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Law, Water, Earthquakes, Sun and Wind – Barriers to Nuclear Power Plants in California
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April 7, 2008
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(This article first appeared on Climate Law Update)
By Peter V. Allen and Richard M. Shapiro
Thelen Reid Brown Raysman & Steiner LLP
With the recent increase in concern about global warming and energy security, supporters of nuclear power are arguing that it now is time to restart the construction of nuclear power plants in the United States. The national debate around nuclear power has focused on cost, safety and waste disposal issues, but California presents additional constraints on the siting of nuclear power plants. These constraints, along with California's significant renewable energy resources, combine to make renewable generation a better choice in California.
Even beyond California's statutory moratorium on the construction of new nuclear power plants, other factors, including the politics and economics of water, the prevalence and location of earthquake faults, and California's hybrid electricity market structure, render nuclear power a far less attractive option in California than in other parts of the United States. At the same time, California has abundant renewable resources, including solar, wind and geothermal. The result: In California, it is more practical to get additional electricity from new renewable plants, not new nuclear plants.
The Law
California has in place a long-standing moratorium on construction of new nuclear power plants. The moratorium can only be lifted when there is a demonstrated method for the "permanent and terminal disposition" of high-level nuclear waste. Public Resources Code §25524.2. Since, under the law, the state will not even consider granting permits for the construction of new nuclear plants until there is a permanent waste storage solution, there is little incentive for anyone to put much money or energy into developing a proposal for a new nuclear plant in California.
Presumably the moratorium could end if the proposed Yucca Mountain nuclear storage facility becomes functional, but the future of Yucca Mountain is also uncertain. The other possibility is repeal of the moratorium statute. All legislative attempts to repeal it have been unsuccessful, and last year backers of an initiative that would have repealed the moratorium pulled it off the ballot when poll numbers showed it unlikely to pass. In short, the legal climate for building a new nuclear plant in California is decidedly chilly.
Water and Earthquakes
Nuclear plants need tremendous amounts of water for cooling, and given the time needed to recover the plants' high capital cost, the sources of water need to be reliable for quite awhile. If there is a commodity in California that is scarcer and more politically fraught than electricity, it is water. Nevertheless, there is water in California, mostly in rivers and the ocean.
Rivers in California, however, are increasingly impractical and unavailable for nuclear power. In addition to environmental pressure to restore salmon runs and preserve rivers in their wild state, there is continued demand for fresh water from agriculture, industry and residential development. In the southern United States, recent droughts have resulted in nuclear reactors being shut down due to low water levels and high water temperatures in rivers and lakes. The bulk of California's rivers are fed by Sierra snowmelt, which means that drought and global warming (combined with the other demands for water), tend to make river water an unreliable long-term source, particularly in the quantities needed by nuclear plants.
The Pacific Ocean provides the water for California's two operating nuclear power plants, Diablo Canyon (on the Central Coast) and San Onofre (between Los Angeles and San Diego), and there is certainly plenty of ocean water. One problem in siting new nuclear plants on the coast becomes apparent upon looking at seismic hazard maps – the coastal region of California also is largely an area of significant seismic risk. Even the staunchest advocates of nuclear plants should hesitate to locate a reactor in an earthquake-prone area.
In short, siting a nuclear plant in California presents a dilemma – if you site it where there is plenty of water, you are increasing your earthquake risk. The backers of the one nuclear plant that has been proposed for California are planning to site it in Fresno, an area with little seismic risk, and propose to use municipal waste water for cooling. This is a fairly elegant solution to this particular dilemma, but given the increasing pressure on California's water supplies, it is not clear how long such water will continue to be considered otherwise unusable "trash" water.
Hybrid Electricity Market
California currently has a "hybrid" electricity market, with electric generation being provided by both utilities and independent power producers.
On one hand, it would seem like the large investor-owned utilities would be the most likely to build a nuclear plant. They can get rate recovery of costs, they don't have to find a buyer for the energy, and they also currently own and operate successful nuclear plants. Nevertheless, California's investor-owned utilities appear unlikely to seek to build new nuclear power plants.
First, the California Public Utilities Commission (CPUC) is likely to require a reasonableness review of any nuclear power plant built by the utilities under its regulation. It would be difficult for CPUC to abdicate such a post-hoc review, given the high costs involved and the rather embarrassing history of nuclear development in California, which includes the infamous "mirror-image error," where the plans for Diablo Canyon got flipped, and the "hole in the head," the abortive attempt to build a reactor on Bodega Head north of San Francisco (and directly on the San Andreas Fault).
By itself this type of regulatory oversight would not appear to be much of a barrier, as after-the-fact reasonableness reviews are a traditional utility regulatory tool. In recent years, however, California's investor-owned utilities have been extremely reluctant to submit themselves to reasonableness reviews. In the wake of California's 1996 industry restructuring, the utilities refused to sign long-term electric supply contracts unless CPUC exempted those contracts from reasonableness reviews. When CPUC maintained its right to after-the-fact reasonableness reviews, the utilities chose to purchase electricity only on the spot market, with now well-known consequences. Given the utilities' reluctance to subject themselves to reasonableness reviews for relatively uncontroversial and inexpensive contracts, it seems unlikely they would want to take on the risk of a reasonableness review for a politically contentious and extremely expensive nuclear power plant.
If the investor-owned utilities will not build new nuclear plants, the other possibilities are municipally-owned utilities and independent generators. The Sacramento Municipal Utility District, which shut down its Rancho Seco nuclear plant in 1989 due to high costs and chronically poor performance, is unlikely to want to go down that road again.
The Los Angeles Department of Water and Power, which probably is the only other muni in California big enough to build a nuclear plant, might be thinking about it, as its heavily coal-based supply portfolio is looking problematic in a carbon-constrained future. Given its currently somewhat strained relationship with Los Angeles city government, including questions regarding maintenance of its infrastructure, building a new nuclear plant may be a bigger bite than LADWP wants to try to chew in the near term.
While the moratorium only bars new nuclear plants within the state, AB 32 constrains carbon from both in-state and out-of-state plants whose power is consumed within the state. So if LADWP's carbon costs associated with its out-of-state coal-burning sources become too high, perhaps it would seek to replace those sources with nuclear plants. But since LADWP could improve its compliance with AB 32 by purchasing electricity from out-of-state nuclear plants, it would more likely invest in an out-of-state plant than attempt to build one in California.
That leaves the independent developers. In fact, the facility proposed for Fresno is by a local group, not a utility. The risks, though, may be higher than investors may want. The cost of a new nuclear plant is high, and the construction process is lengthy and much less standardized and much more complicated than building a gas-fired plant. It will take a long time (and a lot of money) until the plant is up and running and generating electricity and revenue. Since nuclear plants are largely non-dispatchable, the developer will need to find a buyer (presumably under a long-term contract) for significant amounts of baseload power although the possible return of direct access, currently under consideration by CPUC, could make this easier. These factors, combined with tightening credit markets and California's shifting regulatory framework, may make it difficult to find investors who want to put their money into a California nuclear plant.
Better Alternatives
Compared to many other states, California is rich in potential for development of renewable generation. Wind in the Tehachapis, geothermal in the Imperial Valley, solar in the Mojave, tidal and wave power along the coast – all of these are relatively untapped resources. The California Independent System Operator (ISO) currently has interconnection requests for more than 42,000 megawatts of renewable energy (albeit not all of it viable). In short, there are a lot of energy resources in California other than nuclear.
Context is everything – in the southern United States, a region with few earthquakes, plenty of water, lots of coal plants and fewer renewable resources, a carbon-constrained future starts making nuclear plants look fairly attractive, especially when compared with a coal plant. But in California, we have other and better choices. Nuclear power plants simply are not the best option for California. And besides, it is the law.
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For more information about the issues covered in this report, please contact Peter V. Allen in our San Francisco office at 415-369-7561 or at pvallen@thelen.com or Richard M. Shapiro in our San Francisco office at 415-369-7117 or at rshapiro@thelen.com or contact your Thelen attorney. For more information about Thelen’s Construction and Government Contracts Department, click here.
©2008 Thelen Reid Brown Raysman & Steiner LLP
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