LOS ANGELES — Southern California could experience up to 14 days of blackouts this summer as a result of the five-month-long natural gas leak at the Aliso Canyon storage facility.
Aliso Canyon supplies natural gas to 17 power plants in the Los Angeles basin and the drop in supply could impact their ability to produce electricity.
The leak was permanently capped in February, but officials said during a press conference Tuesday that it could take months to bring the storage facility back online.
The methane leak made national headlines after thousands of nearby residents were evacuated and the governor declared a state of emergency in January.
The California Energy Commission, the California Independent System Operator, the California Public Utilities Commission and the Los Angeles Department of Water and Power released a joint
Four of the Los Angeles Department of Water and Power’s plants receive natural gas from Aliso Canyon.
It is considered the biggest threat to the local power supply since the energy crisis of the early 2000s that resulted in rolling blackouts. But officials said they anticipate scheduled outages for some users as opposed to rolling blackouts affecting large portions of the region.
The four agencies released an 18-point plan designed to reduce the possibility of electrical interruptions and calling for conservation from residents.
Aliso Canyon has the capacity to store 15 billion cubic feet of natural gas in its underground reservoirs. It typically supplies gas to 11 million people.
Its owner, investor-owned utility Southern California Gas, is prohibited from injecting gas into the reservoir until a safety check is completed on the facility’s 114 wells.
The news comes as LADWP prepares to sell $550 million in water revenue bonds with retail orders today and institutional pricing on Thursday.
According to one fund manager, the news isn’t expected to impact pricing on the water revenue bonds, nor any power bonds it might sell later this year. It plans a second water revenue bond sale of $333 million on May 26.
“I can’t imagine it will,” said Tom Schuette, partner and co-head of portfolio management for Gurtin Fixed Income Management. “From a pricing standpoint, I think there are a few things that will insulate it.”
The first thing to insulate this week’s bond sale is that the bonds are from the utility’s water side, but generally LADWP overall has good credit quality, cash levels and very strong debt service coverage, Schuette said.
He added that he doesn’t think it will impact any upcoming power bond sales.
“I think investors and the rating agencies will see this as a temporary hurdle they have to move past,” Schuette said. “From a credit quality standpoint, I think they will be in really good shape.”
They also have a little bit of flexibility in the capital plan on when they move ahead on projects, he said.
LADWP has a multi-billion capital program underway on both the water and power side to catch up on infrastructure replacement and to meet environmental mandates to move to more renewable sources of energy. It has issued between $500 million and $1 billion in bonds annually over the past several years. It hasn’t released specific plans to issue power bonds yet.
“This isn’t LA’s first rodeo in dealing with power issues,” Schuette said. “In this case, it has months to look ahead and deal with contingency plans if it runs short on gas supply.”
Standard & Poor’s boosted the rating on the department’s water revenue bonds a notch to AA-plus ahead of the sale, partly as a result of the City Council’s approval of a rate increase for both its water and power customers in March.
LADWP owns and operates its own electrical generation, which includes gas-fired power plants that are used to assure energy reliability, LADWP General Manager Marcie Edwards said during the press conference.
While LADWP does not buy gas from SoCalGas, Edwards said, the department is required to use the SoCalGas transmission system.
“During the summer months, these power plants use gas stored at Aliso Canyon as they ramp up quickly to provide electrical power when demand spikes,” Edwards said. “The leak at Aliso Canyon, and the current moratorium on new gas injections during the necessary safety review, introduces the possibility that our power plants will be curtailed from receiving gas—in other words not getting gas when it is needed to create electricity.”
LADWP is going to curtail plans to purchase physical gas hedges since it does not have Aliso Canyon available, Edwards said.
Such hedges consist of commitments to take a given quantity of gas supply at a price that is fixed and agreed upon in advance, she said.
It also will forestall its program of selling surplus energy to wholesalers in order to “retain flexibility with respect to our gas burn in order to try and keep the lights on during times of reduced gas supply,” Edwards said.
