The Diablo’s in the Details
As California prepared for an epic Labor Day weekend heatwave and a round of potential rolling power outages, lawmakers were busy crafting a last-ditch effort to save the state’s single remaining nuclear power plant from retirement. Until recently, the Diablo Canyon Power Plant—with its 2,250 MW of firm baseload generation—was on track to shutdown in 2025, when its nuclear operating license expires. Pacific Gas & Electric Company (PG&E), the plant operator, has been planning to retire the facility for years, with encouragement from the state. But as a new California energy crisis looms, the legislature breathed new life into the nuclear facility this week—in the form of a $1.4 billion forgivable loan to PG&E to help keep the nuclear operating license in place until 2030.
California’s energy market is uniquely complicated. PG&E and other investor-owned utilities (IOUs) provide distribution services, but they own little of their own generation and a huge portion of retail customers are now supplied by community choice aggregators (CCAs). CCAs are expected to serve 38% of the IOUs former load this year, with an even higher percentage in PG&E’s service territory. The IOUs are fully regulated by the state PUC, but CCAs have more authority over their own resource planning processes. To add a layer of complication, the California Independent System Operator (CAISO)—which is regulated by the Federal Energy Regulatory Commission—runs the bulk of the state’s transmission grid. This means that when things go wrong, there is plenty of finger-pointing, but a distinct lack of accountability.
The Diablo Canyon debacle highlights how this lack of accountability leads to haphazard and costly resource planning. In 2016, PG&E filed a plan to retire Diablo Canyon and replace it with renewables and energy efficiency. The PUC rejected that plan, in part because so many had abandoned PG&E’s retail service that it had more generation resources than it needed to serve its bundled customers. In fact, one CCA argued that allowing Diablo Canyon to retire without any replacement would be just what the doctor ordered, that “discontinued operation of the facility, from an operational perspective, is likely a solution to PG&E’s declining energy requirements in and of itself.” (CPUC Decision 18-01-022). The PUC agreed and punted on any new procurement.
At that point, the reliability planning broke down. PG&E and the other IOUs had no reason to procure firm baseload power—all of them had more resources than they needed. CCAs were on a resource buying spree, but it was mainly focused on cheap renewables and the PUC had limited authority over the CCAs’ long-term procurement plans. While the CAISO routinely begged the PUC to authorize additional procurement it simultaneously extended the life of gas-fired resources by designating resource must-run (RMR) status to any resource that threatened to retire.
But with temperatures expected to hit 112 next week in Sacramento, the heat is on the politicians, who decided they couldn’t wait for California energy market to fix itself. Californians are already paying the price for poor planning, with rolling blackouts in 2020 and energy prices that have been through the roof—hourly energy prices hovered near the $1,000/MWh price cap during several days this week. Now they’ll also be on the hook for the $1.4 billion dollar loan to keep Diablo Canyon running. With all the out of market activity necessary to (hopefully) keep the lights on, one has to wonder whether California’s energy markets are worth the cost.