Infrastructure investment needs and a changing energy mix in the Pacific Northwest present challenges and opportunities for players throughout the West, and CFOs from two major West Coast players -- Puget Sound Energy (PSE) and Pacific Gas and Electric Co. (PG&E) -- told Wall Street early this month their utilities are actively engaged in newly proposed projects in the region.
With a five-year, $14 billion capital investment plan in place that is more than 90% covered in its current and future utility rates, San Francisco-based PG&E is wide-eyed over the potential growth in Northwest electric and natural gas projects that are not yet included in the current investment plans, CFO Christopher Johns said last Wednesday at the Lehman Brothers CEO Energy/Power Conference in New York City.
At a separate session at the same conference, Puget Energy CFO Eric Markell said public-sector power in the region has used up all of its surplus federal hydroelectric supplies and now is scrambling with its private-sector counterparts to line up adequate supply portfolios for the future, Bellevue, WA-based Puget's utility, PSE, faces the need to replace or extend expiring purchased power agreements with various public utility districts (PUD).
A current common thread running through both the public- and private-sector utilities in the region is the shared "shortage" of power, Markell said. Both sectors have to find new sources, and Puget has its eye on other existing nonhydro generating facilities it might acquire.
For PG&E, both the $1 billion, 230-mile, 36-inch diameter Pacific Connector natural gas pipeline in Oregon and the study of a possible $4-6 billion 500-kV transmission line in the region going into British Columbia are what Johns highlighted as "potential upsides" beyond the utility's massive utility infrastructure building program within California.
The proposed pipeline, in which PG&E wold have a one-third interest, would connect the proposed Jordan Cove Energy Project LP liquefied natural gas (LNG) receiving terminal at Coos Bay, OR, to the West Coast interstate gas pipeline systems running north into Washington state and south into California. An open season earlier in the year turned up a nonbinding interest in nearly 1.5 Bcf, Johns said. An application seeking FERC approval to build the LNG terminal and an associated interstate pipeline system was filed last week (see related story).
Johns noted that the pipeline project announced last Wednesday had just begun what is expected to be a 12-month Federal Energy Regulatory Commission (FERC) review process. "This is a billion-dollar project in which we would own about one-third, and the project continues to move forward," Johns said.
"Public power is an integral part of the Northwest power system, and some of the culture of power issues there," Markell said in response to questions from analysts. "What is changing in the world of public power is the overall system surplus of hydro has essentially been all allocated. The focus in the discussions within the PUD community and between the PUDs and investor-owned utilities (IOU) is where does the system go in terms of allocating future hydro supplies."
The question is how new "marginal supplies" are brought into the portfolio, and the public-sector utilities are just at the beginning of that dialogue, according to Markell, who outlined PSE's plans for adding a lot more solar, wind and natural gas-fired generation to its portfolio over the next 10 years as its replacement needs grow from the current 400 MW level to 1,600 MW.
"How will they [PUDs] meet their future needs if they're not going to be met with large hydro?" Markell asked rhetorically. "Will it be thermal generation? If so, what kind? Some of the PUDs as a consortium are advocating an integrated gasification combined-cycle [clean coal] project. I'm not sure where the dialogue [among PUDs] will go; others, in the meantime, look to BPA [Bonneville Power Administration] to provide for their needs.
"We also have the ability to self-build natural gas-fired generation, or to buy existing gas-fired generation that is out there and available. We did that successfully two or three times already, and we are very close to all the available assets in the Northwest marketplace. We have done a lot of diligence on a lot of different assets. We have a good handle on how to fill our [future power supply] gap."
For PG&E, the other area of potential growth is covered currently by a $14 million cost-benefits study the utility has embarked on with regulatory approval to look at the feasibility of building a major high-voltage transmission line between the San Francisco Bay are and British Columbia to access renewable energy and hydroelectric power supplies that are increasingly being developed in that part of Western Canada.
"It could be anywhere from a $4 billion to $6 billion project, and we most likely would not be a sole owner of that project," Johns said. "That is something we will be looking at over the next year."
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