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Edison Faces Regulatory Battle Over San Onofre Shutdown Cost

Edison International (EIX) faces a regulatory battle over who will pay for about $3.4 billion of costs related to the decision to retire the San Onofre nuclear plant amid a record number of U.S. nuclear closures.

Southern California Edison, the utility unit that owns and operates what had been California’s largest source of round-the clock electricity, has a $2.1 billion investment in the two reactors and may have to refund some of the $1.3 billion collected from customers since the plant quit producing power in January 2012, Chief Executive Officer Ted Craver told reporters today on a conference call.

Four commercial nuclear-power units, including Edison’s two, have been permanently closed in the U.S. this year, the highest-ever annual total, according to U.S. Nuclear Regulatory Commission data. A glut of shale-fed natural gas and government-subsidized wind has upended power-market dynamics and squeezed margins, making costly repairs uneconomical for some nuclear operators.

“It no longer makes sense to restart San Onofre,” Craver said today. Buying power on the open market became the cheaper alternative because a year of delay cut too deeply into its operating life, he told reporters. The reactor license expires in 9 years. Edison was spending $30 million a month preparing for the restart, he said.

Edison estimates that shareholders will absorb after-tax costs of $300 to $450 million, although further writedowns are possible, Chief Financial Officer Jim Scilacci said. The company hasn’t determined how much it will seek from customers, he said.

Decommissioning Costs

The cost to customers may not be settled until late next year, Edison said. The company has already asked for a $16 million a year increase to cover the cost of decommissioning the reactors, Scilacci said on today’s call. The decommissioning fund is about $300 million short of what’s needed, he said.

Both reactors at the San Onofre plant, about 45 miles (72 kilometers) southeast of Long Beach, were shut in January 2012 after a radioactive leak and the discovery of unusual wear on tubes that transfer reactor heat to power-generating turbines.

Edison may recover some investment costs from Mitsubishi Heavy Industries Ltd. (7011), maker of the failed plumbing, and from its nuclear insurer, Craver told reporters. The company has asked Mitsubishi for $139 million and $234 million from the insurer, according to a filing.

Regulatory Uncertainty

Uncertainty over when the utility would gain approval from federal regulators to restart one of its reactors led to the decision to shutter operations. The company saw a less than 50 percent chance of receiving the approval that it needed by the end of this year to operate the unit economically, Craver said.

The decision to permanently shut San Onofre came after the NRC’s Atomic Safety and Licensing Board ordered a hearing on the company’s plan to restart the least-damaged reactor at 70 percent of full power.

“That’s the ruling that made clear we’re going to have a much more uncertain process,” Craver told reporters.

Adding to the potential delay is the U.S. Senate’s confirmation of Allison M. Macfarlane as NRC chairman, Andrew L. Smith, a Houston-based analyst for Drexel Hamilton LLC, said in an interview.

The committee handling the confirmation is led by Barbara Boxer, a California Democrat who had called for the U.S. Department of Justice to probe Edison’s attempt to restart the plant. Boxer’s “greatly relieved” that Edison is closing an “unsafe” plant, she said in a statement today.

Recouping Costs

The California Public Utilities Commission will decide how much customers will have to pay for the retirement of the reactors, which provided almost 20 percent of the power for Edison’s customers.

The CPUC will decide “as quickly as possible” who will pay for the shutdown, Michael Peevey, president of the CPUC, said in an e-mail statement.

Sempra Energy (SRE), which had a 20 percent stake in San Onofre, expects California regulators to allow it to recover its $519 million investment from ratepayers, the San Diego-based company said in a filing today. The company’s San Diego Gas & Electric Company utility will likely record an after-tax charge of $30 million to $110 million in the second quarter of 2013 related to the plant.

Shuttered Reactors

Edison should be able to bill ratepayers for its investment in the plant based on previous commission decisions, Smith from Drexel Hamilton said today. He rates Edison shares buy and owns none.

Some of the $529 million Edison charged customers for replacement power since the plant was shut or the $813 million charged for operating it when it wasn’t generating electricity, will have to be refunded given previous rulings, he said.

Duke Energy Corp. (DUK) decided to shutter its Crystal River Unit 3 reactor in central Florida rather than risk spending billions of dollars on repairs to its cracked containment dome. Dominion Resources (D) Inc. last month closed its Kewaunee nuclear station in Wisconsin after failing to find a buyer for the money-losing plant.

Edison rose 2.7 percent to $47.61 at the close in New York, the most since Nov. 30, 2011.

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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