New SONGS Decision Includes Nat Gas Price, Excludes Uranium

Southern California Edison would not be subject to a spending cap or reasonableness review because its investment in new steam generators for the San Onofre nuclear plant would be deemed "economic," in a new California Public Utilities Commission proposed decision. The proposed alternate by CPUC president Michael Peevey arrives at these conclusions largely due to the tweaking of cost-effectiveness methodology inputs. The conclusion that the investment is "economic" is based on the assumption that the replacement power price, fueled by natural gas, would reflect the current cost of gas. The proposal, however, does not indicate that the converse was factored into the methodology. That is, that the price of uranium to fuel nuclear fission has increased just as steeply as that of natural gas. The December 2 proposed alternate does not, however, acquiesce to Edison's request that the commission "pre-approve" the investment. While it indicates regulators would not undertake a reasonableness review if the utility stays within its estimate of $680 million for the project, Peevey doesn't fully rule out a review. "Instead of pre-approval," Peevey wrote that the commission would accept the utility's estimate of $680 million for the investment. "If the cost exceeds $680 million, or the commission later finds that it has reason to believe the costs may be unreasonable regardless of the amount, the entire cost shall be subject to reasonableness review." A reasonableness review calls a utility for hearings over whether it has spent ratepayer money wisely. If it is found to be poorly invested, regulators can basically fine the company retroactively. The difference between the original proposed decision by administrative law judge Jeffrey O'Donnell - in which the investment was called "marginally economic" and the Peevey's proposal - is the inclusion of the current price of natural gas. The O'Donnell decision used natural gas prices from 2003. Both decisions compare the viability of the investment in San Onofre with the cost of replacing its power with gas-fired power plants. The cost applied differs noticeably. The price of natural gas has doubled in the last two years from about $6/MMcf to over $11/MMcf in today's market. During the same time, the price of uranium has also more than doubled. During 2003, it increased 42 percent to $12/lb at the end of the year, according to UX Consulting. In November 2005 alone, the cost of uranium increased from $28/lb to $35/lb. Industry sources all indicate a shortage in the market, with higher prices to come. Using the gas fuel-only methodology, the Peevey proposal finds the investment could offer between $114 million and $296 million in value to ratepayers. In addition to leaving out the price of uranium in cost-effectiveness methodology, Aglet Consumer Alliance noted the new gas figures have not been vetted in comments filed with the commission December 7. Aglet, as well as an unusual alliance between The Utility Reform Network and the Western Power Trading Forum, noted that the proposed investment may not be cost effective at all. It would "send a signal to [Edison] and the other utilities that there is little, if any, accountability for massive expenditures of ratepayer funds," stated the two groups December 8. Peevey's tentative ruling also does not include any increased costs for security to deter terrorist threats. In addition, the cost methodology was run without a greenhouse adder or detractor. Conventional thinking is that nuclear plants do not contribute much to global warming, but new reports link the nuclear cycle - with uranium mining and transportation - to greenhouse gas contributions that rival fossil fuel plants (Circuit, Nov. 11, 2005). San Onofre's steam generators are failing early than planned. Without a replacement, Edison estimates the nuclear plant would have to shut down in 2012. Edison did not comment on the proposed decision by press time. The utility's chief executive officer Alan Fohrer sent a letter to commissioners November 22 calling the O'Donnell decision "unreasonable" and said he would recommend that the utility not pursue investment in new steam generators under that proposal's parameters.

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New SONGS Decision Includes Nat Gas Price, Excludes Uranium

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