Soaring Costs Plague California Nuclear Plant Shut Down By Leak

While investigators examine the steam generator damage that has forced the months-long outage at California’s San Onofre nuclear power plant, the cost of the shutdown and any necessary repairs continues to mount—and it’s unclear who will end up paying the bill.

The new costs will easily exceed $100 million—and would be substantially higher if they included ongoing work on the steam generators as well as a prolonged period with reduced or zero power generation. The outlays include equipment repair or replacement costs, the expense of securing power contracts and daily electricity purchases while the plant is off line, as well as items such as increased regulatory oversight and customer-funded incentives for energy conservation.

San Onofre’s troubles are worrisome because it is located on the Southern California coast between San Diego and Orange County—a densely populated region where more than 8 million residents live within a 50-mile radius of the twin reactors. That fact, plus unease over other problems at the aging facility and heightened fears about the safety of all nuclear plants has led some community groups to call for the plant’s permanent closure—a scenario similar to mounting public opposition to the Indian Point nuclear plant near New York City.

The electricity San Onofre produces—up to 2,200 megawatts at any given time—is so vital to powering daily life in San Diego and the Orange County-Los Angeles metropolitan area that government and industry officials are scrambling to secure back up sources in case the plant remains idle during a summer heat wave.

In part because of its critical role in Southern California’s power grid, the California Public Utilities Commission in 2005 told San Onofre’s owners they could spend $680 million (2004 dollars) to replace the plant’s four massive steam generators, and recoup the costs through higher customer rates. The commission also agreed to consider additional costs up to a cap of $782 million.

The new steam generators came on line in 2010 and 2011, but the project’s final bill has not yet been submitted for review. In the meantime, the steam generator investment began to sour. In late January, Unit 3 was shut down after a small amount of radiation leaked from a steam generator heat transfer tube. Further inspection revealed excessive wear on some of the 19,454 tubes in Unit 3’s new steam generators. Inspection of the tubes within Unit 2, which was shut down in early January for planned maintenance, also revealed unusual tube wear. (Unit 1 was shut down in 1992 because it needed costly upgrades that were not considered cost-effective.)

San Onofre can’t be restarted until the Nuclear Regulatory Commission (NRC) is satisfied that the cause of the tube damage has been identified and the necessary repairs have been made to safely operate the reactors.

The NRC and Southern California Edison (SCE), which operates the plant, have said the damage was caused by vibrating tubes knocking against each other and against the tube support structure. Investigators are still trying to determine whether the unusual wear was caused by the way the steam generators were designed, the way they were manufactured, the way they were installed, or the way they were operated.

That question, once answered, could determine who pays the bill.

The primary candidates are Mitsubishi Heavy Industries, which built the steam generators; San Onofre’s owners, SCE (78.2 percent), San Diego Gas & Electric Co. (20 percent) and the City of Riverside (1.8 percent); engineering firm Bechtel and other companies involved in the replacement project; and the customers served by SCE and San Diego Gas & Electric.

If the blame rests with the steam generator supplier, repair costs up to $137 million would fall to Mitsubishi under the equipment’s 20-year warranty, according to SCE. If the cause—and therefore the financial responsibility—can be disputed, it certainly will be, perhaps through lengthy legal wrangling.

Electricity customers will be in the mix, too, in spite of the cost cap the CPUC imposed when the steam generator replacement project was approved. That’s because Mitsubishi’s warranty doesn’t cover the cost of replacement power, and both SCE and SDG&E said in financial filings that they intend to include those expenses in annual filings aimed at recouping those costs from customers. This year’s power purchases will be filed in early 2013 and are subject to “reasonableness” review by state regulators.

Rochelle Becker, executive director of the Alliance for Nuclear Responsibility, a California group critical of nuclear power plants, intends to fight any attempt to make customers pay for the current outage. “We were told there was a cap on this project,” Becker said of the San Onofre’s steam generator replacements. “The minute Edison files to get one penny from ratepayers on this project, we will be at the PUC opposing it.”

In recent years, however, vocal opposition has rarely prevented the state Public Utilities Commission from sticking customers with the bill for the mistakes of others. The most notable example is California’s 2000 electricity crisis, a disastrously expensive debacle that customers are still paying for today in the form of higher rates and special charges. (One is listed on most California power bills as the “DWR Bond charge.”)

So far, the bill for San Onofre’s steam generator troubles includes:

The cost to repair or replace the four compromised steam generators: $70 million to $800 million or more.

This is the biggest wild card of all, because it depends entirely on the results of ongoing investigations into the cause of the excessive tube wear in the steam generators and what the remedies will be.

John Geesman, a former member of the California Energy Commission who now represents the Alliance for Nuclear Responsibility on nuclear energy matters, summed it up this way: “We sort of have a sense of what’s wrong, but we don’t know if the fixes are easy, difficult or impossible.”

SCE, for its part, recently told Wall Street analysts that it spent $30 million on inspection and repair costs related to the steam generators through mid-April, and that it expects its 78 percent share of the total operations-related expenses to be $55 million to $65 million. That translates into a total repair bill of $70 million to $83 million, split among SCE, SDG&E and the City of Riverside.

A report by a nuclear expert hired by Friends of the Earth suggests that the tube wear stems from a series of potentially significant design changes that were made by SCE and not reviewed by the NRC. The report concludes that nothing short of replacing the steam generators will solve the problem—and that would cost $800 million or more.

The cost of buying replacement power: $42 million through March 31.

When San Onofre is running, it supplies enough electricity to power 1.4 million average homes. SDG&E has said the nuclear plant provides 20 percent of its normal power supply, and SCE got 19 percent of its power from San Onofre and Arizona’s Palo Verde nuclear plant. Every day San Onofre’s reactors are off line, both companies have to buy replacement electricity.

Electricity prices vary based on market conditions and seasonal demand, but experts estimate the cost to replace San Onofre’s power to be $750,000 to $1 million per day.

In a financial filing, SCE said it spent $30 million through March 31 for replacement power tied to the steam generator problems. That total covered 26 days when it offset the lost power from both Unit 2 and Unit 3, and 34 days when the company only bought power to replace Unit 3’s normal production. (Since Unit 2 was originally offline for a planned outage, SCE had previously purchased power to cover its down time until March 5.)

SDG&E reported it paid $12 million for replacement power over the same period.

Both companies said the bills will be higher during the summer months.

Indeed, federal regulators recently warned that electricity prices – while generally low because of cheap natural gas—will be volatile and pricey in Southern California (particularly in San Diego) because San Onofre’s outage creates a tight supply-demand balance.

Utilities pass the cost of power purchases on to customers through an annual filing. The California Public Utilities Commission reviews the purchases for “reasonableness,” but the charges are rarely debated.

The bill for replacement power could be substantial, especially if San Onofre remains off line or at lower-than-usual capacity through the summer. “At some point, the replacement power costs end up being so large that the CPUC has to say, ‘wait a minute,'” said Geesman, the former member of the California Energy Commission.

The cost of securing supplemental power: At least $12.5 million.

In addition to buying electricity each day to meet customer demand, SCE and SDG&E must secure commitments from power plants to supply additional energy if called upon.

One such contract is with AES Corp., which has restarted two retired units at its Huntington Beach plant to make up for the San Onofre shortfall. The cost to secure that additional 440 megawatt output is about $2.5 million per month through October, according to Stephanie McCorkle, spokeswoman for the California Independent System Operator, the entity that manages California’s electricity grid.

The cost of expanding energy conservation measures: Unknown.

To make sure there are no energy shortages during peak demand months if San Onofre isn’t running, the utilities and the state plan to urge Southern California residents and businesses to conserve as much electricity as possible. The conservation programs will be paid for with a combination of already-collected customer money and newly authorized funding.

State regulators recently approved a new way to reward SCE and SDG&E customers for cutting power consumption during key periods. SCE will spend $3.3 million on a new “10 for 10” program in Orange County that gives non-residential customers not already enrolled in similar programs a 10 percent bill credit in return for reducing power use by 10 percent or more between July 1 and Sept. 30, 2012. The program funding will come from customer money that was already set aside for other conservation incentives.

SDG&E will spend $6.4 million to expand its “peak time rebate” program to small commercial customers. The funding is being shifted from customer money set aside for another purpose

In addition to conservation incentives, state regulators approved using $9 million in customer funds for public service advertisements and announcements that encourage energy conservation during peak periods. The money can be used anywhere in California, but it will likely be heavily drawn upon for Southern California campaigns this summer.

The cost of stepped-up inspections from federal regulators: Unknown.

When things go wrong at a nuclear plant, the NRC sends extra inspectors to review the issue and supervise the plant operator’s actions. But their work comes at a cost.

San Onofre will be billed $273 per hour for each extra NRC inspector called upon to assist with the investigation. The NRC already sent an “augmented inspection team” to San Onofre to review the steam generator problems—a team that included two people beginning in late April or early March, but grew to seven people on March 19. They completed most of their on-site work at the end of March.

The scope of the team’s work was expanded at one point, and team members sometimes come and go, making it difficult to tally the hours of work that will be billed to San Onofre, according to NRC spokesman Victor Dricks. The same team members will conduct another evaluation once SCE submits a report to the NRC outlining the company’s conclusions, actions and proposal for restarting the reactors.

Correction: An earlier version of this story misidentified the organization that John Geesman represents. He works with the Alliance for Nuclear Responsibility, not Friends of the Earth. The story has also been updated to include the latest figure on how much of SCE’s power is typically generated by nuclear facilities.