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California Plans to Shutter Last Nuclear Plant, Close Three Natural Gas Plants

California regulators on Thursday took two actions to further its long-term renewable energy strategy, approving a plan to close the last major nuclear generation plant and agreeing to replace several natural gas-fired peaking units.

The actions were previewed in the final weeks of 2017 when a California Public Utilities Commission (CPUC) regulatory judge issued a proposed decision (PD) supporting Pacific Gas and Electric Co.'s (PG&E) plans to close by 2025 its Diablo Canyon Nuclear Power Plant. Separately the commission asked PG&E to determine if storage and/or other alternatives to fossil fuel could replace three gas-fired peaking plants.

In addition to approving the schedule for closing Diablo Canyon, the CPUC authorized PG&E to recover $242.2 million in costs associated with its retirement, with most of the funds directed to retain staff for the next seven years until it is finally shuttered.

CPUC President Michael Picker said Diablo Canyon is no longer economic, although he acknowledged it has been a source of “reliable and clean electricity.”

PG&E's request calling for $85 million for a community impact mitigation program was denied; CPUC said the utility could choose to use shareholder funds to support the effort.

"We looked hard at all of the arguments,” Picker said, and “agreed that the time has come” to close the plant. "We have laid out a fair and reasonable pathway to clean power replacement, as well as a program for retaining skilled workers over the course of the next seven years."

PG&E filed plans to close Diablo Canyon in 2016 after agreeing to replace it with energy efficiency programs, renewable power sources and energy storage.

Separately, the CPUC directed PG&E to solicit bids for renewable resources to replace three Calpine Corp. gas-fired peaking plants considered too costly that are in Northern California: Feather River, Yuba and Metcalf. PG&E is authorized to issue a request for offers (RFO) for battery storage or other preferred resources.

The CPUC said the plants lack long-term contracts with utilities. However, the plants have been identified by the California Independent System Operator (CAISO) as needed for grid reliability. The CPUC action could put PG&E on a collision course with CAISO and the Federal Energy Regulatory Commission. The state directive does not require PG&E to sign contracts, if doing so would result in "unreasonable costs or if the solicitation yields proposals that would not prove effective in reducing or eliminating the need for the three gas-fired plants," a CPUC spokesperson said.

Calpine and CAISO have asked FERC to approve the state grid operator's must-run designation for the three peakers, but the CPUC has countered that it would require an expensive cost-of-service contract. The CPUC and PG&E are opposing the move "in part because a lack of competition can lead to market distortions and unjust rates" for electricity.

Regarding the Diablo Canyon decision, PG&E management said it was disappointed regulators did not approve the utilitty’s proposal in its entirety, but "we are appreciative that the CPUC took the positive step to increase the amount of funding for employee retention beyond its original proposed decision."

Natural Resources Defense Council’s Ralph Cavanagh, energy program co-director, expressed disappointment in the Diablo Canyon decision. He said it was a "real tragedy that the CPUC did not specifically authorize carbon-free replacement like energy efficiency and wind/solar power." The CPUC decision "undermines what should have been an inspiring model for the rest of the country.”

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