California plans transmission buyout; generators still under order


By Ann de Rouffignac
OGJ Online

HOUSTON, Feb. 19�As expected, California Gov. Gray Davis reported Friday the state is negotiating with the near bankrupt electric utilities to buy their transmission lines.

The plan is intended to give the utilities a cash infusion so they can pay debtors and buy power to serve customers. The utilities suspended debt payments the first of February and also stopped paying for wholesale power as well. When generators balked at providing power without any guarantees of payment, the California Independent System Operator (ISO) filed suit in a Sacramento federal court to force them to provide power to keep the lights on.

Also, on Friday, a Sacramento federal judge extended a temporary restraining order granted 2 weeks ago for another 5 days forcing the generators to continue providing power, even though Southern California Edison Co. (SCE), a unit of Edison International, and Pacific Gas & Electric Co., a unit of PG&E Corp. have mostly halted payments. A hearing is scheduled Wednesday

The utilities were plunged into insolvency after they were caught between soaring wholesale power costs and frozen retail rates. The state refused to raise rates enough to cover costs, even though many observers agree higher retail rates would have resolved the problems months ago and also sent the proper price signals to encourage conservation. It would also have encouraged new generation.

�Ratepayers did not ask for deregulation. They were promised that the rates would go down,� Davis said in a press conference late Friday. �Believe me if I wanted to raise rates that could have solved this problem in 20 minutes.�

The transmission purchase is expected to cost $4 billion-$9 billion and would put the state in the electricity business. Operations and maintenance would be contracted to the utilities. The purchase would provide funds to the utilities to pay their debts through rate-financed bonds. The governor and the utilities are still negotiating details.

One version of the financing structure suggested in Southern California Edison�s recent 8-K filing with the US Securities and Exchange Commission involves the state issuing revenue bonds to finance the acquisition. Under another mechanism outlined in the filing, the California Public Utilities Commission would create a �dedicated rate component� on customer bills. Then utilities would issue bonds secured by dedicated rate component charges.

In a Friday conference call, SCE creditors wondered when they will see the cash for missed principal and interest payments. SCE officials admitted there could be a delay. If legislators don�t approve the plan by a two-thirds majority, the measure won�t be effective for 90 days.

�There is a gap between resolution and cash flowing,� said Theodore Craver, chief financial officer of SCE. �We will seek additional financing in the interim. That will be coupled with cash on hand to clean up the payment suspension."

Craver explained they would work out terms on a short-term basis among creditors and generators.

Meanwhile, there is considerable disagreement over who is responsible for �net short imbalance energy� provided by the generators after Feb. 1.

The net short is the power needed to serve customer load beyond that provided by the utilities own generation and that purchased by the Department of Water Resources (DWR) on behalf of the state. The utilities stated that the state is responsible for the ISO�s purchase of imbalance energy since Feb. 1.

�It is our understanding that the state will pick up the full net short starting Feb. 1,� said Craver.

Legislation (AB 1X) became effective Feb. 1 authorizing the state to buy power on behalf of the cash-strapped utilities. But officials at the ISO said the DWR �was leaving a lot of power on the table.�

The DWR does not buy power if negotiators don't like the price, leaving the grid with insufficient resources and the ISO scrambling to procure the power, officials said. Saturday was the 32nd day the ISO operated under its highest emergency level.

Since SCE and Pacific Gas & Electric Co. have virtually halted payments for wholesale power to the ISO, it has no money to pay generators for power. The governor was asked at Friday�s press conference if the generators would get paid in full� a bill that is approaching $1 billion for power delivered and unpaid since Feb. 1.

�That�s a matter of continuing discussion. That�s the only way I can respond to it,� said Davis.

Related Articles

IHS: Crude transported by Keystone XL would be consumed in US

02/24/2015 Most, if not all, of the crude oil that would be transported via the proposed Keystone XL pipeline to the US Gulf Coast would not be exported, and ...

EPP, Anadarko, others form NGL pipeline joint venture

02/24/2015 Enterprise Products Partners LP, Anadarko Petroleum Corp., DCP Midstream Partners LP, and MarkWest Energy Partners LP have formed a joint venture a...

Montana governor wants PHMSA to beef up pipeline enforcement in state

02/23/2015 Citing a Jan. 17 leak of 1,200 bbl of crude oil from a ruptured pipeline in eastern Montana, Gov. Steve Bullock (D) asked US Sec. of Transportation...

Oil, gas infrastructure investments essential, House panel told

02/20/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

Noble Energy’s budget down 40% in 2015

02/20/2015 Noble Energy Inc., Houston, plans to spend $2.9 billion in 2015, representing a 40% reduction from 2014. The company also reported full-year 2014 n...

NGL Energy expands DJ basin crude pipeline to 200,000 b/d

02/19/2015 NGL Energy Partners LP will increase the capacity of its Grand Mesa crude pipeline to at least 200,000 b/d by using 20-in. OD pipe. Volumes committ...

Montana governor wants PHMSA to beef up pipeline enforcement in state

02/17/2015 Citing a Jan. 17 leak of 1,200 bbl of crude oil from a ruptured pipeline in eastern Montana, Gov. Steve Bullock (D) asked US Sec. of Transportation...

Phillips 66 Partners to buy pipeline systems’ interests for $1 billion

02/16/2015 Phillips 66 Partners LP has reached agreement with Phillips 66 to acquire Phillips 66’s interests in three pipeline systems for a total of $1.01 bi...

Alberta's premier seeks more North American energy integration

02/16/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance's po...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected