2012 for the plant.
• All monies collected since Feb 1, 2012 as if the plant were still operating will be refunded to ratepayers.
• On the other hand, Edison will be compensated for power purchased after the start of the outage, paid at "market prices" through the normal review mechanisms. This does not include "forgone sales".
• Most of the expenditures in an attempt to restart the plant will be written off -- all of those for 2012 and a portion in 2013.
• Edison will attempt to resell unused nuclear fuel and return that to ratepayers, with 95% /5% split in favor of ratepayers.
• Edison will be able to aggressively salvage assets of the plant, returning any realized revenue at 95% to ratepayers and 5% to investors.
• Investors will be able to recapture their investment in the original plant, not including the replacement steam generators, amortized at 2.62% over 10 years.
• This agreement must be approved by the actual Commission before it becomes active.
• The comment period is 30 days.
• The total deal was $1.4 billion less than what was requested by Edison and SDG&E but the utilities are still compensated about $3.3 billion for their remaining interest in the plant, replacement power, and other costs.
• Savings to ratepayers will offset substantial deficits in the ERRA account, which is used to balance energy purchases and ratepayer revenue. However, after 2015, ratepayers will continue to see a benefit from the closure at the rate of about $600 million per year.
• These savings may be offset by other infrastructure that is needed to get the power where it is needed in California (even though we generate about 56% more than we use, statewide).

The following is an attempt to set the record straight by Ray Lutz as of April 8, 2014:

I must try to set the record straight regarding the $1.4 billion "refund" provided by the media.

The story of a $1.4 billion "refund" is incorrect. That number is simply the change in Edison's position from their original (absurd) $5.7 billion request in the proceedings to the current number, which is about $3.3 billion, which will be paid by the ratepayers to cover the investors. I have to admit I was a bit misinformed directly after the settlement conference but as I studied the settlement documents, the complete picture did start to sink in, and indeed, I would call it a soaking to ratepayers while investors emerge largely unscathed.

I will say that Edison did move a bit from their original position, which is good, and that $1.4 billion includes the fact that ratepayers will not be paying for the defective steam generators starting Feb 2, 2012 (although ratepayers already compensated investors about 60% (updated) of the official Steam Generator Replacement project up to Feb 2, 2012, and there are other related costs that are not included in that bucket that would not have been spent had the replacement project not been attempted.)

Investors will recover the full net investment value to the remainder of the plant (from ratepayers) over ten years and will in addition, benefit from their insurance and lawsuit with MHI, partially compensating ratepayers, as well has having replacement power covered.

A more fair balance would be to leave investors on the hook for the failed plant as ratepayers are innocent in the failed design and did not agree to take any risk which is usually borne by the investor, and then allow Edison to pursue their suit with MHI and recover what they can from insurance and salvaging operations, while ratepayers should cover replacement power in that scenario.

If ratepayers do not pay for the net investment value of the plant, it is then reasonable for the ratepayer to pick up the cost of replacement power, which was roughly $500 million. So that means the ratepayer should not be on the hook for the remaining $2.8 billion. There may be a middle point and 50/50 split may be reasonable, but now, the ratepayer picks up the full tab and we hope we get some of the insurance, lawsuit, and salvaging proceeds, way, way down the road.

Simple math says that we should be seeing immediate rate reductions of about 8%. Why? We know that the plant provides about 20% of the power mix. We also know that power from this plant is almost 2x more expensive than market rates ($57/MWH vs. $34/MWH). Get rid of 20% of the power that costs 2x too much and you save 10%. It's not exact numbers, so that's why I say 8%.

But we will not be getting any real reduction for another 10 years. That is the soaking I'm talking about.

--Ray Lutz

P.S. Energy traders testified during the replacement power proceedings that immediately after the shutdown and during 2012, there was really no change in the market and prices. During 2012, there were only 7 periods (16 hours long) when the plant beat the market. All other times it would have been a loser. And that is when it was shut down and the market should have been high as a result.

• SettlementKeyTerms001.pdf: Key Terms of the Settlement distributed in the Settlement Conference
• SettlementKeyTerms002.pdf: Charts and tables to support Settlement Agreement
• I.12-10-013_et_al_SONGS_OII_-_Joint_Motion_for_Adoption_of_Settlement__Agreement.pdf: Joint motion to approve the settlement
• Henricks_Opposition_to_Proposed_Settlement_4-8-14_pdfa_final.pdf: Henricks opposition to motion to approve settlement

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