Southern California Edison Announces Retirement of San Onofre Nuclear Generating Station

---

Researched by Industrial Info Resources (Sugar Land, Texas)--On Friday, Southern California Edison (SCE), a unit of Edison International (NYSE:EIX), announced that it will retire units 2 and 3 of its San Onofre Nuclear Generating Station, known as SONGS. The two units had a combined generating capacity of approximately 2,250 megawatts (MW) and have been offline since January 2012, when unexpected, premature wear was discovered on the steam tubes of both generators. The steam generators for units 2 and 3 had been replaced in January 2010 and January 2011, respectively, and were manufactured by Japan's Mitsubishi Heavy Industries, from which SCE will attempt to recover damages.

The retirement of the units, located in the northwest corner of San Diego County, could mean trouble for Southern California during the summer months of high power demand. SONGS supplied power to the San Diego and Los Angeles areas, and while grid operator California Independent System Operator (California ISO) reports that 2,502 MW of additional generation has been added in the state since June 2012, much of this lies outside of this area.

The California grid is set up in such that way that importing power from the northern part of the state to the southern part is subject to congestion because of limited transmission infrastructure, often leading to an imbalance in the state's wholesale power prices.

However, the situation may not quite be what it seems. "What SCE is doing is posturing in order to get the ball rolling on this restart," said Brock Ramey, Industrial Info's North American Power Industry Research Manager. "The Atomic Safety Board has caused the NRC to drag its heels for any firm decisions on a restart. A company can't simply retire more than 2,000 MW of power generation off the cuff."

In October 2012, SCE submitted a proposal to the Nuclear Regulatory Commission (NRC) to operate Unit 2 at 70% capacity for an initial period of approximately five months, in order to ease the tight summer power demand. In April, the NRC issued a statement that the proposed restart posed no significant safety risks, and it appeared as though the restart could occur.

However, public protest and a subsequent ruling by the NRC's Atomic Safety Board delayed any immediate action and created uncertainty about when a restart might occur. In a press release issued Friday, SCE stated that during this period of waiting, "the costs of maintaining SONGS in a state of readiness to restart and the costs to replace the power SONGS previously provided would continue," which would be uneconomic for SCE and its customers. This led to the decision to retire the units.

Ramey estimates that SCE is paying somewhere in the neighborhood of $1 million per day to purchase replacement power for the area and keep SONGS in a condition to be restarted. In a press release issued by the California Public Utilities Commission (CPUC), Michael Peavy, the president of the commission, said that under the de facto license that San Onofre operates, SCE can't permanently close the station with CPUC approval.

"The company's decision, given the uncertainty it faces with the inaction of the Nuclear Regulatory Commission and the large economic impact of the non-operation of the two units, is understandable," Peavy said, suggesting that there should be a joint meeting between ratepayer representatives, environmental advocates and the SCE to form a joint proposal for permanent shutdown, which would then ultimately be approved by the CPUC. Peavy warned that failure to reach a consensus could result in lengthy litigation.

So what's next? Plans are already under way to upgrade transmission lines, substations and natural gas-fired infrastructure. Industrial Info is tracking 9,000 MW of active, natural gas-fired projects in California, including the 939-MW repower of the Huntington Beach natural gas-fired power plant in Long Beach, which is to compensate for the power lost from the San Onofre outage. Approximately 2,009 MW of these projects are under construction; however, more than 50% of these projects are in the northern part of the state.

In addition, $2.5 billion of transmission projects are planned or under construction in the state, more than $1.4 billion of which are Southern California Edison projects.

Despite these projects, the potential loss of SONGS creates a hole in Southern California's electricity supply that will not be filled for quite a while.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.