Play Live Radio
Next Up:
Available On Air Stations
Watch Live

KPBS Midday Edition

Consumers On the Hook For Failed Energy Projects After 2002 Law

Surfers walk along a beach nearby the San Onofre nuclear power plant, July 19, 2012.
Associated Press
Surfers walk along a beach nearby the San Onofre nuclear power plant, July 19, 2012.

Consumers On the Hook For Failed Energy Projects After 2002 Law
Consumers On the Hook For Failed Utilities Projects After 2002 Law GUEST: Ivan Penn, reporter, Los Angeles Times

>> Recently state regulators said they want to take a step -- a second look at the agreement on costs related to the San Onofre nuclear shutdown. That left ratepayers with the bill of $3.3 billion. It was Southern California Edison that commissioned and bought the faulty generators that led to the plant shutdown. Why would ratepayers be made to pay for their mistakes? It seems there's a law that allows utilities to share the burden of costly mistakes. It was put in place to help save California's energy. Joining me is Ivan Penn. Apparently, this all came about as a result of the California energy crisis in 2001. Why was the industry in trouble? >> At that point, you had Pacific Gas & Electric and Southern California Edison in positions of insolvency, PG and the was in bankruptcy at the time. The concern on Wall Street was that, would we be able to get our money back from the investment in the utilities, given the circumstances. >> That was the time, just remind people, where we had between a real energy crisis and the manipulation of the market rolling blackouts. This was a pressing issue, at the time in 2001. >> That's right. With the energy crisis, there was concern about was there enough electricity, some of what we learned was that there was manipulation of the energy markets. The concern was that, are we going to be able to ensure that we will be able to keep the lights on. >> Before the change, there was a regulatory policy called used and useful, that guided the cost energy companies could charge. >> The essence of the principal was that, utility companies would not be able to recoup their money for projects that they built, they wouldn't be able to collect it from the ratepayers until it was deemed useful or benefiting consumers. >> In other words, until ratepayers were getting the energy from the project, they wouldn't be billed for. >> That's correct. >> The legislation that change that policy allowed to -- utilities to collect money from customers before the new projects were built or tested. Does this make it easier for the companies to undertake the new projects? >> The intent of the legislation was on. Human -- procurement contracts. In practice, it was ultimately extended to construction projects, upgrade projects in the reason it made it easier was because instead of, the more thorough review after the project was completed and before customers were charged, it was given a more cursory or preliminary review. >> This led to, a building boom among the utilities. >> Especially after the energy crisis, there was seen in need for more power. You had more plants and upgrades going on, then there was in anticipation of more growth and more demand. >> Beside the ship those the San Onofre shutdown, which we know is an ongoing concern, what other failed energy projects have consumers had to pay for? >> There were -- of course we have right now, ongoing we have the natural gas storage facility which was given a budget of $200 million. No requirement for that after-the-fact review, unless they exceeded it. In addition to that, you had the Mohave generating station project, a coal burning facility, that didn't materialize. The facility was found in violation of the clean air act. As we saw with the San Onofre nuclear plant, you didn't actually get the benefit of the project, they had to shut down early, customers were on the hook for the construction of those projects. Because they shut down early, now they are paying it earlier than they would have, for the decommissioning of these projects. In addition, there was the Pacific Gas & Electric transmission line that they were working on, of those in mile transmission line, a smaller line that Edison was working on, both of those projects were canceled. The result was a $20 million cost to ratepayers. >> Is this just a California experiment or are there other states that have made similar changes to how utilities can pass on their costs? >> There's a historic term for this, construction work in progress. You've read various forms of this over time, particularly in the Southeast United States. You had a form of this called the nuclear cost recovery, which was largely used to upgrade nuclear plants and for the construction of new ones. We saw this in use in Florida, ratepayers there were seeing an upgrade at the Crystal River nuclear plant and a proposal for a new nuclear plant, those both failed. The result was over $3 billion in cost to ratepayers. >> It's across the country, and various states. Here in California, is there any movement to change the policy back to the way it used to be? >> That's what some of the critics of state regulators and the utilities would like to see. It hasn't been codified in law how to interpret it. Some of the members of the California Public Utilities Commission say that, depending on which way the political winds blow at any given point in time, how used and useful was interpreted. Some are saying we need to have a lot more clear in the law, exactly how this should be interpreted.'s. I've been speaking with LA Times reporter, Ivan Penn. Thank you.

California regulators said last month they are reopening the San Onofre nuclear power plant settlement, which left ratepayers responsible for $3.3 billion in costs related to the plant's shutdown. But just 14 years ago, consumers may not have been responsible for such a hefty bill.

A 2002 change in regulatory policy meant that utilities could pass on infrastructure costs to ratepayers even if those projects fail, according to Los Angeles Times energy reporter Ivan Penn. The old system required consumers to actually benefit from new utility projects before ratepayers became financially responsible.


But following the 2001 blackouts, utilities were in dire fiscal straits and were unable to borrow enough from investors to fund large projects, Penn said. That led lawmakers to allow utilities to collect costs with only a basic preliminary review.

Southern California Edison was able to keep the $680 million it collected for new steam generators, even after their failure led to the radiation leak that shuttered the plant. Edison was given preapproval for the project in 2010 and 2011 because the plant was useful at the time, according to Penn.

Penn joins KPBS Midday Edition Tuesday with an in-depth look at how utilities pass on the cost of failed projects to ratepayers.