Last year Pacific Gas & Electric submitted plans to close the Diablo Canyon nuclear power plant after striking a deal with labor and environmental groups that were determined to shutter it over post-Fukushima concerns about its location near several fault lines (PG&E maintained it was safe).
Under the deal, PG&E, a regulated utility, proposed $1.76 billion in rate increases to foot the bill for the plant's closure and for establishing replacement sources of clean power generation.
However, last week, Peter V. Allen, the administrative law judge assigned by the California Public Utility Commission to consider PG&E's plan to close Diablo Canyon, proposed that the Commission approve just $190 million in rate increases, leaving PG&E well short of its planned cost recovery. PG&E, naturally, is not happy, saying in a statement that it "strongly disagrees" with the proposed settlement.
If the company can’t get the cash it wants, could it mean that PG&E decides not to close Diablo Canyon after all? Or is the process too far along and California politics too intractable for nuclear power to pull itself up off the canvas? I asked a company spokesperson, who said PG&E continues to support the “joint proposal” as submitted. PG&E won't bite on the question of whether or not they would consider trying to pull Diablo Canyon out of mothballs. But I think it's a possibility.
Judge Allen's proposed decision is not legally binding until it is heard and approved by the full commission. That will not happen until after a 25-day comment period for the parties to the process. The earliest date for a commission meeting at which Judge Allen's proposed settlement will be considered in December 14.
Saga Of The 'Joint Proposal'
PG&E's plan to close Diablo Canyon was the result of a carefully negotiated agreement that includes an escape clause triggered if the CPUC "fails to adopt" the plan "in its entirety and without modification." It's worth a little detour to provide background on what is known about how that agreement came about and who was a party to the agreement.
On June 21, 2016, the Natural Resources Defense Council issued a press release revealing that it had signed a deal with PG&E, Friends of the Earth (FOE), Environment California, International Brotherhood of Electrical Workers Local 1245 (IBEW 1245), Coalition of California Utility Employees (CCUE), and the Alliance for Nuclear Responsibility (A4NR) that would result in DCNPP closing when its operating licenses expire – unit 1 in 2024 and unit 2 in 2025.
PG&E would immediately halt its effort to renew the plant operating licenses for an additional 20 years. The other parties agreed that they would support PG&E's request to the California Lands Commission for an extension of the permit allowing them access to the segment of the coast housing their cooling water system.
The permit authorizing the structures that supply and receive ocean water to occupy coastal land was expiring in 2018, several years before the plant's operating licenses.
Gavin Newsome, the state's lieutenant governor, was indicating that he might refuse to allow the permit to be renewed or extended. That possibility threatened a plant closure in 2018 because the plant cannot run without cooling water. PG&E was facing an unplanned, forced closure of a valuable generating asset whose output was still a major part of the company's electricity supply.
At the time forced closure seemed to be a distinct possibility, Diablo Canyon was running at full power more than 90% of the 8760 hours available each year. It's total output was in the neighborhood of 17,000 to 18,000 GW-hrs of electricity, depending on the time spent in refueling outages.
In the best years neither unit needed to be shut down for refueling, so the plant ran full power for the full year.
The reason the coastal land permit expired before the licenses dates back to the longer-than-expected plant construction schedule. The permit was issued in 1968 with the normal 50 year duration.
However, the plant was not completed and ready to obtain its operating licenses until 1984 and 1985. The construction mistakes, focused opposition and factors beyond anyone's control that caused the delay are beyond the scope of this article.
In almost every case, California coastal land permits have been quietly renewed for any structure that is still in use and serving the public good for which the permit was granted. But in California, nuclear power plants are not treated like other useful pieces of valuable infrastructure.
PG&E apparently felt that it needed support from key politically influential groups that had the combined ability to persuade the California Land Commission to grant PG&E a reprieve from the possibility of near term closure. The company wanted to keep operating the plant long enough to rearrange its business model to accommodate the loss of Diablo Canyon without a massive financial writedown.
It understood that shutting the plant in 2018 would harm its stockholders and management as well as imposing the distinct potential for significant electricity price increases to cover the cost of buying replacement power on the open market.
With Diablo Canyon's output available, market prices were reasonable, but the company decision makers must have been well aware that competitive market prices do not remain constant when there is a sharp reducion in the available supply without a corresponding reduction in the product demand.
An additional concern was that the plant had not been fully depreciated. It was still being carried on the company's books as an asset worth something close to $5 billion.
The parties to the planned early retirement named their deal the "Joint Proposal."
Within two weeks after the Joint Proposal was announced, the California Lands Commission approved an extension to the coast land permit. The extension allows DCNPP to operate through 2025, when its current operating licenses expire.
Fifteen Months Worth Of Hearings And Deliberation
In August 2016, PG&E filed its plant closure and cost recovery application with the CPUC. During the fifteen months since that filing, there has been a massive accumulation of documents that include testimony, rebuttals, and supporting documentation for various contentions.
Interesting Tidbits From Ruling
Judge Allen's proposed ruling is 53 pages long and has a 15 page appendix that provides potentially useful information for anyone with a deep interest in the future of Diablo Canyon.
There are a few key passages worth highlighting.
Only one active party, CGNP [Californians for Green Nuclear Power], argues that Diablo Canyon should continue to operate beyond 2025.5 CGNP makes three substantive arguments for keeping Diablo Canyon operating: Diablo Canyon is more cost effective than the alternative sources of supply, retiring Diablo Canyon would diminish system reliability, and retiring Diablo Canyon would have an adverse impact on GHG emissions.
(Page 11)
...
While the specific arguments made by CGNP are not well supported by the record, the GHG impact of Diablo Canyon’s retirement (and any replacement procurement) does need to be considered. This issue is discussed in more detail below in the section addressing replacement procurement, which finds that the question of the GHG impact of Diablo Canyon’s retirement should be addressed in the Commission’s Integrated Resource Planning (IRP) proceeding.
Though Judge Allen apparently listened carefully to CGNP's arguments, they were the only group making arguments that directly contradicted filings and testimony from others. The preponderance of the submitted evidence, therefore, suggested that the retirement was cost effective compared to other sources of supply and that the system reliability would not be adversely affected.
That was a legal and not a technical judgement.
In the original Joint Proposal there were 3 proposed "tranches" described as procurements of replacement power. During the early stages of the proceeding, PG&E revised its application to remove tranches 2 and 3, but retained tranche 1. That procurement had a goal of reducing PG&E's generating need by 2,000 GWhrs/yr through investments in energy efficiency projects.
In reviewing PG&E's proposed tranches of replacement power procurements, Judge Allen determined that none of them should be approved for rate recovery without first going through the Integrated Resource Planning (IRP) process. He heard a number of conflicting interpretations about whether or not the proposed procurements were necessary, insufficient, cost-effective, or properly evaluated with respect to the effect on California's greenhouse gas reduction laws.
He wrote that the hearing record did not provide enough details to make any determination of whether they were just and reasonable. With specific regard to the energy efficiency tranche that PG&E retained in its application, Judge Allen wrote.
...it is not clear that PG&E could actually procure over 50% more energy efficiency than a goal that is already supposed to include all cost-effective energy efficiency (unless PG&E procures energy efficiency that is not cost effective). There is no reason to approve a
$1.3 billion rate increase for a proposal that will most likely either fail to achieve its goal or will achieve a goal not worth reaching. Accordingly, PG&E’s Tranche 1 proposal is not adopted.
Judge Allen had a number of negative things to say about PG&E's proposed employee retention program. He heard testimony challenging the program as being too generous with ratepayer money and as being more tuned to enabling the continued operation of the plant rather than decommissioning the plant.
He also determined that the plan wasn't well-targeted to meet the described objective of retaining people whose specialized skills were absolutely required.
PG&E’s proposal appears to have a significant “free rider” problem that PG&E does not address, and as such the proposal is overly generous with ratepayer funding. The 1,500 employees eligible to receive the retention payments include all active full-time employees working at Diablo Canyon, plus those who support Diablo Canyon operations and those whose job or job functions would be eliminated as a result of Diablo Canyon’s retirement.
He chided the company for having negotiated and then submitted a detailed payment plan that would require Commission approval for any modification.
In essence, PG&E has delegated management of the program to the Commission.
He apparently was not pleased that PG&E had already made firm commitments with some employees though its application for cost recovery had not been approved.
Finally, it appears that PG&E (with the participation of at least some of its unions) has already executed retention agreements with its employees, presumably incorporating the terms proposed by PG&E in this proceeding.
...
PG&E should not be making promises (even implied ones) to its employees that it does not know it can keep. PG&E is not authorized to recover in rates the cost of the existing agreements.
In his evaluation of PG&E's proposed Community Impacts Mitigation Program (CMIP) that requested $85 million in ratepayer money to transfer to selected entities that would be financially harmed by the plant closure, Judge Allen's comments are rather biting and make interesting reading.
In short, this appears to be a very good deal for PG&E – it gains some community goodwill, and gets support (or eliminates potential opposition) for its litigation positions, and all at no financial cost.
...
Overall, the amount and allocation of payments appears to have more to do with PG&E’s litigation needs than the economic needs of the community.
Is Fifteen Day Renegotiation Clock Running?
On pages 17 and 18 of the Joint Proposal there is a discussion of the actions that the parties agree to take in the event that the CPUC does not approve their submitted deal in its entirety without any modifications. If the parties to the Joint Proposal cannot reach agreement on actions to take, the Joint Proposal may be rescinded and parties may be released from any related commitments.
Judge Allen's proposed ruling makes numerous modifications to the terms and conditions that enabled the parties to the Joint Proposal to initially reach an agreement, but the 15 day renegotiation clock described in the Joint Proposal does not start until after the CPUC has voted. Until that time, the proposed decision has no legal force.
I asked PG&E if there was any possibility that the company will decide to withdraw its application to close the plant. A spokesman replied, "We will continue to strongly advocate for the application as submitted."
It is an issue worth continued reporting. A deal that looked good to most of the decision makers when it appeared to deliver $1.76 billion of ratepayer funds to pay for implementation may not look as good to those same decision makers when it delivers just $190 million.
