BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Transcription

1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Investigation on the Commission s Own Motion into the Rates, Operations, Practices, Services and Facilities of Southern California Edison Company and San Diego Gas and Electric Company Associated with the San Onofre Nuclear Generating Station Units 2 and 3. And Related Matters. Investigation (Filed October 25, 2012) Application Application Application Application OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U338-E) ON PHASE 1 ISSUES DOUGLAS K. PORTER RUSSELL A. ARCHER WALKER A. MATTHEWS, III Southern California Edison Company 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, CA Telephone: (626) Facsimile: (626) Walker.matthews@sce.com HENRY WEISSMANN JONATHAN E. ALTMAN JOHN B. OWENS LIKA C. MIYAKE Munger, Tolles & Olson LLP 355 South Grand Avenue, 35th Floor Los Angeles, CA Telephone: (213) Facsimile: (213) Henry.Weissmann@mto.com Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY Dated: June 28, 2013

2 TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY OF ARGUMENT...1 II. BACKGROUND...2 III. IN LIGHT OF THE NATURE OF THE STEAM GENERATOR FAILURES, SCE S CONSEQUENTIAL ACTIONS AND EXPENDITURES WERE REASONABLE...3 A. SCE s Decision To Shut Down Unit 3 And Prolong The Scheduled RFO At Unit 2 To Investigate The Causes Of The Outage And Repair Damaged Tubes Was Reasonable Initial Inspections of Unit 2 Steam Generators Revealed Abnormal Wear, But Not Wear That Would Prevent Restart The Unit 3 Leak and Inspections of the Unit 3 Steam Generators Revealed Tube-to-Tube Wear SCE Decided to Re-Inspect the Unit 2 Steams Generators Based Upon the Unit 3 Inspections SCE s Conservative Decision-Making Regarding Inspections of the Steam Generators Was Reasonable...10 B. SCE s Decision To Formulate A Short-Term Restart Plan For Unit 2 Was Reasonable...11 C. SCE s Decision To Place Unit 3 In Permanent Layup Mode Was Reasonable...14 D. SCE s Decision To Pursue Long-Term Repair Options For Unit 2 And Unit 3 Was Reasonable...16 IV. 100% OF THE EXPENSES RECORDED IN THE SONGSMA IN 2012 WERE REASONABLE AND NECESSARY...19 A. SCE s Operations And Maintenance Expenses In 2012 Were Reasonable And Necessary The Commission Should Reject TURN s Recommendations Regarding O&M Expenses SCE s 2012 Severance Costs Were Reasonable The Commission Should Reject The Suggestion That SCE Should Have Segregated Safety-Related Costs From Non- Safety-Related Costs...28 B. SCE s Incremental Steam Generator Inspection And Repair Expenses In 2012 Were Reasonable And Necessary i-

3 TABLE OF CONTENTS (continued) Page C. SCE s Capital Expenditures In 2012 Were Reasonable And Necessary SCE s 2012 Expenditures On High-Pressure Turbine Projects Were Reasonable The Commission Should Reject TURN s Recommendation That SCE Be Directed To Stop Accruing AFUDC On Projects In CWIP The Commission Should Reject TURN s Recommendations Regarding Cash Working Capital...44 D. SCE s RFO Expenses In 2012 Were Reasonable And Necessary...46 V. SCE S ACTIONS AND EXPENSES FOR COMMUNITY OUTREACH AND EMERGENCY PREPAREDNESS RELATED TO THE SONGS OUTAGES WERE REASONABLE AND EFFECTIVE...47 VI. OTHER ISSUES NECESSARY TO DETERMINE WHETHER SCE SHOULD REFUND ANY RATES...53 A. The Commission Should Reject TURN And DRA s Interim Ratemaking Suggestions...53 B. The Commission Should Reject TURN s Recommendation Regarding Materials And Supplies Inventory...55 C. SCE s Fuel Purchases In 2012 Were Reasonable And Necessary...55 VII. CONCLUSION ii-

4 TABLE OF AUTHORITIES Page(s) STATE STATUTES Public Utilities Code section 455.5(c)...26 CALIFORNIA RULES Rule of Practice and Procedure Rule of Practice and Procedure CALIFORNIA PUBLIC UTILITIES COMMISSION DECISIONS D D D D D , 20, 34 D D D D MISCELLANEOUS No. CP et al., 130 FERC (Mar. 18, 2010)...41, 42 Miss. Pub. Serv. Comm n & Pub. Util. Staff Rules of Prac. & Proc. Rule (2012)...42 SFAS 71, 15, 41 Review of NUREG-0654, Supplement 3, Criteria for Protective Action Recommendations for Severe Accidents Focus Groups and Telephone Survey, Sept. 2008) iii-

5 Summary of Recommendations The Commission should issue a decision as follows: Finding 100% of the 2012 expenses recorded in the SONGSMA to be reasonably incurred. Authorizing SCE to recover 100% of the 2012 expenses recorded in the SONGSMA in rates to the extent it has not already done so. Finding that SCE s actions related to community outreach and emergency preparedness related to the SONGS outages were reasonable and effective. Rejecting TURN s recommendation that SCE be directed to stop accruing AFUDC on projects in CWIP. Rejecting TURN and DRA s interim ratemaking suggestions as outside the scope of Phase 1. Finding that SCE s nuclear fuel expenses in 2012 were reasonable and necessary. -iv-

6 Pursuant to California Public Utilities Commission ( Commission ) Rule of Practice and Procedure 13.11, and the June 4, 2013, ruling of Administrative Law Judge ( ALJ ) Dudney, Southern California Edison ( SCE ) respectfully submits this opening brief regarding Phase 1 of this proceeding (the OII ). I. INTRODUCTION AND SUMMARY OF ARGUMENT In light of the nature of the steam generator failures, SCE s actions and expenses at the San Onofre Nuclear Generating Station ( SONGS ) in 2012 were reasonable. These expenses were necessary to maintain SONGS in the condition required by the Nuclear Regulatory Commission ( NRC ) operating licenses, technical specifications, and other regulatory requirements. Although both SONGS Units were in extended outages as a result of the tube leak in Unit 3 and abnormal wear conditions in Unit 2, SONGS was an operating facility in As the operating agent for SONGS, SCE was required to ensure that each plant system was capable of performing its design function for the particular mode of operation that SONGS was in from full power to defueled to protect the nuclear fuel and ensure the radiological health and safety of the public and plant workers. As demonstrated by the evidentiary record, SCE performed vital activities to meet these objectives, maintaining the facility in a safe shutdown condition during the outages. SCE postponed or canceled capital projects and operations and maintenance activities in response to the outages only when it was possible to do so without compromising SCE s regulatory and safety-related objectives. In addition, SCE s actions to investigate the causes of the leak and develop a plan to safely restart Unit 2 in the short term and to return both units to service in the long term were reasonable. In fact, it would have been imprudent for SCE to have immediately shut down SONGS without pursuing these actions. SCE s community 1

7 outreach and emergency planning actions in response to the outage were also reasonable and responsive to the public s inquiries. Accordingly, the Commission should find that SCE acted reasonably in 2012 in taking actions to maintain systems, structures, components, and other processes and procedures in the conditions required by the operating licenses and to restore the units safely to service. II. BACKGROUND On November 1, 2012, the Commission issued an Order Instituting Investigation into the extended outages at SONGS. In a Scoping Memo dated January 28, 2013, the Commission divided the OII into separate phases. Evidentiary hearings on Phase 1 of the OII began on May 13, 2013, and lasted until May 17, This brief summarizes the evidence admitted in Phase 1 and sets forth SCE s position with respect to Phase 1 issues. As set forth by the Scoping Memo, the following issues are within the scope of Phase 1: 1 Nature and effects of the steam generator failures in order to assess the reasonableness of SCE s consequential actions and expenditures (e.g., was it reasonable to remove fuel from unit #3). Whether 2012 SONGS-related expenses recorded in the SONGSMA are reasonable and necessary, including, o 100% of O&M, including segregated safety-related costs; o 100% of cost-savings from personnel reductions and other avoided costs; o 100% of maintenance and refueling outage expenses; and o 100% of capital expenditures. 1 Pursuant to ALJ Dudney s May 6, 2013, ruling, 2012 replacement power cost issues will be examined in a later sub-phase of Phase I, with evidentiary hearings on these issues scheduled for August,

8 A review of the reasonableness and effectiveness of SCE s actions and expenditures for community outreach and emergency preparedness related to the SONGS outages. Other issues as necessary to determine whether SCE should refund any rates preliminarily authorized in the 2012 GRC, in light of the changed facts and circumstances of the unit outages; and if so, when the refunds should occur. 2 In this brief, SCE will address each of these issues in turn. III. IN LIGHT OF THE NATURE OF THE STEAM GENERATOR FAILURES, SCE S CONSEQUENTIAL ACTIONS AND EXPENDITURES WERE REASONABLE In 2004, SCE and Mitsubishi Heavy Industries ( MHI ) entered into a contract in which the parties agreed that MHI would design and build Replacement Steam Generators ( RSGs ) for SONGS Units 2 and 3 with an expected life of forty years ( MHI Contract ). 3 When Unit 2 was taken offline for its first planned refueling outage ( RFO ) following the RSG project in January, 2012, SCE did not expect that any of the steam generator tubes would need to be plugged. 4 Similarly, when Unit 3 entered into a forced outage on January 31, 2012, due to a tube leak in one of its RSGs, SCE was taken by surprise. As multiple SCE witnesses testified during the hearing, the events that unfolded in the early months of 2012 came as a shock to the company and presented a series of ever-evolving challenges. SCE s decisions throughout 2012 must be viewed in light of the unexpected nature of the steam generator failures and the changing body of information that was available to those at SCE who made critical decisions about the 2 Scoping Memo, pp SCE, Perez, Tr. 688, lines SCE, Perez, Tr. 689, lines

9 future of SONGS. In reviewing this evidence, the Commission must apply its wellestablished reasonable manager standard under which a reasonableness review is not based on hindsight; instead, decisions must be evaluated in light of the facts available at the time the decision was made. See, e.g., D , 53 CPUC 2d 378, 386 ( We agree with DRA that the relevant time frame for evaluating prudence is the point at which a management decision is made. ); D , 53 CPUC 2d 452, 468 ( As SCE points out, the company s actions must be evaluated with regard to information available to it at the time and not with the benefit of hindsight. ). The record in Phase 1 makes clear that SCE made prudent and conservative decisions in responding to the outages. SCE immediately informed the NRC of the leak in Unit 3 and delayed the scheduled restart of Unit 2 until the cause of the leak in Unit 3 was better understood. SCE promptly hired independent consultants and mobilized teams within the company to investigate the unexpected tube wear with sensitive tools and to perform root cause analyses of the tube wear. From the beginning, SCE informed MHI that the tube wear was unacceptable and maintained SCE s position that MHI was contractually obligated to fully repair the steam generators. When it became clear to SCE that Unit 3 could not be restarted in the near future, the company took steps to preserve the asset and protect it from corrosion by placing it in lay-up mode. Based on months of testing and analysis of Unit 2, SCE submitted a detailed restart proposal for review by the NRC. At every step along the way, the company pressed MHI to provide a detailed plan for the long-term repair and restart of both units and diligently engaged in regulatory processes before the NRC to re-start Unit 2 at a 70% power factor in the short term. 4

10 Although hundreds of pages of testimony have been filed in this case and ten witnesses were cross-examined at the hearing, no party has presented credible evidence demonstrating that any of these decisions were unreasonable. To the contrary, SCE s actions throughout 2012 appropriately reflected nuclear power industry values of conservatism, safety, thoroughness, and prudence at every step along the way. A. SCE s Decision To Shut Down Unit 3 And Prolong The Scheduled RFO At Unit 2 To Investigate The Causes Of The Outage And Repair Damaged Tubes Was Reasonable 1. Initial Inspections of Unit 2 Steam Generators Revealed Abnormal Wear, But Not Wear That Would Prevent Restart On January 9, 2012, Unit 2 was shut down for a planned RFO. 5 This RFO was scheduled to last approximately two months, with Unit 2 returning to service on March 4, As planned, and pursuant to NRC and industry guidelines, SCE performed a detailed inspection of the Unit 2 RSGs during the RFO. This inspection included fulllength eddy current testing of every single tube in both of the unit s steam generators. 7 Although SCE found more tube wear than was anticipated, the results of the eddy current testing were overall satisfactory, and no tube-to-tube wear was found at that time. 8 Tom Palmisano, Vice President of Engineering and Site Support at SONGS, testified that the wear detected during this round of eddy current testing was [m]anageable in the long term and nothing that would prevent the plant from operating. 9 Consistent with industry practice and prudent operations of a nuclear facility, SCE initiated a Root Cause 5 Exhibit SCE-10, p. 64; SCE, Palmisano, Tr. 849, lines Exhibit SCE-10, p. 64; SCE, Palmisano, Tr. 849, line Exhibit SCE-4, pp. 74 & 97; SCE, Palmisano, Tr. 850, lines SCE, Palmisano, Tr. 850, lines SCE, Palmisano, Tr. 850, lines As discussed below, this testing was not as sensitive as subsequent testing, which revealed more significant wear. 5

11 Evaluation to investigate the causes of the observed wear 10 and preventively plugged the affected tubes and removed them from service. 11 At this point in time, SCE had no reason to believe that Unit 2 would not restart at the scheduled end of the RFO on March 4, The Unit 3 Leak and Inspections of the Unit 3 Steam Generators Revealed Tube-to-Tube Wear Unit 3 had been operating normally throughout January, 2012, until a tube leak was detected on January 31, In response, SCE immediately initiated a controlled rapid shutdown and safely shut down the unit. SCE also informed NRC personnel, who were on-site at the time, of the leak. 13 Unit 3 safely reached cold shutdown conditions two days later, and SCE located the source of the leak on February 12, Until the source of the leak was identified, SCE believed that the leak had been caused by a small piece of foreign material rubbing against a tube. 15 According to Palmisano, the typical industry experience is that leaks within the first one or two cycles of a nuclear plant s life are usually caused by foreign material, which is an isolated issue that does not suggest a design flaw. 16 Eddy current inspections of the Unit 3 steam generator tubes showed, however, that the leak had been caused by tube-to-tube wear. The tube-to-tube wear was also observed in dozens of other tubes in one area of the Unit 3 steam generators. 10 SCE, Perez, Tr. 455, lines SCE, Palmisano, Tr. 980, lines Exhibit SCE-10, p. 64; SCE, Palmisano, Tr. 850, lines Exhibit SCE-4, p Exhibit SCE-4, p. 77; Exhibit SCE-10, p SCE, Palmisano, Tr. 850, lines SCE, Palmisano, Tr. 850, lines

12 In 2012, SCE was aware of no nuclear industry experience with respect to tubeto-tube wear in the type of steam generators used at SONGS. 17 Although tube wear at support structures (such as anti-vibration bars and tube support plates) is a common problem in steam generators of this type, tube-to-tube wear had not been observed. 18 The indications of tube-to-tube wear in Unit 3 were therefore highly concerning to SCE, and the company began a rigorous testing and inspection process to understand the source of the wear and investigate the safety of restarting the units. As described in SCE s written testimony, the company conducted bobbin probe eddy current testing of every single tube in both units; identified areas of degradation for hydrostatic testing; performed pressure testing on 130 tubes; and performed tests to measure the gaps between the tubes and their support structures. 19 Once these inspections were complete, tubes with unacceptable levels of wear were plugged and a number of tubes were also plugged and stabilized as a preventative measure. 20 SCE also assembled a group of independent experts to help investigate the causes of the outages. These experts included teams from Westinghouse, AREVA, and Intertek, with support from MHI and industry consultants. 21 The experts investigated the mechanistic causes of the tube wear, conducted root cause evaluations, and analyzed potential corrective actions SCE, Palmisano, Tr. 855, lines SCE, Palmisano, Tr. 733, lines Exhibit SCE-4, p Exhibit SCE-4, p Exhibit SCE-4, p Exhibit SCE-4, p

13 By late March, SCE had gathered extensive data from Unit 3 which revealed the severity of the tube wear. 23 In situ pressure testing had caused eight tubes to fail in Unit 3, and SCE determined that a phenomenon known as in-plane fluid-elastic instability ( FEI ) had caused widespread tube-to-tube wear in the Unit 3 steam generators SCE Decided to Re-Inspect the Unit 2 Steams Generators Based Upon the Unit 3 Inspections Although SCE had no indication of tube-to-tube wear in the Unit 2 steam generators based on the results of the initial inspections, the degree of wear in Unit 2 was unanticipated. Moreover, the company was faced with extraordinary wear caused by a phenomenon that was, as far as SCE knew at the time, unprecedented in the U.S. nuclear industry in the Unit 3 steam generators, which have the same design as those in Unit 2. SCE therefore decided that the conservative, safe, prudent course of action was to keep Unit 2 shut down for the near term. On March 23, 2012, SCE informed the NRC by letter that it would not restart Unit 2 until the source of the wear in Unit 3 was understood and the company had confidence that Unit 2 could be safely restarted without experiencing the same problems as Unit 3 (similar commitments were made for Unit 3). 25 The NRC issued a Confirmatory Action Letter ( CAL ) on March 27, 2012, 26 which confirmed the commitments made in SCE s letter and effectively required NRC confirmation that restart under the parameters detailed in the CAL was safe before SCE 23 SCE, Palmisano, Tr. 851, lines 1-2 & 24-25; Exhibit SCE-10, p Exhibit SCE-4, p. 80; Exhibit SCE-10, p SCE, Palmisano, Tr. 851, line 26 Tr. 852, line 4; Exhibit SCE-10, p Exhibit SCE-10, p

14 could restart Unit 2 or Unit 3. At that point in time, SCE believed that it could likely restart Unit 2 by June, When it discovered that the leak in Unit 3 had been caused by tube-to-tube wear, SCE decided to re-inspect Unit 2 utilizing more sensitive equipment than the initial inspections. 28 To ensure the safe restart of Unit 2, the company laid out a very systematic... decision-making plan for inspecting the unit. 29 SCE believed at that time that Unit 2 would likely experience only a short delay, estimating an approximately 30- day delay when it decided to re-inspect the Unit 2 RSGs. Although SCE believed at that time that Unit 2 would likely experience only a 30-day delay, SCE s careful adherence to this decision-making plan, and its re-examination of Unit 2, caused the company to delay Unit 2 s restart date multiple times during the spring and summer of In early April, SCE conducted another round of inspections at Unit 2 with more sensitive equipment (eddy current testing rotating plus point coil) than used in the initial inspections. SCE specifically examined the tubes in the areas where tube-to-tube wear had been observed in Unit On April 10, 2012, these inspections revealed, for the first time, two tubes in one of Unit 2 s steam generators with early signs of tube-totube wear. 32 The two tubes were positioned adjacently, such that the indications of wear 27 SCE, Palmisano, Tr. 852, lines SCE, Palmisano, Tr. 850, line 28 Tr. 851, line SCE, Palmisano, Tr. 851, lines Exhibit SCE-10, p. 4; Exhibit SCE-4, p. 77; SCE, Palmisano, Tr. 778, lines ( So we set target dates along the way and, as we got deeper into the work and realized both the complexity and depth we needed, we changed the schedule several times to reflect that. ). 31 SCE, Palmisano, Tr. 852, lines 17-21; Exhibit SCE-4, p. 77 n.75; Exhibit SCE-10, p SCE, Palmisano, Tr. 852, lines

15 were formed on both tubes via one contact point. 33 These indications of wear were undetectable using normal eddy current methods, and had only become perceptible when SCE re-inspected Unit 2 with more sensitive equipment. 34 Although the tube-to-tube wear was less extensive in Unit 2 than in Unit 3, SCE determined that the appropriate, safe[,] conservative thing to do was to assume that Unit 2 had experienced the same type of FEI that resulted in the tube-to-tube wear in the Unit 3 steam generators and to do even more analytical work, technical work, on Unit 2, and do some testing on Unit 3 to gather more information to apply to the Unit 2 restart decision. 35 SCE thus continued to investigate the units and analyze the test results into the summer of SCE s Conservative Decision-Making Regarding Inspections of the Steam Generators Was Reasonable In every decision that SCE made in the first half of 2012, SCE behaved as should a reasonable and prudent operator of a nuclear power plant. SCE reacted immediately to the tube leak in Unit 3 and proceeded cautiously in its decisions regarding Unit 2, keeping public safety as its paramount concern. SCE s decision to immediately shut down Unit 3 in response to the tube leak was irreproachable, as the tube was leaking radioactive steam. SCE s decision to postpone the restart of Unit 2 was also prudent, as the identical design between the Units 2 and 3 steam generators gave SCE a reasonable belief that Unit 2 might be susceptible to the conditions that caused extensive damage in Unit 3. Indeed, later testing indicated that tube-to-tube wear had occurred in one of the Unit 2 steam generators. As Palmisano testified during the evidentiary hearing, SCE felt 33 Exhibit SCE-4, p Exhibit SCE-4, p SCE, Palmisano, Tr. 853, lines SCE, Palmisano, Tr. 853, lines

16 that it was prudent, it was appropriate, it was based on safety, it was based on the needs of our customers and our shareholders to make sure we knew the condition of Unit 2 before restarting. 37 SCE s investigation and testing of the tubes following the tube leak was exhaustively thorough, and its decision to plug and stabilize affected tubes was appropriate in light of SCE s reasonable expectations that the units would eventually return to service. SCE hired outside contractors to employ specialized tests and to provide an objective, independent perspective. There has been no evidence or testimony in the record to suggest that it was unreasonable for SCE to conduct any of these diagnostic tests, preventive measures, or written analyses. To the contrary, SCE did precisely what prudent utility practices would dictate for a utility to do upon discovering that an expensive and important piece of equipment has malfunctioned: investigate thoroughly and work tirelessly toward a safe repair. B. SCE s Decision To Formulate A Short-Term Restart Plan For Unit 2 Was Reasonable By June, 2012, analyses by SCE and outside consultants had indicated that Unit 2 could be safely restarted at 70% power. 38 As Palmisano repeatedly testified at the hearing, SCE was confident that safely restarting Unit 2 at reduced power was possible and that the unit would in fact be returned to service in the near future. 39 Justifying this restart decision to the NRC, however, required SCE to prepare extensive documentation of the technical analyses, modeling, and safety assessments that were necessary to show 37 SCE, Palmisano, Tr. 851, lines SCE, Palmisano, Tr. 853, lines SCE, Palmisano, Tr. 853, lines & Tr. 969, lines

17 that the restart plan was safe and effective. 40 This process took months to complete and required extensive support from independent experts. 41 Due to the unusual and unexpected nature of the tube wear, SCE commissioned three independent Operational Assessments from three experienced vendors AREVA, Intertek, and Westinghouse that each applied diverse methodologies to examine the safety and effectiveness of restarting Unit 2 at reduced power. 42 SCE submitted its response to the NRC CAL and restart plan for Unit 2 on October 3, At the time the restart plan was submitted, SCE believed that it had submitted sufficient documentation to the NRC to justify restart and anticipated a positive decision within 60 days. 44 Due to the breadth of the technical information submitted by SCE, however, the NRC did not issue a decision before the end of Various parties to this proceeding have suggested that SCE s plan to restart Unit 2 was not cost-effective or, relatedly, that it was imprudent for SCE to forego a detailed cost-effectiveness study regarding Unit 2 s restart. 46 This contention is meritless. As SCE stated in its written testimony, it was reasonable for SCE to work toward restart of Unit It would have been imprudent for SCE to have immediately shut 40 SCE, Palmisano, Tr. 853, lines 18-20; Exhibit SCE-4, p Exhibit SCE-10, p. 65; Exhibit SCE-4, pp Exhibit SCE-4, p Exhibit SCE-10, p SCE, Perez, Tr. 286, lines 8-11; SCE, Palmisano, Tr. 854, lines SCE, Palmisano, Tr. 854, lines See, e.g., Emergency Motion of Friends of the Earth and World Business Academy for Commission Determination of the Lack of Cost-Effectiveness of Southern California Edison Company s Proposed Partial Restart Plan for Unit 2, Mar. 21, 2013; SCE, Palmisano, Tr (long colloquy between the witness and Ray Lutz, on behalf of CDSO, regarding whether SCE gave sufficient weight to cost considerations with respect to Unit 2 s short-term restart). 12

18 down SONGS without pursuing these actions. 47 The damage to Unit 2 was less significant than the damage in Unit 3, and extensive analyses by SCE and three independent vendors all experts in the industry with considerable nuclear experience demonstrated that restarting at reduced power would be safe. In light of this technical support for SCE s decision to pursue restart, it would have been unreasonable for SCE to simply walk away from SONGS without attempting to return Unit 2 to service. As Palmisano explained during the hearing, SCE reasonably believed that Unit 2 could be safely restarted within a relatively short time period. In light of this reasonable belief, which was based on extensive data and analysis, it appeared to be obvious that the cost-effective solution for shareholders and ratepayers would be to return the unit to service. 48 The notion that SCE should have stalled its investigation and repair efforts at SONGS until the company could conduct a comprehensive cost-benefit analysis is unreasonable. Such a policy, if taken to its logical conclusion, would hamstring the company every time a piece of equipment malfunctioned. As Palmisano stated at the hearing, the cost-effectiveness of restarting Unit 2 in the short term was clear to SCE in 2012, and the company therefore directed its resources toward investigation and repair rather than a short-term cost-benefit analysis. 49 As SCE has explained in prior filings in this proceeding, the only material incremental cost of restarting Unit 2 in the short term would be the incremental cost of nuclear fuel. 50 The cost estimate of replacement 47 Exhibit SCE-9, p SCE, Palmisano, Tr. 978, lines SCE, Palmisano, Tr. 984, lines See Response of Southern California Edison to Emergency Motion of Friends of the Earth and World Business Academy for Commission Determination of the Lack of Cost-Effectiveness of Southern California Edison Company s Proposed Partial Restart Plan for Unit 2, Apr. 2,

19 power in the SONGS Outage Memorandum Account is based on a formula that reflects market costs minus avoided nuclear fuel costs, so based on that cost estimate, restarting Unit 2 would save SCE a ratable share of the entire estimated cost of replacement power reflected as a line item in the SONGS Outage Memorandum Account. 51 Although SCE formed a team in 2012 to evaluate the cost effectiveness of various long-term options at SONGS, 52 the company did not consider the short-term restart decision to hinge on cost. Instead, as explained by Palmisano, the short-term restart decision was a safety and a compliance evaluation[,]... a decision based on being safe, being conservative, and technically acceptable. That s the criteria there. It is not a longer term decision. 53 There was no evidence or testimony introduced in Phase 1 which suggests that SCE s decision to forego a short-term cost-benefit analysis was unreasonable based on the facts known to SCE in C. SCE s Decision To Place Unit 3 In Permanent Layup Mode Was Reasonable By June, 2012, it had become clear to SCE that Unit 3 could not return to service in the near term. Although SCE believed that Unit 3 could eventually be restarted safely 51 See SONGS OMA, Apr. 1, 2013 Report. 52 SCE, Palmisano, Tr. 953, lines 5-14; Tr. 956, lines As of the end of 2012, this team had not reached any conclusions regarding long-term repair options. SCE, Palmisano, Tr. 956, line 26 - Tr. 957, line SCE, Palmisano, Tr. 949, line15 & Tr. 950, lines SCE anticipates that CDSO will present its own cost-effectiveness analysis in its Opening Brief, as CDSO discussed this analysis in its rebuttal testimony which was stricken from the record and during cross-examination of Palmisano during the hearing. This analysis is based on assumptions that SCE presented to the Commission when it originally sought approval for the steam generator replacement project in At the hearing, ALJ Darling stopped CDSO from questioning Palmisano about this analysis and stated: You have not established that the same criteria was being used in 2004 or 5... You ve not shown any correlation to 2012 expenses. Tr. 526, lines & Tr. 527, lines SCE agrees with ALJ Darling. CDSO has not demonstrated that the split-shutdown scenario from 2004 bears any relationship to the scenario that SCE faced in 2012, and it is therefore irrelevant. 14

20 at reduced power based on the restart plan for Unit 2, such an endeavor would take more time and work than for Unit SCE therefore decided to concentrate on the Unit 2 restart plan so that the company could shift its focus back to Unit 3 once the restart plan for Unit 2 had been authorized. 56 This would allow SCE to apply the knowledge gained from Unit 2 to restarting Unit 3. To protect and maintain Unit 3 so that it could be cost-effectively returned to service in the future, SCE began planning to place Unit 3 in preservation mode (alternately referred to at the hearing as layup mode ). 57 As Palmisano explained during the hearing, a common mistake in the power plant industry is to underestimate the time that a plant will be offline and to fail to protect the asset from corrosion and degradation in the meantime. 58 SCE therefore believed that the right thing to do to be prudent and responsible in protecting a valuable asset for the company, the ratepayers and the shareholders, [was] to put the unit in layup or preservation. 59 This process involves taking systems out of service, draining systems of fluids, filling some of these systems with inert gas, and ultimately defueling the unit. 60 SCE began planning for this process which involved identifying the systems to be drained or taken out of service in June of 55 SCE, Palmisano, Tr. 853, lines SCE, Palmisano, Tr. 718, lines Exhibit SCE-10, p SCE, Palmisano, Tr. 854, lines 1-8; Tr. 773, lines SCE, Palmisano, Tr. 853, lines SCE, Perez, Tr. 668, lines

21 2012, and began implementing the lay-up process in July. 61 This is a time-consuming process that ultimately took SCE six months to complete. 62 SCE s decision to place Unit 3 in preservation mode must be considered in light of the information available to SCE in the second half of By June, SCE and its contracted experts had collected a great deal of data from Unit 3 and had identified the mechanistic root cause of the tube-to-tube wear as FEI. MHI had yet to propose a repair plan for the units that would adequately prevent this phenomenon. From this information, SCE reasonably concluded that Unit 3 could return to service in the long term but would not be restarted in the near term. SCE s decision to place the unit in preservation mode was reasonable in light of these facts. If SCE had left Unit 3 idle and exposed to the elements, industry experience showed that components such as pumps and valves would face a significant risk of corrosion and degradation. 63 D. SCE s Decision To Pursue Long-Term Repair Options For Unit 2 And Unit 3 Was Reasonable By June, 2012, it was evident that the steps SCE needed to take to develop longterm repair plans for Units 2 and 3 diverged from the path the company needed to take to restore Unit 2 to service in the short term. SCE therefore determined that the team analyzing the short-term restart of Unit 2 should be separate from the team analyzing long-term repair. 64 Palmisano explained that this separation would allow the short-term restart team to put the correct focus on the confirmatory action letter and would allow 61 Exhibit SCE-10, p SCE, Perez, Tr. 667, lines SCE, Palmisano, Tr. 773, lines & Tr. 854, lines SCE, Palmisano, Tr. 714, lines

22 the long-term repair team to undertake more extensive engineering activity. 65 Although these groups were staffed in July, Palmisano testified that SCE was working on both short- and long-term options from a fairly early on, probably in the March time frame. 66 In particular, SCE had been in contact with MHI about the tube wear beginning very quickly after the tube leak occurred and the data was identified in Unit 3, 67 and had communicated to MHI that it expected MHI to prepare a long-term repair plan. 68 At all times in 2012, SCE held a reasonable belief that a long-term repair for both units was possible and in the best interest of ratepayers. At all times throughout the year, the company reasonably expected that Unit 2 would be safely restarted within months and that Unit 3 could eventually be restarted under similar parameters by the end of Furthermore, as the designer and manufacturer of the steam generators, MHI had warranty obligations to develop a permanent repair plan with diligence and dispatch. 70 From the beginning, SCE made clear to MHI that it was expected to perform under these warranty provisions. Although SCE recognized the complexity of FEI and understood that MHI would not be able to solve the problems with the steam generators in a matter of days, SCE unequivocally communicated to MHI that the company expected a 65 SCE, Palmisano, Tr. 714, lines & Tr. 715, lines SCE, Palmisano, Tr. 714, lines & SCE, Palmisano, Tr. 775, lines SCE, Palmisano, Tr. 928, lines ( We told them they owe us. You know, they are responsible for a proposal for a permanent repair. So we had communicated that previously. ). 69 SCE, Palmisano, Tr. 313, lines 2-5 ( Based on the information that I knew at that time, I would have said that the Unit 3 reactor may be able to restart at the end of this year. ); SCE, Palmisano, Tr. 574, lines SCE, Palmisano, Tr. 916, lines

23 permanent repair in a reasonable time frame. 71 SCE had several discussions of potential options for long-term repair with MHI throughout the year, communicated with MHI almost every day, and discussed several criteria for acceptable repair plans. 72 Although MHI had promised to provide a permanent repair plan at several points in 2012, it did not in fact deliver an adequate repair plan by the end of This failure on MHI s part was unacceptable to SCE. 74 By mid-november, SCE had requested a final proposal from MHI by the end of the month. 75 When this deadline was not met, SCE continued to press MHI for a plan, reminding the company that [t]ime of course has been and remains of the essence and informing MHI that its failure to repair the units by December, 2012, was not responsive... to the requirements of the contract. 76 SCE s decision to press MHI for a permanent repair throughout 2012 is unassailable. Under the contract, SCE paid MHI over one hundred million dollars to design and manufacture the new steam generators. It would have been unreasonable for SCE to have shut down SONGS in 2012 without meaningfully pursuing long-term repair pursuant to the warranty provisions. There has been no evidence or testimony introduced in Phase 1 to suggest otherwise. 71 SCE, Palmisano, Tr. 914, lines SCE, Palmisano, Tr. 726, lines 5-8; Tr. 725, lines 16-17; Tr. 727, lines 3-22; Exhibit SCE Exhibit SCE Exhibit SCE-21 ( This situation is not and should not be acceptable to either of our companies. SCE s customers, ratepayers, and state regulators rely upon the SONGS units for direct electrical supply and for reliability of the electrical grid in Southern California. ). 75 Exhibit SCE Exhibit SCE-23; Exhibit SCE

24 During the hearing, some parties suggested that the tube wear in Units 2 and 3 was so significant that it was unreasonable for SCE to pursue short-term or long-term restart plans for either unit. 77 There is no support in the record for this contention. As multiple witnesses testified on behalf of SCE, tube-to-tube wear was the only form of tube wear that affected SCE s immediate ability to operate the units. 78 Wear at the retainer bars, anti-vibration bars, and tube support plate, although important and not acceptable for the longer term, was better known in the industry as manageable, and the plant could operate with it. 79 All of the steam generator tubes in both units were inspected with instruments capable of detecting fatigue wear, and [t]here was no fatigue wear found in any of the steam generators in either unit. 80 The tube-to-tube wear was a different phenomenon and, as far as SCE knew in 2012, unprecedented in the U.S. nuclear industry for the type of steam generators used at SONGS. Nevertheless, in light of the amount of tube-to-tube wear in the units; the fact that affected tubes could be plugged and stabilized; SCE s restart plan for Unit 2; and MHI s warranty obligations, SCE reasonably believed in 2012 that restart and long-term repair were possible and that pursuing these objectives was in the best interest of ratepayers. IV. 100% OF THE EXPENSES RECORDED IN THE SONGSMA IN 2012 WERE REASONABLE AND NECESSARY In SCE s 2012 General Rate Case decision, Decision ( D. ) , the Commission directed SCE to create the SONGS Memorandum Account ( SONGSMA ) to track all expenses related to SONGS. D also preliminarily allowed SCE to 77 See, e.g., WEM, George, Tr. 864, lines See, e.g., SCE, Palmisano, Tr. 838, lines SCE, Palmisano, Tr. 838, lines & Tr. 735, lines SCE, Palmisano, Tr. 838, line 22 Tr. 839, line 2. 19

25 collect a specified SONGS-related revenue requirement subject to refund. Because SCE s actions, decisions, and expenditures in 2012 were reasonable, the Commission should authorize SCE to permanently collect all of the recorded SONGSMA expenses through rates. Exhibits SCE-4 and SCE-10 describe all of these costs in detail. A. SCE s Operations And Maintenance Expenses In 2012 Were Reasonable And Necessary D preliminarily allowed SCE to collect $389 million in base operations and maintenance ( O&M ) expenses. Largely as a result of the outages, SCE s routine, base O&M expenses were $36 million less than this preliminarily allowed amount. SCE was able to realize savings in this cost category by forming a team to review and identify activities that could be rescheduled or canceled because the units were not fully operational. 81 Despite these savings, however, a great deal of the O&M costs preliminarily allowed in D relate to activities that SCE needed to undertake even though SONGS was not producing power. As SCE s written testimony explains, SCE s 2012 base O&M expenses were necessary for SCE to meet four primary objectives: 1) maintain safety of the highest order at SONGS; 2) comply with requirements set forth by NRC regulations, the SONGS operating license, and SONGS s technical specifications; 3) protect Units 2 and 3 from corroding or degrading as a result of being idle; and 4) maintain Unit 2 in a ready-to-restart condition Exhibit SCE-4, p. 28; SCE, Perez, Tr. 348, line 20 Tr. 349, line 1 ( [I]n engineering, since some of the systems were out of service they didn t have to perform all of the support functions they normally have to when all of the systems were in operation and the plant was producing electricity. So... some of the main activities were rescheduled, some of the engineering support activities and contract support for those activities was also rescheduled. ). 82 See, e.g., Exhibit SCE-4, pp ; SCE, Palmisano, Tr ; SCE, Perez, Tr. 284, lines

26 At the hearing, Jose Perez explained that SCE s total recorded base O&M expenses in 2012 were fairly close to the preliminarily-allowed amount because SCE needed to keep staffing levels across many functional groups at the same level as if the plant were producing power. 83 This is because SONGS must continue to fulfill the conditions of the NRC operating licenses, technical specifications, and other regulatory requirements. SCE s license and technical specifications for SONGS also require the company to maintain certain systems in a ready-to-use state for safety purposes. For example, the NRC s security requirements do not vary depending on whether the plant is operating; provided there is nuclear fuel on the site, SCE s security employees must perform the same job function. 84 NRC regulations and the SONGS operating license also require SONGS employees to continue attending mandatory trainings during shutdown conditions. 85 It was reasonable and necessary for SCE to incur the costs associated with these activities, which SCE was required to perform pursuant to its operating licenses and technical specifications for SONGS, and which are critical to nuclear safety. SCE s testimony in Exhibit SCE-4 identifies other activities that SCE was required to perform to meet requirements imposed by its operating licenses and technical specifications for SONGS, and meet other regulatory requirements. 86 Another reason why recorded O&M was similar to the amount preliminarily authorized in the GRC is that many SONGS employees jobs are the same in shutdown 83 See, e.g., Perez, Tr. 616, line 24 Tr. 617, line SCE, Perez, Tr. 638, line 17 Tr. 639, line SCE, Perez, Tr. 639, line 7 Tr. 640, line Exhibit SCE-4, pp. 19 & 36; Exhibit SCE-9, pp

27 conditions as during normal operations. In other words, running a nuclear power plant that is not producing power is not much different or less expensive than running a nuclear power plant that is producing power. For example, Perez testified that employees who maintain systems that continue to operate in shutdown conditions such as cooling systems for spent nuclear fuel in the pools or in the reactor must perform the same job tasks regardless of whether the plant is operating. 87 In another example, all employees in the Business and Financial Services Group and the Nuclear Business Administration group must handle the same tasks in shutdown conditions as when the plant is operating such as payroll, budgeting and reporting of costs, and providing administrative services because these tasks are not contingent on whether the plant is generating power. 88 SCE s written testimony explains in detail the various activities at SONGS that must be performed when the plant is not providing power. 89 The costs associated with these necessary and required activities are reasonable. Those employees whose typical job functions became unnecessary in 2012 because the plant was not fully operating were often required to perform different but related tasks in order to maintain plant safety and protect the units from degradation. For example, Perez testified that the employees who would ordinarily maintain the steady operation of the turbine generator would instead rotate the non-operating turbine on a routine basis so that the turbine blades did not develop a bow as a result of sitting idle. 90 Other types of moving components must also be manipulated at regular intervals 87 SCE, Perez, Tr. 616, lines SCE, Perez, Tr. 640, line 13 - Tr. 641, line Exhibit SCE-4, p. 35; Exhibit SCE-9, pp SCE, Perez, Tr. 616, lines

28 to prevent degradation. For example, Perez testified that SCE needed to exercise valves to ensure that the lubricants and seals would stay fresh. 91 Non-moving structures similarly require maintenance when the plant is offline to prevent corrosion, 92 and SCE s written testimony provides more job functions that needed to be performed in 2012 to maintain plant safety and prevent the units from degrading. 93 If SCE had not performed these activities, the company would have run the risk of needing to replace components and structures before restarting the unit. 94 This would have driven up costs and delayed restart. Finally, certain base O&M expenses were necessary in order to maintain Unit 2 in a ready-to-restart condition. SCE s written testimony describes various job functions at SONGS that needed to be performed in 2012 to ensure that Unit 2 would be ready for restart. 95 As explained in Part III of this brief, SCE reasonably expected Unit 2 to return to service in It was therefore reasonable for SCE to maintain systems in a readyto-use condition and to maintain staffing levels in order to retain the critical employees many of whom have specialized knowledge and are not easily replaceable 96 who would assist SCE in restarting Unit 2. In fact, Palmisano testified that, in his opinion, it would have been imprudent not to maintain Unit 2 in a ready-to-restart condition in light of the information available to the company in SCE, Perez, Tr. 622, lines SCE, Perez, Tr. 623, lines Exhibit SCE-4, pp. 19 & SCE, Perez, Tr. 622, line 26 Tr. 623, line Exhibit SCE-4, p See, e.g., Exhibit SCE-4, p SCE, Palmisano, Tr. 971, lines

29 1. The Commission Should Reject TURN s Recommendations Regarding O&M Expenses In his written testimony, William B. Marcus recommended on behalf of TURN that the Commission suspend SCE s authority to collect any future revenues for seismic studies related to the relicensing of the plant and eliminate any seismic O&M expenditures already incurred in Edison balancing accounts in current rates. 98 Marcus argued that SCE should not continue to spend money conducting seismic studies related to relicensing the plant before it is known whether the plant can even restart. 99 Marcus believes that limited funding should be permitted, however, to allow existing projects or experiments to be completed or closed out in an orderly way to preserve data and reduce the need to redo work that was already done. 100 Marcus s recommendation does not call into question the reasonableness of SCE s expenditures on seismic studies in In addition, as SCE explained in its written testimony, Marcus misapprehends the purpose of the seismic studies and the Commission s objectives in directing SCE to proceed with the seismic studies. Although Marcus assumes that the seismic studies are directed toward license renewal of the plant, SCE was not conducting the studies for license renewal. Instead, the studies were being conducted to comply with existing regulatory requirements, including the CEC s AB 1632 Report recommendation and direction from the Commission, which SCE cannot ignore. 101 There has been no evidence introduced in Phase 1 which contradicts or 98 Exhibit TURN-1, p Exhibit TURN-1, p Exhibit TURN-1, p Exhibit SCE-8, p.9 (quoting D , 2012 WL , at *8, Finding of Fact 2 (May 10, 2012)). 24

30 challenges this position. 102 The Commission therefore should reject Marcus s recommendations regarding seismic costs. Marcus also recommended that the Commission disallow 20% of O&M costs for the last two months of This recommendation is based on the assertion that SCE did not have a near-term timetable at the end of 2012 for Unit 3 to return to service. 104 Even if that argument was logically sound, it relies on an incorrect premise. Base O&M costs associated with Unit 3 during the last two months of 2012 were not incurred in connection with efforts to return Unit 3 to service; rather, these costs were incurred in order to maintain safety, comply with NRC and licensing requirements, and place Unit 3 in preservation mode. These costs were reasonable and necessary for the reasons set forth in Parts IIIC and IVA of this brief, and the fact that SCE did not then have a nearterm restart plan for Unit 3 does not impact this rationale. To the contrary, all of the base O&M expenses associated with placing Unit 3 in a preservation mode were reasonable exactly because SCE did not expect the unit to return to service in the near term. To the extent that Marcus was referring to incremental steam generator inspection and repair ( SGIR ) O&M costs, rather than base O&M costs, his recommendation to disallow 20% of these costs should still be rejected. During the last two months of 2012, SGIR costs associated with Unit 3 were incurred mostly in connection with SCE s efforts 102 It should be noted that SCE s position regarding seismic studies remains unchanged insofar as those studies that are required will still be performed. Due to the recent decision regarding the retirement of SONGS, SCE is evaluating what seismic studies will still need to be performed. As Perez testified at the hearing, the seismic project is important to continue as long as nuclear fuel is being stored at the SONGS site. See SCE, Perez, Tr. 376, lines 7-24 ( The seismic information that we are getting would be valuable to both the plant in a condition where it s producing megawatts as well as any shutdown scenario.... You d want to ensure that the equipment, the spent fuel pool, and the dry cask storage would be able to withstand a seismic event. ). 103 Exhibit TURN-1, p Exhibit TURN-1, pp