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Edison manipulated costs at San Onofre, complaint alleges

February 13, 2013 |  7:10 pm

San Onofre Nuclear Generating Station at San Onofre State Beach

An advocacy group filed a complaint Wednesday with the California Public Utilities Commission alleging that Southern California Edison manipulated inflation calculations to recover more money from ratepayers for defective replacement steam generators at the San Onofre nuclear plant.

The Alliance for Nuclear Responsibility complaint alleges that Edison violated federal securities law by misrepresenting the authorized inflation adjustment by as much as $100 million in filings with the U.S. Securities and Exchange Commission, and might have overbilled customers using the inflated figures.

John Geesman, an attorney for the alliance, characterized the alleged actions as "plain old-fashioned financial chicanery."

Unusual degradation of tubes in the new steam generators, installed in 2010 and 2011, led to a small leak of radioactive steam in January 2012 and prompted the plant's shutdown.

The public utilities commission is already investigating the costs of the outage and may eventually order Edison, which operates the plant, and San Diego Gas & Electric, which owns a 20% share in the facility, to refund money to ratepayers. PUC spokeswoman Terrie Prosper said the commission will be looking at the costs of the steam generators as part of a later phase of that investigation.

The Alliance for Nuclear Responsibility asked the commission to call for court action by the California attorney general's office under the state's false claims act. Under that law, any government entity that is found to have been overbilled could recover triple the amount.

The PUC authorized Edison and SDG&E in 2005 to spend up to $782 million in ratepayer funds on the replacement project, but agreed to review whether any costs exceeding $671 million were reasonable.

The commission did not specify an inflation adjustment at the time. That was to be determined when Edison submitted its final accounting of project costs and applied to include the costs permanently in rates.

The company has not yet filed that application but is expected to do so in March. In the meantime, Edison received permission from the PUC to include costs of the steam generators on bills in 2011 and 2012 of $56.7 million and $115.2 million, respectively. A request to recover costs in 2013 is pending.

Prosper said those amounts were for costs incurred in those years and were not adjusted for inflation, but Geesman said he thought that might not be correct. Edison's requests did not specify whether the figures were inflation-adjusted.

Edison spokespeople did not respond to requests for comment.

In SEC filings, Edison and SDG&E reported they had spent $594 million and $180 million, respectively, on the replacement project as of Sept. 30, 2012. Edison's filings referenced "CPUC authorized expenditures of approximately $525 million ($665 [million] when adjusted for inflation) for Edison's 78.21% share of San Onofre."

The Alliance for Nuclear Responsibility complaint cited minutes from a May 2011 meeting between Edison Senior Vice President Pete Dietrich and SDG&E Senior Vice President James P. Avery as evidence that Edison planned to manipulate the figures:

"Mr. Avery asked what the cost of the project was in today’s dollars. Mr. Dietrich explained that if SCE used CPI as an escalation factor the project would be $25M over the $670M target, but if SCE used the Handy-Whitman index, the SGRP would be $75M under the $670M target. Mr. Dietrich said that SCE asked for more specificity from the CPUC on the escalation issue. Mr. Avery responded that this
was not his recollection, SCE was insistent on being vague during the original filing."

In a separate filing with the PUC, former San Diego City Atty. Michael Aguirre argued that the commission should force Edison to file its application and should immediately remove all costs relating to the steam generators from rates.

The Alliance complaint came a day after U.S. Nuclear Regulatory Commission staff heard from the public at a packed meeting in Capistrano Beach. Plant workers and anti-nuclear activists sometimes shouted each other down.

Commission staff are weighing a restart plan submitted by Edison for one of the plant's two reactors, but are not expected to issue a decision until late April. The proposal includes taking damaged or vulnerable tubes out of service, installing monitors to catch radiation leaks more quickly, and running the plant at 70% power for five months before taking it out of service again for inspection.

Sen. Barbara Boxer (D-Calif.) and U.S. Rep. Ed Markey (D-Mass.) sent a letter last week to the head of the NRC claiming that a leaked confidential report from steam generator manufacturer Mitsubishi Heavy Industries showed that Southern California Edison and Mitsubishi were aware of design defects in the replacement steam generators, but rejected safety modifications in order to avoid triggering a lengthy NRC license amendment process.

So far the NRC, Mitsubishi and the lawmakers have declined to release the report, saying it contains proprietary information. Greg Werner, who headed up a special NRC inspection team at San Onofre, told the Times on Tuesday that the agency will ask Mitsubishi to hand over a redacted version of the report that can be released to the public.

Mitsubishi and Edison have accused the lawmakers of taking pieces of a lengthy technical report out of context.

Werner said the report looked at management and oversight factors that might have contributed to the steam generator tube issues, including decisions made early in the design process.

He did not discuss the contents of the report in detail, but said: "It's absurd to think that anybody would install a faulty component knowingly."

NRC Chairwoman Allison Macfarlane told Boxer and Markey that the agency is looking at the Mitsubishi report as part of an "expansive investigation" launched Sept. 28, 2012, into information Edison gave the agency about the plant's replacement steam generators.

Werner said the probe is focused on information the company gave to the NRC inspection team tasked with finding the cause of the equipment issues.

It is unusual for the NRC to speak publicly about a probe conducted by its office of investigations, which could result in information being handed over to the U.S. attorney general's office, or to civil or regulatory penalties.

Dietrich, who was present at Tuesday's meeting, told attendees that the company is cooperating with the investigation.

Werner also gave a new insight into the technical issues that led to the tube wear. The NRC has blamed, in part, errors in computer modeling by Mitsubishi, which underpredicted the velocity of steam in the steam generators, leading the tubes to vibrate excessively.

Werner told The Times on Tuesday that Mitsubishi input an incorrect measurement in a portion of the code that calculates velocity. The measurement related to the distance between adjacent tubes -- the tubes form a triangular arrangement and Mitsubishi used the wrong side of the triangle, he said.

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-- Abby Sewell

Photo: San Onofre Nuclear Generating Station at San Onofre State Beach. Credit: David McNew / Getty Images

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