Two years after Gov. Gavin Newsom brokered an agreement to help Pacific Gas & Electric Co. preserve the life of Diablo Canyon nuclear power plant on the state’s central coast, the expensive deal came under fresh scrutiny from lawmakers.
Once the governor got his way in recent budget negotiations, criticism quieted.
Now that the dust has settled, it remains unclear whether California taxpayers will be paid back for hundreds of millions in loans to PG&E and just how necessary the plant’s operations remains to the grid’s resilience during extreme heat waves.
Few lawmakers disagree with the governor’s push to prolong the state’s single largest source of zero-carbon energy to help prevent blackouts. But many have demanded more transparency from PG&E and a plan from Newsom that addresses rising costs for ratepayers.
Regardless, taxpayers and ratepayers are likely to end up paying more than what lawmakers agreed to two years ago.
The state has allocated $1 billion to PG&E to date with the final $400 million already requested by the Department of Finance. With the federal Department of Energy loan only expected to cover a maximum of $1.1 million, $300 million could fall onto taxpayers.
And that doesn’t include operations costs being covered under the deal by ratepayers of California’s other investor owned utilities.
Lawmakers say they’ll push for more accountability and information from PG&E, which says it’s wrong to assume that the loan will not be paid back. But utility reform advocates warn that whatever leverage lawmakers had is long gone.
“I believe we have to stick to the deal, but we have to make sure that certain promises are being kept,” said Sen. John Laird, D-Santa Cruz, whose district includes the plant. “How do we hold to the commitment in the bill that there’s no taxpayer or ratepayer exposure?”
Born in blackouts of 2020
The deal to keep Diablo Canyon alive for another five years was brokered in 2022, during a sweltering August. As Californians cranked their air conditioners, the state’s grid operator sent text messages asking them to voluntarily conserve power to avoid blackouts.
Newsom had been publicly discussing his aims to secure new federal funding for nuclear reactors facing closure. That’s after rolling blackouts issued during summer of 2020 left him looking for ways to buttress the grid against extreme heat.
Diablo Canyon was set to close in 2025 after PG&E chose to decommission the plant rather than invest in expensive environmental and earthquake safety upgrades. But the governor, seeking to avoid blackouts, appealed to PG&E to keep it open.
The plant produces roughly 9% of the state’s electricity annually, about the same amount as hydropower supplied from all of California’s dams. Renewables overall supply about 55% of our power, with natural gas still providing nearly 40%.
The governor’s decision to push for a rescue of Diablo marked a shift in the politics of nuclear power, which historically faced public opposition. He argued that nuclear was critical to carbon-free grid reliability as the state tried to meet its clean energy goals.
“We threw out the old playbook. We’re going to worst-case scenario,” Newsom said at the time about saving the plant to combat extreme heat impacts and preserve electricity for millions of Californians. “We are being very sober.”
A bill to rescue the PG&E operated power plant with state loans for federal reimbursement was introduced at the very end of the 2022 legislative session. Despite opposition from lawmakers, SB 846 passed after 1 a.m. on the very last night.
In a late night appeal to lawmakers ahead of a vote, Sen. Laird said the deal would protect taxpayers and ratepayers, pave the way for offshore wind development, help develop an overarching plan to strengthen the grid and conserve land outside the plant
When Newsom’s finance department demanded the next $400 million installment since that vote this spring, lawmakers were alarmed that those promises were not being kept. Some worried that PG&E shareholders stood to gain from certain pots of funding.
“It feels like we’re being taken advantage of here,” said Sen. Benjamin Allen, D-El Segundo, in a May budget committee hearing. “A lot of the terms that we were sold have not been fulfilled by the administration.”
Other lawmakers wanted energy costs be put front and center in the push to achieve 100% carbon-free electricity by 2045.
“Newsom caused the problem by shutting the plant down prematurely, and then said he solved the problem by turning it back on,” said Sen. Brian Dahle, R-Bieber. “It cost ratepayers money because of his actions, and there’s no clear plan today besides offshore wind.”
Frustrated lawmakers initially pushed back , refusing to acquiesce. They demanded more information from PG&E and the Department of Water Resources, which is overseeing the loan, about how the money is being spent and requested assurances that shareholders aren’t benefiting.
PG&E spokesperson Lynsey Paulo said in previous statements that it is incorrect to assume that parts of the loan won’t be paid back, and that the utility holds semi-annual meetings with DWR and the CPUC where the company lays out how funds are being allocated.
Ultimately, lawmakers conceded to demands of Newsom’s administration in budget negotiations.
“It’s extremely disappointing to see the legislature capitulate on this important issue and to basically take a pass on holding PG&E accountable,” said Matt Freedman, staff attorney at The Utility Reform Network, a San Francisco-based consumer advocacy organization.
PG&E reported last year that the company saw its profits surge by almost 25% after issuing substantial rate hikes.
“Legislators seem to care about accountability for these funds, but we have seen zero follow through after the budget debacle,” Freedman said. “My operating assumption is that members do care. But the reality is, they’ve given away almost all of their leverage by approving the funding.”
How necessary is nuclear?
Another major question is whether the grid really needs Diablo Canyon open. Prolonging its life has never been California’s only option for averting blackouts during scorching heat waves.
In the years after 2020, the state has invested heavily in other reliability measures — from adding heavy duty batteries to the grid to coordinating power supplies with other western states and moving forward with offshore wind and geothermal energy.
President and CEO of California’s independent grid operator Elliot Mainzer said last week that clean energy and battery storage played a “major role” in avoiding public safety power shutoffs or other emergency measures this past record-setting heat wave.
But the state’s major energy agencies, including the grid operator, Energy Commission and Public Utilities Commission predicted in 2022 that California will face a choice between energy shortfalls and increasing our reliance on fossil gas power plants in the next three years.
Michael Wara, director of Stanford University’s Climate and Energy Policy Program, said scientists don’t yet fully understand the extent of heat wave risks on our electrical infrastructure, so playing it safe is key. Reliability needs should be reevaluated on an annual basis, he said.
“There’s always going to be people who think it’s unecessary, but I know a lot of people who think earthquake insurance is too expensive. I personally buy earthquake insurance,” Wara said. “We are in uncharted territory in terms of heat waves.”
Wara insisted more attention should be paid, he said, on how to move toward shutting down harmful gas fired power plants. But until then, California has to build its electricity system with the most extreme events in mind.
“This is one of those cases where we needed to do the good thing and not be perfect and just be practical, and the Newsom administration chose that path. It has worked,” he added. “They did the thing that needed to be done that wasn’t always going to be popular, because they had to govern. I’m grateful they did.”
But none of the commitments made in SB 846 assuage safety concerns of Daniel Hirsch, the former director of the Environmental and Nuclear Policy Program at UC Santa Cruz.
He sees this policy as a case of an “astonishing way to make fundamental policymaking that could wipe out part of the state,” arguing that the governor’s about-face on nuclear energy reflects an unfounded campaign to persuade the public that it’s environmentally friendly.
“The fundamental reality is that if the amount of money being spent to keep Diablo running was going to renewables and storage, it would get us far more bang for the buck and more wegawatts per dollar, faster and more reliably,” Hirsch said.
All negotiations are a give and take, said Sen. Laird. He and other lawmakers said they expect to see more informational hearings on the subject to get more information from PG&E.
“I think there will always be tension around this, because any negotiated settlement on an issue involves some people getting things they wanted and some people getting things they didn’t want,” he said. “And that always exists even after it’s over.”
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