Counting Customer Costs For San Onofre Closure: $10.4 Billion

Consternation continues to fester about the nearly $5 billion settlement over the San Onofre nuclear power plant.

Investigators recently issued search warrants at the offices of San Onofre majority owner Southern California Edison. State regulators were hunting for records on whether the deal was struck in secret. The pact forces customers to pay 70 percent of the costs to shutter the facility following a 2012 radiation leak without a full investigation by state regulators into who was at fault. That $3.3 billion tab is about one third of the $10.4 billion decades-long bill customers must cover because of the shutdown. That works out to about $1,600 per customer meter, spread out over the next decade or two.

The public purse first opened for San Onofre’s eventual closure more than three decades ago when its two reactors became operational.

To date, customers across Southern California have paid approximately $1 billion of the $4.2 billion in what’s known as a decommissioning fund. That money is meant to handle — as San Diego ratepayer advocate Charles Langley put it — the “dangerous, toxic stuff” that makes up nuclear waste.

“Because sooner or later the plant is going to fail and it’s going to take billions of dollars to clean up the mess,” Langley said.

San Onofre’s failure came in 2012 when premature tube wear inside the plant’s new steam generators caused a radioactive leak. Customers paid $580 million of the $680 million cost of the equipment.

In March 2013, former California Public Utilities Commission President Michael Peevey met in secret with former Edison Executive Vice President Stephen Pickett in Poland. There they discussed a framework for a settlement over the nuclear plant’s shutdown.

That framework nearly matched the final agreement announced more than a year later. Customers were left with a $3.3 billion bill to pay for what was characterized by the media as San Onofre’s shutdown costs.

But what about the $1 billion that customers have already paid into the $4 billion decommissioning fund? Wasn’t that supposed to cover those shutdown costs?

The $3.3 billion customers will pay over 10 years is actually meant to cover the profit Edison and minority owner San Diego Gas & Electric would have made from San Onofre had it remained open.

“So while they’re actually shutting it down and $4 billion is being spent for that, the $3.3 billion is being paid by ratepayers as if San Onofre is producing electricity for the next decade,” said former San Diego City Attorney Mike Aguirre who has sued to get the settlement scrapped.

The pact also calls for customers to pay for all the power they now have to buy from other plants with San Onofre offline.

The estimated cost is about $1.1 billion for five years.

“Before San Onofre went down, it provided 9 percent of all electricity generation in California,” said Lucas Davis, associate professor of economics at the Haas School of Business at UC Berkeley. “This is just a massive facility that went down.”

Four power plants are planned to make up for the lost power from San Onofre’s closure for approximately $4.4 billion.

Add up all the money customers have paid and will be billed, and you get approximately $10.4 billion. Divide by the number of customer meters in the Edison and SDG&E territory, to get to the approximately $1,600 per meter that customers will pay on average for San Onofre, spun out over the next decade or two.

Edison calls the agreement fair and maintains that customers have received a $1 billion refund from the settlement.

The company declined an interview. The refund Edison referred to shows up as a reduction in the amount of interest customers are charged for Edison’s investment in San Onofre.

Aguirre said that description doesn’t meet the definition of a refund.

“It would be like you bought a car, now the car has proven to be defective so you can’t drive the car and they’re saying we’re going to reduce the rate on the loan that you took out at the bank so you don’t have to pay 5 percent, I only have to pay 2 percent,” Aguirre said. “And you say, ‘Well wait a second, I don’t have the car. Why am I paying for anything?’ and they say, No, no — that’s a savings. “

Still, the utilities insist customers are getting a good deal.

SDG&E spokeswoman Stephanie Donovan said customers were credited about $88 million of what they paid for the defective steam generators to a fund to buy electricity. She said the money went into a commodity account because the company had under-collected for electricity costs for years. Nevertheless, SDG&E customers pay among the highest electricity rates in the country.

“Nobody saw a refund per se on their bill,” Donovan said. “But they also didn’t see their commodity costs go up as they would have.”

Also, both Edison and SDG&E argue customers might get more money from the San Onofre closure down the road. The utilities are in arbitration with the steam generators’ manufacturers Mitsubishi Heavy Industries. The utilities claim Mitsubishi sold them lemons. Edison wants $7.6 billion in damages.

The companies have promised to share with customers half of what they might receive. But ratepayer advocate Langley doubts Edison will win against Mitsubishi.

“For one thing, they designed the generators that were delivered,” Langley said.

Consumer advocates have also long argued that Edison deliberately circumvented the federal licensing process.

But the Public Utilities Commission — tasked with protecting consumers and ensuring they get safe power at a fair price — never followed through on a promised investigation into whether Edison was at fault. Commissioners instead approved the settlement, calling it “a reasonable compromise” that serves the “public interest.”

And now the PUC itself and Edison are the focus of federal and state criminal investigations.

The California Attorney General’s Office has issued search warrants for 14 top current and former Edison executives and eight PUC past and current officials, including former President Peevey. Investigators appear to be zeroing in on Peevey’s private meeting with Edison’s former executive Pickett in Poland which led to the settlement.

In 2014 — the same year the settlement became public — executive compensation at Edison shot up 71 percent. And in the days after the deal was announced, the company’s stock rose 9 percent.

That may be why the PUC’s Peevey sent an email after the deal was announced that read, “Wall Street really likes the settlement.”

But a consumer group that once endorsed the agreement no longer likes it.

The Utility Reform Network in San Francisco has called on state regulators to set the deal aside because of what they call “extensive back-door communications” between Peevey and Edison.

Another key ratepayer group – the Office Of Ratepayer Advocates – continues to endorse the deal, despite criminal probes into how it was reached.

“There haven’t been any indictments yet,” said Office Of Ratepayer Advocates Project Manager Truman Burns.