Award Document in San Onofre dispute between SCE and MHI regarding Replacement Steam Generators

Southern California Edison (2017-06-07)

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REDACTED FINAL AWARD, REDACTED CONCURRING AND DISSENTING OPINION, AND REDACTED CORRECTED PARAGRAPHS IN THE AWARD IN ICC ARBITRATION CASE NO. 19784/AGR/RD [PUBLIC VERSION]

MOTION OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) TO SEAL PORTIONS OF THE AWARD OF THE ARBITRAL TRIBUNAL IN THE ARBITRATION AMONG SOUTHERN CALIFORNIA EDISON COMPANY, EDISON MATERIAL SUPPLY, SAN DIEGO GAS & ELECTRIC COMPANY, THE CITY OF RIVERSIDE, MITSUBISHI NUCLEAR ENERGY SYSTEMS, INC. AND MITSUBISHI HEAVY INDUSTRIES, LTD.

both of which were e-filed with the Commission's San Francisco docket office today, June 7, 2017.

The Document

• I1210013-Final_Award_(Public_Version).pdf: Unredacted Award Document

Key Passages

In the following, SCE = Southern California Edison = Claimant; MHI = Misubishi Heavy Industries = Respondent; SONGS = San Onofre Nuclear Generating Station; RSG = Replacement Steam Generator; NRC = Nuclear Regulatory Commission; T/H = Thermal Hydraulic; EIX = Edison International (Parent of SCE); TTW = Tube-to-Tube Wear; FEI = Fluid-Elastic Instability; AVB = Anti-Vibration Bar; UFSAR = Updated Final Safety Analysis Report;

• SCE specified that it would be involved in the design of the SONGS RSGs … performing detailed, intrusive evaluations of [Mitsubishi’s] design documentation and … approach to design evolution … (¶ 229)
• As part of this involvement, it assigned staff to Mitsubishi’s facilities in Japan to provide oversight of “design, licensing, fabrication, delivery and acceptance activities.” SCE explained this supervision as follows: Because these steam generators represent a significant increase in size and change in design from what MHI has produced in the past, they are considered (from SCE’s standpoint to represent a first-of-a-kind design for MHI) and, consequently, an error-likely situation (this would also be true if any other supplier had been chosen). (¶ 230)
• ¶ 296-307 -- this section is a critical time in the development of the RSGs. Here, they almost discovered that they had a fundamental modeling flaw, as the consultants suggested that they compare the model results against other known steam generators. But that inquiry was not supported and instead they went into focusing on manufacturing quality.
• On 10 May 2012, another meeting took place between MHI and Mr. Dietrich of SCE. The minutes prepared by MHI reflect that SCE informed MHI that the NRC had concerns with the FIT-III error that had to be addressed although SCE did not share those concerns. (¶ 506)
• A 11 May 2012 internal presentation by SCE shows SCE’s understanding that (i) results by ATHOS are more conservative than FIT-III;570 (ii) the “use of the FIT-III results during design is not considered a direct cause of the SONGS tube wear”; (iii) fabrication is an apparent cause of in-plane FEI in combination with T/H conditions; and (iv): The design of the SONGS steam generators did not account for in-plane FEI … (¶ 507)
• At the 13 December 2012 EIX Board of Directors meeting, the “SONGS Strategic Review” showed “Key Takeaways.” The first one provides: • Current path is partial power operation of Unit 2 and shutdown of Unit 3. Resolves short term reliability issues, but highest cost to ratepayers (¶ 507)
• Repair not feasible. Given long lead times, replacement of steam generators is only a viable option if Mitsubishi Heavy Industries covers cost, license renewal is assured and partial operation occurs during fabrication. (¶ 507)
• … the Claimants allege that they were not aware of FIT-III’s validation. This is despite the validation history of FIT-III and MHI’s other codes having been provided to the Claimants as part of MHI’s Technical Proposal bid to design the RSGs. (¶ 1169)
• The Claimants have not been successful in convincing the Tribunal of any harm from the use of FIT-III outside its experimentally validated range. The NRC regulations, as mentioned, permit correlations calculations based upon good empirical data with proper techniques, which is the case in this instance. (¶ 1170)
• … the Tribunal does not consider that the use of FIT-III in the design of RSGs with a high void fraction above experimental data is improper. (¶ 1174)
• … the Tribunal does not consider that the Claimants have demonstrated a design error in FIT-III’s calculation of velocities. (¶ 1209)
• The Claimants’ contention that a third of tubes would suffer from out-of-plane FEI in the as designed RSGs is not supported by the facts. As mentioned, at worst only two tubes in the RSGs experienced TTW. (¶ 1236)
• While the void fraction at SONGS does exceed that of other comparable plants, it does so by less than 1%. It is not evident to the Tribunal that, had a higher void fraction been calculated during the design era, this would have led to a difference in design. (¶ 1250)
• On 21 September 2010, SCE notified MHI that the Unit 2 RSGs met the Acceptance criteria. A similar notification of Acceptance was provided for Unit 3 on 3 May 2011. (¶ 1350)
• … the RSG Contract is clear that the relevance of requirements set forth in Documentation is at the time of acceptance of the RSGs. The remedy at the time of Acceptance is one of repair of the “Defects” or deficiencies identified or Liquidated Damages as defined in the RSG Contract. (¶ 1351)
• While the Tribunal determined that the circulation ratio as calculated by MHI is erroneous, the Tribunal does not consider that this miscalculation, to the extent that it may be considered a design error, resulted in any negative consequences on the design of the RSGs in general and in particular on tube stability ratios and the potential for FEI. (¶ 1391)
• … the Tribunal finds that the evidentiary record supports the position that the Respondents were aware of issues regarding lower than expected velocities and void fractions, investigated those, and concluded that nothing was amiss. The record further supports that the Respondents took appropriate design steps, given such concerns … (¶ 1398)
• … the Tribunal considers the following process was put in place: (i) an issue was identified in the design of SONGS; (ii) that issue was investigated; and (iii) a solution was adopted. (¶ 1401)
• … These answers are entirely consistent with a decision to add further AVBs to correct the design. The Claimants have however not provided convincing evidence that the RSGs would have been re-designed in a manner that would have avoided inplane FEI had the Gap Velocity Error been identified beforehand. (¶ 1440)
• This raises the core aspect in dispute between the Parties on this Issue B.4(c): Is gap-limited FEI, the FEI that the Respondents were required to design against? (¶ 1443)
• The Tribunal answers this question in the negative. (¶ 1444)
• … as determined by the Tribunal … the design errors as alleged by the Claimants did not occur or to the extent the Tribunal considers the Claimants’ allegations to be convincingly proven, do not amount to design errors that evidence a failed QA [Quality Assurance] program. (¶ 1509)
• The record shows that SCE was heavily involved in reviewing the design process. If there were obvious QA [Quality Assurance] design deficiencies, such as a failure to complete checklists or a failure to have independent review of designs, as alleged by Dr. Elder, such would likely have been raised during the significant number of design meetings…The Tribunal has not received convincing evidence of objections to MHI’s review process from the design era. (¶ 1526)
• To the extent that Dr. Elder may have identified procedural design errors and deficiencies in MHI’s design process, it is not evident that those errors lead to any errors in the design of SONGS… (¶ 1527)
• In any event, as determined in Sections XI and XII above, the Tribunal considered that the majority of the alleged design errors did not occur and that those design errors that did occur were of minimal impact. (¶ 1528)
• With respect to the other types of wear in Unit 2 and Unit 3, the Tribunal does not consider the random wear at SONGS to be extreme. As SCE testified to the NRC, this “wear is manageable on a going forward basis” and was similar to other plants. (¶ 1548)
• The Claimants have not, however, convincingly established that the Respondents knew of any errors in their design… (¶ 1571)
• … the existence of a difference between what FIT-III calculates, what other codes calculate and what a test measures are insufficient to demonstrate that MHI knew of any errors in FIT-III. (¶ 1573)
• … In evaluating whether the Respondents met their obligation to minimize wear, the Tribunal considers that this is a relative obligation, i.e., that whether Respondents have met their obligation to minimize wear is determined by comparison to the wear experienced at comparable steam generators. Given that the wear at SONGS is comparable, this obligation is met… (¶ 1631)
• … the Respondents are not found to have breached the RSG Contract by delivering RSGs that required repair or replacement under the RSG Contract. Such an eventuality is envisioned under the contract itself, which provides the contractual machinery for the resolution of just such an issue. (¶ 1782)
• … the Tribunal determines that SCE’s criteria and criticism of MHI’s repair proposal for a thicker AVB repair are not determinative as to whether a thicker AVB repair would have been effective, licensable, and implementable. Rather, SCE’s warranty and screening criteria appear to have been attempts to force MHI into a replacement recommendation, which SCE used to declare MHI in breach of contract, overturn the contractually negotiated limitation of liability provision, and establish a strong bargaining or litigation position for the resolution of the SONGS Incident… (¶ 1860)
• Considering the examination, and the expert reports, the Tribunal is not convinced that the Claimants have demonstrated that the repair was not an effective means of resolving inplane FEI in Unit 3. To the contrary, the repair, as described in the UBend Repair Report, was a potentially effective means of repairing Unit 3 that required the development of further implementation plans and the resolution of concerns as raised by the independent reviewer, AREVA. Further, AREVA’s nonregulatory concerns appear to have been adequately addressed… (¶ 1915)
• … the Tribunal does not consider there to be any particular difference between a void fraction of 99.6% and 98.5-7% as calculated for comparable plants. It does not appear that high void fractions are in and of themselves a cause of FEI. This is evident given that Unit 2 operated for nearly twice as long, in the same T/H conditions, as Unit 3 and yet did not suffer in-plane FEI. (¶ 2062)
• … the Tribunal considers the Respondents to have convincingly shown that gap-limited FEI is a distinct phenomenon as compared to classic FEI and one that is manageable under a steam generator wear management program. (¶ 2081)
• The Respondents’ explanation is convincing. While the Claimants appear to have identified some deficiencies in the Respondents’ analysis, those do not appear consequential. Accordingly, MHI has demonstrated that its repair would prevent inplane FEI. (¶ 2096)
• The Claimants’ argument on this Issue is overly speculative as there is insufficient data to conclude that the SONGS RSGs would fail from random wear after a few more months of operation, particularly after the proposed repair. Specifically, absent additional evidence, the Tribunal is unable to accept the Claimants’ argument that SONGS would fail rapidly rather than continue to operate smoothly, as is the case with the St-Lucie 2 plant, which the Tribunal recalls, was another wear challenged plant that has undergone a power uprate. (¶ 2100)
• … the Respondents do not appear to have received sufficient direction from the Claimants as to whether the Claimants were genuinely interested in a Type 1 repair. (¶ 2119)
• … In the Tribunal’s determination, the Claimants were not interested in a Type 1 repair, or at least, they were only interested in a Type 1 repair as an interim repair while also pushing forward for a long term replacement option. (¶ 2120)
• … Mr. Stewart, the main drafter of that 2013 AREVA Report [for SCE], has testified, on behalf of the Respondents, that: Upon my completion of the “cursory review” of the MHI U-Bend Repair Report and submittal of the AREVA Report in May 2013, I believed that the proposed thicker-AVB repair of the SONGS RSGs could have been optimized quickly, the key technical questions in the AREVA Report could have been addressed satisfactorily to allow the repair to move forward expeditiously, the repair could have been installed; and that it would have prevented the recurrence of in-plane FEI. (¶ 2123)
• The combination of a review of AREVA’s concerns, Mr. Stewart’s expert statement(s), and response are convincing evidence that the concerns raised by AREVA were indeed surmountable… (¶ 2125)
• This is further illustrated by AREVA’s letter to … MHI, of 4 June 2013, in which AREVA proposes to review, modify and optimize the MHI draft thicker AVB installation process by 22 August 2013, i.e., over approximately a 6 week period. AREVA concluded its letter by stating that it “look[ed] forward to the opportunity of working with MHI and are committed to providing our support in successful installation of MHI[‘s] proposed repair.” (¶ 2126)
• … the Tribunal concludes that SCE, while appearing to be open to a Type 1 Repair as an “interim” repair, nonetheless insisted on conditions that could only be satisfied by a permanent repair. (¶ 2130)
• The Tribunal concludes that a proposed Type 1 Repair would have to meet, and would have met, the design basis under the NRC Regulations and the UFSAR. (¶ 2148)
• The evidence demonstrates that the Claimants’ insistence on “zero-gap” requirements for Unit 3 was an important factor that led to the Incident. As will be shown below, the manufacturing improvements made from Unit 2 to 3 are a cause of the inadequate in-plane tube support. The Respondents have presented convincing evidence in this respect … (¶ 2155)
• Delays in proceeding with a Type 1 Repair were incurred on account of the Claimants’ lack of interest, demonstrated by taking unreasonable positions, in preference for pushing the Respondents into proposing a replacement option which the Claimants rejected and, potentially, developing a stronger litigation/negotiation position. (¶ 2251)
• Had the Claimants adopted an iterative design review process, the Tribunal considers that the Respondents could have more quickly developed a viable repair plan, such that any concerns regarding new forms of degradation raised in a review could have been reviewed sooner. The Claimants’ actions were, thus, crucial. (¶ 2252)
• … MHI was excused from having developed answers to these technical issues during the repair era on account of the Claimants’ actions. (¶ 2253)
• The Tribunal finds that the proposed thicker AVB repair would have corrected the root cause of the RSG defects, and that the concerns raised by the AREVA report could have been addressed, such that Unit 3 could have been repaired and that no new forms of degradation would have materialized. (¶ 2282)
• The Tribunal adopts the Respondents’ submission that it would be impossible to move forward with a replacement option based on SCE’s actions and following SCE’s decision to permanently close SONGS. (¶ 2324)
• … The Respondents were excused from developing a replacement option on account of SCE’s actions, including the closing of SONGS. (¶ 2325)
• … The Tribunal sees no evidence to demonstrate that the Respondents would not be capable of developing a new design for the RSGs that avoided in-plane FEI. The Respondents had submitted an initial design proposal to this effect to the Claimants. (¶ 2342)
• … MHI could have developed a replacement RSG that addressed in-plane FEI, and in turn corrected the root cause of the Defect. (¶ 2344)
• … the Tribunal does not consider that the Claimants have established that the alleged failures, individually or in combination, constitute a material breach of contract through any or all of the warranty provisions of the RSG Contract. (¶ 2402)
• … The Respondents’ position is also supported by the case law that provides that a limitation of liability is generally upheld where sophisticated parties carefully and thoughtfully allocated risk for a complex piece of equipment, especially where a seller offered viable remedies under the warranty, even if a repair was ultimately unsuccessful. (¶ 2556)
• … MHI did not ignore its obligation to repair or replace. Rather, MHI was unable to repair or replace the RSGs due to Claimants’ conduct and choices. Notably, as determined above, the Claimants rejected a Type 1 repair that the Claimants could have considered as an interim repair in favor of a longer term replacement option and stronger negotiating/litigation position. This strategic choice proved untenable following the decision of the ASLB, which led to the shutdown decision. (¶ 2558)
• … the limitation of damages sections were separately negotiated on terms balancing the Claimants’ desire for a lower purchase price against Mitsubishi’s insistence on an “all risks” limitation of liability. (¶ 2564)
• … the Claimants have offered no credible and persuasive evidence that the Parties mutually agreed that the limitations on recoverable damages were conditioned upon a successful warranty repair or replacement. In fact, the persuasive evidence is to the contrary, in that the damages limitations were intended to cover “all risks,” with no exclusion for a good faith failure of warranty remedies. (¶ 2566)
• the Parties’ ultimate agreement on the Purchase Price of the RSG Contract was in the context of a careful risk allocation and reflected the Claimants’ willingness to bear more of the risk in exchange for a lower Purchase Price… Indeed, the evidence is not disputed that SCE chose not to pay an extra [REDACTED] to extend the warranty period. (¶ 2567)
• … After the leak occurred, MHI acted diligently to pursue repair and replacement options, but SCE discouraged these efforts and placed unreasonable requirements on MHI’s Type 1 Repair efforts. (¶ 2594)12
• … the Claimants unilaterally placed unreasonable limitations on MHI’s proposed Type 1 Repair, then later refused to pursue the replacement option suggested by MHI, and further elected not to pursue in any way the default or back charge options in the Warranty. (¶ 2615)
• While the Tribunal accepts that gap limited out-of-plane FEI occurred at SONGS, the Claimants have not convincingly demonstrated that this is a type of wear that is excluded under the RSG Contract, as rather, gap limited out-of-plane FEI appears to be a unavoidable occurrence in steam generators. As Mr. Langford, the Claimants’ witness, testified, sometimes this results in a “polishing” of the tube over the life of the steam generator. (¶ 2667)
• … there is no convincing evidence of any particular connection between these three SSPC [Steam Generator Steady State Performance Calculation Code] errors and any harm suffered by the Claimants or that if these errors had not occurred, a different design would have been adopted. (¶ 2680)
• With regard to the admitted Gap Velocity Error, i.e., the FIT-III Post-Processor conversion error, the Tribunal is not convinced that this error resulted in the Incident at SONGS… (¶ 2681)
• In light of the above, the Claimants have established only that MHI is responsible for certain errors in the RSG design. However, they have not established that these errors were the cause of the Incident, nor have they established that the errors were the source of the claimed damages by the Claimants. (¶ 2685)
• … the Claimants cannot seek rescission because Mitsubishi substantially performed or was prepared to perform its contractual obligations. (¶ 2713)
• … the Claimants, by their actions, frustrated the fulfillment of the various contractual remedies available to them, following discovery of the causes of the Incident. When the Claimants decided to shut down the plant without pursuing the proposed Type 1 repair or a replacement option, they must be deemed to have elected, on their own, to forego the consideration for which they had bargained. (¶ 2720)
• Therefore, the Claimants failed to establish a requisite causal link between the proven design errors and the alleged damages sustained as a result of the Incident and subsequent shutdown of SONGS. (¶ 2732)

Other Documents

• I1210013-SCE_Motion_to_Seal_Portions_of_the_Award.pdf: SCE Motion to Seal portions of the Award Document
• CDSO_Data_Request.pdf: Data request by CDSO (Citizens Oversight) for documents referred to in MHI Award document in Paragraphs 296 to 307.
• Response_to_CDSO_Data_Requests_dated_11-28-17.pdf: Response to Data Request
• Response_to_CDSO_data_request_--_RSG_Specification_--_DR_3_-_JX-271-0000001.pdf: RSG Specification (Archived on Sharefile)

News Media

Publisher	Date	Description	Link
Union Tribune	2017-06-08	Judges say Edison failed to prove fraud, undermined its own case in San Onofre arbitration	Link
Kusi News	%LINK{URL="2017-06-08	Power Companies Fail to Collect Damages on San Onofre Case	Link

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