Kinder Morgan: Calif Power Cuts Causing Pipeline Delays

Updated: Friday, May 11, 2001 05:51 PM ET By Jason Leopold, Ken Clark and Jessica Berthold

Of DOW JONES NEWSWIRES

LOS ANGELES (Dow Jones)--Kinder Morgan Energy Partners LP (KMP, news, msgs) could face further delays in delivery of gasoline, diesel and jet fuel to its California customers if pipeline interruptions caused by the state's electricity crisis continue, a spokesman at the company said.

Kinder Morgan's Watson to San Diego pipeline, the Watson to Las Vegas line and the Colton to Phoenix lines were shut down for nearly 20 hours this week by Edison International (EIX, news, msgs) unit Southern California Edison, according to a memo the company sent out to its customers.

The problem wasn't rolling blackouts, but a series of power alerts that resulted in a mandatory disruption of Kinder Morgan's pipeline.

"The truth is, it's easier for us to continue when (the state) has rolling blackouts than when we're interrupted," Larry Pierce, a spokesman for Kinder Morgan, told Dow Jones Newswires recently. "Rolling blackouts are usually a shorter outage. It's when we have the longer outages that last for more than four to six hours a day that we're at a disadvantage and get behind on delivery schedules."

Kinder Morgan owns and operates the largest independent pipeline network in California, which ships 1 million barrels of gasoline and other fuels from California refineries to storage facilities. Because of the interruptions this week, the company was forced to reduce the rate at which it ships barrels of refined products. Continuous interruptions could delay deliveries, Pierce said.

The electricity cuts at Kinder Morgan this week resulted in two to three days of delays this week on delays on shipments of gasoline and other fuels to Phoenix, but didn't disrupt supply or move prices, a trader who ships products on the pipeline said.

Kinder Morgan has been able to mitigate the delays by running its pipeline harder during off-peak hours and increasing its capacity.

"We have excess capacity on the pipeline in Southern California, which allows us to increase the capacity and throughput," Pierce said.

The disruptions underscore the impact the state's electricity crisis could have on other industries and the possibility one energy crisis, the power shortage, could feed another, high gasoline prices. Pipelines need electricity to move fuel. Without it, supply gets backed up, potentially triggering gasoline shortages and price spikes.

"Each situation at each refinery is different, but it's conceivable that power curtailments would mean refiners couldn't pump gas out, even to their nearby customers," said Jeff Hazle, a spokesman for the National Petroleum Refiners Association.

California was hit with rolling blackouts Monday and Tuesday. In an effort to head off the blackouts, the state's grid operator first ordered the three main utilities to interrupt power to customers who are on a so-called voluntary interruptible program. Those customers, like Kinder Morgan, get reduced electricity rates.

State regulators last month passed a measure that said Southern California Edison and PG&E Corp. (PCG, news, msgs) unit Pacific Gas & Electric can only interrupt Kinder Morgan for a maximum of six hours a day, four days a week and 40 hours a month.

Kinder Morgan's pipeline in Southern California has already been interrupted about 80 hours this year. Under its contract with Southern California Edison, it has another 70 hours left under its interruptible contract. PG&E has used up all the hours it can interrupt Kinder Morgan in Northern California.

The electricity shortage in California and the record-setting heat is resulting in near-daily Stage 2 power alerts, which means the voluntary interruptible customers are losing power almost every day.

A bill to make refineries the last targets of rolling blackouts passed the state Assembly two weeks ago and now goes to the Senate Energy Committee, although it isn't expected to be heard any time soon. While the bill originally applied to pipelines as well, it was amended to apply solely to refineries.

Analysts said that excluding pipelines from the bill could be a problem, as refineries won't be able to receive crude or ship products if pipelines are shut down

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-- Martin Thompson (mthom1927@aol.com), May 11, 2001