Nukes, Pipelines, Affect Utilities’ Income

By Published On: May 13, 2011

Two of California’s investor-owned utilities reported slightly lower profits for the first quarter of the year. In contrast, income for Sempra and its subsidiaries rose significantly the first quarter of this year. Edison--The parent company of Southern California Edison, Edison International, reported first quarter 2011 income at $200 million. At the same time in 2010, the corporation posted $236 million in profit. Of that, net income of the corporation’s utility was $222 million. Last year at this time it was $164 million. As the primary owner and operator of the San Onofre Nuclear Generating Station, Edison promotes spending $64 million in seismic research and attendant capital investment to extend the life of the nuclear facility. Despite the planned investment, the utility has not yet committed to formally applying for a 20-year license extension for the plant with the Nuclear Regulatory Commission. The request for more seismic studies “will provide support to any future capital required” and “any request we may seek in the future for license renewal,” according to utility executives. Edison downscaled a proposed $21.5 billion capital investment plan announced this time last year, telling the financial community that it plans to spend $15.6 billion to $17.5 billion over the next four years. Return on that capital investment, according to the company, is between 9 percent and 11 percent. About half of the investments are set to be from equity, which garners up to an 11.5 percent rate of return. Investments include up to $4.8 billion next year altogether for photovoltaics, “smart” meters, power plants, and transmission lines. In 2013, Edison plans up to another $4.3 billion in investments. The company is set to comply with the state’s mandate for 33 percent of its power supply to be from renewable resources. Ted Craver, chief executive officer, Edison International, did note that it’s an “expensive” compliance. He did not elaborate just how expensive it may be. The utility plans to channel most of the investments toward transmission lines and not to building and owning its own renewable energy projects. “Edison’s uniquely positioned to design and build transmission” while leaving renewables development to others, according to Craver. In the works in current investments are $1.28 billion for a line to bring wind energy from the Tehachapi Mountains. Four lines are planned, including one to carry solar power from Ivanpah. Pacific Gas & Electric--PG&E Corp., the utility’s parent company, reported $202 million in quarterly income, down from $261 million this time in 2010. The utility posted $201 million in income this quarter, down from $264 million in the first quarter last year. PG&E, the utility, is reported to have grown from a $21 billion/year company to a $23.5 billion/year entity. After the departure of chief executive officer Peter Darbee, interim chief executive officer Lee Cox said the company is working on regaining “public trust.” Darbee’s $36 million retirement package is being underwritten by shareholders, not ratepayers, to mollify public and political concerns over the size of the benefits. The natural gas explosion in San Bruno Sept. 9, 2010, so far, has cost the company $114 million for safety related spending, and another $220 million set aside for liability. Gas pipeline safety costs could go up to $550 million this year, according to the company. The utility proposed to the California Public Utilities Commission that money spent on pipeline safety be tracked in a “memorandum” account, so the company may request return on that investment. On May 9, a CPUC resolution denied that account. But, the utility could reapply, according to the commission. If so, those costs could be an opportunity. The utility expects regulators to approve new capital investments in its gas lines for safety. Those investments may give shareholders up to an 11.35 percent rate of return. For instance, new pipes that are able to be investigated by robotic “pigs” to discover weaknesses would be eligible for a double digit rate of return. Sempra--The parent company of utilities San Diego Gas & Electric and SoCal Gas, as well as several unregulated subsidiaries, showed profits for the quarter at $258 million. That accounting more than doubled net income from the same quarter last year; $106 million. Of that, SDG&E reported $89 million in net income for the first quarter 2011. The first quarter of 2010, it posted $83 million. SoCal Gas’ share of the profits was $68 million. Last year at that time, it posted $65 million. Sempra Generation, an unregulated subsidiary, earned $44 million for the quarter. In the first quarter last year, it reported a loss of $51 million. In April, Sempra Generation agreed to sell SDG&E wind power in a 20-year contract with the 156 MW Energia Sierra Juárez project in Baja California, Mexico. BP is half owner of the facility. Sempra Gen is also set to sell PG&E solar power under a 20-year contract with its Arizona Mesquite Solar facility. The California Public Utilities Commission approved the contract in April. Sempra LNG turned a profit of $33 million for the quarter. Last year in the first quarter it posted $32 million in income. Sempra Pipelines & Storage also posted increasing income over last year at $54 million compared to $38 million in 2010. Its primary profit drivers are assets in South America and Mexico. Like PG&E, the California Public Utilities Commission is investigating the safety of the Sempra utilities’ gas lines. Like PG&E, the records for those utilities’ systems are incomplete. Of SoCal Gas’ 1,416 miles of pipelines, inspection data for 383 miles of pipe have yet to be recovered, while information for 64 miles of gas pipeline for SDG&E system is missing (Current, April 22, 2011) The document production for regulators “cost less than $2 million year-to-date gathering records,” said Sempra chair Don Felsinger. He added that last week Sempra utilities asked regulators to open a memorandum account to track pipeline-safety related expenses “going forward.” Sunrise Powerlink transmission line now has “more than 100 towers in various stages of construction,” Felsinger said The corporation noted that it expects to spend $600 million this year on renewable power.

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