SETTLEMENT REACHED OVER SAN ONOFRE: RATEPAYERS TO RECEIVE REFUNDS IF CPUC APPROVES DEAL

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By Miriam Raftery

March 27, 2014 (San Diego)—After the San Onofre Nuclear Generating Stations (SONGS) were shut down in 2012 due to faulty steam generators, San Diego Gas & Electric (SDG&E) and Southern California Edison (SCE) continued to charge ratepayers for the costs associated with replacing those generators.  Edison later announced permanent decommissioning of the nuclear facility in June 2013 due to serious safety problems.

Ratepayers will be receiving refunds from SDG&E and Edison for those charges, if a joint settlement agreement announced today is approved by the California Public Utilities Commission (CPUC).  The settlement was reached SCE, the CPUC Office of Ratepayer Advocates, and The Utility Reform Network (TURN).

The settlement calls for SDG&E and SCE to refund all revenues associated with the replacement steam generators collected since Feb. 1, 2012. In addition, the utilities will remove from rate base other SONGS-related investments after Feb. 1 and recover them at a significantly reduced rate of return over a 10-year period, which will result in ongoing benefits to customers. 

“We believe this settlement is fair and reasonable and balances the interests of customers and shareholders,” said Jeffrey W. Martin, CEO of SDG&E. “The settlement ensures that customers will not have to pay for San Onofre’s faulty steam generators post-shutdown and also allows shareholders to recoup the majority of their non-steam generator investment in the plant, which provided clean, reliable, low-cost energy to the region for more than 40 years.”

Ray Lutz, National Coordinator for Citizens Oversight and a party at the proceeding under the banner "Coalition to Decommission San Onofre",

also voiced satisfaction with the agreement. “"Our organization will be reviewing the settlement agreement and we will likely file a formal comment, however, it does seem like a reasonable compromise in many respects at first glance."

The agreement requires SDG&E to use the reduction in SONGS-related rates to reduce overall energy costs for customers. As part of the settlement, SDG&E will be allowed to recover the cost of the replacement power procured for customers while SONGS was not operating. The immediate refund of costs related to the steam generators combined with the reduction in rate base costs effectively results in a $121 million offset of some of the power costs incurred in 2013 and 2014 and helps to keep future electric rates lower than they otherwise would have been.

The settlement also provides the opportunity to pursue additional cost recovery for both customers and shareholders.  In a prses release issued today, SDG&E stated that it  “intends to vigorously pursue cost recovery from the manufacturers of the SONGS steam generators, Mitsubishi Heavy Industries, Ltd. (MHI), as well as from insurance companies.”

The settlement establishes a regulatory sharing mechanism that would allocate to customers a portion of any proceeds the utilities’ might receive in the future from pending claims against the international insurance consortium, Nuclear Energy Insurance Limited (NEIL), and against MHI.  As a 20-percent owner of the shuttered nuclear plant, SDG&E is entitled to 20 percent of any such recoveries and would allocate a portion of the amounts recovered with customers as prescribed in the settlement.

SDG&E and its parent company, Sempra Energy, today filed a Form 8K with the Securities and Exchange Commission with details of the financial terms of the settlement.  A CPUC decision on the settlement is expected in the second quarter of this year.

In a nutshell, the settlement benefits ratepayers by about $1.4 billion savings over what Edison had originally asked for in the investigation.

Key points for Edison ratepayers are as follows:

  •      Edison will receive no compensation in rates after Feb 1, 2012 for the plant.
  •       All monies collected since Feb 1, 2012 as if the plant were still operating will be refunded to ratepayers.
  •       On the other hand, Edison will be compensated for power purchased after the start of the outage, paid at "market prices" through the normal review mechanisms. This does not include "forgone sales".
  •       Most of the expenditures in an attempt to restart the plant will be written off -- all of those for 2012 and a portion in 2013.
  •       Edison will attempt to resell unused nuclear fuel and return that to ratepayers, with 95% /5% split in favor of ratepayers.
  •       Edison will be able to aggressively salvage assets of the plant, returning any realized revenue at 95% to ratepayers and 5% to investors.
  •       Investors will be able to recapture their investment in the original plant, not including the replacement steam generators, amortized at 2.62% over 10 years.

This agreement must be approved by the actual Commission before it becomes active. The comment period is 30 days.

“The total deal was $1.4 billion less than what was requested by Edison and SDG&E, but the utilities are still compensated about $3.3 billion for their remaining interest in the plant, replacement power, and other costs,” a press release issued by Citizens Oversight in El Cajon stated.  “Savings to ratepayers will offset substantial deficits in the ERRA account, which is used to balance energy purchases and ratepayer revenue.  However, after 2015, ratepayers will continue to see a benefit from the closure at the rate of about $600 million per year.

“These savings may be offset by other infrastructure that is needed to get the power where it is needed in California, even though we generate about 56% more than we use, statewide.” The Citizens Oversight release concluded.