Diablo Canyon

The Diablo Canyon Power Plant. Recent news reports that load-serving entities were considering an offer from DCPP operator PG&E for "free" nuclear energy created some confusion, but the complex proposal actually involves carbon-free energy attributes.

There has been a great deal of discussion and misinformation circulating about an offer of "free nuclear electricity" being made by Pacific Gas & Electric to load-serving entities in its service area, but it is actually a complex, proposed transaction that only nominally involves generation, parties involved with the transaction say.

Local news reports said that East Bay Community Energy was considering an offer for "free" nuclear energy, creating some confusion, the parties said.

PG&E is voluntarily offering LSEs that pay the Power Charge Indifference Adjustment a proportional share of its energy "attributes"—so-called carbon- or greenhouse gas-free energy allocations or environmental attributes that, if a community choice aggregator or energy service provider accepts them, will be calculated as part of its portfolio despite the fact that the LSE will not directly receive any generation.

Currently, this energy from large hydro and nuclear generation cannot be included in LSEs' Power Content Labels or integrated resource plans.  

There are two parts to the agreement the LSEs are trying to reach with PG&E.

The first part is a short-term deal in which PG&E would give the LSEs the carbon-free attributes at no cost for a year. This would alleviate the need for LSEs—CCAs in particular—to make short-term procurements.

How carbon-free renewables would be handled beginning in 2021 would be spelled out in the final PCIA process, which is being developed in a PCIA Phase 2 working group at the California Public Utilities Commission [R17-06-26].

Details on the short-term attribute allocations were outlined by PG&E in a Dec. 2 advice letter filed with the CPUC [AL-5705-E].

"CCAs are paying for the high price of the IOUs' legacy generation resources through the PCIA, without receiving the carbon-free benefits," Beth Vaughan, executive director of the California Community Choice Association, told California Energy Markets in an email. "Because CCAs have to buy these attributes from the marketplace to meet their compliance obligations, communities are essentially paying twice. This is both unfair and costly for CCA customers.

"CalCCA supports the voluntary allocation of the carbon-free attributes to CCA customers, with each CCA making its own decision about whether to accept allocations at the local level," Vaughan said.

Many CCAs—EBCE in particular—are in the process of deciding whether to accept the offer at all or take a part of it. They could accept none, one, or both of the attributes associated with the two generation types.

If an LSE opts not to take an allocation, however, its PCIA would not decrease.

Although the LSEs would not be getting any generation directly from these sources, if one accepts the attributes, it would still need to have the information on its Power Content Label. Some EBCE customers want nothing to do with nuclear power, which has sparked discussion of the merits of the offer, according to EBCE CEO Nick Chaset. Namely, what is the cost of changing the Power Content Label compared with the savings that would result from taking the allocation?

Chaset said in a phone conversation that what is being weighed is reputation versus cost, but he said he doesn't know which way the scales are tipping at this point.

The LSE obtaining the attribute is not the holder of the underlying PPA. It is taking title of the attribute. The title for the attribute, whether from a renewable or carbon-free source, can be exchanged. If an LSE accepts any nuclear energy attributes, this has to be claimed on its Power Content Label.

The energy from these sources generated by PG&E is liquidated into the California Independent System Operator pool, where it is instantaneously injected and withdrawn, Chaset said. This is also known as brown power—power from a nonspecific generation source. PG&E keeps the energy revenue.

"The primary issue" for EBCE customers, Chaset said, "is whether or not nuclear shows up on the Power Content Label."

There have been concerns about financial liability, but Chaset said there is no financial liability or risk involved as there might be with a power-purchase agreement. It gives CCAs and ESPs the same benefit as if they had purchased carbon-free generation without having to purchase it.

"The benefit to them offering us the attribute, is that we agree not to contest how they manage the resources at the CPUC," Chaset said. If the EBCE board were to approve the full short-term allocation, it would save the CCA an estimated $5 million to $7 million in energy procurement costs.

Chaset said EBCE hopes the PCIA Phase 2 issue is resolved within the next four to five months. 

The allocation isn't a priority for some CCAs, such as Redwood Coast Energy Authority, which has policies in place that prohibit procurement of nuclear, coal and hydro generation from dams on the main section of the Klamath River.

The only exception to those policies might be made to fill short-term resource-adequacy needs or through asset-controlling supplier transactions, which are used when hydro resources aren't widely available in the market, RCEA Executive Director Matthew Marshall said in an email to CEM. Often, these bundles contain some nuclear or other resources along with hydro generation.

Based on those established policies, the issue would most likely be presented to the RCEA board as an informational item, and it would likely only consider the hydro portion of the allocation.

The ESPs are seeking more clarification of the short-term proposal as well as some modifications, according to a Dec. 23 letter filed with the CPUC by the Alliance for Retail Energy Markets, a trade organization consisting of California ESPs such as Calpine Energy Solutions and Constellation NewEnergy.

The group is asking the commission to allow the carbon-free energy allocations to be traded after they are initially allocated; to clarify the span of time for the rights LSEs are waiving; to eliminate the 2019 carbon-free energy allocation; to compel PG&E to offer any unallocated attributes to LSEs; and to clarify how PG&E can make modifications to the list of resources in the resource pools.

AReM adds that its comments are designed "to ensure that the proposed allocation of Carbon Free Energy provides the maximum benefits for the LSEs that get the allocations and that the program runs in an efficient manner."

The CPUC's PCIA Phase 2 Working Group 3—headed by CalCCA, Southern California Edison and Commercial Energy—is tackling the long-term GHG-free energy allocation, among other topics. It filed a report with the commission Feb. 21 outlining that the groups' members had reached consensus on how GHG-free energy should be treated.

In short, the group states that because the carbon-free resources are paid through the PCIA, it is "only fair" for the LSEs paying the PCIA to benefit from a voluntary allocation. It also supports a mechanism "for GHG-free energy that splits the resources into two pools: nuclear and non-nuclear, with LSEs able to elect from which (if either) pools to accept an energy allocation." The working group also supports the reallocation of unallocated GHG-free energy resources.

In public debate on the issue, there has been a suggestion that by taking the allocation, EBCE or other LSEs would be "propping up" Diablo Canyon Power Plant operations; however, it does not affect PG&E's operation of the nuclear plant, Chaset said. Were it to take the nuclear allocation, EBCE would not be financially liable for any energy costs associated with Diablo Canyon. The plant's closure date would also be unaffected.

Regardless of whether an LSE takes a nuclear allocation, PG&E will retain nuclear generation for its customers.

It is possible that some customers could leave EBCE if it takes the nuclear allocation; however, they would return to PG&E, which will also have nuclear energy on its power label. "Both will have it, but how much?" Chaset said. He added that for a consumer who doesn't want nuclear power, "there's no place to go . . . There are quite a few people who feel very strongly about this topic."

The financial implications are also significant. The PCIA is increasing. Chaset said it has risen by more than 40 percent. The CCA also wants to continue offering savings to its ratepayers, which requires them to carefully consider what would happen should the board vote to decline the allocation, he said.

In a Jan. 24 memo to the EBCE board, Chaset explained, "EBCE faces a PCIA increase that, regardless of the specific outcome of the PCIA decision, will put a financial strain on the agency as we structure rates in effort to offer the promised discount relative to PG&E. The specific decision on the PCIA increase will determine the severity of the strain, but regardless, the increase puts EBCE in the position where cost-saving mechanisms are of the utmost importance if we are to maintain either our current carbon-free content in the power mix, our discount, or both simultaneously."

Both proposals are still being negotiated and are subject to change pending final CPUC approval; however, expectations are that the earliest the PCIA working group proposal could optimistically be implemented would be 2021.

"The carbon-free allocation is a tool in the CCAs' toolbox," Chaset said. "But it's not the only tool . . . The downside is that there is some reputation risk relative to the other tools that we have."