State OKs Plan to Replace 4 San Onofre Generators

State regulators Thursday approved a massive project to replace deteriorating steam generators at the San Onofre Nuclear Generating Station, a plan that could extend the plant’s operation by at least 13 years.

The California Public Utilities Commission also capped the amount Southern California Edison Co. could collect from its customers to pay for the project, which will cost at least $680 million.

Commissioners, however, rejected other conditions sought by ratepayers to cap the costs of operation, maintenance and separate capital improvement projects at the plant.

The commission’s 4-0 decision means the company can operate San Onofre, one of two nuclear power plants in California, at least until 2022, when its federal license expires.

Without the improvements, the plant might have to close as early as 2009 when the four steam generators for the plant’s two reactors no longer meet government standards.

San Onofre, in northern San Diego County, provides 2,150 megawatts of power, enough for 2.2 million homes throughout Southern California.

Edison President John R. Fielder said new steam generators are cheaper for ratepayers than building new power plants or buying power on the open market.

“The benefit to our customers of replacing the steam generators is very valuable, given the trend of natural gas and power prices,” Fielder said.

Some representatives for electricity customers said they were disappointed by the decision, contending the commission had watered down and eliminated cost caps to suit Edison.

While Edison pegged the cost of the steam generators at $680 million, commissioners ruled that the company could recover up to $782 million from ratepayers in case of cost overruns. Ratepayers’ groups had supported a recommended cap of $680 million, which already includes a $141-million cushion for contingencies.

“This is a dangerous sign of what is to come. Edison’s history has been to underforecast and overspend,” said Matthew Freedman, an attorney for the Utility Reform Network, a nonprofit consumer organization.

Edison estimates that, at $680 million, the steam generator project would cost the typical residential customer roughly 50 cents a month starting in 2009 and ending in 2022. The rates have yet to be determined.

San Onofre’s steam generators contain thousands of small tubes that fill with heated water from the plant’s nuclear reactor. By exposing a secondary source of water to the tubes, steam is generated to spin turbines that create electricity.

Over time, the tubes corrode and crack and must be plugged to take them out of service. When more than 15% of a steam generator’s tubes are blocked, reactors must be shut down.

The PUC, a five-member regulatory panel based in San Francisco, determines whether power plant projects are beneficial to the utilities and their customers.

Commissioners make their decisions with the help of administrative law judges, who issue proposed decisions after weighing the positions of utilities and ratepayers.

The judge in the San Onofre matter determined that replacing the steam generators was marginally cost effective and recommended a cap of $680 million for the project. He also proposed caps on what ratepayers could be charged for operation, maintenance and other capital improvements.

The commission, however, also weighed an alternative submitted by PUC Chairman Michael Peevey, who recommended against any cost caps. He said other measures might be more effective to check costs.

In a compromise, the commission created a $782-million ceiling for the steam generator project and agreed to review the project if the cost exceeds $680 million.

Agreeing with Peevey, the panel rejected the other caps on operations, maintenance and future capital projects. Edison estimates that those costs will be between $474 million and $675 million a year from 2009 to 2022. Peevey said how those costs will affect customers will be decided at future hearings.

Edison had told the PUC that if all the caps proposed by the judge were required, the company could not recommend the generator project to Edison’s investors or board of directors.

“From a risk-reward standpoint,” Fielder said, “it was something we could not go forward with.”

Commissioners have yet to rule on a request by San Diego Gas & Electric Co. to drop out of the steam generator project. The utility owns 20% of San Onofre, and its share of the project’s cost is at least $163 million.

SDG&E; executives say they have no confidence in Edison’s cost estimates and contend the company’s plan to cut holes in reactor containment buildings to remove the old steam generators would compromise the safety of those structures.