Energy uncertainty comes home

The U.S. military conflict with Iran may be winding down, with disruptions in energy markets likely to reverberate for years. But in California, many of the debates involving oil and gas, wind and nuclear power are continuing along the same pre-war path - with a few notable exceptions.

The Trump administration is pushing for more oil and gas exploration while supporting nuclear power. California Democrats remain committed to renewable energy and are maintaining a skeptical approach to nuclear plants while keeping open its lone facility, Diablo Canyon Power Plant.

On Tuesday, Attorney General Rob Bonta filed a notice of intent to sue the administration over its cancellation of a wind lease off the coast of Morro Bay in exchange for $120 million of government money and a commitment by the company, Golden State Wind LLC, to invest in out-of-state fossil fuel projects instead.

Other developments are new or coincide with the Iran conflict, such as a proposal for a pipeline project that would bring fuel from the Midwest and Gulf Coast to California to reduce the state's dependence on imports and the recent closure of two major refineries.

The 'fuel island'

California, which is both determined to be less dependent on fossil fuels but also is more reliant on foreign sources of oil that rely on Asian and East Asian countries that get their energy from the Strait of Hormuz, has found itself in a tricky position. The state gets more than 60% of its oil from overseas.

"That exposure makes California more vulnerable than many other U.S. regions to overseas supply disruptions," said Myles P. Culhane, a shareholder with Greenberg Traurig LLP in Sacramento and a former official with oil producer Occidental Petroleum Corp.

The refinery closures didn't help, prompting concerns about higher gasoline prices even before the military conflict started. Those concerns are shared by advocates of fossil fuels as well as proponents of greener sources of power who fear that a gasoline price hike would undermine support for their long-term climate goals.

Phillips 66 Company's Los Angeles refinery closed in December, while Valero Energy Corp. shut down its Benicia refinery in February.

The $5 billion pipeline project by Phillips 66 and Kinder Morgan Inc., announced in April, would be completed by 2029 and alleviate California's shortage by bringing in gasoline, diesel and jet fuel, replacing some of the state's lost refinery capacity by reversing the traditional flow of fuel from west to east.

The state also has been in the middle of a contentious fight over the California Air Resources Board's cap-and-invest regulations, which were approved late last month and grants free emissions allowances to refineries and utilities - much to the dismay of environmental groups.

But with gasoline demand on a long-term decline and industry unhappiness over California regulations, it is not clear that those concessions will be enough for companies operating the state's remaining refineries to keep them open.

"For refiners, the practical question is whether that incentive structure will be enough to offset rising compliance costs and support continued investment in California operations in the face of declining market demand," Culhane said.

Nuclear standoff

While several other states have repealed moratoriums on new nuclear power plants, including Illinois in January and New Jersey in April, California is keeping its ban in place - at least for now. A bill to repeal the state's new-nukes ban was transformed into a study in April in an Assembly committee.

Nuclear power proponents are not giving up, and they have an ally in the Trump administration. The Nuclear Regulatory Commission has proposed a faster licensing pathway for so-called microreactors that are transportable.

Bonta, eight other state attorneys general and the District of Columbia asked the NRC last week to withdraw the proposed rule, saying it violates the National Environmental Policy Act and the Administrative Procedure Act.

"Formulating such a broad suite of licensing regulations on untested and experimental technologies is dangerous and puts public health and the environment at risk," Bonta wrote in a statement.

The state can still block the new nuclear plants, however small, under a U.S. Supreme Court decision unless it changes its 1970s-era law, according to William E. Fork, a partner with Pillsbury Winthrop Shaw Pittman LLP who represents electric utility companies.

"NRC approval may be a necessary predicate to new nuclear project development, but it is not necessarily sufficient," he said.

"For ordinary commercial deployment of new nuclear fission facilities in California, a developer would still need to address California's moratorium and other applicable state and local requirements, unless the Legislature amends the governing law or a court determines that the state restriction is preempted because it operates as a disguised regulation of radiological safety," Fork added.

A nuclear renaissance?

Aside from the NRC's microreactor proposal, the Trump administration is trying to increase the pace of construction of nuclear reactors in the U.S. by offering $17.5 billion in low-interest loans from the Department of Energy for equipment orders, according to a Wall Street Journal report Tuesday.

Critics who say nuclear power remains unsafe argue that the high costs of reactors are a reason to steer clear of them, citing the example of the Alvin W. Vogtle Electric Generating Plant in Georgia, which began commercial operations in 2023 after going way over budget from its original $14 billion estimate to the final cost of more than $35 billion.

Georgia regulators allowed the utility behind the plant to pass along about $14 a month in those costs to ratepayers.

"It's expensive electricity," said Diane Curran, of counsel at Harmon Curran Spielberg & Eisenberg LLP, who represent San Luis Obispo Mothers for Peace, which has challenged Diablo Canyon's continued operation. "They have to get government money."

Although California has not joined other states in repealing bans on new nuclear plants, Gov. Gavin Newsom has defended Diablo Canyon. State lawmakers, after extending the plant's operation through 2030, are preparing to decide whether it should remain open until 2045. The NRC has already granted its approval until then.

Earlier this month, the state Supreme Court denied review of a 2nd District Court of Appeal decision upholding the California Public Utilities Commission decision denying opponents' challenge to the "prudency" and cost-effectiveness of continuing to operate the plant.

Supporters of Diablo Canyon, including Gov. Gavin Newsom, point out that the nuclear plant supplies 9% of the state's electricity.

For the moment, advocates and critics of nuclear power are locked in a bit of a standoff.

The Trump administration and AI companies' data center electricity needs have prompted several states to eliminate moratoriums on new nuclear plants in recent years, but the lengthy timelines for building reactors - as well as cost and safety concerns - give nuclear critics arguments to fight back and investors reason to hesitate.

In California, that leaves Diablo Canyon, an aging plant that merely preserves the status quo.