SONGS should be reopened. That is the only reasonable conclusion.
DECISION APPROVING SETTLEMENT AGREEMENT AS AMENDED AND RESTATED BY SETTLING PARTIES
In this decision we address, and are unpersuaded by the arguments by Opposing Parties urging the Commission not to adopt the settlement. Several other parties, namely California Large Energy Consumers Association, Alliance for Retail Markets/Direct Access Coalition, Joint Minority Parties, and World Business Academy have subsequently voiced general or conditional support (e.g., with implementation advice) for the proposal. 7 Nuclear Energy Insurance Limited. I.12-10-013 et al. ALJ/MD2/KD1/sbf - 7 - In sum, the Commission is satisfied that the amended and restated settlement will result in just and reasonable rates, is consistent with the law, reasonable in light of the whole record, and in the public interest.
This decision approves a settlement agreement between Southern California Edison Company (SCE)and San Diego Gas & Electric Company (SDG&E) (collectively, the Utilities) and four other settling parties which provides resolution of rate recovery issues related to the premature shutdown of San Onofre Nuclear Generating Station (SONGS), following a steam generator tube leak on January 31, 2012. The original settlement agreement was amended and restated (Amended Agreement), inter alia, to provide that SCE and SDG&E shall each equally share net litigation proceeds from Mitsubishi Heavy Industries between their respective ratepayers and shareholders, and to improve Commission oversight of utility implementation of the settlement, particularly as to development of the revised rates.
The primary result of the settlement is ratepayer refunds and credits of approximately $1.45 billion. The Utilities must also stop further collection of the Steam Generator Replacement Project (SGRP) costs in rates, return all SGRP costs collected after January 31, 2012 to ratepayers, and accept a substantially lower return on other prematurely retired SONGS assets. Ratepayers will still pay approximately $3.3 billion in costs over ten years (2012-2022), including costs of power the Utilities purchased for its customers after the outage, and recovery of the undepreciated net investment in SONGS assets (e.g., Base Plant), excluding the failed SGRP. However, instead of the usual authorized rate of return, the settlement reduces shareholders return on SONGS investments to less than 3%. The effect isratepayers save approximately $420 million over the ten-year depreciation period.
After a leak was detected in a new Unit 3 replacement steam generator (RSG) on January 31, 2012, neither SONGS reactor unit (Units 2 and 3) generated electricity for ratepayers.
1 In June 2013, SCE decided to permanently shut down both units. The Utilities initially asked to keep several different categories of expenses, both unusual and routine, collected from ratepayers in 2012 and thereafter. SCE and SDG&E both have an ownership interest in SONGS.
2 The Commission filed this Order Instituting Investigation (OII) on October 25, 2012, commencing an investigation into the SONGS shut down. The OII was consolidated with our deferred general rate reviews of 2012 SONGS-related expenses for each utility
3 and the reasonableness review of each utility’s recorded costs for replacing four steam generators at SONGS.
4 The Utilities and other parties provided substantial testimony, evidence, and argument during the proceedings to date, including claims by some that SCE bore fault in the design of the RSGs.
Although hearings were held for early phases of the OII, no final decisions have been adopted by the Commission in the consolidated proceedings.
1 Unit 2 was non-operational in January 2012 due to a scheduled refueling outage.
2 Edison is the majority owner and the operator of the SONGS facility; The City of Riverside also holds a fractional ownership share.
3 The replacement of the four steam generators was approved by the Commission in D.05-12-040 which ordered a reasonableness review of the Utilities’ expenses related to the replacement project after completion.
4 Furthermore, hearings have not been held on issues related to review of expenses for the Commission-approved SGRP.5 As part of that cost review in Phase 3, we would have looked at whether SCE acted reasonably as a plant operator, and how the SGRP expenses should be divided between utility customers and utility shareholders. On April 2, 2014, six parties: SCE, SDG&E, Office of Ratepayer Advocates, The Utility Reform Network, Friends of the Earth), and Coalition of California Utility Employees (collectively, Settling Parties) served a Joint Motion for Adoption of Settlement Agreement to resolve all issues in the consolidated proceedings.
The Settling Parties fairly reflect a diverse array of affected interests in this proceeding. Alliance for Nuclear Responsibility, Women’s Energy Matters, Coalition to Decommission San Onofre, and Ruth Henricks (collectively, Opposing Parties) filed comments challenging various elements of the proposed settlement. Opposing Parties primarily reject the settlement because the Commission has not completed its investigation into whether SCE shares culpability with Mitsubishi Heavy Industries (Mitsubishi), the designer and manufacturer, for “design errors” in the RSGs. Opposing Parties are optimistic the evidence will show SCE has whole or partial fault related to the defective RSG design, shifting liability for some costs.
On September 5, 2014, the assigned Commissioner and Administrative Law Judges issued a ruling requesting the Settling Parties make certain modifications to the proposed settlement agreement in support of the public 5 Decision (D.) 05-12-040 (A.04-02-026). I.12-10-013 et al. ALJ/MD2/KD1/sbf - 5 - interest. The ruling identified our public interest concerns with some provisions, including a failure to address “external” consequences of the shutdown, i. e., increases to greenhouse gases due to power purchases from non-nuclear sources.
The Settling Parties accepted the changes and submitted the Amended Agreement.6 Based on the entirety of the record established to date, and after thorough consideration of the Settling Parties' arguments, the opposition by Opposing Parties, and other parties’ comments, we determine that the modified settlement, is a reasonable, efficient and timely resolution of this investigation. Although more parties have since voiced support, it is not an all-party settlement.
The settlement establishes ratemaking treatment for the different expense categories, primarily by establishing February 1, 2012 as the key date for reducing ratepayer costs and calculation of refunds.
Significant features of the settlement include the following:
As of February 1, 2012: (1) ratepayers stop paying for the Utilities’ investment in the shutdown RSGs; (2) SGRP capital-related revenue collected thereafter is refunded to ratepayers; and(3) depreciation of approximately $100 million previously collected, when the RSGs produced electricity, is retained by the utilities;
As of February 1, 2012, approximately $1 billion of SCE’s non-SGRP investment in SONGS is removed from rate base and recovered at a reduced rate of return (less than 3% through 2014) and over an extended (10-year) amortization period; the net difference is estimated to be a reduction to the Utilities of approximately $419 million, present value revenue requirement; 6 Joint Submission of Amended Settlement Agreement September 24, 2014. I.12-10-013 et al. ALJ/MD2/KD1/sbf - 6 -
For 2012, SCE will keep $389 million for Operations and Maintenance expenses and will not recover in rates approximately $99 million spent in excess of the amount provisionally authorized in its 2012 General Rate Case;
The Utilities recover all costs for power purchased from January 1, 2012 until after the settlement is adopted.
A sharing formula allocates between ratepayers and shareholders any recovery from insurance 7 or claims against Mitsubishi. After deducting litigation costs, as modified, the ratepayers and shareholders will share 50%/50% in all recovery from the pending multi-billion arbitration claim by the Utilities against Mitsubishi.
Refunds due to ratepayers will be credited to each utility’s under-collected Energy Resource Recovery Account balance upon adoption of the settlement by the Commission to reduce otherwise approved rate increases.
Directs the Utilities to develop a multi-year project associated with the University of California (UC) or UC-affiliated entities, funded by shareholder dollars, to spur immediate, practical, technical development of devices, methodologies, and processes to reduce emissions at existing and future California power plants tasked to replace the lost SONGS generation.