The impossibility of predicting future natural gas and coal prices adds to the dilemma, but Rosemead, CA-based Edison International's two-edged conundrum involving an idled California nuclear plant and money-losing merchant coal-fired generation assets in Illinois and Pennsylvania remains unresolved as time constraints worsen the potential financial fallout.
That was the plot-thickening story that Edison CEO Ted Craver said during a 1Q2012 earnings conference call Wednesday in which the independent generation unit, Edison Mission Group (EMG), continued to report larger losses quarter over quarter and cash cow Southern California Edison Co. (SCE) reported decreased quarter-over-quarter profits, mostly due to a delay in the final state regulatory decision on a major general rate case, and projected $55-65 million in added costs to get the San Onofre Nuclear Generating Station (Songs) back into service.
Craver had no definitive time estimates for resolving any of the lingering issues: turning around EMG, getting a crucial rate case decision from the California Public Utilities Commission (CPUC) or resolving a problem of prematurely deteriorating tubing in newly installed steam generators at the 2,200 MW Songs plant.
As California energy officials make contingency plans for tapping more natural gas-fired generation and conservation measures this summer, Craver said it was likely at least one, if not both, of the Songs units would remain offline this summer (see Daily GPI, March 29). Both Units 2 and 3 have been down since late January, one originally on a planned basis and the other on an emergency basis.
"SCE is continuing to assess the causes of the steam generator leak discovered Jan. 31 at Unit 3 at Songs, working with the manufacturer, the NRC [Nuclear Regulatory Commission], consultants and other energy industry experts," said Craver, noting the work has now covered more than three months. "We have identified some unusual wear in approximately 1% of the 39,000 steam generator tubes that transfer heat to produce steam that drives the electricity producing turbines."
Noting that the units will not resume service until Edison and the NRC are "completely satisfied it is safe to do so," Craver said it is possible the time required to do all of this will keep "one or both units" offline into the summer. He acknowledged this will "strain [SCE's] ability to meet peak electricity demands."
SCE is working with the California Independent System Operator and neighboring utility, Sempra Energy's San Diego Gas and Electric Co. (SDG&E) on contingency plans that include tapping the extra gas-fired generation. Separately, on an earnings conference call Thursday, Sempra's senior officials said they think there could be some upward pressures, albeit slight, on power and gas prices this summer due to the lingering Songs outage.
Separately, SCE officials told the Los Angeles Times that they are preparing a filing to the NRC asking to bring the Songs units back on partially on a phased basis beginning next month -- Unit 2 first, followed by Unit 3 several weeks later. The units would operate on a reduced (50-80%) basis for the summer months and then be taken out of service for further inspection and evaluation, according to the LA Times report. There was no indication whether the NRC would go along with this, or how soon the utility will file its request.
Regarding EMG, Craver repeated Edison's strategy that includes having both regulated and independent electricity businesses, but he also noted that the time is getting short for being able to turn around Edison Mission. Getting the independent generator turned around will depend a lot on where natural gas and coal prices will go, he said, admitting that is a difficult task.
According to Craver, the company's senior management is looking "well into the future," but there is no way to be assured that the judgments that eventually will have to be made are sure things. "I don't know that we can make all those judgments perfectly," he said. "If you could tell me exactly where gas and coal prices were going to be, it would be a much easier equation to figure out, but nobody has that.
"I don't think we have a lot of interest in having EMG lurch from quarter to quarter," said Craver, noting that Edison currently is attempting to determine if there is "a viable plan" for the subsidiary that would allow the air emission retrofits to be made on an economically sensible basis, reduce nearly $1 billion in debt, and have enough cash flow to support new financing at the company. "We need to be able to assure ourselves that EMG is viable."
Edison is still trying to determine if there is a viable "path" out of the quagmire that EMG has been stuck in, he said.
For 1Q2012, EMG reported a loss of $83 million (a negative 26 cents/share), compared to losses of $18 million (negative 6 cents/share) for the first period last year. SCE reported a quarterly profit of $182 million, compared to $222 million for the first quarter of 2011, with most of the decrease attributed to the delay in getting a final decision on a pending general rate case at the CPUC.
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