Final Q&A Session re PG&E Profits
Assembly Hearing – 8-25-2022
Re: SB 846
Diablo Canyon powerplant: extension of operations
Ana Matosantos (00:01):
Um, without this resource.
Tasha Boener Horvath (00:03):
And could I ask ed Maloff to also answer that question?
Ed Smellof (00:08):
So the statement that demand is increasing unexpected levels is simply wrong. And I would like to put in the record, the latest key statistics from the Kaiso, which goes back to 2000 and, uh, 10 on what the peak demand has been year by year and what it is in the month, so that you can actually see the actual historical data through 2021. So the administration is not correctly telling you the, uh, facts about where peak demand is. There is. It is I think correct to say that we are now planning for what we’re calling net peak demand, which is the period of time when the sun is setting and we’re, we’re seeing decreased solar, uh, uh, power. And that’s the reason why we need more battery storage. The, the PUC did act twice now in procurement, once in 2019, and once in 2021 and each time, at least in 2019, they were told they needed to do more and they decided not to do more.
Ed Smellof (01:21):
They were, they were advised by Southern California Edison to procure 5,000 megawatts of new capacity and made a decision to procure 3,300. They corrected that in, in June of 2021, when they made the order to procure the 11.5 gigawatts of, of 11.5 gigawatts of new resources. And I think the open question is, are there real delays, supply chain or whatever where they’re calling them? I believe it’s more the interconnection process, but are there real delays that would push those needed projects out beyond the summer summer of 2025? That’s really the key period. We’re gonna retire 3,700 megawatts, very old 1950s vintage fossil fuel plants on the south coast. Those should retire next year. And then we’re going to retire, uh, Diablo canyon. The total is 3,700 fossil, 2,200 of Diablo. So we need to replace 5,900 megawatts. The order is to get 11,500 megawatts. So the order is clearly sufficient.
Ed Smellof (02:32):
The, the PUC has recognized it and they’re adding to the reserve margin. Miss ma Santo says, well, the impact is only gonna be just the nuclear plant, the $73 or whatever it is. That’s not actually correct. You need to look at the portfolio effect. What is the combination, the changed portfolio as a result of keeping the Ablo canyon within the mix of resources and adding resources so that your reserve margin, instead of being 15% might end up because you’re double procuring the ALO plus everything else that you need to longer term reduce greenhouse gases may end up with a 25% 30% reserve margin that has a major impact on affordability. If you’re keeping assets, uh, in the rate base or requiring the load serving entities to contract for resource adequacy with these assets, that adds costs to the system. So there are real opportunity costs here that the decision makers, the key decision makers, that the PUC need to balance affordability and reliability need to be carefully balanced. And if we, if we gold plate the system and, and get super high, uh, reserve margins, you’re gonna add costs to everybody. So it, it is a real careful decision that needs to be evaluated in a rigorous way. And frankly, my view is it hasn’t been done so far, uh, here in, in this, uh, in this process.
Speaker 4 (04:01):
Thank you. I’m gonna ask maybe ma Sinai as a respond, but any follow up questions, please.
Tasha Boener Horvath (04:09):
Yeah, please. I have some other questions too. I think I asked a CCA question. So if a CCAs decides to be, um, no nuclear, will they still have to pay the nuclear fee?
Ana Matosantos (04:18):
Tasha Boener Horvath (04:20):
Okay. And then, um, one of the things I think we’ve talked about this before is I’m, I’m very concerned, um, about coastal mitigation. And my read of this is that you are trying to keep all agencies, environmental reviews, but when I read the latest proposal and please correct me if I’m incorrect, is that the coastal commission review goes to the C P C. So can you talk in the proposal currently about what the coastal commission review process will be of for the extension of Diablo canyon?
Ana Matosantos (04:50):
Happy to the coastal commission, um, will require will, is, will be required to make a consistency determination. This is an element that the nuclear regulatory commission re requires that the coastal commission, uh, do, uh, the coastal agency do as part of the NRC process. So that is the one determination that is required from the coastal commission that they would do under, under the statute. The second element is a potential at this juncture. It is not projected that there is any need to expand the pad where the, where the fuel is stored, but if there was to, um, be a need to expand that, uh, that pad that would require a coastal development permit and that, uh, the legislation makes it really clear that that would be something that would have to go through the coastal commission and would be subject to the regular process. So the, the piece that we know is required is the coastal commission would be required to make the consistency determination. Um, and then depending on what happens, the coastal commission or at at a later point in time could have to consider a cha a coastal development permit, and that would be done on the regular authority.
Tasha Boener Horvath (05:55):
So, but my understanding and, and perhaps I’m incorrect, but my understanding is, um, the extension of the use itself would trigger coastal mitigation through the coastal
Ana Matosantos (06:06):
Commission. Um, the extension itself might cons would require a permit from the state water board associated with the operation of the ones through cooling plant. The determination, the, the coastal determination on the coastal role in this process would be specific to the consistency, determination. The coast, the, the ones through cooling plant would be something that would have to be considered by the state water board, not by the coastal commission. Okay. And that would require mitigation.
Taxha Boener Horvath (06:32):
And I think my colleagues have covered, uh, the, the issue around the calculation of the shareholder profits, um, for PG and E. And I just wanna echo some of those concerns. I’m very concerned that we’re, we’re giving so many free passes to get something, as I think our budget share said that to address this peak demand rather than the base load. And I think that’s our are based demand. And I think that’s a really huge concern for me. Um, and so I just, you know, we don’t have to do this, but I just wanna echo some of those comments cuz I, I share them.
Speaker 4 (07:07):
Thank you. Assembly member Korea.
Wendy Carrello (07:13):
Thank thank you, Mr. Chair. Uh, I wanna start by echoing some of the comments that have previously been made by some of my colleagues, uh, primarily, uh, earlier, uh, assembly member, Marc Sui, who is often conversations related to climate again, another proposal by the administration that was sent to the legislature at a critical time in which we are in final negotiations and any additional conversations related to budget, as well as bills that are moving between both houses. I share that frustration because the legislature in our offices are very limited with time and very limited with staff. My staff here in the capital. I have a staff of four I in the district. I also have a staff of four. We rely on the expertise of consultants and folks in the, in, in the building that have institutional knowledge on some of the issues that are much larger than what we deal with on a day to day.
Wendy Carrello (08:21):
And I will share that it is incredibly frustrating to receive these last minute, not vetted, not gone through policy committee, not gone through the process of respecting the legislative process in both houses and the assembly and in the Senate to move policy. That is huge. We can’t do this is not how we operate and it is, um, disrespectful through the process. Uh, and it is disrespectful to the offices that we, so then we get this and I’m reading this. Um, we don’t have a lot. And I, and again, I share that because we have what, 24 hours to read, you know, proposals and, and, um, just breakdowns of what it, what this is supposed to be. And here in a hearing, trying to figure it out. And how do we, how are we most, uh, respectful to all of the concerns? So I share that because I’ve heard a couple of things today that just give me pause.
Wendy Carrello (09:31):
And that is the conversation around just transition. I’ve been on some of those conversations and it is incredibly difficult. There’s one thing to actually say, just transition. And then the actual implementation of just transition with the state’s goals and of reducing our reliability on fossil fuels and what happens to workers in those, uh, particular industries and how we pivot to more carbon friendly and renewable energy alternatives is easy to talk about a just transition, unless we’re actually doing it. You can’t take a job that pays six figures and think that we’re gonna transition a worker to something that pays 15 to $20 an hour. That’s not a just transition. And then I look at the summary from turn and I’m gonna just echo very quickly and share the annual PG E profits poised to increase by three times, PG E currently earns an average of 150 million a year from Delo canyon under the governor’s proposal.
Wendy Carrello (10:34):
PG E profits from Delo canyon would rise to 275 million a year starting next year. That’s an 80% increase, 300 million in 2025. That’s a 260% increase. And 460 million started in 2026. That’s a 310% increase. Several of my colleagues have already expressed how concerning that is and how do we go back to our constituents and say that we allowed for this to happen. Um, I share and want to figure out a way in which we increase our reliability on the grid. I think that what we would, what I would have liked to have is more time and to see additional alternatives that are not necessarily, uh, reopening or extending the life of a Diablo canyon, but also creating more opportunities for wind solar, hydrogen and other alternatives. Because I do agree with the administration that we should have a diverse energy portfolio that meets the needs of the current, uh, grid, but extends even further to what we wanna accomplish, which is 100% renewable energy.
Wendy Carrello (11:50):
And so I find myself, uh, trying to understand why this comes so last minute, um, amid everything else, and also trying to understand how do we get to a compromise in which we put workers in the space. We ensure that we are meeting our climate goals, that we are, uh, use of fossil fuels, that we are actually procuring more clean energy, that we have storage capabilities that we move forward. An agenda for California that is focused on the goals that we have, but it is very difficult to do that when we don’t have the time or we’re not given the opportunity as members of the legislature to actually vet these giant proposals. And so I’d like to know from the administration, just in a very real way, what does it look like to have partnership with the legislature for you? Because it doesn’t look like this to me and our other members of this committee had to step out to go talk and discuss and negotiate a climate package while we are here trying to figure out how do we discuss Diablo canyon, amid everything else. That’s kind of been thrown to the legislature. So I’m interested in partnership. I’m interested in policy discussions and I’m interested in respecting the legislative process. And I currently don’t see that. And I like to figure out why
Ana Matosantos (13:29):
Thank you for that. Um, we very much appreciate the partnership and respect the partnership. Um, many of the issues we, we, we see in, uh, the, the critical need to take additional actions and to expedite our actions to mitigate climate change. I think, uh, the governor, um, has, uh, has come into support legislation that generally has, um, been part of legislative deliberations, active bills this year legislation that, uh, that was proposed last year that moved out of, uh, out of one house and did not make it across the finish line. The issues that the governor has supported in terms of the five pillars of his climate package that he is supporting, given the need to take urgent action to mitigate climate change are ones that have been under discussion. And he is engaging in that discussion, supporting that legislation and proposing specific amendments in the interest of making sure that those bills that have been considered, um, get, uh, that, that there’s an opportunity to take action with a, a package that coupled with the budget investments that have been, um, before you, since January, um, expanded in may and, uh, that you have, uh, made important improvements through the policy process, um, that, that, that we see that as an opportunity to move forward on ideas that perhaps have not gotten across a finish line that we think now can, uh, that will continue California’s leadership and mitigating climate change in terms of Diablo canyon and the timing of Diablo canyon.
Ana Matosantos (15:02):
And this extension, we wish we had more time, um, the, uh, examination into where we were, um, and the mid cycle review of our, where we are in relationship to other replacement resources and what our overall needs was was, is one where, you know, it, we have been working with the energy agencies to do, as soon as the air energy agencies identified that they thought we were short. Um, in April, we engage in conversation with you on a real time basis of where we found ourselves. We’re really appreciative of the significant actions and the partnership that we had in, um, in, uh, June that yielded really important actions to put us into a better position moving forward, um, to accelerate projects and to take other elements. Unfortunately, where we are is at this juncture, we are, we are not where we need to be to maintain reliability through this decade, with the, the plan, if the plan retirements continue to move forward.
Ana Matosantos (16:02):
And the challenge we find ourselves with is that the timing to decide whether or not to keep this option open is now just in light of what is required to move in a different direction than where we’ve been. So the permits, the, the necessary approvals that, and the necessary scrutiny that would be associated with extension requires a change and that change in order to make it possible to extend it is one that is needed. Now the deadline for the federal funding and the opportunity that presented itself as recently as July, um, is one that is available at this juncture. And that was not available in January. So I, I hear you in terms of the timing I hear you in terms of the challenge, wish we were in a different position in terms of not needing to extend this resource and wish we were in a different position and relationship to time, but the, the situation is evolving in a real time basis.
Ana Matosantos (16:54):
The analysis that led the energy agencies to conclude that we were not where we needed to be, um, is, uh, happened this spring. And we shared it as quickly as possible. The opportunity for federal funding presented itself this summer, and yes, the time is short, but unfortunately we are in a position where we think that what is necessary to continue to taking the actions that we need, uh, to maintain our reliability as we continue to move towards our clean transition and continue to take actions to mitigate climate change is to, uh, to make an extension possible. And that would be something that would need to happen now, given the federal timelines and given the, the permitting timelines that would be required.
Wendy Carrello (17:37):
Follow up. Thank you for that. I, I really do appreciate you saying that there is value to partnership, but when this dropped, for lack of a better word, when we were talking about what this would look like, and the assembly offering a potential counter-proposal, that had more, more of a diversity of where we want to go. Um, you know, and I wanna share this with you, but where, where is partnership when someone, the, when someone in the administration says that the assembly proposal feels like fantasy and fairy does and reflects a lack of vision and a lack of understanding about the scope of the climate problem
Ana Matosantos (18:17):
Partnership is in continuing the conversation and looking at the opportunity for what resources can be brought forward to ensure that we are moving forward with all of the above. The focus is on figuring out what can be done, what is possible to get online, all the timing necessary, how do we move as quickly as possible on getting all the clean options online as possible, but make sure that we have the room to be able to have this resource that we believe is necessary to be able to maintain reliability. Um, you know, at this juncture,
Wendy Carrello (18:50):
Doesn’t quite answer my question, but I appreciate it. How do we respond to the 310% increase to PG E profits,
Ana Matosantos (19:00):
As I’ve mentioned? Um, the, so the first piece is the compensation structure provided in this proposal. Um, first is, you know, not allowing any degeneration of profits that would go to shareholders. There is a variable compensation where there, um, is a there, you know, PG and E could get nothing under these management fees. If they don’t perform, they could get, uh, they could get, um, revenue and a management fee paid. If the performance occurs, those dollars, those revenues have to go to funding the work associated with the extension of Diablo canyon or to fund other elements that are critical priorities. And that today are things that are subject to cost recovery from rate payers, including the interconnection, uh, the, the, some of the issues that have been raised around how to make sure that we’re doing more on the interconnection side and speeding that up things to help be able to support our clean transition as well as necessary investments to get to a place of greater safety and reliability, um, transmission, uh, uh, hardening of distribution lines and other components.
Ana Matosantos (20:09):
So the, the, the, the compensation structure has, uh, you know, is we think fair, um, consistent with what we think is necessary to, um, ensure that there is a real performance incentive in making sure that we deliver and dollars based on the provisions and the statute have to go directly to pay for the cost of operating, or it has to go for other public purposes, um, that we think are important for rate payers and for Californians from a safety standpoint, from a clean transition standpoint, the dollars cannot go for profits that go to shareholders or other like things as some of the, that have been, uh, suggested that are not allowable under the statute.
Speaker 6 (20:53):
Thank you very much, Dr. Quick, um, wow. Long day, um, couple things, first of all, most of the questions have been answered. So I’ll just start out with.