San Onofre dispute is revived
U.S. appeals court will consider a consumer group’s case accusing state regulators of illegal deal-making.
The U.S. 9th Circuit Court of Appeals is wading into the multibillion-dollar dispute over the failed San Onofre nuclear power plant, setting a hearing early next year to consider whether state regulators favored power company shareholders over ratepayers.
The federal court will hear arguments Feb. 9 in Pasadena, after which the judges will grant or reject an appeal filed by a San Diego consumer group that accused regulators of illegal deal-making.
The case was filed two years ago by Citizens’ Oversight, a nonprofit advocacy group seeking to overturn the California Public Utilities Commission decision charging customers more than 70% of the $4.7-billion cost for the failure of the twin-domed plant north of Oceanside.
Last year, U.S. District Judge Cathy Ann Bencivengo rejected the case, ruling that Citizens’ Oversight had not exercised all of the judicial remedies available at the state level.
If the appellate judges return the case to the district court, the plaintiffs would be permitted to access internal commission and utility records and to take sworn depositions from those involved.
“The proceedings before the California Public Utilities Commission were not a fair hearing,” Citizens’ Oversight attorney Michael Aguirre said. “We weren’t even allowed to gather the record.”
The utilities commission did not respond to questions about the 9th Circuit action.
Majority plant owner Southern California Edison issued a statement defending the 2014 commission decision as a good deal for customers.
“That settlement has provided substantial benefits to our customers, and we continue to believe that it is fair and in the public interest,” spokeswoman Maureen Brown said.
Northern California attorney John Geesman said it was highly unusual for a federal appellate court to schedule a hearing to consider an appeal of a state regulatory proceeding.
“It could have considerable significance to the PUC proceeding,” said Geesman, who represents the Alliance for Nuclear Responsibility, a party to the San Onofre case before the utilities commission. “It’s a very encouraging development for my client. It’s potentially an enormous deal.”
State regulators could reverse their 2014 decision before any further federal court action, a move that might prompt judges to dismiss the case.
In court filings last summer, commission lawyers argued the federal appeal became moot when regulators agreed to reopen the 2014 settlement terms in May.
“We have decided to reopen the record and review the settlement agreement against our standards for approving settlement agreements,” a June 27 filing states.
Yet commissioners have not changed the terms adopted in 2014 to assess costs for the January 2012 radiation leak and shutdown, caused by a faulty replacement steam generator.
The settlement terms came under fire almost immediately upon their approval by the commission, amid subsequent revelations that the deal had its origins at an undisclosed meeting in Warsaw, Poland, between commission and utility company officials.
The meeting was in March 2013. Edison did not disclose it until February 2015, just after the San Diego Union-Tribune reported that notes from the session at Warsaw’s Hotel Bristol were seized by state agents probing improper regulator-utility dealings.
The utilities commission eventually fined Edison $17 million for failure to report the meeting and similar communications.
Agents from the state attorney general’s office were conducting a criminal investigation, which was ongoing as of this fall but has yet to result in any charges.
Still, disclosure of the Warsaw meeting and other back-channel dealings prompted a series of calls to overturn the 2014 deal.
In 2015, for example, state Sen. Ben Hueso (D-San Diego) issued a statement calling for the utilities commission to rethink its decision to assign billions of dollars in closure costs to ratepayers.
Also in 2015, two consumer groups that helped negotiate the deal — the Utility Reform Network and the commission’s own Office of Ratepayer Advocates — disavowed their previous support for the arrangement.
Gov. Jerry Brown, who appointed all five utilities commissioners, last year vetoed six different bills aimed at reforming the regulatory panel. A different slate of laws intended at reform passed this year.
The Citizens’ Oversight lawsuit essentially argued that state regulators did not provide a fair hearing for ratepayers to oppose the 2014 settlement agreement.
The group argued that the charges assigned to ratepayers amount to an unconstitutional taking of property — in the form of higher utility rates.
“In making customers pay for the failed steam generators and permanently shut plant, the CPUC and SCE are taking customers’ private property without just compensation,” the complaint states.
Ironically, Edison used the same legal argument to involve the federal courts 15 years ago, after regulators declined to allow the utility to immediately charge customers for the rising cost of electricity amid California’s disastrous deregulation experiment.
The San Onofre plant was shut down in 2012 after tubes inside the newly replaced steam generators wore thin within months of being installed and then leaked radiation.
The $680-million upgrade was supposed to extend the life of the power plant by up to 40 years.
The CPUC allowed Edison to charge ratepayers for the project before the company conducted a “reasonableness review,” a study normally required to show a direct benefit to customers.
Edison also installed the new steam generators without seeking a license amendment from the U.S. Nuclear Regulatory Commission, calling the project a “likefor-like” equipment replacement.
Records later released under the California Public Records Act showed the replacement generators featured hundreds more additional tubes than the original steam generators.
Edison has blamed the failure on design flaws by the manufacturer, Mitsubishi Heavy Industries. The two companies have been locked for more than three years in an arbitration case.
The federal case will be decided on arguments that already have been submitted. No additional briefs or motions will be filed between now and February.
The judges are scheduled to hear 15 minutes of oral arguments from each side before determining whether state regulators acted fairly in handling the San Onofre proceeding.