Editorial

A tainted settlement on San Onofre closing costs

After the San Onofre nuclear plant shut down unexpectedly in early 2012, regulators approved a deal dividing up the $4.7 billion in closing costs.

The terms of the settlement were worked out by Southern California Edison, which owns 78% of the plant, in negotiation with San Diego Gas & Electric, consumer advocates and environmentalists. They decided that ratepayers would be responsible for most of the bill — $3.3 billion, minus various credits — while the two utilities’ shareholders would pay the rest.

That apparently seemed reasonable to most of the parties at the time, although consumer groups initially wanted investors to pay more of the costs and some smaller stakeholder groups did not agree to the final deal. But the agreement avoided a protracted litigation process that consumer advocates worried could result in a worse outcome for ratepayers if it was influenced by then-PUC President Michael Peevey, a former chief of Edison, who some suspected was not on the side of customers.

That deal seems a lot less reasonable now, in light of troubling information that has emerged since about secret meetings to discuss how costs should be allocated between Peevey and Stephen Pickett, who was then Edison’s executive vice president for external relations. The meetings were held during the year before the deal was made.

Consumer advocates say they might have rejected the settlement terms and pushed harder for utility shareholders to cover more of the cost of decommissioning if they knew at the time about the meetings, which they say gave an unfair negotiating advantage to Edison at the expense of ratepayers. The PUC in May agreed to reopen the settlement and consider whether it ought to be changed. 

The secret meetings occurred in March 2013, after the replacement steam generators failed, forcing the plant to close — but before Edison had decided to shut down the plan for good. Peevey and Pickett were both at an energy industry conference in Warsaw at the time. The notes from that meeting, on hotel stationery, appear to lay out possible ways to allocate the costs associated with shutting down the nuclear plant.

This kind of back-channel communication between regulators and utilities is permitted if it is disclosed in a timely manner. In this case, it wasn’t reported until February 2015 — nearly two years after it happened, and three months after the settlement assigning costs was approved.

Edison’s excuse for this lapse is that at the time it didn’t consider the meeting a reportable communication because Peevey did all of the talking and Pickett just listened. Only later did it become clear that there may have been “substantive communication” by Pickett during those meetings. Furthermore, the company says, Pickett didn’t participate in the official negotiations when they began later that year. But even if you accept that version of events, it nevertheless gave Edison an edge in knowing what terms might be acceptable to the head of the PUC. 

When the meetings were finally disclosed, the PUC didn’t buy Edison’s excuses and fined the company $16.7 million for the violation. The fine is substantial, but not even close to what Edison shareholders stand to lose if they are required to take on most or all of the costs of closing San Onofre.

So what happens now? The commission has asked the stakeholders for suggestions, which have ranged from leaving the current deal in place to throwing it out completely and requiring the utilities’ shareholders to pay all the costs. Edison’s position is that the deal was fair to ratepayers when it was made, and still is; the meetings changed nothing. And they note that the cost for the average Edison customer will be about $2 per month through 2022. 

Customers ought to share some of the financial burden for closing the plant, but maybe not as much of it as they’ve been given. The state Office of Ratepayer Advocates is recommending that Edison reduce the burden for ratepayers by $383 million. This, they say, better reflects the office’s original litigation position and would make ratepayers “whole” for the possible harm done by the belatedly disclosed private meetings. 

That's at least a place to start the discussion about what is fair to ratepayers in a deal that now seems to have been tainted from the start.

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