Decommissioning the Diablo Canyon Nuclear Power Plant: An Economic Assessment

On September 26, 2016, Governor Jerry Brown signed Senate Bill (SB) 968 which adds Section 712.5 to the Public Utilities Code, requiring the California Public Utilities Commission (CPUC) to facilitate an economic impact assessment of the “adverse and beneficial economic impacts, and the net economic effects, for the County of San Luis Obispo and the surrounding regions, that could occur if the [Diablo Canyon Nuclear Power Plant] were to temporarily or permanently shut down….” As ordered in SB 968, the CPUC searched for an “independent third party” to conduct the economic impact assessment, and ultimately hired researchers at UC Berkeley for that role. BEAR was commissioned to conduct this economic impact assessment.

Currently, DCPP, which employs about 1,500 PG&E workers, is the second largest employer in SLO and provides a large economic base to the area that could be lost with the closure of DCPP. This study is intended to help identify potential ways for state and local jurisdictions to mitigate any adverse economic impacts and plan accordingly. Economic impacts were evaluated for DCPP closure, including shutdown of operations, actions necessary to safely retire the plant and make the site eligible for alternative use, and the implementation of SB 1090 which is a special assistance measure to offset adjustment costs for the SLO community. Our evaluation consisted of five complementary research strategies: 1) general economic impact assessment; 2) local stakeholder consultation; 3) local stakeholder survey; 4) real estate market assessment; and 5) bond market assessment.

Our five analytical approaches yielded diverse insights about economic risks, rewards, and stakeholder perceptions. Taking the results of this study together, DCPP closure would appear to present as many opportunities as it does challenges. Overall economic impacts of closure will be relatively modest, but significant adjustments can still be expected. Adaptability of the local economy will depend on community resilience, cohesion, and foresight. In this section, we distill some general insights about how to mitigate adjustment costs, capture more economic benefit from investments to retire the site, and improve public awareness. With proactive and coordinated strategies, we believe that SLO can secure the basis for more inclusive and sustainable prosperity.

The report includes detailed recommendations of different stakeholder groups about how to mitigate adjustment costs, capture more economic benefit from investments to retire the site, and improve public awareness.

1.1      Recommendations for Civil Society

1. As in most democratic societies, overall economic progress in SLO is the summation of individual effort and aspiration on the part of all its enterprises and households. When communities are presented with significant adjustments, however, individualism can be less effective than cooperation. SLO’s diversity is an asset with great potential to advance diversified economic growth, but only if social barriers and demographic segmentation can be overcome. This will require more determined commitments to community dialog, enlisting a broad alliance of traditional community, faith-based, and educational institutions as well as NGOs and issue-oriented advocacy groups. Our survey results suggest that an unintended but valuable benefit of DCPP closure could be a new generation of multi-stakeholder commitment to more sustainable and inclusive growth across the SLO economy.
2. Some of this report’s most important findings relate to local (public and private) sentiments aroused by DCPP closure, discordant expectations over shared values. Shared values provide welcome cohesion, while discordant expectations can stimulate constructive discourse, motivate discovery, and impel the community to improve mutual awareness and cooperation. What is missing is a transparent and inclusive framework to advance community strategic planning.
3. In addition to this study’s own economic findings, the stakeholder survey identified leading local concerns and opinions about DCPP. These hallmark issues could be used to jump start and sustain dialog for long-term growth. SLO county governments are already pursuing this with dedicated (SB1090) and discretionary funds, including the new Hourglass Project. Evidence like that presented in this study, as well as other assessments addressing leading community challenges and opportunities, should continue to inform, mobilize, and support SLO in deciding its own future.

1.2      Recommendations for Local Governments

1. Clearly align DCPP closure policies with local economic development strategy and communicate this to public and private stakeholders at all levels. Our survey and stakeholder consultations clearly revealed feelings that new economic development opportunities must be more aggressively pursued in order to diversify the economy and attract new businesses, particularly ones that support a high-skilled labor force. California’s superior growth for at least two generations has been fueled by knowledge-intensive industries. SLO has not fulfilled its potential to participate in this dynamic.
2. Facilitate more affordable housing development with significant reductions of impact fees. The incidence of such development fees falls largely on the developers and renters of new construction, disincentivizing both the construction and immigration of new and younger renter households. For a point of comparison, the parks development mitigation fee for a new single-family development in San Luis Obispo is $3,251.83, whereas the corresponding fee in neighboring Santa Barbara is only $1,371. More generally, a 750 sq. ft. single family home with one rush-hour commuter would cost $26,485.02 in development impact fees in San Luis Obispo while the same development would cost $4,162.50 in development impact fees in Santa Barbara, which is nearly 85% less.
3. Redouble enterprise development efforts and effectively coordinating these across jurisdictions. San Luis Obispo benefits from being a desirable place to live, the location of a quality public university, and ready access to the venture capital centers of Silicon Valley and Los Angeles. One way of leveraging this is through the support and development of startup accelerators, incubators, and other such “startup community” programs. Startup accelerators have been shown to not only improve regional financing environments for accelerated startups, but also have spillover effects due to increased interest from investors. Cal Poly’s Center for Innovation & Entrepreneurship already operates the HotHouse Accelerator and Incubator in downtown San Luis Obispo.
4. Give higher priority to Public Private Partnerships (PPP) with local educational and technology institutions. Cal Poly SLO is fantastic resource for innovation in the regional economy. The Cal Poly Office of Research and Economic Development currently operates a technology transfer program mainly related to the patenting of new technologies and the licensing of those patents. This can be expanded in partnership with local government to provide not only patent aid but also, for example, legal and incorporation aid for small businesses or even tax incentives for startups to establish themselves long-term in the region. One possible model for this is the UC San Diego Office of Innovation and Commercialization, a well-known example of successful technology transfer to the local economy.
5. Local governments can contribute to the two essential needs of the SLO housing market:

• Increasing the share of affordable housing
• Targeting new, higher wage employers

Permitting for new residential construction can be restrictive and several stakeholders felt that this was a serious barrier to diversifying the residential market. Many who work in the service and public sector are unable to afford much of the existing housing stock. More coordinated, proactive community marketing is needed to improve the investment climate for two priorities

6. Commit to complementary local investments and institutional development to achieve more inclusive gains from DCPP closure. These initiatives should include public and private capacity development, financial and fiscal consideration for local enterprises, and labor force development.
7. An often-overlooked, but nonetheless-important, work barrier is childcare access and affordability. Younger workers are disinclined to move into or stay in a region in which affordable and good-quality childcare is scarce. Recent reporting has indicated that the San Luis Obispo region has a significant issue with providing quality childcare to its workers. Governor Gavin Newsom has already put in motion a plan to achieve universal pre-K for low-income families across the state over the next four years, but the city and county governments can act further to support middle-income and professional families, increase the supply of pre-K seats, and even accelerate the pace of pre-K provision for low-income families. One model for this could be Aspen, Colorado, which uses a dedicated sales tax to help fund childcare programs and offer aid to lower-income families.

1.3      Recommendations for the CPUC

1. Cooperate with local governments and PG&E to directly monitor operations related to DCPP closure, measure and publicize progress according to explicit and mutually agreed initial goals and metrics.
2. Limit the overall timeframe for DCPP decommissioning. In particular, use as a reference the “DECON” option for decommissioning, which would finish the process within an expected 10 years, unlike the SAFSTOR alternative which could take up to 60 years to complete. A shorter timeframe would better concentrate and front-load decommissioning spending while simultaneously allowing for timely redevelopment and reuse of the DCPP land and infrastructure. Notably, this suggestion is in agreement with the Diablo Canyon Engagement Panel’s recommendations.
3. Work with local governments, related state agencies, and private investors to source renewable DCPP-displacement energy with proactive steps toward the BOEM approval of offshore wind farms in the Diablo Canyon and Morro Bay call areas. In the Diablo Canyon case, such a development could significantly mitigate redevelopment costs by making use of existing grid infrastructure at the DCPP site while also providing employment opportunities in similar job sectors to existing DCPP jobs. Department of Defense (DOD) wind exclusion zoning is currently the most significant roadblock to BOEM approval. Recent reporting has indicated the Diablo Canyon call area is less likely to receive a DOD go-ahead, but development of the Morro Bay call area would still be positive for the regional economy.

1.4      Recommendations for PG&E

1. Our assessment results suggest there is significant uncertainty in the SLO community regarding economic impacts, and that this uncertainty appears to engender pessimism and feelings of economic vulnerability. PG&E could expand its communication strategy to mitigate these sentiments. It would be beneficial for the public to more completely understand the opportunities presented by closure and its attendant investments. This study makes an independent effort to elucidate these benefits, but PG&E can speak with greater authority by reaffirming them, particularly regarding the extent to which economic stimulus will be localized.
2. PG&E’s long commitment to SLO can be sustained with a clearly articulated set of priorities for local contracting for goods and services connected with DCPP decommissioning. Subject to acceptable minimum standards, preference can be given to competitive local suppliers or joint venture partners who agree to work with local firms and labor force development institutions. In recognition of the multiplier benefits of such local expenditures, SLO governments and agencies may want to consider incentives to promote such partnerships.