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PG&E Corporation to Close Last Nuclear Plant in California

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PG&E Corporation (PCG - Free Report) , which supplies electricity throughout northern California, reached an agreement with environmental and labor groups to shut down California’s last nuclear plant, Diablo Canyon, and replace it with a combination of renewable energy, energy efficiency and energy storage resources. The plant is located in San Luis Obispo County. The deal is subject to a number of regulatory approvals, including clearance from the California Public Utilities Commission ("CPUC").

Apart from PG&E, other parties of the joint proposal include International Brotherhood of Electrical Workers Local 1245, Coalition of California Utility Employees, Friends of the Earth, Natural Resources Defense Council, Environment California, and Alliance for Nuclear Responsibility.

Details of the Deal

Per the deal, PG&E will not seek license renewals for the two reactors at the plant, which expire in 2024 and 2025. Meanwhile, the company will propose a plan to the CPUC for the replacement of the 2,240-megawatt (MW) plant with clean energy infrastructure.


Commitment to the Community

The proposal covers the payment of nearly $50 million to San Luis Obispo County by PG&E. These payments are designed to offset declining property taxes through 2025 to support a transition plan for the county.

The Reason Behind

In addition to all other challenges faced by utility companies, nuclear plant operators have recently been grappling with rising operating costs. The situation is further worsened by historically low prices of natural gas.

According to PG&E, closing the Diablo Canyon facility will be more economical than operating them. Moreover, California is expected to see an increase in renewable generation, which will lower the demand of nuclear power plants. As costs of wind and solar energy continue to decline, post 2025, the plant will possibly be rendered useless as its output becomes exponentially expensive due to high fixed costs.

Similar Moves by Peers

Rising operating cost and declining revenues prompted Entergy Corporation (ETR - Free Report) , a diversified energy company, to cease operations of its Massachusetts-based Pilgrim plant by May 2019 following a refueling outage in the spring of 2017.

In a similar move, Exelon Corporation (EXC - Free Report) , a leading competitive power generator in the U.S., has decided to shut down its loss making Clinton and Quad Cities nuclear power plants owing to the lack of progress on the Next Generation Energy Plan legislation, which could have helped to bring the plants back to profitability.

PG&E Corporation currently carries a Zacks Rank #3 (Hold).

A Key Pick in the Sector

A better-ranked peer in the same space includes Avangrid, Inc. (AGR - Free Report) , sporting a Zacks Rank #1 (Strong Buy).

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