Nukes, Gas Affect Utilities’ Earnings

By Published On: November 7, 2013

While natural gas issues continue to drag down Pacific Gas & Electric, and San Diego Gas & Electric revealed some nuclear-related drop in profit, the state’s other two regulated utilities saw upswings in their third quarter 2013 earnings reports. Highlights of those reports to the investment community include: Edison International—Southern California Edison’s holding company posted a loss of $14 million for the third quarter 2013. At the same time in 2012, the loss was $37 million. Of that, the utility reported gains of $477 million for the quarter, compared to $363 million this time last year. The big financial issue for Edison, the utility, remains the shutdown of the San Onofre Nuclear Generating Station. It is claiming “at least” $4 billion in damages from the manufacturer of the failed steam generators, Mitsubishi Heavy Industries. The California Public Utilities Commission has ongoing hearings on whether or not to keep including the cost of the nuclear plant in Edison’s and San Diego Gas & Electric’s ratepayer bills. Edison is the primary owner and operator of the plant. San Diego has a 20 percent interest. Edison maintains that $425 million in investments should remain in ratebase at a 7.9 percent rate of return, and that another $733 million deserves a 5.54 percent return. The company noted that it plans to apply for major capital investments—like power lines and generators—but would not reveal potential projects. From this year to 2017, Edison projects $20 billion in new investments with an associated rate of return, mostly in distribution. Also on Edison International’s plate is the ongoing bankruptcy of Edison Mission Energy. Although the bankruptcy of its subsidiary Edison Mission is ringfenced from the parent corporation, Edison International noted that details of a potential acquisition are pending in court. NRG Energy is attempting to buy the subsidiary for $2.64 billion, NRG announced Oct. 21. Edison executives note that details of that plan haven’t been provided in bankruptcy court. Inquiries to NRG as to whether such a buyout would affect California facilities like the Walnut Creek peaker plant were not answered. Pacific Gas & Electric Corp.—The parent company of PG&E, the utility, focused on its gas pipeline liabilities and its ongoing attempts at ameliorating safety concerns as it reported $161 million in net income for the third quarter 2013. In 2012, at this time, it posted $361million in net income. Of that, the utility accounted for $162 million this quarter, compared to $340 million this time last year. Natural gas matters cost the utility a negative $394 million in the quarter. The total shareholder-funded amount for pipeline safety after the 2010 San Bruno blast that killed eight was reported at $2.4 billion. Executives told the financial community that the costs related to the San Bruno explosion—from fines, litigation, and safety improvements—are diminishing. A cost of $500 million over five years to review the system in the Bay Area is expected. After the financial report, the California Public Utilities Commission proposed a $17.25 million fine for alleged misinformation on gas pipelines, and another $8 million citation for “non-standard” pipeline testing (see “shorts” on page 12). Corporate executives noted that the company is spending “significantly” more at present than it’s receiving in revenues. PG&E Corp. chief executive officer Tony Earley said legislation requiring rate restructuring of the current tiered system could allow for increased income for the utility. PG&E made no mention to financial analysts regarding its plan to relicense the Diablo Canyon nuclear plant for an extra 20 years. Sempra—With two regulated utilities under its wing—San Diego Gas & Electric and SoCal Gas—the holding company posted $323 million in net income for the quarter compared to $290 million in the third quarter last year. Of that, SDG&E contributed $129 million, while last year at this time it posted $174 million. SoCal Gas supplied $102 million this quarter. In the third quarter of 2102, it posted $71 million. While the corporation noted a $5 million shortage in earnings for SDG&E due to the San Onofre shutdown, executives brightened over the potential to invest new funds in both electric and gas infrastructure to make up for the loss in local generating power. New projects can earn a rate of return on equity up to 10.3 percent. Prospective projects include transmission for voltage support, as well as transmission lines. That could be “several billion” dollars, according to Debbie Reed, Sempra chief executive officer. SDG&E and SoCal Gas also could benefit by providing natural gas and related infrastructure to fossil-fueled power plants to replace some of the regional generation, according to Sempra.

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