In conclusion
Governor Gavin Newsom promised lawmakers that a $1.4 billion loan to maintain the Diablo Canyon nuclear power facility would eventually be paid for by federal funding. They might not have $588 million.
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The administration of Governor Gavin Newsom approached lawmakers two weeks prior to the end of the 2022 legislative session with a significant request: approve a $1.4 billion state loan to maintain Diablo Canyon, California’s last nuclear power plant. The funds were intended to serve as a temporary and be completely reimbursed by an anticipated federal reward. There was also a contingency plan in place: other federal funding or the earnings from Diablo Canyon’s last year might make up the gap if the award was insufficient.
The measure was approved.
CalMatters discovered that the state might have to forgive up to $588 million, or around 42% of the loan, despite assurances made by the Newsom administration and lawmakers at the time.
This is partially due to the fact that the entire loan would never have been reimbursed by the maximum federal award that is available. Because an incentive charge permitted by the 2022 statute is not qualified for federal reimbursement, PG&E sought for even less than was available.
According to PG&E predictions, one source of money that could compensate for the plant’s earnings differential is unlikely to come to fruition. The state’s only other option is to use federal funds for nuclear waste storage, which might not be allowed and would only partially make up the difference.
And the sum continues to rise: In a January filing, PG&E stated that it anticipates the plant’s expenses to surpass the state loan.
Advocates, lawmakers, and regulators have expressed concerns about parts of the loan that benefit PG&E stockholders, which is illegal, and the shortfall is surfacing at a time when the state’s general fund is already experiencing a $12 billion budget hole.
Matthew Freedman, an attorney representing The Utility Reform Network, stated that it is not a loan. It’s a present.
Diablo Canyon s expensive new lease on life
Five years after it was initially planned to close due to financial difficulties, Diablo Canyon is now expected to remain open until 2030. As California makes the switch to entirely renewable energy sources by 2045, the lifespan extension is intended to offer energy stability. The San Luis Obispo County facility provides 17% of California’s carbon-free energy and around 8% of the state’s overall energy.
It’s not a loan. It’s a present.
Proponents of the loan, including the Newsom administration, stated that the loan would be fully repaid using funds from the U.S. Department of Energy’s Civil Nuclear Credit program, which was launched by former President Joe Biden to keep financially troubled nuclear power facilities running.
In August 2022, Newsom’s cabinet secretary at the time, Ana Matosantos, told the state Assembly that the administration thought the funds would cover the full loan amount. This was mirrored in a remark by Democratic Senator John Laird of Santa Cruz, who was a crucial vote in passing the bill:
He stated in September of that year that the $1.4 billion loan expenditure would be matched by $1.4 billion in government revenue, limiting the amount of ratepayer or public funds needed for that purpose.
However, CalMatters discovered that the federal compensation was insufficient to cover the entire loan. Only $1.2 billion can be awarded by the Department of Energy per cycle, which is $200 million less than the general fund loan. Additionally, PG&E requested for an even smaller $1.1 billion after the measure was passed.
The $300 million difference between the Department of Energy payments and the state loan is permitted by the 2022 statute, which compensates PG&E for maintaining the plant’s operations. Because the fee is not included in the plant’s operating costs, it cannot be reimbursed under the Department of Energy’s nuclear credit program.
The state will not receive the entire $1.1 billion even though the Department of Energy ultimately approved the funding. It consists of a $741.4 million base award with the potential to reach $1.1 billion by the end of 2026 if specific requirements are fulfilled. According to its agreement with the Department of Energy, those criteria include costs associated with unforeseen emergencies, outages, or new and unexpected compliance requirements by the end of 2026.
The latter two conditions—emergencies and new compliance requirements—are unlikely, according to Todd Allen, chair of the University of Michigan’s department of nuclear engineering and radiological sciences. New criteria for compliance are infrequent, as are emergencies. “Unexpected outages are more likely,” he warned. However, according to data submitted to the U.S. Nuclear Regulatory Commission, Diablo Canyon has experienced five unplanned outages in the last ten years, the most recent of which occurred in March 2024. According to PG&E, it does not currently expect any unplanned outages.
If I were asked to wager on this, I would anticipate that the government payout would be more in line with the lower figure, Allen said.
The task of distributing the loan to PG&E and making sure the money was used on approved expenses fell to the California Department of Water Resources. Although DWR is currently unable to predict the exact amount of the loan that would be repaid, the water agency stated in a February report to the Legislature that it expects at least the guaranteed amount of the federal assistance to be utilized to repay the debt. It won’t be certain until the Department of Energy starts disbursing the funds in the upcoming years.
According to the loan arrangement, the plant’s profit in its last year of operation, which runs from November 2029 to November 2030, might be used to make up the difference. This is defined by the 2022 law as market revenues that are higher than costs and expenses. However, at this time, PG&E does not anticipate having any money left over from the plant. According to the company’s latest estimates, Diablo Canyon’s expenses will be more than the money it makes from selling its electricity on the wholesale market, forcing consumers to foot the bill.
Questions concerning the plant’s anticipated financial performance were not explicitly addressed by PG&E spokesman Jennifer Robison. According to her, the plant would instead deliver a net cost benefit of $540 million annually, primarily due to its resource adequacy contribution, which is a state requirement that every utility be able to produce enough electricity to fulfill consumer demand.
State utilities might save hundreds of millions of dollars by using Diablo Canyon to prevent them from running out of electricity and having to purchase it at a higher cost. Robison refused to respond to any inquiries on this, such as if and to what extent the benefit may be utilized to settle the loan.
The resource adequacy figure cited by PG&E is not included in profit estimates since it is not a component of plant operating costs, according to the California Public Utilities Commission, which is PG&E’s regulator. Adam Cranfill, a spokesman for the commission, stated that it is better defined as an averted expense.
The statute said that PG&E must take all necessary measures to obtain specific government funds, which are the second potential source of repayment. According to the water department’s February forecasts, PG&E’s anticipated payment for storing spent nuclear material is the most likely source of this. Because the federal government did not build a promised national repository for the fuel, the Department of Energy pays to have it stored elsewhere until a national facility is built. From 2026 to 2030, PG&E anticipates receiving roughly $63 million from this.
These funds, however, have historically been used to offset ratepayer costs. The 2022 law authorizing the state loan to PG&E specifies that ratepayer funds shall not otherwise be used in any manner to repay the loan. When asked how using these funds for the loan fits within the law, water department spokesperson Ryan Endean said the spent fuel money isn t accounted for in any other ratemaking processes. Experts CalMatters reached out to were divided on whether these funds would count as ratepayer funds. Should they be allowed, they alone would not be enough to cover the difference between the state s loan and the federal award.
Aggrieved legislators and no leverage left over PG&E
PG&E did not answer CalMatters questions about what other federal funds it is pursuing to repay the loan. When describing how the loan could be paid back, Robison omitted other federal funds as a source that could be used for this.
Lawmakers raised concerns about whether the loan would be fully repaid as soon as the legislation was introduced.
Early last year, Sen. Scott Wiener, a Democrat from San Francisco who serves as the chair of the state’s joint legislative budget committee, wrote to the California Department of Finance to express his displeasure with the paucity of information regarding the loan and its repayment.
Given the condition of the general fund, we believe it is poor financial judgment to provide a loan of this magnitude to an investor-owned utility without having basic loan repayment information, Wiener said in a March 2024 letter. At the time, the water department had not seen a copy of the funding agreement between PG&E and the federal government, according to the finance department.
It s another thing that undermines public trust.
Wiener s committee attempted to stop the final installment of the loan from being given to PG&E last year,striking it from the budget.Butless than a week later, it was added back with a new requirement for the water department to submit biannual reports about the loan s repayment.
The state has no leverage left to hold over PG&E, David Weisman, executive director of the Alliance for Nuclear Responsibility.
San Diego Democratic Assemblymember Tasha Boerner, who voted against the 2022 legislation, said it s another thing that undermines public trust.
Had we gone through the normal process in January, even if it was a special session in January to fast-track it and have that time to do the hearings, to do that due diligence, she said, it would have made a lot of people more comfortable.
If no federal funds are found outside of the Department of Energy award and Diablo Canyon does not have additional revenue in its final year to pay the remaining loan, the state may be required to forgive any unpaid amount. Its contract with PG&E specifies that those three categories are the only sources of funding that can be used to repay the loan.
Laird, who voted in favor of the 2022 bill, said having to forgive a portion of the loan would be a big deal because that s not the intent of the bill.
However much they [receive] short of $1.4 billion, we will be asking how that s going to be made back without going on the taxpayers or the ratepayers, he said. We sort of set a standard, and we re going to work to make sure they meet it.As long as the loan funds are spent, PG&E isn t on the hook for repaying any of the loan itself.
PG&E expects to have spent those funds and more.
The company forecasts overspending the loan by about $157 million through next year, according to a January filing in an unrelated lawsuit. When asked if that was still the company s current forecast, PG&E said it is actively working to implement its Diablo Canyon extended operations transition costs in alignment with the loan amount, declining to provide a specific figure.
More on PG&E
PG&E collects a fee to support California s last nuclear plant. Is it a slush fund?
It s the first U.S. nuclear plant to use AI. Where does Diablo Canyon go from here?
One reason your power bill is high: Baked-in profits that critics call excessive
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