1. Compensation for Steam Generator Defects

Edison is replacing the unit 2 and 3 steam generators at SONGS because their tubes are degrading. In the underlying proceeding, TURN argued that the manufacturer, Combustion Engineering (CE) used a particular alloy in the tubes, which caused this degradation. TURN asserts that Edison should have sued CE to obtain compensation for this alleged manufacturing defect. In the underlying proceeding, TURN outlined both a breach of warranty claim and a fraud claim that it argues Edison should have pursued. (E.g., Opening Brief of TURN, at pp. 3-34.) TURN asserts that the failure to bring these claims was unreasonable, and recommends that a portion of the cost of the SGRP be disallowed.⁵

The Decision reviews TURN's claims and determines not to adopt TURN's recommendation. (Decision, at p. 48.) The rehearing Application claims this determination is in error. The Application claims: "the Decision does not identify any standard applicable to determining whether SCE should have attempted to hold CE accountable...." (Application at p. 9.) The Application also alleges that the Decision does not provide enough analysis to support its conclusion. (Application, at p. 10.)

In other proceedings we have established a "definition of reasonable and prudent where the reasonableness of a management action depends on what the utility knew or should have known." (Costs Related to 1997 New Years Flood [D.06-01-036] (2006) __ Cal.P.U.C.3d __, 2006 Cal.PUC LEXIS 31, at p. 3 (slip op.).) Under this standard, "[t]he reasonable and prudent act is not limited to the optimum act, but includes a spectrum of possible acts consistent with the utility system need, the interest of the ratepayers, and the requirements of governmental agencies of competent jurisdiction." (Recovery of Costs Related to Southern California Wildfires [D.05-08-037], supra, at p. 10, 2005 Cal.PUC LEXIS 526, at p. *14, citing Southern California Edison Company [D.87-06-021] (1987) 24 Cal.P.U.C.2d 476, 486, 1987 Cal. PUC LEXIS 588, at pp. *28-29.) We believe that particular formulation should guide us in this proceeding.⁶

Although it is not stated explicitly, the Decision applies this standard. The Decision reviews TURN's allegations, and then chronologically discusses Edison's actions from the mid-1980s to 1996, when a court ruling established CE's warranty had expired in 1983/4. (Decision, at pp. 39-47.) Based on that discussion, the Decision concludes that Edison's approach was reasonable. (Decision, at p. 48.) TURN/CEC dismiss this discussion as "irrational and arbitrary" and "inchoate ... and incomplete." (Application, at pp. 10, 13.) These strenuous claims of error are based on mischaracterizations of the Decision. For example, the Application claims that the Decision concluded that "the failure of the steam generators is due primarily to CE" (Application, at p. 9), when that statement represents only not what we decided but what "most of the parties believe...." (Decision, at p. 51.) As we stated, we believe that Edison's actions, considered in toto, were reasonable. In order to make this point clearer, we will modify the Decision so it contains more discussion on this topic.

⁵ More specifically, TURN recommended that a penalty be imposed on Edison in an amount based on two settlements with CE reached by other utilities. TURN allowed that this penalty "could be deducted from the amount of [SGRP] costs permitted to be placed into rate base." (Opening Brief of TURN, at p. 45.)

⁶ We reject the claim that under this standard we are legally required to find that Edison acted unreasonably simply because past decisions reached that conclusion based on different facts. (Application, at pp. 7-9, citing, SoCal Edison Co. [D.82-12-055] (1982) 10 Cal.P.U.C.2d 155, Southern California Edison Company [D.85-03-086] (1985) 17 Cal.P.U.C.2d 470.) This is a factual enquiry. It is unremarkable that the Decision reaches a different result.