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SLO County cities, schools may not get $85 million from Diablo Canyon closure settlement

What will happen to Diablo Canyon after it closes?

Diablo Canyon nuclear power plant will be shut down in 2025 after its operating licenses expire.
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Diablo Canyon nuclear power plant will be shut down in 2025 after its operating licenses expire.

San Luis Obispo County cities and other government agencies might not get the $85 million settlement agreed upon for Diablo Canyon nuclear power plant’s proposed closure.

California Public Utilities Commission administrative Judge Peter Allen, who over the past year heard testimony and received public comment on the proposal to shutter Diablo Canyon in 2025, on Wednesday recommended that the commission not approve the settlement portion of PG&E’s application, saying ratepayers should not be expected to foot the bill.

“It is uncontested that the retirement of Diablo Canyon would result in reduced local tax revenues and a loss of well-paying jobs, with a corresponding potential for significant adverse economic impacts on the local area,” Allen wrote in his decision.

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“The question before this commission is not whether there will be economic impacts, or even the potential size and scope of those impacts, but rather whether PG&E ratepayers should pay to mitigate these impacts.”

The decision concerned many officials in SLO County, who noted the importance of the funds to keeping the local economy stable once one of its largest employers leaves. Though confusion reigned over what the next steps should be, many said they would continue to push for the commission to allow the settlement.

Allen’s ruling is not yet legally binding; parties to the proceedings have 25 days to comment on the proposed decision before it will go before the full CPUC board either on or after Dec. 14 for a final decision.

Allen did recommend approval of the proposed retirement schedule for the plant, meaning the utility company will likely go ahead with plans to shutter both its nuclear reactors once their licenses expire in 2024 and 2025.

Changes to the application

Last November, PG&E agreed to pay local cities, San Luis Coastal Unified School District and San Luis Obispo County an $85 million settlement package to support those agencies after the plant’s closure.

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Of that, $75 million was expected to go to offset property tax losses by the school district, county and 69 other special districts and $10 million would go for economic development efforts in the county and cities. The company also agreed to pay between $37.5 million and $62.5 million toward local emergency planning efforts until all spent fuel is in dry cask storage and the two nuclear reactors are fully decommissioned.

In his decision, Allen noted that the settlement agreement ensured the cities and county supported PG&E’s closure application, and may have benefited the utility company more than the participating government agencies.

“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,” Allen said.

Allen said the commission would approve ratepayer funding for the community mitigation program if legislation required it to do so; PG&E could also choose to use shareholder funds to pay for the program.

Allen also recommended chopping funding for PG&E’s proposed employee retention and retraining program almost in half to $160.5 million. The company had originally applied for $350 million.

“While there is certainly ratepayer benefit from Diablo Canyon being operated in a safe and reliable manner until its retirement, PG&E has failed to show that the amount of ratepayer dollars requested is necessary or reasonable,” Allen wrote.

PG&E spokesman Blair Jones said the company is dedicated to its application as proposed and intends to push for the commission to approve it with the settlement and employee retention program in place.

“PG&E strongly disagrees with these proposed adjustments,” Jones said in a statement. “All of these programs support the key focus of the joint proposal, which is having DCPP serve as a reliable and affordable clean energy bridge to 2025 while other greenhouse gas-free replacement resources are developed to replace the output we need to meet customer demand.

“We look forward to advocating for this in our comments back to the CPUC and during final arguments at the end of November.”

If the commission chooses to uphold the judge’s ruling, Jones said PG&E would meet with joint parties to the agreement to “evaluate our next steps.”

Community reaction

Officials’ reactions to the news Wednesday focused largely on the disappointment of potentially losing what was pushed as an essential aspect of the closure agreement.

Third District county Supervisor Adam Hill said the Board of Supervisors will likely begin discussing its options next week, noting the possibility of approaching the state Legislature for the money.

“It’s very disappointing, but I don’t think we are out of possibilities here,” he said. “I think we still have some very important arguments to make.”

If that is unsuccessful, Hill said he didn’t think the loss of the mitigation money would devastate the community, “but it is going to be painful.”

Eric Prater, superintendent of the San Luis Coastal Unified School District — which was expected to be the most impacted by the loss of property taxes from Diablo’s closure — described the news Wednesday as “a punch in the stomach.”

The district receives $9.5 million per year in taxes from PG&E, which is about 11 percent of its total revenue. When PG&E announced in 2016 that it intended to shutter the plant, Prater warned there could be cuts and school closures if the district could not make up the lost revenue.

Now those look to be back on the table.

Prater said he organized a special committee last year to examine the district’s options if the district could not find an alternate source of money to replace Diablo Canyon’s property tax revenue. That committee is expected to release the results of its study Dec. 12.

Though he is not aware of the final results of the report, Prater said he expected it would include suggestions for how to cut costs or increase revenue, such as by increasing class sizes, eliminating programs or even closing schools.

“Even though it looks like we are not getting the money, we certainly have reserves, and this is an opportunity to roll up our sleeves and dig in,” he said. “We have a really great district, and our students are doing exceptional things. The unfortunate thing is this is one of those things public schools have to endure, when funding dries up. We just have to come together and rally.”

The city of San Luis Obispo stands to lose about $2 million in economic development funds if the agreement isn’t approved.

“It is a big deal,” City Manager Derek Johnson said. “This community and this region needs to have a comprehensive strategy to deal with the planned closure of Diablo Canyon.”

Johnson, acting as part of the coalition of cities to petition PG&E for more economic impact funding, added:

“We are stunned and disappointed by CPUC staff’s recommendation to deny our PG&E/Diablo Canyon Power Plant closure settlement agreement. Instead of supporting the proposed $85 million to help our communities manage the grave economic impacts of plant closure, the CPUC is rejecting the agreement in its entirety. Coalition members will continue to work together to evaluate our options before the scheduled Nov. 28 CPUC hearing.”

Pismo Beach City Manager Jim Lewis said he was frustrated with the judge’s decision.

“Why should the costs be expected to be borne just by the community, which already bore the risks of having the plant for years, and not by the ones who benefited from the energy for years?” Lewis said.

Lewis also noted that the judge’s assertion that ratepayers should not pay for government services was beside the fact, saying the money for both the settlement and the employee program would go to helping people, not bureaucracy.

“This is an issue of the continued safety of the plant and its safe shutdown,” he said, “not government services. It’s also about people and their jobs and the economic sustainability of this area.”

Democratic Rep. Salud Carbajal — who represents the 24th Congressional District, including San Luis Obispo County — called the recommendation “disheartening.”

“However, I expect the commission to fully weigh how their forthcoming decision will impact the Central Coast, as well as consider how our community has provided a steady, reliable source of energy in the state of California for decades,” he said in a statement. “I will continue to partner with the community in order to achieve the goals of the joint agreement and to keep our local economy thriving as the Diablo Canyon decommissioning moves forward.”

As the Diablo Canyon Power Plant closure looms, take a look at how other communities are coping with nuclear power plant closures.

State Assemblyman Jordan Cunningham said he was concerned about the loss of $85 million in community impact funds, as well as the reduction in funds for employee retention and retraining.

“I’m going to be proposing some remedy or maybe a number of remedies,” Cunningham said.

If it turns out that passing those costs on to ratepayers is not authorized by law — which is what the administrative law judge concluded — Cunningham said he’d be willing to take that up in the Legislature.

“If that’s the case and that’s something that could be authorized with specific legislation, we could pursue that,” he said.

Rochelle Becker of the Alliance for Nuclear Responsibility said she is pleased with one aspect of the decision: The judge recommended reducing the amount ratepayers will have to pay for PG&E’s relicensing efforts.

The utility had requested reimbursement of $53 million for relicensing efforts completed before it decided to shutter the plant. The judge recommended reducing that amount to $18 million.

“We feel very good about prevailing on license renewal,” Becker said.

Who should pay?

The idea of providing financial help to communities affected by the closure has wide support, but some groups argued that shareholders, rather than ratepayers, should pick up that tab.

The company proposed a short-term 1.6 percent average rate increase to pay for some of the costs of closing the nuclear power plant near Avila Beach — including the employee retention and retraining program, $85 million settlement and relicensing fees.

The change was expected to add between $0.99 and $2.41 to the average residential customer’s monthly bill until the fee sunsets after eight years. Small commercial businesses’ bills would increase by about $4.63 per month.

Jones said the settlement accounted for less than half a percent of the proposed increase on users’ bills.

This is something of a test case in California. Should the commission agree to pass the cost of community payments onto ratepayers, that would set a precedent.

San Luis Obispo Mothers for Peace spokeswoman Jane Swanson applauded the decision to restrict the settlement agreement on Wednesday — Mothers for Peace was one of several groups who petitioned to have the commission reconsider having ratepayers pay for that aspect of the agreement.

“This proposed decision has merit in that it places limits on the ability of PG&E to use ratepayer money to bail out the corporation for expenses that the shareholders should be responsible for,” she said.

The closure plan for San Onofre, a nuclear power plant near San Diego that closed in 2013, does not include community payments. The area has a much larger economy and is in a better position to absorb the financial hit than San Luis Obispo.

Kaytlyn Leslie: 805-781-7928, @kaytyleslie

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