McSwain calculates cost of antinuclear actions at San Onofre – $13.6 billion

Dan McSwain, a business columnist and investigative reporter for U-T San Diego, has published an article titled The secret decision to kill San Onofre nuke. McSwain estimates that consumers will be required to pay least $13.6 billion in additional costs as a result of the unplanned, early retirement. I think that calculation is low because it does not account for the increase in the market price of replacement fuel (mostly natural gas) that will be driven by the loss of nuclear energy supply in an area where there is a tight balance between energy supply and energy demand.

In the same article, McSwain shows how SCE may capture profits of $4 billion from its decision to shut down the nuclear plant. That decision that was made essentially irreversible last week when the company filed the final certification required in order to give up its NRC operating license. Customers who may just now be realizing the enormous costs they will be forced to pay have no legal recourse. Here is a quote from the press release that the company sent to announce its “accomplishment”.

San Onofre Nuclear Plant Operating License to be Retired After Final Fuel Removal

ROSEMEAD, Calif., July 24, 2013 — The San Onofre nuclear plant has completed the final regulatory step required to formally retire its operating license.

Southern California Edison (SCE), majority owner of the nuclear plant, sent a letter to the Nuclear Regulatory Commission (NRC) on Tuesday certifying that fuel has been removed from the Unit 2 reactor. A similar letter for Unit 3 was submitted on June 28. Once the NRC certifies the Unit 2 defueling, the nuclear plant will have a “possession” license rather than an operating license, and will no longer be authorized to place fuel in the reactor vessel.

“While we have safely performed this kind of defueling work for four decades, the final removal of fuel from the Unit 2 reactor marks a significant milestone in San Onofre’s history,” said Pete Dietrich, SCE senior vice president and chief nuclear officer. “We are committed to remaining focused on public health and safety as we transition through decommissioning.”

The defueling of Unit 2 was completed on July 18. The 217 fuel assemblies were moved to the spent fuel pool where they will be stored and cooled until transferred to dry cask storage. The transfer was executed entirely under water by specialized equipment, as captured in this video.

SCE announced June 7 that it would retire San Onofre Units 2 and 3, and begin the process to decommission the facility.

No plant in the United States has ever been restarted after giving up its initial operating license. There is no process available for that action short of a full license review as if the plant was a new construction project.

Southern California Edison (SCE) is understandably reluctant to expose its hasty decision process to public scrutiny. Here is a quote from McSwain’s U-T San Diego article.

I’ve tried to ask him (Ted Craver, SCE CEO), along with PUC President Michael Peevey, to share Edison’s basic cost-benefit analysis on fixing the nuke vs. shutting it down. Both men declined my interview requests.

“There is no CPUC or statutory requirement for a utility to obtain CPUC prior approval before shutting down a nuclear generating facility,” an Edison spokeswoman said via email.

This is the same utility that involved the PUC for years in its 2007 decision to abandon the Mohave Generating Station, a giant plant in Laughlin, Nev., that polluted the Grand Canyon with coal smoke.

SCE recently filed a formal notice of dispute on Mitsubishi, claiming that the company supplied defective steam generators and should be held liable for a large portion of the costs associated with attempting to repair the plant and purchasing replacement power.

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.

Aside: I feel the need to remind readers that the controversial steam generators exhibited signs of wear in a small section of the large devices. Out of four replacement steam generators involved in the dispute, one of them experienced a single tube leak at a rate 1/2 of the technical specification limit.

That statement means that even with the leak, the plant never reached the point at which it was required, by regulation, to shut down. Though good operating practice leads to a shutdown and investigation to prevent a larger leak from developing, the rules were written by people who understand that heat exchangers often leak. From the perspective of an operating engineer who recognizes that nothing made by man is perfect, the leak rate was acceptable. End aside.

Mitsubishi has responded to SCE’s notice, stating that they offered several viable repair options and reminding SCE that they have a contracted liability limit of $137 million for warranty repairs.

This whole episode is giving me a “deja vu all over again” feeling. One of the contributors to the end of the first atomic age in the United States was a long running dispute between utility customers and nuclear plant vendors over steam generators and their unexpectedly short lifetimes. There was a lot of finger pointing and lawyers made a ton of money. Not surprisingly, the dispute between customers and suppliers discouraged new orders.

The leaders in the nuclear industry seem determined to repeat their conflicted history; it is no wonder that the antinuclear movement has been so successful. the antinuclear actions mentioned in the headline of this article have been taken by people that the public and the media would classify as “pronuclear”. With friends like this in decision-making positions, who needs enemies?

PS John, the man who sent me the link to Dan McSwain’s article in U-T San Diego identified himself as a SONGS retiree. I would imagine there are plenty of disgruntled and disappointed people who were still working at the plant at the time their leaders decided to halt production.

About Rod Adams

8 Responses to “McSwain calculates cost of antinuclear actions at San Onofre – $13.6 billion”

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  1. Robert Hargraves says:

    I’d love to read an analysis of shutting Kewaunee. It seems hard to believe that the fuel and ops costs alone (0.7 + 1 cents/kWh?) make the marginal cost of producing electric power there more expensive than natural gas. http://www.nytimes.com/2013/05/08/business/energy-environment/kewaunee-nuclear-power-plant-shuts-down.html

    • Atomikrabbit says:

      And Kewaunee alteady had a renewed operating license good until the end of 2033!

      http://www.nrc.gov/info-finder/reactor/kewa.html

    • Daniel says:

      If Rod’s prediction that natural gas will go thru the roof soon, this Kewaunee plant closure will look ridiculous.

      But the corporate guys got their bonus and that’s the way the game is played. Short term.

    • JMS says:

      Robert – Believe it. Even when natural gas pricese were high, Kewaunee was never profitable during all the years it was owned by Dominion, losing more than 25 million dollars every year.

      Dominion was willing to absorb the losses until the contracts for electricity expired expecting profitable returns on new contracts. Only problem was that natural gas prices tanked and electricity from coal and hydro supplied from Canada was also cheap. Dominion was unable to negotiate new electricity contracts for even the same unprofitable price as before.

      What would you do, Robert? How long would you gamble taking >>> 25 million dollar losses every year before natural gas prices spike back up? Utility executives conservative estimate is that natural gas prices would stay low for the next 20 years.

      The alternative was to close Kewaunnee and take a guarenteed profit by managing the decommissioning fund – something utility executives are good at and with little or no risk. Utilities that survive are not in the business of losing money every year.

  2. FermiAged says:

    One consequence of the closure of SONGS is that the replacement power for the next few years (at least) must come from fossil fuels. California requires CO2 emission permits which are obtained through a carbon trading auction. The proceeds of these auctions are supposed to fund development of renewables. However, the state has been borrowing this money to balance the state budget. So, not only does the closure of SONGS require an increase in fossil fuels which must be purchased by unregulated out of state generators, the promised renewables won’t be available. Now, there was no way that renewables could have filled the gap even under optimistic assumptions. However, the auction proceeds now serve as a secret slush fund for the state of California. With the increasingly stringent CO2 emission targets required by California, the bidding pressure for emission permits will only increase the auction proceeds.

  3. Jeff Walther says:

    I left a longish comment at the original article. First to point out some facts about the shut down that I think would make the original article more persuasive and second to refute a bunch of the anti-nuke commenters who always show up.

    I don’t think I got the shut down details exactly right, so if someone wants to follow up and correct me that would be great. I should have read Rod’s article on the topic (at ANS?, couldn’t remember where I saw it, which is part of why I didn’t refresh my memory first) before posting, but I was in a hurry. I may not be as accurate as I’d like, but I’ll be more accurate than the anti-nuke folks, or anyone from the Vermont SOL ever dreamed of being.

  4. Leonard says:

    Without them relaesing the reasons why, one can only guess for sure. But, intervention I would guess, is a huge part of it. They were asking the NRC for a License Amendment to allow reduced power operation at 70% and it looked like the NRC was going to say OK, however, there was a growing storm, that in order to restart, the intervenors (Boxer especially) was pushing for a full license review. That would have been a is a very long and expensive process, VERY expensive. One thing to get a license renewal when the plant is generating, your making revenue, but with both units shutdown and probably a 2 to 3 years to drag through the courts, thats another story.

    I was on startup at Seaboook. Oringinal estimate $500 mil for 2 units. Final cost around $4.7 bil for one unit. Lots of contributing facts like management, poor estimates, etc. However, the utility released information shortly before I left in 85. They could directly attribute 50% of the cost overrun to litigation. Yes almost $2 billion in attorney and legal fees. They had for several years, 100 attorneys in NH and Mass on retainer, at 100K per year. Thats $10 mil to have attorneys on call if you needed them.

    Little town north of the site, very anti-nuke, passed an ordance that would not allow emergency sirens in thier town limits. They went nuts when the utility started installing them and filed a law suit. The sirens went up on State owner property, so the town lost the case. Gov (Dukaus) of Mass said not to bother opening the emergency plan, we won’t review it and the plant won’t start up. It only went on line because Reagan signed an executive order, in effect saying it is a federally licensed facility, if you choose not to participate, we’ll license it anyway.

    So, was the decission to shutdown the SONGS partly due to intervenors, yes, it would have to too costly to fight the battle. Some times retreat is the best option.

    As for Kewanne, another factor is Point Beach, they are litterally only a few miles apart and are for serving the same market. FPL bought Point Beach and just did massive improvments and power uprate. Competition probably had a role in its closing.

  5. jaagu says:

    @ Rod

    Dan McSwain’s economic analysis seems to be very wrong in my opinion. He says “My spreadsheet says that consumers are looking at a minimum of $13.6 billion in costs.”
    He posits the following costs to consumers:

    $4.1 billion for decommissioning the plant
    $4.5 billion in potential new utility profits over 25 years
    $4.3 billion in uncollected San Onofre costs

    Here are my problems with the analysis:

    1. McSwain is including decommissioning costs of $4.1 billion. This money is already in the bank – there is no new cost to consumers.

    2. Consumers do not get $4.5 billion in potential new utility profits over 25 years – that is just speculation. Profits get spread around to SCE administration, investors and consumers. McSwain provides no backup to his number. This future profit is not a cost to consumers.

    3. The $4.3 billion in uncollected San Onofre costs is exaggerated. McSwain does not provide any backup to his number. It does not consider insurance payments, steam generator manufacturer MHI liability payments, actual replacement power costs, PUC actions and SCE’s own payments for their mistakes.