NRC to Decide Swan SONGS

 | May 17, 2013 | 5:00 PM EDT
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Tensions are rising as judicial proceedings come to a close. The judge is readying a life or death decision. In this case, the judge is deciding the fate of Edison International's (EIX) San Onofre Nuclear Generating Station in California.

San Onofre Nuclear Generating Station, or SONGS for short, is really three power plants wrapped into one. The first unit began operation in 1968, and retired in 1992.

The issue before the judge is SONGS's other units. Both units completed expensive preventive maintenance procedures, which involved replacing some large heat exchangers, called steam generators. The result was not what was expected. The new heat exchangers leaked and they failed to meet technical specifications.

From a nuclear safety point of view, the equipment failure was not a big deal. The heat exchangers prevent reactor water in the containment building from touching turbine blades in the adjacent turbine building. To put the heat exchanger issue it in context, General Electric's (GE) boiling water reactor designs purposely allow reactor water to move turbine blades and GE's designs have been in use all over the world for more than five decades.

From an economic point of view, SONGS's equipment failure is serious. The failure caused both units to cease production and remain in cold shut down. Economic losses are in the billions of dollars, most of which are covered by insurance and other parties.

No matter what the decision, it appears SONGS's Unit 3 is lost. The technical challenges to clean up and repair the unit are not overwhelming. However, the costs to complete that work are heavy, and it is not clear how owners could recover those costs. As a result, retirement of a second unit appears to be the least cost alternative.

The judge is concerned about the remaining unit. Owners have already repaired the unit so it will operate without incident at about 70 percent power. Owners' engineers and contractors have demonstrated that short-term operations at lower production levels should not cause safety concerns.

The judge in this case is the Nuclear Regulatory Commission. While they operate like a regular court, their authority is limited. They have minimal economic jurisdiction or interests. Their rulings are normally limited to the issues involving the safe operation of the facility.

If they stick to their mission, it would seem the NRC should approve SONGS's request to return Unit 2 to limited service. However, the NRC may look beyond the narrow issues and rule more broadly to delay. Unfortunately in this case, a delay is as good as a deny.

It is their call. If the NRC denies owners their right to safely operate Unit 2, then SONGS's last unit will join the other two units and it will remain in cold shutdown. Should it remain in cold shutdown much longer, it is likely the entire SONGS facility will be retired, decommissioned and dismembered.

Losing SONGS will affect stakeholders in unexpected ways. Of course, SONGS's owners will lose a valuable asset that would cost approximately $30 billion to replace.

Most impacted is Edison. According to the Nuclear Energy Institute, Edison owns 75.1% of both units. Sempra Energy (SRE) owns 20%. The City of Anaheim and Riverside Public Utilities own the balance.

If SONGS retires, consumers lose. SONGS operates in a market-based grid, called California Independent System Operator. In that market, SONGS was not a marginal unit and it did not normally set market-clearing prices for power. Taking SONGS out of the stack requires more costly units to enter the market and fill the gap. The more costly units will now clear the market and they will set a higher price. That is just how the market works.

The biggest loser might be environmentalists. Nuclear power is a carbon-free source of power. It is also a lot like solar and wind power; it is completely free of greenhouse gases. As long as SONGS remains in cold shutdown, energy planners must dispatch power plants that use natural gas and other hydrocarbons as fuel. With more hydrocarbons in the mix, more carbon and other gases are pumped into the atmosphere.

Owners, investors and stakeholders anxiously await NRC's decision. If it is a "no" or a delay, the nation loses two more nuclear power plants. It also means decommissioning of three nuclear power plants will most certainly start immediately. These projects will be large and costly, but most of the funds needed should already be in the bank.

If the NRC's decision is yes, SONGS will limp through summer. After the summer is over, the utility will reexamine costs and cost recovery opportunities and they may end up singing the swan song.

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