November 3, 2011
Pursuant to Elections
Code Section 9005, we have reviewed a proposed ballot initiative to halt
the generation of nuclear power in California pending certain actions by
the United States Government (A.G. File No. 11‑0042).
Background
The Role of California’s Nuclear Power Generation
California's
electricity supplies are generated by several energy sources, including
natural gas, nuclear fission, wind, solar, and hydropower. Approximately
16 percent of the state's electricity is generated by nuclear power
plants, the majority of which comes from two nuclear power plants
currently operating in the state—the Diablo Canyon Nuclear Power Plant
(Diablo Canyon) in San Luis Obispo County and San Onofre Nuclear
Generating Station (SONGS) in San Diego County. Both of these plants are
owned primarily by investor-owned utilities (IOUs). The IOUs, in turn,
are subject to regulation of their electricity rates by the California
Public Utilities Commission.
Unlike some energy
sources, such as wind and solar that serve as an intermittent source of
energy, nuclear power provides "base load" energy, meaning that it
generally provides a relatively uninterrupted, reliable power source.
Because nuclear power plants generally produce power around the clock,
large portions of California's electricity transmission system have been
engineered with the two nuclear power plants' production capacity and
output in mind. The Diablo Canyon Power Plant represents a significant
generation resource and supports power flows through some of the state's
major transmission lines. The SONGS is considered by the operator of a
large portion of the state's electricity grid to be an integral part of
the Southern California transmission system and, therefore, necessary to
ensure access to reliable electricity for a majority of Californians.
California’s “Moratorium” on New Nuclear Power Plant Development
Since 1976, state law
has allowed the permitting of new nuclear power plants in the state only
if the California Energy Resources Conservation and Development
Commission (known as the California Energy Commission or CEC) is able to
find that the federal government has identified and approved a
demonstrated technology for:
·
The construction and operation of nuclear
fuel rod reprocessing plants.
·
The permanent disposal of high-level
nuclear waste.
In effect, these two
conditions have created a moratorium on the construction of new nuclear
power plants in California as neither of these conditions has been met.
Accordingly, no new nuclear plants have been constructed in California
in more than 30 years. (State law specifically exempted Diablo Canyon
Power Plant and SONGS from these new requirements. Because no permanent
disposal site for nuclear waste is now available in the United States,
these facilities temporarily store their nuclear waste on site, either
in water or in "dry case" cement casings.)
Potential Risks Associated With Nuclear Power Generation
Nuclear power plants
present potential safety and security risks generally not associated
with other types of energy-generating facilities. Unlike other types of
power plants, each nuclear power plant contains large quantities of
radioactive material which, if released—through natural disaster, human
error, or malicious intent—may cause widespread public harm. As a
result, these plants are subject to extensive federal and state
regulatory requirements pertaining to their safe operation, security,
mitigation of their potential environmental impacts, and the
establishment of emergency response procedures in the event of any
mishap at a nuclear facility.
Proposal
This initiative
prohibits the generation of nuclear power in the state, including by
existing power plants, until such time as the CEC finds, and the
Legislature affirms, that the federal government has identified and
approved a demonstrated technology for:
·
The construction and operation of nuclear
fuel rod reprocessing plants.
·
The permanent disposal of high-level
nuclear waste.
If approved by the
voters, the initiative would in effect prevent the Legislature from
overturning the current moratorium law, absent further action by the
voters, and immediately shut down the operations of the Diablo Canyon
Power Plant and SONGS until such time as the conditions outlined above
could be met.
Fiscal Effect
Fiscal Effects of This Measure Highly Uncertain
Federal Preemption and Other
Legal Issues. Our analysis of this measure indicates that there
are serious questions as to future actions by the federal government
agencies that regulate nuclear power and energy markets, or by the
courts, that could prevent the provisions of this measure from taking
effect. So-called federal preemption of this initiative measure could
occur because federal energy authorities could potentially require that
one or both of the nuclear plants continue to be operated for a period
of time—contrary to this measure—to ensure that reliable access to
electricity is maintained in California while the necessary
infrastructure to provide replacement power is being built. It is also
possible that either a federal or state court would prevent the measure
from going into effect on the basis that the measure's required shutdown
of nuclear power plants amounts to an unconstitutional "taking" of
private property without just compensation. For the purpose of making
our fiscal estimates, we have assumed that all provisions of the measure
would take effect and become operative if approved by the voters.
Uncertainty About the Timetable
for Obtaining Replacement Power. If this measure were not
preempted by federal authorities or the courts, its ultimate fiscal
effect would nonetheless be highly uncertain because some important
factors are difficult to predict. One critical factor is the time
required to build new electricity generation plants and transmission
lines to replace the generation lost due to the immediate shutdown of
the state's two nuclear power plants. The state's electricity
authorities have stated that, under current statutory and regulatory
provisions, it would take many years to replace the electricity
generating capacity of at least one of the two nuclear plants due to the
current complexity of siting power plants and transmission lines. We
have been advised that, in particular, state and federal air quality and
other environmental laws would make siting and building new power plants
and transmission lines a potentially lengthy process.
Uncertainty Over When the
Conditions of the Initiative Might Be Met. As noted earlier,
this measure halts the operation of nuclear power plants in California
until such time that the CEC determines, and the Legislature affirms,
that certain conditions have been met. Thus, the fiscal effects of this
proposed initiative would depend upon when, if ever, a federally
approved technology exists for the construction and operation of nuclear
fuel rod reprocessing plants and for the permanent disposal of
high-level nuclear waste. In any event, if this measure were enacted, it
is unlikely that the conditions allowing the resumption of nuclear power
generation in the state would be met for at least many years.
Economic Impacts Could Affect
State and Local Government Revenues and Costs
This measure would
affect the California economy and, in turn, affect both state and local
government revenues and costs.
Disruptions to Electricity
System. Because the state's two nuclear facilities are integral
parts of the state's electricity grid, their operation is currently
necessary to ensure reliable access to electricity in California,
particularly in light of regulatory constraints faced by potential
sources of replacement power. We are advised by the California
Independent System Operator, the independent, public-benefit corporation
that manages a large part of California's electricity grid, that closing
the two nuclear facilities would impede reliable access to electricity
in the state. In particular, the loss of the SONGS plant would reduce
the capacity to deliver electricity in the Los Angeles Basin area to
below state and local standards for reliability. As a result, the risk
of rolling blackouts would be increased significantly in that area. The
frequency and duration of rolling blackouts would depend on various
factors including, but not limited to, electricity demand and weather
conditions. Such disruptions to the electricity grid would have negative
impacts on the California economy, including loss of economic output,
reduced productivity, loss of jobs, and reduced purchases of goods and
services, leading to reduced household and business income.
The magnitude of
these economic impacts would depend on when and to what extent the lost
sources of electricity could be replaced. If rolling blackouts continued
for several years, as new electricity plants and transmission lines were
built, the resulting economic loss could be substantial, potentially in
the tens of billions of dollars annually. In order to minimize the
length and frequency of major economic disruptions resulting from this
measure, it is probable that the state would take emergency action to
speed up the process to establish replacement power. Thus, it is likely
that any major economic losses resulting from the measure would occur in
the near term.
Increased Costs for Electricity.
This measure would likely result in an increase in electricity rates for
several reasons. First, the reduction in the state’s supply of
electricity that would result from this measure would put upward
pressure on wholesale electricity prices at least for many years until
replacement sources came on line and could be fully integrated into the
electricity grid. If and when the lost nuclear sources were fully
replaced, electricity rates might still be higher than otherwise. This
is because the electricity rates paid by consumers might reflect both
(1) continued recovery by the IOUs of their investment in the nuclear
power plants as well as
(2) the new investments the IOUs would make in developing replacement
sources of electricity.
The increases in
electricity rates under these circumstances could eventually be very
significant and could affect state and local government revenues and
costs. First, they could negatively impact the California economy which,
in turn, would likely translate into a loss of revenues to the state and
local government. Tax revenues received by governments are affected by
business profits, personal income, and taxable sales—all of which in
turn are affected by what individuals and businesses pay for
electricity. Increases in electricity rates due to the measure would
also directly increase state and local government
costs since they
are large consumers of electricity. Also, the effect of all of these
changes in the energy marketplace would potentially increase both the
revenues collected through rates and the costs of electricity provided
by local government agencies, such as municipal utilities.
Impact on State and Local
Government Finances. If this measure were enacted and led to the
shutdown of Diablo Canyon and SONGS, the resulting cumulative impacts of
the economic disruptions and price increases on state and local
government finances—decreased revenues and increased costs—would
potentially be in the billions of dollars annually.
Other Impacts
State Could Be Held Liable to
Compensate Utilities for Investment Losses. Under current law,
IOUs are generally allowed to recover costs associated with their
capital investments through the ratemaking process. If this measure were
enacted and resulted in the shutdown of Diablo Canyon and SONGS, the
courts could require the state, rather than IOU ratepayers, to
compensate those utilities for some or all of their investment losses
resulting from their closure. These losses could total more than
$4 billion if the plants were permanently closed. However, the state's
potential liability in this area, if any, is highly uncertain.
Reduced State and Local Financial
Exposure From Potential Nuclear Emergencies. This measure
potentially allows state and local governments to avoid future costs and
loss of revenues that they might otherwise incur in the event of a major
release of radioactivity into the surrounding environment from a
California nuclear power plant. However, this measure may not alleviate
much of the financial exposure to the state and local governments
because the current lack of permanent storage options for nuclear waste
means that all nuclear waste will remain stored on site at the two
California plants for the foreseeable future, even if the operations of
the plants were shut down.
Major releases of
radioactivity into the environment from nuclear plants have rarely
occurred. In part, this is likely due to the regulatory requirements
affecting their security and safe operation as well as building
standards designed to help plants withstand major natural disasters. In
the unlikely event that such a release of radioactivity did occur,
experts in this field indicate that it could result in major direct
governmental costs for emergency response and lost governmental revenues
due to widespread economic disruption.
The immediate
shutdown under the measure of the two nuclear power plants currently
operating in the state could therefore reduce some of the exposure of
the state and local governments in the vicinity of an affected nuclear
generation plant to the substantial costs and lost revenues that could
otherwise result from a major release of radiation. These potentially
avoidable impacts could collectively amount to billions of dollars. The
financial exposure of state and local governments to such costs would,
however, be offset to some extent by federally mandated liability
insurance requirements on the nuclear industry as well as potential
federal financial assistance in the event of a major emergency. These
state and local fiscal impacts, however, could still be significant.
Summary
In summary, if this
initiative is not preempted by the actions of federal authorities or the
courts, it would have the following major fiscal effects:
·
Likely major impacts on state and local
finances in the near term in the form of decreased revenues and
increased costs, potentially in the billions of dollars annually, due to
near-term disruptions in the state’s electricity system and ongoing
electricity price increases. The magnitude of these impacts would depend
on the frequency and duration of rolling blackouts.
·
Potential major state costs to compensate
utilities for investment losses resulting from the mandated shutdown of
their nuclear power plants.
·
Potential avoidance of significant future
state and local government costs and lost revenues in the rare event of
a major nuclear plant incident.
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