Tribunal awards damages for SONGS generators

14 March 2017

An international arbitration panel has ordered Mitsubishi Heavy Industries (MHI) to pay the owners of the San Onofre nuclear power plant $125 million for defective steam generators supplied to the plant in 2009 and 2010. The International Chamber of Commerce (ICC) capped the award at the liability limit contained in the contract to supply the components.

One of the replacement steam generators supplied for SONGS in 2009 (Image: MHI)

The four replacement steam generators Mitsubishi supplied for units 2 and 3 of the San Onofre Nuclear Generating Station - also known as SONGS - were intended to enable the pressurised water reactors to continue operating until 2022, but were found to be suffering from excessive wear after less than one year in service. Both reactors were taken offline in early 2012 only to be closed permanently in June 2013 when majority owner Southern California Edison (SCE) decided not to continue a protracted regulatory process to show that lower power operation would be safe.

SCE and its wholly owned subsidiary Edison Material Supply filed a demand for arbitration against MHI and Mitsubishi Nuclear Energy Systems - MHI's US nuclear power systems business - in October 2013, under the dispute resolution procedure specified in the contract for the supply of the steam generators. The San Diego Gas and Electric Company and the City of Riverside - minority co-owners of the power plant - joined the arbitration case in 2014. The initial claim for not less than $4 billion was increased to $7.6 billion in 2015.

Mitsubishi did not dispute the claimants' allegation that the replacement steam generators in SONGS unit 3 experienced "unacceptable wear" but argued that it had fulfilled its warranty obligations under the contract and that the limitation of liability in the contract should be upheld.

Yesterday, the ICC arbitration panel notified the claimants and MHI of its decision to award $125 million for the claims against MHI. The tribunal rejected claims of fraud and gross negligence against Mitsubishi, and ordered the claimants to pay MHI $58 million in legal fees and costs.

The decision includes an allocation of damages and costs in accordance with plant ownership shares, and results in a net award of about $52 million to SCE, the company said.

"We had hoped the award would more accurately reflect the true magnitude of damage caused by Mitsubishi's defective steam generators," Ron Nichols, SCE president, said. "Unfortunately, the arbitration panel concluded that the contract's prescribed liability limit should be respected and no additional award can be granted despite the harm caused."

The ICC panel's ruling was based on a 2-1 decision, and Nichols said one of the three arbitrators had filed a dissenting opinion finding that the owners of SONGS should have been awarded "more than $1 billion". He said SCE was reviewing the ICC's decision.

MHI said yesterday it had "already reserved certain funds" and expected the financial impact of the damages on its 2016 financial results to be "minimal".

SONGS is now undergoing decommissioning, with major dismantlement work expected to begin in 2018, and will take about 10 years to complete. SCE selected SONGS Decommissioning Solutions - a joint venture between Aecom and EnergySolutions - as the decommissioning general contractor in December.

San Onofre is owned 78% by SCE, 20% by SDG&E and 2% by the city of Riverside.

Researched and written
by World Nuclear News