Hotel notes show San Onofre deal hatched early -- Framework was set in Poland, before public process began

Union Tribune (2015-04-10) Jeff Mc Donald

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More Info: California Public Utilities Commission, Shut San Onofre, Stop The Unfair Settlement

Hotel notes show San Onofre deal hatched early

Framework was set in Poland, before public process began

By Jeff Mc Donald
5:29 p.m. April 10, 2015
Updated 9 p.m.

Notes of a March 2013 secret meeting at a luxury hotel in Warsaw show that a $4.7 billion deal to divide shutdown costs for the failed San Onofre nuclear plant was largely in place a year before any provisions were made known to the public.

The notes were entered into the case file on Friday in a lawsuit challenging the deal as unfair because it assigns 70 percent of closure costs to customers, and the rest to shareholders in the utility companies that own the plant and installed flawed equipment.

Notes of the meeting in Poland between then-California Public Utilities Commission President Michael Peevey and a Southern California Edison executive were seized in January by criminal investigators probing backchannel communications and possible favoritism by regulators. An Edison spokeswoman noted that some elements of the final plan differed from the notes.

Commission business is supposed to be conducted in public, so notes showing billions of dollars of decision-making taking shape 6,000 miles away has serious implications.

The two-page handwritten hotel notes were submitted to U.S. District Court Judge Cathy Ann Bencivengo, who earlier this week scheduled oral arguments in a lawsuit filed by Citizens Oversight, the San Diego consumer group that sued the commission and Edison late last year. The hearing will be held Thursday afternoon.

The notes were also released to U-T San Diego on Friday in response to a Feb. 27 request under the California Public Records Act.

Sketched out during the secret meeting two years ago between Peevey and Edison’s Stephen Pickett, the notes show several deal points that became key pieces of the San Onofre settlement.

Both the notes and the official agreement adopted in November call for ratepayers to absorb the entire cost of replacement power, an expense that has added hundreds of millions of dollars to the monthly bills sent to Southern California consumers.

They also call for the commission to disallow billing of ratepayers for costs related to the $680 million faulty replacement steam generator project after Feb. 1, 2012, the day after a radiation leak resulted in the plant closure.

Perhaps most telling are two amendments Commissioner Michel Florio proposed this past September — 18 months after Peevey and then-Edison executive Stephen Pickett agreed to them during their meeting at the Hotel Bristol.

The first change called for Edison to split with ratepayers any money it recovers from its lawsuit against the steam-generator manufacturer, Mitsubishi Heavy Industries Inc. The second called on plant owners to pay $5 million per year for a center to study greenhouse gas emissions.

Both proposals are bullet points in the “RSG notes,” as they are known in search warrant documents filed by criminal investigators. The abbreviation stands for replacement steam generators.

The lead agreement point reads: “Pre-RSG investment: recover w/ debt level return through 2022,” meaning Edison will recoup its investment in San Onofre other than the steam generator project.

That provision is important for two reasons.

First, it matches what commissioners agreed to in November. Second, the notes were drafted in March 2013, months before Edison announced that San Onofre would be shut down for good. Until June 2013, the company’s public position was that it was committed to restarting the plant.

The deal point regarding long-term cost recovery is not the only indication that Edison and minority owner San Diego Gas & Electric did not intend to reopen San Onofre back in March 2013.

“Shutdown O + M to include reasonable severance for SONGS employees,” say the Warsaw notes, written down primarily by Pickett. “A pool of $50 million” is jotted nearby in what appears to be someone else’s handwriting.

Edison spokeswoman Maureen Brown noted the eventual settlement contained differences, such as the number of years for funding greenhouse gas research and the percentage distribution of any litigation proceeds against Mitsubishi.

“The settlement was subject to extensive review, hearings and comment in a public process,” Brown said. “It’s important to note the settlement was reached a year later after many months of give-and-take.”

The commission did not immediately respond to questions about the notes. San Diego attorney Michael Aguirre, who represents Citizens Oversight, declined to comment.

Under a section titled “Process,” the notes spell out how the agreement will be implemented in five subsections labeled “a” through “e.”

The process was critical because five months before Peevey and Pickett met in Poland, the commission opened an internal investigation to examine the chain of decisions that led the steam generators to fail.

A settlement with one or more of the stakeholder groups monitoring the San Onofre case would cut short the investigation, obscuring from the public record what led to the problems that forced the plant closure.

Within weeks of the Warsaw meeting, Edison approached The Utility Reform Network consumer group in San Francisco about initiating settlement talks.

TURN lawyers and the state’s Office of Ratepayers Advocates met privately with Edison officials dozens of times over the next 10 months, negotiating how to close the case in a way that was fair to ratepayers and the utilities.

The agreement was promoted by all sides as a good deal for customers. Peevey and Florio both issued news releases supporting the arrangement.

Groups like Citizens Oversight, the Alliance for Nuclear Responsibility and Women’s Energy Matters — all of which were unaware of and excluded from the negotiations — have urged the commission to reject the deal.

“This is astonishing,” said attorney John Geesman, who represents the Alliance for Nuclear responsibility. “TURN and ORA are both going to have to struggle with whether or not they were simply marionettes in this process.

“I say that as a former president of the TURN board of directors,” he added. “It’s not something I say lightly.”

Neither TURN nor the commission’s Office of Ratepayer Advocates immediately responded Friday to questions about the RSG notes.

The commission investigation was suspended nearly as soon as the settlement was announced. In approving the agreement in November, commissioners said it was no longer necessary to determine what led to the breakdown.

The commission has become the subject of multiple criminal investigations opened last year, when emails first surfaced showing commissioners and other regulators engaging in behind-the-scenes communications with Pacific Gas & Electric executives.

U-T San Diego reported the “RSG notes” in January, disclosing for the first time that the criminal investigations into regulators’ improper contacts with utilities stretched beyond PG&E.

Days after the U-T San Diego report was published, Edison filed a notice of so-called ex parte communications, reporting the meeting at the Hotel Bristol nearly two years beyond the deadline to disclose such contacts.

“Mr. Peevey initiated a communication on a framework for a possible resolution of the Order Instituting Investigation that he would consider acceptable but would nonetheless require agreement among at least some of the parties,” Edison reported.

In explaining the filing in early February, Edison said it did not report the conversation initially because it did not rise to a level of substantive communication.

“While Mr. Pickett does not recall exactly what he communicated to Mr. Peevey, it now appears that he may have crossed into a substantive communication,” a company news release said. “Based on Mr. Pickett’s recounting of the conversation, the substantive communication on a framework for a possible resolution… was made by Mr. Peevey to Mr. Pickett, and not from Mr. Pickett to Mr. Peevey.”

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