Advertisement

San Onofre fiasco shows the harm caused by private PUC-utility meetings

Edison shuttered San Onofre for good in June 2013, after steam generators replaced in a $700-million upgrade failed, only a couple of years after their installation.
(Allen J. Schaben / Los Angeles Times)
Share

The shutdown of the San Onofre nuclear power plant has stood for many shortcomings in the performance of our utilities and their regulators over the last three years.

There’s the ineptitude of its principal owner, Southern California Edison, in overseeing a supposed upgrade that ended up turning a multibillion-dollar facility into a worthless hulk. And the dithering by the California Public Utilities Commission that allowed Edison and San Diego Gas & Electric Co., its junior partner on San Onofre, to continue collecting money from 1.4 million Southern California households long after it was obvious that the full-figured fiasco on the San Diego County line might never produce electricity again.

But the most disturbing lesson concerns the improper relationships between Edison and PUC officials, particularly former PUC President Michael Peevey, a former Edison executive. Documents made public this year suggest that they kept their private, or “ex parte,” meetings secret, in contravention of PUC rules, even as consumer advocates were negotiating with the utility over how to apportion the costs of the San Onofre shutdown between customers and Edison shareholders.

Advertisement

The negotiated settlement they reached in April last year is now in question.

Peevey has since retired, but the damage done to the PUC’s image as an impartial regulator lives on. So does the damage done to the settlement, which now has lost the support of two of the three participants — the San Francisco consumer group TURN and the PUC’s own Office of Ratepayer Advocates. (The third party, Edison, wants the settlement to remain in effect.)

The disclosures of meetings between Edison and Peevey — especially one between Peevey and then-Edison executive Stephen Pickett at a business conference in Warsaw in March 2013 — “made us extremely unhappy,” says Matthew Freedman, who represented TURN in the negotiations. “We realized there was a parallel set of conversations we were not privy to.”

Edison maintains that the meetings didn’t influence the final settlement, which was more financially advantageous to consumers than the deal Peevey outlined for Edison in Warsaw. The other negotiators aren’t so sure. Knowledge of Peevey’s bottom line, the ORA says, may have enabled Edison to “steer the settlement in the direction it wanted.” Says its director, Joseph Como, “certainly the process was tainted.”

Peevey’s successor as PUC president, Michael Picker, told me last week that he’s “reserving judgment,” pending a further internal investigation. TURN and the ORA want the settlement revised to return more money to ratepayers — $648 million more, in ORA’s proposal.

Here’s the background. In early 2012, steam generators replaced in a $700-million upgrade at San Onofre failed, only a couple of years after their installation. San Onofre ceased generating electricity at the end of that January. In June 2013, Edison shuttered the plant for good.

The PUC eventually approved the negotiated settlement, which relieved ratepayers of $1.4 billion of the $4.7 billion in San Onofre costs the two utilities originally requested.

Advertisement

Although the law required Edison to disclose the ex parte contacts with Peevey within days of their occurrence, Edison waited nearly two years — until after evidence of them already had surfaced. That happened as the result of a January raid of Peevey’s La Canada Flintridge home by agents for California Atty. Gen. Kamala Harris, who was investigating similar allegations of ex parte communications between Peevey and Pacific Gas & Electric Co. The haul included a handwritten note of the Peevey/Pickett conversation in Warsaw.

Edison executives long had been concerned about this meeting. Edison President Ronald Litzinger grilled Pickett at least twice in 2013 about whether it constituted more than a “one-way” conversation in which Peevey unburdened himself to a noncommittal Pickett about a possible San Onofre settlement. The company’s conclusion was that it wasn’t disclosable.

But the Warsaw note, in Pickett’s handwriting with emendations by Peevey, indicates that San Onofre issues actually had been discussed in detail. Edison has since provided the PUC a declaration in which Pickett states that Peevey did almost all the talking and that for the most part he “did not react or respond” to Peevey. He said he certainly didn’t engage in settlement negotiations.

But Edward F. Randolph, another PUC official who was at the meeting, recalled in an affidavit that Pickett “initially stated his opinion of what he thought a settlement agreement [on San Onofre] would look like,” thus making Pickett appear to play a far more active role in the encounter. (Edison says Pickett and Randolph simply have “differing recollections.”)

PUC administrative law Judge Melanie Darling, who is overseeing the San Onofre case, contends that there were nine other unreported written, oral or personal meetings between Peevey and Edison brass in which San Onofre matters may have been privately discussed. The picture she paints is one in which Edison lawyers pored over the rules governing ex parte contacts, looking for reasons not to disclose.

Indeed, Edison maintains the nine incidents weren’t substantive enough to report. In a brief filed with Darling, Edison says it failed to report the Warsaw meeting promptly in part because “the ex parte rules are complex and ambiguous.” That’s true, but plainly, the utility chose not to err on the side of disclosure.

Advertisement

It’s important that the PUC and its regulated utilities understand the corrosive effect of such backdoor, under-the-table contacts. In a report to the PUC in June, Los Angeles attorney Michael J. Strumwasser warned that ex parte communications inevitably foul the commission’s reputation and work. They transform fact-finding proceedings into negotiations redolent with personal favoritism and make the evidentiary record incomplete, in part because there’s no way to ascertain that the descriptions of the meetings submitted for the record are truthful. Among his recommendations are an absolute ban on ex parte contacts in rate-setting proceedings such as San Onofre, and a requirement that PUC officials, not just the utilities, report ex parte meetings.

Whether disclosure of the back-channel meetings will do more damage to the San Onofre settlement or the PUC’s reputation is unclear. If the commission revisits the settlement, it may decide to saddle Edison shareholders with a larger share of the costs, though reconsideration could delay a final resolution until late next year.

Leaving the deal in place, however, will reinforce the impression that the commission and the state’s utilities are in bed with each other. “This is exhibit A for the hopeless corruption of utility regulation,” says John Geesman, a former state energy commissioner who represents the Alliance for Nuclear Responsibility, a consumer group that has asked the PUC to reopen the settlement. “If these circumstances don’t call for reversal, what hope is there?”

Michael Hiltzik’s column appears every Sunday. His new book is “Big Science: Ernest Lawrence and the Invention that Launched the Military-Industrial Complex.” Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at mhiltzik@latimes.com, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.

Advertisement