Utilities Owe Lion’s Share of Onofre’s Cost, Report Finds

In a preliminary victory for customers of Southern California Edison and San Diego Gas & Electric, a state Public Utilities Commission staff report recommended Tuesday that the companies bear at least $762 million of the cost of building the San Onofre Nuclear Generating Station in northern San Diego County.

The utilities, calling the finding “unreasonable” and “Monday-morning quarterbacking,” will get their chance to rebut the staff recommendation in public hearings before the commission later this year. A ruling is not expected before next year.

However, the director of the commission’s public staff division, which produced the recommendation, said the cost figure is “preliminary” and could grow beyond $762 million by the time the hearings convene.

A measure of the financial stake to the utilities is that Southern California Edison earned $732.4 million for its shareholders last year.

Could Wipe Out Earnings

If the company covers the amount recommended by the staff report, it could wipe out much of a year’s earnings for the utilities’ shareholders. On the other hand, because construction costs are normally recovered through higher rates over a number of years, the effect on utility customers would be relatively modest--about a 3% cut in rates, according to the commission. A spokesman for SDG&E; estimated typical savings for customers at $15 a year.

Edison owns 75% of San Onofre, SDG&E; owns 20% and the cities of Anaheim and Riverside own 5%.

The commission’s public service division, whose job is to represent utility customers before the commission, based its recommendation on a $1.7-million study begun in January, 1983, by outside consultants. William R. Ahern, the division director, said the consultants’ initial impression after completing the first phase of their study was that construction of the $4.5-billion San Onofre project was well managed. Total costs compared favorably to those of other nuclear projects across the company, he said.

“But,” Ahern added, “after the detailed consultant investigation of 16 issues--such as use of scheduling techniques, quality control and coordination of construction--the public staff has a different impression.” He said detailed examination turned up “serious problems” with management of the project, which was designed and built by Bechtel Power Corp. of San Francisco.

The consultant, O’Brien-Kreitzberg & Associates, identified 624 days of “avoidable delay” in building San Onofre’s Unit 2 and 468 days of “avoidable delay” for Unit 3. Evidence submitted by the utilities fails to justify an additional 150 days at each project as well, said James J. O’Brien, a partner in the firm.

“By the end of the project, the cost of a day of delay had increased to about $1 million in carrying charges,” said Jeffrey P. O’Donnell, who headed the San Onofre inquiry for the commission’s staff. “The avoidable costs due to these delays comes to about $710 million. Then consultants found about $50 million, mainly in specific labor and material costs, that could have been avoided.”

O’Donnell concluded that San Onofre could have been completed “about two years earlier, at much less cost.”

Special Pipe Hangers

As an example of avoidable delay, the commission staff charged that the project lost at least six months because of poor design work on special pipe hangers, which then were submitted to a supplier already overloaded with filling orders for 10 other Bechtel nuclear projects.

More than three months were lost because Edison failed to produce enough senior reactor operators to begin commercial operation of Unit 2 after 16 of 18 candidates failed the Nuclear Regulatory Commission’s licensing examination because of “inadequate training programs and inappropriate work assignments,” the staff charged.

Later, Unit 3 was delayed “at least 215 days” because of a shortage of pipe fitters to install pipe supports--after workers had to be pulled off the job to install the late pipe hangers at Unit 2, the study said.

In the staff recommendation, Ahern noted that in 1970, when the utilities applied to the public utilities commission for authority to undertake the project, they estimated that it would be ready in 1976 and cost $437 million. Unit 3 began commercial operation in April, 1984, he noted.

Conservation Concerns

Allen, Edison’s chairman, said construction had been prolonged and the cost increased by conservation requirements imposed by the California Coastal Commission and by modifications ordered by the Nuclear Regulatory Commission to enhance the plant’s ability to withstand a major earthquake and other safety threats.

“Needless to say, we are shocked by the public staff’s recommendation,” said Howard P. Allen, Edison’s chairman and chief executive. “It is totally unjustified. It’s one thing to academically review the process in hindsight; it’s quite another thing to build the plant under real-world conditions.”

SDG&E; echoed that sentiment, calling the recommendation an “inappropriate disallowance” of costs that should be recovered from customers. “This represents Monday-morning quarterbacking and the creation of a new standard in the perfection of foresight,” said Lou Bernath, SDG&E;’s nuclear department manager. “We’re hoping that the PUC will not follow the staff suggestion.”

An Edison spokesman declined to comment on the possibility that Bechtel might share financial responsibility for any construction costs that the commission refused to include in rates. A Bechtel spokesman said it would support the utilities’ efforts to rebut the utility commission’s public staff recommendation.

San Diego County Business Editor Bill Ritter also contributed to this story.