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Who pays for a worthless power plant?

Union Tribune (2014-05-11) Morgan Lee

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More Info: Energy Policy, Nuclear Energy, Shut San Onofre, Stop The Unfair Settlement

Who pays for a worthless power plant?

By Morgan Lee6 a.m.May 11, 2014

San Onofre nuclear power plant
San Onofre nuclear power plant

Nuclear plants across the United States routinely swap out massive metal steam generators to extend the life of reactors beyond 30 years.

But when workers cut through the 42-inch containment wall to replace generators at a Florida reactor in 2009, a gap opened between layers of concrete. Repair efforts made matters worse and led to the retirement of the reactor, the source of power for up to 300,000 Florida homes.

The early demise of the Crystal River reactor set off a battle between utility customers and corporate managers over who should pay for billions of dollars in investments that crumbled away like weak concrete.

Southern California utility customers are locked into a strikingly similar struggle to break free of charges for a useless nuclear plant, the San Onofre Nuclear Generating Station, after a steam generator replacement project went awry.

The financial outcome at Crystal River illustrates just how difficult it can be for consumers to win concessions from corporate stockholders in regulated utility markets like San Diego’s.

Florida utility customers will receive a $388 million rebate under the agreement with Duke Energy, a publicly traded company that took control of Crystal River in a 2012 buyout.

Customers, however, will pay out as much as $1.47 billion dollars toward the plant — a negotiated spending cap.

Attorney Charles Rehwinkel helped negotiate that settlement on behalf of utility customers. He and other consumer advocates decided against pursuing what might have been a better deal through litigation in front of Florida utility commissioners, despite some evidence that operators of the plant overlooked warnings signs about concrete in the plant’s original safety assessment.

“You might in your heart know the true nature of what might have happened, but you have to translate that into proving your case,” said Rehwinkel, of the Office of the Public Counsel, the public defender for Florida utility customers that is run out of the state legislature. “If you don’t do a good job and you lose and you get a goose egg, then everything is in your customers’ laps.”

Billions at stake

San Onofre was shut down on Jan. 31, 2012, because of a radiation leak traced to rapid degradation of new steam generators, installed in 2010 and 2011. Southern California Edison closed the plant for good in June of last year.

Edison, the plant operator and majority owner, was cited by nuclear safety regulators for failing to properly check the design of the generators. Component manufacturer Mitsubishi Heavy Industries was faulted by the federal government, too, for flawed computer codes used in the design. Utility customers across Southern California would still bear $3.3 billion in costs under a settlement agreement unveiled in April. Two consumer groups say they negotiated a $1.4 billion reduction from what Edison and plant co-owner San Diego Gas & Electric wanted to collect.

The complex deal would divvy up a long list of costs and investments associated with the plant, from unused nuclear fuel to the expense of floating new steam generators across the Pacific Ocean from Japan.

If endorsed by the California Public Utilities Commission, the settlement would close the books on any further examination of whether Edison acted reasonably and prudently in overseeing the generator replacement project at San Onofre.


At other sidelined power plants, persistence has paid off for consumers.

On June 9, 1985, a weld on a high-pressure steam pipe ruptured at the Mohave Generating Station in Laughlin, Nev., an Edison-operated plant supplying a portion of its electricity to Southern California.

High-pressure steam hotter than 1,000 degrees Fahrenheit blasted through an employee lunch room and the plant’s control room. The blast lasted for a minute or less — long enough to kill six workers, and severely injure many more. After resolving civil lawsuits with victims and their families, plant operator and majority owner Southern California Edison sought to recover additional costs from customers incurred as a result of the accident.

The California Public Utilities Commission ultimately concluded that was unreasonable. Edison, it ruled in 1994, could have prevented the pipe failure had it taken reasonable steps.

The decision was a crowning moment of vindication for Bill and Lyn Allen of Carlsbad and their older son Russell, a worker at the plant who was severely burned in the steam blast. He also suffered brain injuries after going into cardiac arrest.

Russell grew up in Encinitas, worked as a state lifeguard and earned an engineering degree before going to work at the Mohave plant about a month before the disaster. He lived on with crippling injuries until 2008.

Bill Allen said the settlement offer at San Onofre strikes him as an attempt by Edison to charge customers for its mistakes without scrutiny.

“Where is the documentation about the deal they made with Mitsubishi Heavy Industries and whether they really checked whether Mitsubishi complied?” said Bill, a retired Air Force flight engineer and state construction inspector. “Everyone is taking their word for it. Let’s really get back to basics.”

History's lessons

Edison said it sees little relevance in the 1985 Mohave outage because, unlike San Onofre, the plant was restarted and operated another 30 years. Mohave was retired in 2005 amid environmental issues and other cost-benefit questions. California regulators allowed Edison to recover from customers its underlying plant investment, though without any further return on that investment.

Matt Freedman, an attorney for The Utility Reform Network who negotiated the San Onofre settlement proposal on behalf of consumers, said the precedent set by the Mohave pipeline disaster helped him drive a harder bargain on excess plant operation costs, but does not address larger issues. Since the San Onofre shutdown, Edison has staunchly asserted its right to fully recover underlying investments in the plant, citing past utility cases and court decisions.

The company’s only concession: “For assets that are no longer used or useful to customers, the remaining net investment may earn a lesser return.”

Under the proposed San Onofre settlement, the plant owners would forgo about 80 percent of $769 million it expected to collect for the replacement steam generator project.

The owners would recover other capital investments in the plant — at a reduced the rate of return, saving customers $353 million.

That obligation to pay for a useless plant has come under criticism from several consumer groups that were left out of the settlement talks. Differences will be aired in front of the utilities commission for the first time at a public evidentiary hearing in San Francisco on Wednesday.

Early retirements

Similar conflicts date back 40 years to the 1976 closing of one of the nation’s first privately funded commercial reactors at Humboldt Bay on the Northern California coast at Eureka. Owned by Pacific Gas & Electric, the facility had been projected to last 30 years or more, but was retired after 13 years of service when new concerns emerged about earthquake risks.

PG&E was allowed to collect its underlying $17.2 million investment, while the commission cut off any further allowances for profit.

“In the case of a premature retirement” at Humboldt Bay, the commission wrote in its decision, “the ratepayer typically still pays for all the plant’s direct cost even though the plant did not operate as long as was expected. The shareholder recovers his investment but should not receive any return on the undepreciated investment. This is a fair division of risks and benefits.”

Experts familiar with the California utilities law say that tidy equation comes unraveled if a plant operator is found by the state to be at fault.

Consumer groups opposing the San Onofre settlement say customers cannot reasonably be asked to pay for a plant that is no longer useful given questions about Edison’s handling of the steam generator project.

“This is the bottom line reality: Deploying those steam generators was a massive financial mistake that cannot be shouldered by the ratepayers and has to be absorbed by investors,” said San Diego-based attorney Michael Aguirre, an advocate for utility customers.

Rehwinkel, the Florida consumer advocate, said pursuing litigation instead of a settlement involves high-stakes brinkmanship. Some of the toughest calculations concern politically appointed utility commissioners.

“You have to measure the intestinal fortitude of the commission to hear the case, to understand it and to be able to adjudicate it,” Rehwinkel said.


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Title Who pays for a worthless power plant?
Publisher Union Tribune
Author Morgan Lee
Pub Date 2014-05-11
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Note This story explains how billions of ratepayer dollars are at stake as opposed to the phony claims of $1.4 Billion in refunds.
Keywords Energy Policy, Nuclear Energy, Shut San Onofre, Stop The Unfair Settlement
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Topic revision: r2 - 14 May 2014, RaymondLutz
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