From Warsaw to SF, the roots of Edison’s historic fine

The San Onofre nuclear power plant north of Oceanside in San Diego County. (Photo: Julius Fekete, via Shutterstock)

The California Public Utilities Commission has begun to dig its way out of a monumental problem in public perception by imposing a $16.74 million fine on Southern California Edison.

On a 4-0 voice vote, the five-member commission levied the unprecedented fine as punishment for failing to disclose a series of meetings and emails, and for providing misleading testimony pertaining to the costs of shutting down the San Onofre Nuclear Generating Station. Southern California Edison owns 70 percent of the station, located on the north San Diego County coast.

The fine was the culmination of years of questions, suspicions and wrangling. The commission’s approval of the unprecedented penalty took just a bit more than five minutes during a Thursday meeting at the CPUC’s San Francisco headquarters.

And the story isn’t over yet.

The $16.7 million fine is the largest ever imposed on a utility for these specific violations.

Commissioner Michael Florio abstained because he was part of one of the unreported contacts.

The action was designed to be “a culture-changing remedy,” said Commissioner Catherine Sandoval.

Left hanging was the question of whether the commission would revisit a previously approved settlement deal that has ratepayers coughing up to 70 percent of the $4.7 billion cost of shutting down San Onofre. The settlement was reached before disclosure of the unreported meetings.

Although the $16.7 million fine is the largest ever imposed on a utility for these specific violations, Southern California Edison’s parent company, Edison International, reported in October a third-quarter 2015 net income of $421 million.

The penalty cannot come out of the giant utility’s ratepayers, the commission said, and must be accompanied by a set of rules aimed at more transparency.

In the sheaf of documents explaining its action, the commission said the fine resulted from a series of secret meetings that began in a Warsaw hotel on March 26, 2013 between then-CPUC President Michael Peevey and then-SCE Executive Vice-President Stephen Pickett on allocations of costs relating to the shutdown of the San Onofre Nuclear Generating Station. (Which has the lyrical acronym SONGS.)

The San Onofre station was shut down immediately after discovery of a leak of contaminated steam on Jan. 31, 2012. SONGS was shut down permanently as of June 7, 2013.

The Warsaw meeting and seven subsequent meetings, along with a series of emails, should have been disclosed but weren’t, the CPUC contends.

The utility company has consistently argued that the meetings themselves were not in violation of the rules.

The CPUC ordered a $20,000-a-day fine “for the 826 days of the continuing violation arising from SEC’s acts and omissions related to Mr. Pickett’s meeting with Commissioner Peevey through the time when SCE ceased repeated (sic) his evolving and misleading versions of the communication.”

Southern California Edison contended that Pickett played a passive role in the Warsaw meeting, mostly listening to Peevey’s one-man peroration on the costs associated with the SONGS shutdown. Pickett made little or no response, but took notes, SCE argued.

SCE believed the March 2013 meeting was not reportable under the commission’s rules, based on information reported at the time. It was not until early 2015 that SCE learned additional informaion that indicated a report should be filed,” SCE President Pedro Pizarro said in a statement.

In a statement issued a few hours after imposition of the penalty, Pizarro said SCE was “disappointed” and “respectfully disagreed” with the CPUC action. The utility company has consistently argued that the meetings themselves were not in violation of the rules.

The CPUC accused Edison of “an aggregate of choices made by SCE and its employee, Mr. Pickett, which illustrate a pattern of lax oversight and grossly negligent disregard for the Commission’s Rules. The net effect is a series of acts and omissions favoring non-disclosure over disclosure of one-on-one communications with decisionmakers.”

One question went unanswered in the commission’s documents accompanying the imposition of the fine: Where was Michael Peevey in all this?

State agents served search warrants on the CPUC seeking “any and all records” on the San Onofre shutdown.

As president of the CPUC, Peevey was a participant in meeting after meeting, the non-disclosure of which was found to be in violation of commission rules. It wasn’t determined that Peevey was aware of any impropriety, and it wasn’t up to him to disclose the meetings, although in addition to being president of the PUC, he was an experienced utility company executive, and indeed the former head of SCE.

In January 2015, the California attorney general’s office executed a search warrant on Peevey’s La Cañada Flintridge home in Southern California. Items seized in the search included computer equipment, electronic memory devices and handwritten notes on Hotel Bristol, Warsaw, stationery.

On June 5, state agents served search warrants at the CPUC’s San Francisco and Los Angeles-area headquarters seeking “any and all records” on the San Onofre shutdown between the day of the leak in on the last day of January 2012 and January of 2015.

Asked for a status report on the investigations, Department of Justice spokeswoman Rachele Huennekens said, “We can’t comment on potential or ongoing investigations, even to confirm or deny them, in order to protect the integrity of any investigation.”

 For months, news reports have detailed what appears to be a mutually supportive — some have used the word “cozy” — relationship between the commission, the Pacific Gas & Electric Company and Southern California Edison.

To some observers, the relationship between the commission and the utilities would come under the definition of “Regulatory Capture.”

The language used by critics of CPUC has not always been drab. San Diego attorney Maria Severson, who has sued the commission and Edison in connection with the San Onofre station, told Jeff McDonald of the San Diego Union-Tribune the situation “… is a corroded spigot running filthy with greed and lies.”

Meanwhile, Gov. Jerry Brown has busied himself with vetoing six bills aimed at reforming the CPUC. Brown said the bills had some “needed and important reforms,” but contained “various technical and conflicting issues” and were too complicated and expensive.

Assemblymember Anthony Rendon, the Lakewood Democrat who authored the package and is the incoming Assembly speaker, pronounced himself “disappointed.”

Rendon said the public’s trust in government needed to be rebuilt, and “Each and every day dysfunction continues at the CPUC, that trust erodes.”

To some observers, the relationship between the commission and the utilities would come under the definition of “Regulatory Capture.”

The authoritative Investopedia defines regulatory capture this way:

Regulatory capture is … the process by which regulatory agencies eventually come to be dominated by the very industries they were charged with regulating. Regulatory capture happens when a regulatory agency, formed to act in the public’s interest, eventually acts in ways that benefit the industry it is supposed to be regulating, rather than the public.”

If that is indeed the situation that has existed, the CPUC last week began a multi-million-dollar effort to turn things around.

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