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San Onofre Shutdown Settlement FAQS

Citizens Oversight (2018-01-12) Ray Lutz

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

Questions have come up regarding the San Onofre Shutdown Settlement.

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. 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.

I can't provide any further information but I am looking forward to the settlement conference when the full settlement agreement will become public.

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.
  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.
  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.

Can you comment further at this time?

No, sorry. I can't say any more until the settlement conference is completed.


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Title San Onofre Shutdown Settlement FAQS
Publisher Citizens Oversight
Author Ray Lutz
Pub Date 2018-01-12
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Keywords Shut San Onofre, Stop The Unfair Settlement
Related Keywords California Public Utilities Commission, Coalition To Decommission San Onofre, Energy Policy, Nuclear Energy, Shut San Onofre
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Topic revision: r5 - 2018-01-16, RaymondLutz

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