$1.4 Billion in Savings on the Table in San Onofre Settlement


by TURN Staff Attorney Matt Freedman



When settlement negotiations began between TURN, the Office of Ratepayer Advocates and Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) over the costs of the debacle at SONGS, the San Onofre Nuclear Generating Station, we seemed unlikely to reach an agreement.

SONGS, located south of San Clemente, went offline in January 2012, after water leaks in its steam generator tubes were detected. It was later revealed that hundreds of other new steam tubes were also malfunctioning due to a faulty design, and that the plant’s safety was compromised. 




Our positions were far apart.  One big issue was profits. Utilities are accustomed to being rewarded a lucrative return on investments, courtesy of ratepayers.  SCE and SDG&E expected to realize ongoing profits for past investments at SONGS but TURN and ORA were staunchly opposed, arguing that no profits were warranted once the utilities had botched the $600 million steam tube replacement.  One thing everyone did agree on was that protracted litigation should be avoided if possible.  After many months of on-again off-again negotiations, we managed reach an agreement that TURN thinks is a very good deal for customers.  You can see the details of all our starting positions, and the numbers we eventually agreed on, in these two charts ·  SCE_PVRR.pdf·  SDGE_PVRR.pdf.




The bottom line, from TURN’s perspective, is that under the proposed settlement, customers would pay about $1.4 billion less than SCE and SDG&E wanted, and be off the hook for the costs of the steam generators themselves, and the profits the utilities hoped to earn.  Consumers would see the bulk of the reductions in the first few years with the remainder occurring through 2021. If the CPUC approves the settlement soon, the first refunds will come later this year.  Most likely customers would receive a credit to offset their bills that would otherwise be increasing due to already-approved rate hikes. 




This represents a huge win for consumers.  It holds them harmless, while making management and shareholders accountable for the fiasco at SONGS.  And it expedites refunds to customers.  Ratepayers have been paying for the costs of Edison’s mistakes at SONGS for over two years.  In TURN’s view, that’s long enough.




The basic terms of the settlement are as follows:




• SCE customers would receive refunds of approximately $480 million by the end of 2014. SDG&E customers would receive 2014 refunds of approximately $121 million.




• SDG&E and SCE would refund 100% of the money they have collected from customers since February 1, 2012 for the replacement steam generators and be precluded from charging customers for any of their remaining investment after that date.  Shareholders of SCE would also be prevented from charging ratepayers for their remaining investment of $597 million, which, after unrealized profits, rises to $696 million. SDG&E shareholders would be prevented charging ratepayers for their remaining investment of $160.4 million, which, after unrealized profits, rises to $221 million.




• Utility investments in the base plant (not including the steam generators) would be recovered over 10 years beginning on February 1, 2012 with no return on shareholder equity, only 50% of the authorized return for preferred stock and the actual cost of debt. For 2014, the overall return would be 2.62% for SCE and 2.35% for SDG&E. Compared to the litigation proposals of the utilities, this treatment results in a $300 million savings for SCE ratepayers and a $52.5 million savings for SDG&E ratepayers.




•SCE and SDG&E would refund any money collected from ratepayers since January 1, 2013 in excess of the actual operational costs of SONGS.




• SCE and SDG&E would refund to customers 95% of any money received from the sale of excess materials and supplies along with unused nuclear fuel.




• SCE and SDG&E would not be allowed to charge ratepayers for some of the incremental costs to inspect and repair the faulty steam generators in 2012. SCE shareholders would be responsible for $99 million.




• Customers would receive a significant share of any proceeds recovered by the utilities from Mitsubishi Heavy Industries (the manufacturer of the defective steam generators) and Nuclear Energy Insurance Limited.




TURN expects the CPUC to consider the settlement in the coming months and hopes that they will act to approve it sometime this summer, so the refunds can begin.