Southern California Edison (SCE) published a letter addressed to its customers Monday that helps answer a variety of questions, including the recent decision to close the San Onofre nuclear plant and how electricity rates are determined.
The advertisement ran in various publications that reach SCE’s 4.9 million customers across its 50,000-square-mile service territory.
“We thought it was important to make sure our customers know about how the utility business works, and why there is such a thing as ‘cost recovery,’ so that context can be considered as we go through San Onofre-related regulatory proceedings,” said Ron Litzinger, president of SCE.
“We had already made it clear that we will aggressively pursue Mitsubishi Heavy Industries to compensate us for the faulty equipment it provided, and we are doing so. But we also wanted to give our customers more information about the process and the fairness principles involved that have helped ensure that electricity is affordable, reliable and safe.”
The following is the full letter that was published today:
To the Customers of Southern California Edison
Southern California Edison’s decision to close the San Onofre Nuclear Generating Station (SONGS) was necessary and in our customers’ best interests. Closing it was the best solution, when compared with the growing cost and regulatory uncertainty of trying to reopen the plant.
Now the process has begun of deciding how to best decommission SONGS safely and address the remaining costs. Southern California Edison (SCE) is vigorously pursuing recoveries from Mitsubishi Heavy Industries, the company responsible for designing and manufacturing the faulty components that caused the SONGS shutdown. Likewise, SCE is pursuing insurance recovery for outage costs.
There may be costs that are not recovered from Mitsubishi and the insurers, and these could be significant. SCE is now participating in a process before the California Public Utilities Commission to determine just how these remaining costs should be addressed.
The U.S. system of providing electrical power is the least expensive and most reliable in the world. It is founded on the principle of attracting low-cost capital and sharing the system costs among all users. This is important because electricity is essential to modern life.
Utilities like SCE rely on attracting private capital in order to build the electric system. We are obligated to offer electric service to every person in our franchise service territory. Unlike other businesses that invest, produce and sell their products for whatever price the market will bear, our prices are set by our regulator, the Public Utilities Commission. Our rates allow us to recover our operating costs, without any mark-up or profit. We are also allowed to recover at cost our investment in system assets, over time. We earn our profit by receiving a reasonable rate of return on our invested capital, as determined by our regulator. These important and long-standing principles are called the “regulatory compact.”
Across America, these principles have been applied again and again to utility assets, including power plants. Many utility assets, like our 100-year-old hydroelectric system in the Sierra Nevada Mountains, last longer than the time required to recover the cost of the investment. Customers continue to benefit from these assets. Conversely, if a utility asset must be retired before the end of its expected life, the utility recovers from customers its reasonable investment costs.
The long-established principles of the regulatory compact must guide us as we work through the SONGS shutdown. More than 40 years ago, SCE relied on this principle to attract the billions of dollars from investors required to build SONGS. SCE’s customers have benefited from over four decades of affordable, emission-free energy.
The American utility system works because everybody is in it together. Everyone shares the benefits and the costs. These private investment and cost recovery principles have worked for decades, providing customers safe, reliable and affordable power. SCE’s position is that the costs associated with the shutdown of SONGS that are not recovered from Mitsubishi or through insurance should be borne fairly in accordance with these principles.
The process that is now under way before the California Public Utilities Commission will determine exactly how these costs will be addressed, and SCE is committed to communicating with its customers frequently and candidly throughout that process at www.songscommunity.com.
We pledge that we will work to develop a solution that ensures appropriate compensation from Mitsubishi and the insurers and fair treatment of both SCE customers and investors.
