San Onofre Shutdown Settlement FAQS

Citizens Oversight (2018-01-12) Ray Lutz

This Page: https://copswiki.org/Common/M1811
More Info: Shut San Onofre, Stop The Unfair Settlement

Questions have come up regarding the San Onofre Shutdown Settlement. Instead of answering them n-times, we have gathered them here so many people can be more fully informed.

What is the settlement about?

The settlement is about how rates will be affected due to the closure of the San Onofre Nuclear Generation Station (SONGS or "San Onofre") after the emergency shutdown on January 31, 2012. Normally, the cost to build and run power generation plants are "included in rates" of consumers. That means that ratepayers pay for the operating costs and reimburse investors for their initial investment in the plant, and all capital upgrades. When any plant is out of service for nine months, the California Public Utilities Commission (CPUC) must start a proceeding called an OII (Order Instituting Investigation) into the situation with that plant. The OII proceeding, designated I.12-10-013 was opened on October 25, 2012.

The way the CPUC works, they run their investigations and proceedings using traditional courtroom litigation procedures known as administrative law. Since they need opponents to the utilities, they invite "intervenors" to become parties to the proceeding, and they participate by submitting legal documents, legal opinions, pursue discovery, cross-examine witnesses, etc. Some of the intervenor organizations have participated in this manner for decades, such as TURN, The Utility Reform Network. There is also the "Office of Ratepayer Advocates" (ORA) which is a department within the CPUC but is supposed to operate independently and represent ratepayers. The CPUC also offers intervenor compensation for those intervenors who are not otherwise well funded (such as a City or County would be). Unfortunately, the utilities can spend unlimited sums to support their point of view but intervenors must gamble that they can impact a proceeding, spend sometimes thousands of hours of legal work, and then file and get their compensation request approved, which can be denied if the intervenor is not a "player." Intervenors are supposed to represent the interests of ratepayers, but if they fight too hard, then compensation can be withheld.

Citizens Oversight, operating under the fictitious name Coalition To Decommission San Onofre (CDSO), became an intervenor and therefore a party to the OII proceeding in early 2013. Since then, we have also operated both as CDSO and Citizens Oversight.

Starting in 2005, SCE had requested and received approval of a project to replace the four steam generators at SONGS, two in each of the two units that were operating (Unit 2 and Unit 3). The reactor units at San Onofre were not initially designed for these huge components to be replaced. The San Onofre steam generators are the largest in the world and are a challenge for any manufacturer to produce. Steam generators are a critical component of any steam cycle power plant (including all nuclear, coal, oil, and gas fired power plants, and even some solar plants). They chose Mitsubishi Heavy Industries (MHI) to design replacement steam generators. They planned to include a number of improvements so they would hopefully last longer, and yet, avoid NRC review through a rule called 50.59, which allows the replacement of components which are form, fit and function identical with the replaced component. Due to computer modelling mistakes, the steam generators exhibited "fluid-elastic instability" which means the nearly 10,000 tubes exhibited excessive vibration. Within 11 months, Unit 3 failed due to a leak in the high-pressure tubes.

The plant was safely shut down. That is the good news, even though it was arguably very close to a LOCA (Loss of Cooling Accident) which could have been much, much worse. There was some talk of restarting the plant at 70% power, only in Unit 2. Both units had to have dozens of tubes plugged, which was unheard of in such new steam generators. MHI proposed a repair project, which would have taken years to complete, and during that time, the plant would remain off-line and yet still cost money to maintain and keep operational. On June 7, 2013, SCE announced a permanent shutdown of the plant. (For a more complete timeline, see Shut San Onofre).

The initial OII announcement was followed by a "Prehearing Conference" (PHC) which helps to establish the scope of the proceeding. The ALJ, Melanie Daring, established a number of phases of the proceeding, as follows:

• Phase 1 -- the reasonableness of the reaction by SCE to the emergency shutdown.
• Phase 1A -- how will "replacement power" be treated -- i.e. power that must be purchased on the energy markets to replace the power that would have been produced at SONGS. It sounds simple but is a ridiculously complex mess.
• Phase 2 -- determine who should pay for the investment value of the plant assuming no fault by SCE.
• Phase 3 -- Investigate the cause of the shutdown and who was a fault. (Why was this delayed to phase 3? So it would never be done, of course). This phase was never started. Also consolidated with this phase was the review of the steam generator project to show that that project was reasonable, thus allowing the new steam generators to be placed in rates. In a very unusual move, the CPUC allowed recovery in rates to start as soon as the new steam generators were installed.
• Phase 4 -- everything else, which I never did understand, and this phase was never used.

During 2013, Phase 1 and Phase 2 were processed most of the way, and a Phase 1 Proposed Decision (PD) was produced and put before the commission in late 2013. It was delayed into 2014. Phase 2 was largely completed, but never did produce a PD.

In March, 2014, a $3.3 billion settlement was announced, which was a surprise to most parties in the proceedings as only TURN and ORA were invited to participate in the settlement process conducted in 2013. During 2014, the settlement agreement was processed with a PD to accept it, comments, hearings, etc. To us, it appeared "The Fix was in" and we objected to the settlement agreement. In mid November, we filed a motion to stay the proceeding until we could find out what was going on (and it was denied). In November 2014, the settlement agreement was approved by the commission. Then, in December, CPUC President Michael Peevey retired. Perhaps most memorable was Peevey yelling "I'm not here to answer any of your goddamn questions!! Shut up! Shut up! " to Michael Aguirre in the 3.5 hour hearing to approve the settlement.

Just after the settlement was approved (2014-12-18), Citizens Oversight and Ruth Henricks, both parties at the CPUC, filed an application for rehearing of the settlement decision. The CPUC never did process the application and apparently just wanted to ignore it and let it die from disinterest.

Prior to approval of the settlement, Citizens Oversight filed as the lead plaintiff, a lawsuit in Federal court claiming that the settlement amounted to a "taking". It was initially stopped in the lower court due to a claim by SCE that the Johnson Act of 1934 did not allow a federal case. That was appealed and the appellate court allowed the case to move forward. The next hearing on the case was scheduled for Feb 13, 2018. The attorney firm Aguirre Severson LLP represented Citizens Oversight in the federal case.

Then we had a lucky break. Early in 2015, it was revealed that two years earlier, in 2013, CPUC president Michael Peevey met improperly with SCE executive Stephen Pickett in Warsaw Poland, and discussed settlement deal points, which was recorded in a hand-written note. This was only revealed to the world because of an FBI investigation of the San Bruno Explosion of a natural gas line in 2010 (which killed 8 people and obliterated 24 homes), and a search of Michael Peevey's residence. The so-called "RSG Note" was in his top desk drawer somewhat like a souvenir. Union Tribune Reporter Jeff Mc Donald realized that the abbreviation "RSG" referred to the Replacement Steam Generators of San Onofre, and was the first to report on it.

2015 processed sanctions against SCE to the tune of $16.7 million for participating in the improper ex parte meeting in Warsaw Poland. The CPUC was not sanctioned for also participating. Some parties to the case filed Petitions for Modification to the settlement. We did not submit those because we had already submitted the rehearing request. The CPUC has never ruled on our rehearing request.

In 2016, the CPUC reopened the record in the case. In 2017, a settlement process was restarted, and a professional mediator was chosen to help shepherd the process. In mid 2017, the case that SCE filed against MHI for some $7 billion in damages, which was heard by an arbitration tribunal, ruled against SCE essentially on all counts. The amount recovered by SCE was limited by the contract in a limitation of liability provision, and only barely covered the attorney fees and costs, which totaled about $138 million. The Tribunal ruled that MHI fulfilled their obligations and since they were willing to pursue a repair, they could not be held liable for any more than the contracted amount. The arbitration award document is about 1,115 pages in extent.

• Aug 15, 2017, -- the time allowed for a new settlement expired, and SCE filed a notice that the settlement process did not complete.
  • The CPUC started to go back into litigation to complete the process.
• Nov 7, 2017 -- A scoping meeting was held
• Jan 8, 2018 -- the ALJ filed a ruling "setting schedule and clarifying issues for evidentiary hearings. The schedule for the remainder of the proceeding is set forth."
• Jan 10, 2018, at 2pm PT, the fact that a settlement conference would be held was announced via email.

Is the settlement secret?

Unlike the original settlement process which was not announced and conducted in secret, with only TURN and ORA participating, the current settlement was publicly announced, and all parties were invited to participate in the process. So it was NOT secret in that sense, but the exact goings-on of the settlement process are confidential.

Although the details of the settlement negotiations are confidential, the settlement itself will be made public on a systematic basis. (It is now public and is included below) Until the settlement is formally released, no one can discuss any details. This is primarily because of SEC (Securities and Exchange Commission) rules on disclosure of information that may affect market prices. Any formal disclosure is normally made after markets close at 4:30 pm ET, and until it is released, the details of the settlement can't be discussed, and the process by which the settlement was determined is not disclosed.

How was the settlement initially disclosed?

The CPUC has an email notification list for the proceeding designated I.12-10-013. The parties of the settlement released an short email on Jan 10, 2018 at 2pm on this list and thus to the CPUC so the CPUC could plan accordingly. Anyone can subscribe to that list. So it is a public announcement.

The email is as follows:

This email is sent on behalf of the following parties: The Alliance for Nuclear Responsibility, the California Large Energy Consumers Association, California State University, Citizens Oversight, the Coalition of California Utility Employees, the Direct Access Customer Coalition, Ruth Henricks, The Office of Ratepayer Advocates, San Diego Gas and Electric Company, Southern California Edison Company, The Utility Reform Network, and Women’s Energy Matters (collectively, “Parties”).

The Parties wish to make the following procedural communication. The Parties have continued their mediated settlement discussions and anticipate serving a notice of settlement conference pursuant to Rule 12.1(b) within 15 days.

Respectfully submitted,

Henry Weissmann, counsel for SCE, on behalf of the Parties identified above.

Why is this "confidential"?

The full rules of the CPUC are here: http://www.cpuc.ca.gov/rpp/

Rule 12.6 deals with settlement confidentiality.

12.6. (Rule 12.6) Confidentiality and Inadmissibility. No discussion, admission, concession or offer to settle, whether oral or written, made during any negotiation on a settlement shall be subject to discovery, or admissible in any evidentiary hearing against any participant who objects to its admission. Participating parties and their representatives shall hold such discussions, admissions, concessions, and offers to settle confidential and shall not disclose them outside the negotiations without the consent of the parties participating in the negotiations. If a settlement is not adopted by the Commission, the terms of the proposed settlement is also inadmissible unless their admission is agreed to by all parties joining in the proposal.

How are settlements processed by the CPUC?

See all of RULE 12 for information on settlements, here: http://www.cpuc.ca.gov/rpp/

In terms of process, I believe the following is the list of events that will soon occur (my best estimate).

1. Settlement Conference -- will be held in SF and all parties to the proceeding are invited. Public is not invited to this meeting and it is not held at the CPUC. After this is completed, the full settlement agreement will become public. No disclosure is made until after the close of the markets per SEC (securities and exchange commission) rules. According to the email, the announcement of the meeting will be made within 15 days of the email. This has already occurred on January 30, 2018
2. Motion to Accept the Settlement -- As a result of the Settlement Conference, a motion to the CPUC to accept the settlement will be filed. (Already done. See all documents here: San Onofre Closure Settlement 2018 -- There are a number of other companion filings as well, including a motion to stay the OII proceedings.)
3. Initial Ruling -- The ALJ will publish an initial ruling that will set the schedule for the rest of the process.
4. PD -- The ALJ will draft a Proposed Decision (PD) to approve the settlement, with any changes if required.
5. Comments by Parties -- The CPUC will then ask for official comments on the settlement PD from any parties to the proceeding. These are submitted in the form of written legal documents. There are usually opening comments, followed by reply comments.
6. Evidentiary Hearing -- A CPUC hearing before the Commission on the settlement PD may occur. This might be required but may not always be.
7. PPH -- A Public Participation Hearing (PPH) will occur where members of the public can make oral or written comments on the settlement PD. This will likely be held in the SCE service area.
8. Oral Arguments before the Commission -- Sometimes Oral Arguments are held if any of the parties to the proceeding request it.
9. Ex Parte Meetings Banned -- Typically, secret side "ex parte" meetings are held between the utilities and any parties of the proceeding. We at Citizens Oversight believe these are bad policy and do not participate in them. In this proceeding, such meetings are explicitly banned. Normally, they say they are banned but allow them if they provide notice within three days after the meeting. So in this case, no such meetings should occur.
10. PD Approval -- The settlement PD will go before the full Commission for a vote. I believe the public can also go to that meeting and make oral comments or submit them in writing. Parties to the proceeding can't comment in that meeting, strangely enough. Normally held at their San Francisco HQ of the California Public Utilities Commission.
11. Implementation -- If approved, the settlement PD becomes a commission Decision. The Decision will include implementation details, in terms of exactly how rates are affected and any refunds are made.

The Settlement has now been released.

See the settlement and all related documents on this page, which will be updated as new documents and filings occur.

• (SanOnofreClosureSettlement2018) 2018-01-30 San Onofre Closure Settlement 2018 -- , Citizens Oversight, Settlement and related docs
• (M1820) 2018-01-30 CITIZENS OVERSIGHT SIGNS $873 MILLION SAN ONOFRE SHUTDOWN SETTLEMENT WITH SCE, SDG&E AND OTHER PARTIES -- Ray Lutz, Citizens Oversight,

What does this mean for the average ratepayer?

According to SCE, the average ratepayer will save $68 over the next four years. But also remember that some ratepayers will save a whole lot more, if they buy a lot of power, like a typical city. Another estimate I have seen is $121.

See more in the summary provided at San Onofre Closure Settlement 2018.

Can you explain the difference between SDG&E and SCE in this agreement?

Well, all ratepayers will be treated equally. But because SDG&E was not cited for improper ex parte communications with the CPUC (i.e. the secret meeting in Warsaw, Poland) and since they do not operate the plant, there is an additional agreement between SCE and SDG&E that has SCE pay SDG&E $151 million to cover the benefits to SDG&E ratepayers. In other words, SCE is holding SDG&E harmless, but the ratepayers in each service area benefit.

Is it true that "By making this settlement Edison has dodged the investigation into what actually caused the shutdown."

The investigation into how this occurred was effectively done to a very large extent by the arbitration with MHI. They completed an 1,100 page arbitration award document detailing what went on, and it seems that they (MHI) were unable to model the failure sufficiently. They did make modeling mistakes, but the tribunal determined that even if they had fixed those modelling mistakes, the ultimate vibration of the tubes would not have been discovered. The fact is, it is not easy to model turbulent fluid flow, (basically impossible to deterministically model it) and no matter how well the project may be managed, such a failure may be impossible to predict before the new design was actually tried. I agree that the design had drifted from the original design, and the 50.59 exemption (which implies form, fit and function identical components) should not have been valid. The NRC did a review of the 50.59 exemption and found that it was sound at the time. Plus, even if a license amendment were required and an NRC review were to occur in the form of a License Amendment, it is not clear if the error of design would have been caught (but certainly, this would have exposed SCE to rigorous opposition from the public, and so that is why they wanted to avoid it at all costs, too bad, because had the project not been approved, then the loss would not have occurred either.). I talked to the guys at the NRC and they said they do NOT do a design review, and in their mind, the systems that were to kick in due to the failure worked correctly, and the plant shut down safely. They view that as the extent of their responsibility. They do NOT consider that it is their responsibility to guard against design problems at all, nor to make sure that the plant even runs, only that it will be safe.

Bottomline is that indeed, the CPUC investigation did NOT occur. But since the MHI investigation did occur and found that MHI was essentially faultless, then you have to turn to SCE to see if they actually acted imprudently and unreasonably. At first glance, since the system failed, and MHI did not act imprudently or unreasonably, then that leaves only SCE. But that ASSUMES that imprudence is required whenever there is a failure. Instead, it is proper to understand that a design failure can occur even if everyone did everything right. I point out the Space Shuttle Challenger Disaster as an example. Thus, because of the complexity of these systems, it is NOT true that someone had to do something wrong or unreasonable leading up the failure. The stark reality is that fully reasonable and prudent actions may have been used in this case, and the design still failed.

This is impossible to square with the fact that with nuclear power, no failures are acceptable. So if we have to accept that a) humans are not error free, and b) with nuclear power, no failures are acceptable. But, we have a contradiction. That contradiction means, we believe, that nuclear power is not an acceptable endeavor. Therefore, we should proceed with a systematic shutdown of nuclear plants. No relicensing and no new plants, and move to clean renewable energy sources as soon as possible.

This is an important lesson from San Onofre, and we hope SCE and the industry will admit it.

Did the parties agree not to criticize SCE as a provision in the agreement?

This San Diego article said that "Parties to the settlement also agreed not to besmirch the utilities or assign any liability to the plant owners in public discussions." http://www.sandiegouniontribune.com/news/watchdog/sd-me-settlement-deal-20180130-story.html

That is not true. The word "besmirch" does not exist. The only thing agreed to by the parties similar that is:

3.3 (b) Parties may make public statements regarding this Agreement, provided that they do not characterize the Agreement as constituting an admission or other indication of wrongdoing or imprudence by the Utilities.

and

4.1 (d) Avoid and abstain from making any collateral attacks on this Agreement or taking positions in other proceedings that would undermine the effect of this Agreement;

and

4.6 The Parties agree that no signatory to this Agreement or any employee thereof assumes any personal liability as a result of this Agreement.

In other words, parties CAN criticize SCE but we can't attack the agreement in proceedings at the CPUC or in a court of law, and we can't claim that because we got the settlement, the utilities admitted wrongdoing.

Are there drawbacks to settling?

Everything that is done has both advantages and drawbacks. Settlements are very common, as more than 99% of civil cases are settled. Although the % is lower at the CPUC, they do make settling disputes a preferred course. Here are the drawbacks:

• The case does not establish precedence. This can go both ways. If it seems that the case will be important for one side or the other to establish precedence for future cases, they may rather not settle. And similarly, if you think the precedence can go against you, then you would rather settle. And although the case may not be precedential in a strict sense, they still are referred to to establish some boundaries for other cases.
• Fault is not determined, and typically in CPUC cases like this one, the utilities don't have to admit any fault, and the other parties can't claim that the case establishes any fault. This is the case in this settlement.
• In many civil cases, the exact terms of the settlement can be confidential. This is not the case in CPUC cases which are settled, because the settlement is reviewed by the commission to insure it meets their criteria.

What are the advantages of settling?

• Avoid extensive litigation -- This is commonly cited as a reason to adopt a settlement. In the 2014 San Onofre Closure Settlement, it was touted to be much less expensive in terms of time to avoid the complex litigation of simply litigating the case completely, as was the case in the San Bruno Explosion case. As it turns out, due to the sleazy way that settlement was determined, the very small number of parties involved, and the lopsided terms of the settlement, just litigating probably would have been easier. However, determining blame for the failure is a very technical topic that really is beyond the capacity of the staff and intervenors at the CPUC, and since the Commission is "captured" by the utilities, the results may have been even worse.
• There is a risk in any litigation that the result may be worse than the settlement.
• The case is precedential, and can be referred to in future cases. This failure was so unusual that it is not that important to have the case available for use in future cases.

Do intervenors make more by settling or by litigating.?

• In theory, ratepayer advocates who intervene and who make contributions in the processing of the case will make their compensation either way, and it may be more if the litigation goes on for an extended period instead of settling. So in general, the answer is no.
• Ratepayer intervenors do not make a % of the settlement or anything like that. Compensation is derived by hours worked, travel and other expenses but not general overhead.
• But there is still incentive to settle to get the case over because the compensation is delayed until AFTER the final decision by ratepayers.
• In some cases, ratepayer advocates who robustly litigate and "win" will still not be rewarded with intervenor compensation, due to a conflict of interest by the Commission. Applications for compensation are approved more often for parties who weakly intervene and largely do what the utilities want. Intervenors that drag the utilities through the coals have a very hard time getting compensation.
• In this case, Aguirre & Severson LLP represented Citizens Oversight in federal court, suing both the utilities and the CPUC. As such, we did not make many friends at the CPUC and legal fees and costs are expected to be awarded in the federal case settlement, which will complete after the settlement is approved by the Commission.

Schedule has been announced by the Commission

On February 6th, a ruling provided the schedule for processing the settlement, as follows:

Event	Date
Utilities file Utility Shareholder Agreement	Feb 15, 2018
SCE, Henricks, Citizens Oversight file and serve federal court agreement	Feb 15, 2018
Joint parties will file declarations regarding "Other Agreements"	Feb 15, 2018
Utilities file an updated settlement implementation summary (initial implementation summary served and filed June 2, 2016)	Feb 23, 2018
Joint Parties to file testimony in support in of Settlement Agreement and/or Stipulation of Undisputed Facts; Joint Case Management Statement.	March 26, 2018
Status Conference (Los Angeles)	April 4, 2018 10:00 a.m.
Public Participation Hearing (Costa Mesa Community Center)	April 4, 2018 6:00 p.m.
Evidentiary Hearings (Los Angeles) [TBD]	April 30-May 4, 2018 10:00 a.m.-3:30pm (parties to arrive at 9:30 a.m. to address off the record administrative and logistical matters. Parties are to be prepared to begin hearings- go on the record at 10:00 a.m.).
Concurrent Closing Briefs Filed [TBD]	June 15, 2018
Concurrent Reply Briefs Filed [TBD]	June 29, 2018
Public Participation Hearing (Costa Mesa Community Center) [TBD]	July 18, 2018
Proposed Decision	TBD

Related Topics:

• San Onofre Closure Settlement 2018 -- All settlement documents
• (M1820) 2018-01-30 CITIZENS OVERSIGHT SIGNS $873 MILLION SAN ONOFRE SHUTDOWN SETTLEMENT WITH SCE, SDG&E AND OTHER PARTIES -- Ray Lutz, Citizens Oversight,
• (M1771) 2017-06-07 Award Document in San Onofre dispute between SCE and MHI regarding Replacement Steam Generators -- , Southern California Edison,

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