10. Assignment of the Proceedings
Timothy Alan Simon is the assigned Commissioner and Melanie M. Darling is the assigned ALJ in these proceedings.
1. PG&E filed A.09-04-007, its 2009 NDCTP on April 3, 2009. SCE and SDG&E jointly filed A.09-04-009 for the 2009 NDCTP.
2. SCE, SDG&E, PG&E, and TURN proposed a Settlement Agreement on December 18, 2009 that resolved all disputed issues in these consolidated proceedings.
3. The two parties that opposed the Settlement, DRA and Fielder, raised important questions about some provisions of the Settlement, particularly related to the reasonableness review of decommissioning expenditures, as well as the structure and process of the independent panel.
4. The active parties in the proceedings are representative of the stakeholders, and each has ably and vigorously pursued the interests of its constituency.
5. SCE, SDG&E, and PG&E each submitted uncontested evidence that they had complied with orders from the Commission in D.07-01-003, the 2005 NDCTP.
6. SCE, SDG&E, and PG&E each provided reasonable estimates forecasting future decommissioning costs which were prepared by recognized experts who used utility information and generally accepted methods for developing the submitted cost analyses.
7. SCE and SDG&E may overestimate waste removal costs when making estimates of future costs for the SONGS units due to the ownership of the underlying land by the United States Department of the Navy which has not yet defined the standard to which the land must be returned at the time of license termination.
8. SCE, SDG&E, and PG&E each documented that they had undertaken various, previously approved decommissioning activities and incurred the identified expenditures for them at the SONGS Unit 1 and HB3, respectively. The documentation explained differences from prior cost estimates.
9. The proposed trust fund contributions, based on the original cost estimates in the applications, have declined during the proceedings because the trust funds have increased in value since the applications were filed.
10. The parties offered different forecasted rates of return for trust fund equity investments, partly due to what length of time was used to average projected returns. Overemphasis on short-term market recovery is not a conservative approach to forecasting rates of return.
11. The parties offered different forecasted rates of return for trust fund fixed income investments, partly due to whether a municipal bond yield was assumed for the portfolios.
12. Conservative forecasted yields for the trust funds serve the public interest and these yields should bear some relation to actual investments within a portfolio.
13. The DC trusts are underfunded. Based on updated trust fund balances, the evidence supports an annual contribution for the DC trust funds between $5 million and $16 million.
14. The Commission, interested parties, and the public would benefit from the utilities employing common forms of presenting cost estimate data, including identification of common assumptions, cost factors, and other shared cost elements among different California nuclear units. Public benefits would likely include more detailed reviews of proposed estimates and a reduction of future decommissioning costs.
15. An independent panel of decommissioning experts who have worked on the cost estimates in these proceedings would be best suited to the technical task of sorting through proprietary methodologies, national decommissioning data, and site specific challenges to advise the Commission about a model form for future cost estimates.
16. An independent panel should provide opportunities for the Commission, its staff, and other parties to be briefed, ask questions, and offer comment on the panel's work to assure it is sufficiently transparent and useful. A written report is the best way to acquire the panel's final recommendations.
17. We expect the panel's recommendations will enhance the Commission's ability to exercise its statutory review obligation, likely lead to decommissioning cost savings, and assist the public in its analysis of future decommissioning cost estimates. Funding is capped at $250,000, is an appropriate administrative decommissioning expense, and will be paid by the utilities through the NDAM accounts pro rata based on nuclear generating capacity at DC, SONGS, and PV.
18. Pub. Util. Code § 8325(c) directs the Commission to examine the decommissioning costs for which the utilities seek rate recovery to be sure that ratepayers only pay for reasonable and prudent decommissioning costs.
19. In the first NDCTP, the Commission accepted a settlement whereby SCE and SDG&E were authorized to commence Phase 1 of the decommissioning of SONGS Unit 1 and were permitted to assert a rebuttable presumption of reasonableness, which included the prudence of the activities, if the work completed came within the previously approved cost estimate.
20. Past use of a presumption of reasonableness, as adopted in a settlement more than a decade ago for the very first decommissioning activities, is insufficient basis to continue the practice without further scrutiny. The lack of transparency and incomparability of cost estimates, combined with a short-time frame for discovery within the NDCTP, limit the effectiveness of our review of the decommissioning activities and expenditures.
21. SCE will act as general contractor for the Phases 2 and 3 of SONGS Unit 1 decommissioning. SCE did not formally submit its decommissioning plan to the NRC because it is not required when there is no immediate linkage to a license termination.
22. PG&E will act as general contractor for all phases of the HB3 decommissioning. PG&E has not formally submitted its decommissioning plan to the NRC because it is not required when there is no immediate linkage to a license termination.
23. The public interest is best served when the Commission separately examines both the decommissioning costs incurred for reasonableness and the utility's decommissioning activities for prudence, after the activities have taken place and the expenses have been incurred.
24. SCE's Decommissioning Tax Memorandum Account has resulted in only de minimis adjustments.
25. The transfer of funds from non-qualified trust funds for the decommissioning of SONGS Unit 1 to the qualified trust funds for the decommissioning of SONGS Units 2 and 3 should not be required at the present time because of several uncertainties about actual and final reasonable costs, actual rates of return for trust fund investments, and actual tax consequences of such transfers.
26. Issues related to what investment strategies should be followed by trust funds when decommissioning of a nuclear generation unit has commenced, are deferred to Phase 2 of these proceedings.
27. The proposed contested Settlement is rejected as a whole because it is not in the public interest nor reasonable in light of the whole record.
28. The overall applicable standard of review for the numerous requests in the utilities' applications is one of reasonableness, specifically whether the decommissioning cost assumptions are reasonable, decommissioning activities are reasonable and prudent, and if the proposed revenue requirements would result in just and reasonable rates.
29. SCE, SDG&E, and PG&E are in compliance with prior decisions applicable to decommissioning, including the Ordering Paragraphs 6, 7, and 8 of D.07-01-003.
30. As shown in their joint application, supporting testimony (including attachments to testimony), and filings, SCE's and SDG&E's (a) updated $184.4 million (100% share, 2008$) SONGS Unit 1 decommissioning cost estimate for the remaining work and (b) updated $3,658.8 million (100% share, 2008$) SONGS Units 2 and 3 decommissioning cost estimates, are reasonable and should be adopted.
31. SCE and SDG&E's $207.2 (100% share, 2008$) cost of decommissioning work at SONGS Unit 1 between July 1, 2005 and December 31, 2008 is reasonable and prudent and is approved. The presumption of reasonableness provided to decommissioning costs for Phase 1 of SONGS Unit 1 in D.99-06-007 is unaffected by rejection of the method in these proceedings for other phases of SONGS Unit 1 and other nuclear generation units.
32. As shown in its application, supporting testimony (including attachments to testimony), and filings, SCE's updated $708.7 million (SCE's share, 2007$) PV decommissioning cost estimate is reasonable and should be adopted.
33. As shown in its application, supporting testimony (including attachments to testimony), and filings, SDG&E's updated ratable share of the decommissioning costs for SONGS Units 2 and 3 of $731.8 million is reasonable and should be adopted.
34. SDG&E may reasonably rely upon SCE, as the majority owner of and exclusive operating and decommissioning agent for SONGS Units 1, 2, and 3, to make reasonable efforts (a) to retain and utilize sufficient qualified and experienced personnel to pursue any decommissioning-related activities for these units under their control effectively, safely, and efficiently, (b) to forecast the costs of low-level radioactive waste storage conservatively, and (c) to establish an appropriate contingency factor for inclusion in the decommissioning revenue requirements, as required by the Commission in D.07-01-003, subject to the proviso that SDG&E shall review and provide such advice and consent as may be necessary and appropriate to the interests of SDG&E as a minority owner and/or on behalf of the interests of SDG&E's retail electric customers.
35. For purposes of this NDCTP, SCE's and SDG&E's trust fund contributions shall be based on 8.75% pre-tax equity returns and 4.2% post-tax debt returns. Taxes on realized and unrealized capital gains and losses shall be treated as described in Section 3.6 of the Settlement Agreement.
36. The SONGS Unit 1 and PV trusts are adequately funded for this triennial period and no contributions are required.
37. SCE's updated contributions of $22.73 million to SONGS Units 2 and 3 qualified and non-qualified trust funds, using the revised rates of return and updated trust fund balances, will result in just and reasonable rate increases.
38. SDG&E's updated contribution of $8.07 million for SONGS Units 2 and 3 qualified and non-qualified trusts, using the revised rates of return and updated trust fund balances, plus continued recovery of $0.959 million in SNF storage costs, is reasonable. SDG&E will use overcollections in NDAM to offset the revenue requirement.
39. As shown in its application, supporting testimony (including attachments to testimony), and filings, PG&E's updated cost estimates (e.g., $1,828.35 million in 2008$ for DECON option) for DC units decommissioning, with adjusted labor escalation rates as described in Section 7.2.4 of the decision, are reasonable and should be adopted.
40. PG&E's updated cost estimate of $499.8 million (2008$) for HB3 decommissioning costs, with adjustments as described in Section 7.2.3 of the decision, is reasonable and should be adopted.
41. PG&E's preparatory decommissioning activities and expenditures totaling $63.4 million, largely for with respect to licensing, design, fabrication, and construction of the ISFSI, were reasonable and prudent.
42. The negotiated annual contribution of $9 million to the DC qualified trusts is reasonable and should be adopted.
43. For purposes of this NDCTP, funding assumptions for PG&E include that liquidation values of the trust funds as of December 31, 2009 will be computed netting all realized and unrealized capital gains and losses and equities in DC trust funds will be ramped down over a five-year period after shutdown.
44. PG&E's requested annual contribution of $13.633 million to the HB3 non-qualified trust, revised to reflect updated trust fund balances and other agreed upon assumptions as noted in the Decision, is reasonable and will result in just and reasonable rate increases.
45. PG&E's forecasted expenses and revenue requirement of $9.218 million in 2010 to cover the costs of operating and maintaining the HB3 site in a safe condition (SAFSTOR), with attrition for 2011 and 2012 are reasonable and should be adopted. PG&E shall track its actual SAFSTOR expenses and make a "true-up" contribution to, or withdrawal from, the decommissioning trusts based on whether the amount collected in rates is greater than or less than the expenses actually incurred. To the extent that contributions differ from estimates, PG&E will report on the differences in the next NDCTP where the differences will be subject to reasonableness review.
46. It is in the public interest for the utilities and TURN to create an independent panel to review the decommissioning-related issues, as identified in Section 2.2 of the Settlement Agreement attached hereto as Appendix B, and follow the procedural steps for completing the work, including issuance of a final report with recommendations which shall be filed in these proceedings, as set forth in Section 7.6 of this decision. The report shall be filed in the consolidated proceedings by March 1, 2011, unless the ALJ extends the date.
47. The independent panel's work should be funded by an amount not to exceed $275,000 paid by the utilities through the NDAM account allocated based on the nuclear generating capacity of the DC, SONGS and PV units. This is an appropriate decommissioning expense.
48. The Commission should be informed by the utilities, in the next NDCTP applications, of contribution estimates that assume successful completion of license renewal.
49. The Commission should be informed by the utilities, in the next NDCTP applications, of the pro rata share of funds accumulated for NRC License termination (radiological decommissioning to meet the NRC standard for license termination) and receive copies of their most recent funding assurance letters (pursuant to 10 C.F.R. 50.75) sent to the NRC.
50. Prior to the development of the SONGS cost estimates for the next NDCTP, the Commission (along with other state agencies and officials and with SCE and SDG&E) should formally ask the United States Department of the Navy to (1) clarify the applicable site restoration and remediation standards that will be required to terminate the SONGS site lease, and (2) execute a document with SCE and SDG&E that explicitly reflects such clarified standards.
IT IS ORDERED that:
51. Within ten (10) days of the effective date of this Decision, Southern California Edison Company shall file a compliance advice letter with the Commission's Energy Division, which shall include the calculated revenue requirement as described and adjusted in the Decision. Any resulting rate change shall be incorporated with the next available consolidated rate change following the effective date of this Decision, subject to Energy Division determining that the revised tariffs are in compliance with this Decision. The compliance advice letter shall be served on the service list for the consolidated proceedings and shall describe how Southern California Edison Company will implement the terms adopted in this Decision, including updating the revenue requirements to incorporate the December 31, 2009 nuclear decommissioning trust fund balances. The updated information shall serve as the basis for the Internal Revenue Service Schedule of Ruling Amounts for years 2010-2012. An adjustment to the Nuclear Decommissioning Adjustment Mechanism balancing account shall be made to address any difference in the revenue collected in rates and the annual revenue requirements, as described and updated in the compliance advice letter.
52. Within ten (10) days of the effective date of this Decision, San Diego Gas & Electric Company shall file a compliance advice letter with the Commission's Energy Division, which shall include the calculated revenue requirement as described and adjusted in the Decision. San Diego Gas & Electric Company will clearly identify the overcollections in its Nuclear Decommissioning Adjustment Mechanism which it will use to offset the revenue requirement, subject to Energy Division determining that the offsets are in compliance with this Decision. The compliance advice letter shall be served on the service list for the consolidated proceedings and shall describe how San Diego Gas & Electric Company will implement the terms adopted in this Decision, including updating the revenue requirements to incorporate the December 31, 2009 nuclear decommissioning trust fund balances. The updated information shall serve as the basis for the Internal Revenue Service Schedule of Ruling Amounts for years 2010-2012. An adjustment to the Nuclear Decommissioning Adjustment Mechanism balancing account shall be made to address any difference in the revenue collected in rates and the annual revenue requirements, as described and updated in the compliance advice letter.
53. Within ten (10) days of the effective date of this Decision, Pacific Gas and Electric Company shall file a compliance advice letter with the Commission's Energy Division, which shall include the calculated revenue requirement as described and adjusted in the Decision. Any resulting rate change shall be incorporated with the next available consolidated rate change following the effective date of this Decision, subject to Energy Division determining that the revised tariffs are in compliance with this Decision. The compliance advice letter shall be served on the service list for the consolidated proceedings and shall describe how Pacific Gas and Electric Company will implement the terms adopted in this Decision, including updating the revenue requirements to incorporate the December 31, 2009 nuclear decommissioning trust fund balances. The updated information shall serve as the basis for the Internal Revenue Service Schedule of Ruling Amounts for years 2010-2012. An adjustment to the Nuclear Decommissioning Adjustment Mechanism balancing account shall be made to address any difference in the revenue collected in rates and the annual revenue requirements, as described and updated in the compliance advice letter.
54. Pacific Gas and Electric Company shall serve testimony in its next triennial review of nuclear decommissioning trusts and related decommissioning activities that demonstrates it has made all reasonable efforts to retain and utilize sufficient qualified and experienced personnel to effectively, safely, and efficiently pursue any physical decommissioning related activities for the nuclear generation facilities under its control.
55. Pacific Gas and Electric Company shall track its actual SAFSTOR expenses during the triennial period and report and explain any differences in Pacific Gas and Electric Company's next Nuclear Decommissioning Cost Triennial Proceeding application.
56. Immediately after the effective date of this Decision, Southern California Edison Company, San Diego Gas & Electric Company, and Pacific Gas and Electric Company shall work with The Utility Reform Network to create an independent panel to review the decommissioning-related issues, as identified in Section 2.2 of the Settlement Agreement attached hereto as Appendix B. Southern California Edison Company, San Diego Gas & Electric Company, and Pacific Gas and Electric Company shall assure that the panel follows the procedural steps for completing the work, including issuance of a final report with recommendations which shall be filed in these proceedings, as set forth in Section 7.6 of this Decision.
57. Southern California Edison Company, San Diego Gas & Electric Company, and Pacific Gas and Electric Company shall file a joint advice letter no later than November 30, 2010, and serve it on the service list for these proceedings, which identifies the total expenses incurred by the independent panel, the appropriate allocation between the utilities, and the proposed adjustments to each utility's Nuclear Decommissioning Adjustment Mechanism account.
58. In the next Nuclear Decommissioning Cost Triennial Proceeding applications, Southern California Edison Company, San Diego Gas & Electric Company, and Pacific Gas and Electric Company shall provide contribution estimates that assume successful completion of license renewal.
59. In the next Nuclear Decommissioning Cost Triennial Proceeding applications, Southern California Edison Company, San Diego Gas & Electric Company, and Pacific Gas and Electric Company shall report the pro rata share of funds accumulated for Nuclear Regulatory Commission License termination (radiological decommissioning to meet the Nuclear Regulatory Commission standard for license termination) and provide copies of their most recent funding assurance letters (pursuant to 10 C.F.R. 50.75) sent to the Nuclear Regulatory Commission.
60. Within one year of the date of this decision, the Commission's Executive Director, on behalf of the entire California Public Utilities Commission, shall make a formal written request along with Southern California Edison Company and San Diego Gas & Electric Company, to the United States Department of the Navy to clarify the applicable site restoration and remediation standards that will be required to terminate the San Onofre Nuclear Generating Station site lease, and shall meet and confer with the United States Department of the Navy to attempt execution of an amended site lease contract that explicitly reflects such clarified standards, prior to the development of the San Onofre Nuclear Generating Station cost estimates for the next Nuclear Decommissioning Cost Triennial Proceeding. Southern California Edison Company and San Diego Gas & Electric Company shall report to the Commission any responsive information received by either utility in their next Nuclear Decommissioning Cost Triennial Proceeding application.
61. Application (A.) 09-04-007 and A.09-04-009 remain open for Phase 2 and to receive additional filings ordered in Phase 1.
This order is effective today.
Dated July 29, 2010, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
TIMOTHY ALAN SIMON
NANCY E. RYAN
Commissioners
APPENDIX A
List of All Exhibits
APPENDIX B
Settlement Agreement
APPENDIX C
Pre-Settlement Issues
1. Compliance with D.07-01-003
During the 2005 NDCTP, which was resolved by adoption of a settlement, the Commission ordered the utilities to serve testimony in the 2009 NDCTP in three areas: 1) the use of qualified and experienced personnel, 2) a conservative forecast of costs for low level radioactive waste storage, and 3) a conservative and appropriate contingency factor for inclusion in each utility's decommissioning revenue requirements. SCE and SDG&E were also directed to evaluate in their next application whether there were any excess funds in the SONGS 1 trust funds61 and, if so, could they and should they be transferred to the SONGS 2 & 3 trust funds. The utilities argued they complied with all of these requirements in their applications and initial testimony, but TURN & DRA initially questioned this especially as to whether SONGS 1 trust funds could be transferred or refunded to ratepayers.
In D.07-01-003, the Commission concluded it was preferable for the utilities to demonstrate in future triennial reviews that it engaged employees, contractors, or consultants trained to plan and perform decommissioning of nuclear plants under their control and ordered the utilities to serve testimony in the 2009 NDCTP that establishes they have made all reasonable efforts to do so. The Commission also ordered the utilities to research costs for storage and disposal of low level radioactive waste (LLRW), develop a conservative forecast for LLRW costs, and to serve testimony in the 2009 NDCTP as to their efforts.
In the same decision, the Commission examined proposed contingency factors from the 2005 NDCTP ranging from 25% to 35, as well as historical factors as high as 50%. The Commission observed that a declining contingency factor, if properly determined, could reflect improved accuracy of decommissioning cost estimates in addition to protecting against errors and unforeseen costs. All parties were directed to conduct research and analysis to develop a conservative contingency factor and the utilities were ordered to serve testimony in the 2009 NDCTP as to their efforts.
2. DRA
DRA generally found the decommissioning cost estimates provided by the utilities for each of the nuclear generation units were reasonable and specifically agreed with the escalation methodologies for labor and materials (if updated), the 25% contingency factor, the LLRW burial rates, and the utilities' rate of return results. Therefore, DRA recommended approval of the estimates for all nuclear generation units (NGU) as reasonable.
DRA's concerns were primarily related to the revenue requirements proposed by PG&E and SCE, but also included whether there are excess trust funds for SONGS 1 and if they should be returned to ratepayers. DRA agreed with the proposed zero contribution for SONGS 1 and also said any transfer of purported excess funds in the SONGS 1 trust funds to other SONGS trust funds was premature. Nonetheless, DRA argued that the "excess funds" could be viewed as an offset to the SCE/SDG&E revenue requirements for SONGS 2 & 3 without transferring any funds which might lead to unintended tax consequences.
In addition, DRA recommended the Commission do the following:
· Reduce $23.3 million revenue requirement for DC Units 1 & 2 to $0 based on DRA's escalation rates and rates of return
· Reduce the $16.692 million revenue requirement for HB3 to $0 based on DRA's escalation rates and rates of return
· Reduce the SAFSTOR O&M expenses from $9.218 million in 2010 to $8.884 million in 2010, with attrition, based on DRA's escalation rates
· Adopt SCE's 6.7%62 LLRW burial escalation rate for all units and reject PG&E's use of 7.5%
· Require all authorized contributions be placed into the Qualified Trust Funds rather than into Non-Qualified Trust Funds
DRA supported PG&E's request for a presumption of reasonableness for decommissioning expenses for all phases of HB3 if the scope of work and actual cost for decommissioning projects are within the approved 2009 cost estimates.
3. TURN
TURN had numerous objections and concerns about the utilities' applications in this proceeding. In its Protest, TURN initially argued that the SCE/SDG&E application should be rejected due to a bad faith failure to perform the previously described excess trust fund analysis required in the settlement agreement adopted in the 2005 NDCTP as set forth in D.07-01-003. TURN's experts also critiqued the cost estimates provided and recommended a higher return on equity and debt than all three of the utilities and a lower escalation rate for PG&E company labor.
TURN offered the following recommendations to the Commission:
· Discontinue SCE/SDG&E decommissioning trust fund collections for all units, including:
o Make reductions to the license termination, site restoration, and Spent Nuclear Fuel (SNF) management cost estimates for SONGS 2 & 3 based on similar estimates for DC units
o Reject SCE's adjustments to the cost estimate for PV units completed by the majority owner, Arizona Public Service (APS)
· Require the utilities to identify the impact of license renewal for their respective units
· Require the utilities to de-comingle funds in the trust funds in order to clarify reports of trust fund adequacy to the Nuclear regulatory Commission (NRC)
· Require SCE to de-link its ISFSI license for SONGS 1, 2, and 3 from its Part 50 operating license from NRC
· Direct the utilities to improve strategic planning for radioactive waste disposal
· Adopt SCE's labor escalation rate of 3.13% for all utilities
· Apply forecast of 10.05% pre-tax equity rate of return through 2022 for all utilities
· Apply forecast of 4.69% pre-tax fixed income for all utilities
· Apply a uniform five-year step-down to eliminate equity from decommissioning trust funds after decommissioning commences
· Prohibit cash in the investment portfolio
· Clarify treatment of realized capital losses in trust fund liquidation values
Based on the foregoing assumptions, TURN estimated no contributions would be required by PG&E for any units.
4. Scott Fielder
Fielder identified three basic issues: the contingency factor, LLRW disposal rates, and the proposed modification of the Commission's reasonableness review process. Fielder offered the following recommendations to the Commission:
· Apply a 35% contingency factor to all utility decommissioning cost estimates
· Apply the $509/cubic foot composite figure for LLRW disposal costs adopted by the Commission in 1999 GRC decision
· Direct that re-calculation of DC cost estimates should be done using a computerized cost analysis system such as the one used by ABZ, Inc.63
· Reject any change to the standard or process of reviewing expenses incurred for decommissioning activities to determine if the expenses were reasonable and prudent
5. Merced and Modesto Irrigation Districts
The Merced Irrigation District and Modesto Irrigation District (collectively "Districts") are customers of PG&E and filed a response to the PG&E application. The Districts expressed concern about PG&E's proposed doubling of its revenue requirement for decommissioning over the next three years and the fact that these costs will likely continue to grow into the foreseeable future. They did not protest the application, nor offer any substantive analysis for the Commission. Instead, the Districts asked the Commission to "carefully review PG&E's rationale, data, and justification for the proposed increases" to assure the proposed revenue requirements are warranted.
(END OF APPENDIX C)
APPENDIX D
List of Appearances
************** PARTIES ************** |
Gloria M. Ing |
Donald J. Lafrenz |
Hilary Corrigan |
Christopher J. Warner |
Central Files |
(END OF APPENDIX D)
61 As a result of earlier tax laws, there are both Qualified and Non-Qualified trust Funds established for SONGS 1 and HB3.
62 In Exhibit SCE-14, SCE corrected its calculation for LLRW burial escalation rate to be 6.93%. This figure was used in the settlement agreement for SCE and SDG&E.
63 ABZ, Inc. (ABZ) is one of two national decommissioning consultants most often used by owners of nuclear generation units to make periodic estimates of the cost to decommission the units. ABZ uses a proprietary software called "Decommissioning Cost Analysis System (DECAS)."
