Southern California Edison Serves Formal Notice of Dispute to Mitsubishi over Defective Steam Generators at SONGS

  Southern California Edison Serves Formal Notice of Dispute to Mitsubishi
  over Defective Steam Generators at SONGS

Business Wire

ROSEMEAD, Calif. -- July 18, 2013

Southern California Edison (SCE) has served a formal Notice of Dispute on
Mitsubishi Heavy Industries, Ltd., and Mitsubishi Nuclear Energy Systems
(together, “Mitsubishi”) which seeks to hold Mitsubishi accountable for
designing and manufacturing defective Replacement Steam Generators (RSGs) at
the San Onofre Nuclear Generating Station (SONGS).

“Our action is about making sure that Mitsubishi takes responsibility for
providing the defective steam generators that led to the closing of SONGS,”
said Ron Litzinger, president of SCE.

Although Mitsubishi warranted the generators would operate reliably for 20
years, SCE was required to take SONGS offline in January 2012 when one of the
Mitsubishi RSGs experienced a radioactive coolant leak after less than a year
of operation. Although its contract with SCE required Mitsubishi to repair the
RSGs “with due diligence and dispatch,” SCE’s Notice of Dispute alleges that
Mitsubishi failed to do so.

Facing continued uncertainty about restoring SONGS to service at any level of
power, SCE permanently retired the plant as of June 2013. SCE alleges that
Mitsubishi, as designer and manufacturer of the faulty RSGs, is responsible
for the enormous harm its failures have caused to California ratepayers, SCE,
and the other SONGS owners.

When SCE contracted with Mitsubishi to replace the SONGS steam generators, it
did so to extend the life of SONGS so that the plant could continue to provide
safe, reliable and affordable power to over 1.4 million homes in Southern
California.

However, SCE’s Notice of Dispute claims that Mitsubishi seriously breached the
Contract, totally and fundamentally failing to deliver what it promised. SCE
alleges that Mitsubishi grossly failed to appropriately model the thermal
hydraulic conditions in the RSGs, including the relative wetness of the
steam/water mix in the RSGs (“void fraction”) and the speed of the steam/water
flow within the RSGs (“fluid velocity”).

In addition, Mitsubishi is alleged to have failed to design tube support
structures capable of withstanding the extreme thermal hydraulic conditions
within the RSGs. As a result, the RSGs experienced damaging flow-induced
vibration that caused several types of excessive tube wear. The tube-to-tube
wear was so advanced in one of the four identically-designed RSGs that it
caused a radioactive coolant leak, which SCE was able to address by promptly
and safely shutting the plant down.

The Notice of Dispute claims that for over 16 months, SCE has asked Mitsubishi
to make things right, but Mitsubishi failed to live up to its contractual
obligations. SCE invoiced Mitsubishi for the money SCE was forced to spend
investigating and attempting to repair the RSGs, but SCE claims that
Mitsubishi has refused to even acknowledge responsibility for any of these
costs, even after receiving thousands of pages of documents in support. SCE
further claims that Mitsubishi additionally refused to submit to a
contractually mandated audit of the documents regarding its work on the RSGs,
hindering a transparent look into what went wrong with Mitsubishi’s steam
generators, and why.

The Notice of Dispute also alleges that SCE asked Mitsubishi to provide a
repair or replacement plan that eliminated the risk that these serious
problems would reoccur, but after more than 16 months and despite the
contract’s requirement that it provide repairs “with due diligence and
dispatch.” Mitsubishi provided only “conceptual” proposals--for example, one
proposal would have required workers to perform first-of-a-kind repairs in
radioactive, confined areas as narrow as 18 inches, with specialty tools that
did not yet exist.

Ultimately, with no reliable timeline for generating power at SONGS, SCE
determined that the prudent course of action was to end the uncertainty for
its ratepayers and the company and permanently retire SONGS as of June 2013.
Such an early retirement is exactly what the Steam Generator Replacement
Project was designed to avoid.

SCE’s notice, issued today, formally initiates a 90-day dispute resolution
process under the Contract. If that process is unsuccessful, then SCE intends
to initiate binding arbitration against Mitsubishi, as the designer and
manufacturer of the faulty RSGs, to recover damages Mitsubishi has caused.

In the Notice of Dispute, SCE argues that limitations on Mitsubishi’s
liability set forth in the Contract do not apply because of contractual
exceptions and because of provisions of California law. Mitsubishi, like the
manufacturer of a “lemon” automobile, was unable to fix the defects in its
product because they were so fundamental and pervasive. In this circumstance,
SCE claims that the limitations are not enforceable, and Mitsubishi is
therefore responsible for the full measure of damages incurred by SCE, the
other SONGS owners and their customers.

A copy of the Notice of Dispute is available here:
http://www.edison.com/files/NoticeOfDispute.pdf. SCE was required to redact
certain portions of the Notice of Dispute that are based on information that
Mitsubishi has deemed proprietary and confidential. If Mitsubishi agrees to
disclose this information, SCE will release an unredacted copy of the Notice
of Dispute.

About Southern California Edison

An Edison International (NYSE:EIX) company, Southern California Edison is one
of the nation’s largest electric utilities, serving a population of nearly 14
million via 4.9 million customer accounts in a 50,000-square-mile service area
within Central, Coastal and Southern California.

Contact:

Southern California Edison
Media Contact:
Maureen Brown, 626-302-2255
or
Investor Relations:
Scott Cunningham, 626-302-2540