Despite credit issues, Abengoa to continue transmission operations in U.S.

transmission december 2 elp

While Abengoa S.A., the energy giant that is working to resolve credit concerns under Spanish insolvency proceedings, may face an uncertain future, the development of the Delaney to Colorado River transmission line in California, which has an Abengoa unit as a minority partner, will not be harmed by the proceedings, a source familiar with the project told TransmissionHub Dec. 30.

Abengoa Transmission & Infrastructure, the Abengoa unit that is a 25 percent interest holder in the joint venture selected by the California ISO to build and own the transmission line, is a stand-alone company that is independent from other Abengoa businesses that have suspended operations, the source said.

The Delaney to Colorado River line is a 500-kV project that is expected to be in service in 2020 at a cost of $338 million, according to TransmissionHub data. The project involves a single-circuit line to connect the Delaney substation in Arizona that is under construction by Arizona Public Service, to the existing Colorado River substation in California that is owned by Edison International unit Southern California Edison.

California ISO on July 10 selected DCR Transmission to build and operate the line, and DCRT on Dec. 17 received incentive rate treatment from FERC to aid financing and development of the line. DCRT has ATI as a 25 percent partner and DCR Investor, an affiliate of Starwood Energy Group Global as a 75 percent partner.

A spokesperson for Starwood declined to comment on the credit issues involving Abengoa.

On Dec. 24, Abengoa received a cash infusion of $114 million from financial stakeholders under Article 5 of the Spanish Insolvency Law, the company said in a statement. Under that law, the company has a period of three months, which can be extended to four months, to work with creditors to protect and preserve the company’s value “while it works on the design and development of an appropriated viability plan for its future,” Abengoa said.

An Abengoa spokesperson told TransmissionHub Dec. 29 that the company is aiming to maintain business activity in all areas where it has operations. Abengoa continues to operate all generation assets of Abengoa Yield in the United States, including solar thermal plants and other facilities, while it is studying the viability of continuing normal operations amid the credit issues in Spain, the spokesperson said.

“All possible scenarios will be considered, including the possibility of temporary breaks in operation, with the ultimate goal of eventually returning to normal operations when the situation of the company permits,” the Abengoa spokesperson said.

The DCRT partnership is developing the transmission line on schedule as planned, and ATI will continue to be in the partnership, the source familiar with the project told TransmissionHub. Starwood has “more than enough capital” to fund the entire project if needed, that source said.

California ISO selected DCRT, which is now known as Ten West Link, as part of its competitive solicitation process for the development of transmission facilities, choosing the partnership over other firms that included units of LS Power, NextEra Energy and a couple of other joint ventures.

Because ATI, the Abengoa unit in Ten West Link, is separate from the Spanish parent company, “at this point we don’t have any concerns” that the credit issues will harm the project’s development, a California ISO spokesperson told TransmissionHub Dec. 31. California ISO is monitoring the situation and has been in close contact with both Abengoa and Starwood, the California ISO spokesperson said.

California ISO has rules in place if an entity chosen by the grid operator cannot complete a project, that spokesperson added. Section 5.8 of the Approved Project Sponsor Agreement allows California ISO to put another project sponsor in place if the sponsor that was chosen can no longer build the project, he said.

Abengoa operates hundreds of units around the globe and each one is autonomous, so while some units may be suspending operations, those activities have no bearing on the partnership with Starwood, the source familiar with the project said.

The Ten West Link project will largely follow existing transmission line and utility corridors, stretching 114 miles, with 97 miles in Arizona and 17 miles in California, according to a Ten West Link fact sheet.

One of the Abengoa units that halted construction operations in Oregon is Abeinsa Abener Teyma General Partnership, which Portland General Electric had contracted to build PGE’s natural gas-fired Carty power plant. PGE on Dec. 21 declared Abeinsa Abener Teyma General Partnership in default of the construction agreement after Abeinsa Abener Teyma General Partnership had ceased construction activities, and PGE assumed control of the construction site on Dec. 18.

The credit issues surrounding Abengoa in Spain came to light at the end of November, and on Dec. 15, Abengoa issued a statement informing the Spanish Securities Market Commission that it made filings under Article 5 of the Spanish Insolvency Law. The company has said it is trying to reach debt restructuring agreements with its lenders.

Moody’s Investors Service issued a statement that Abengoa’s Caa3 credit ratings reflect the company’s unsustainable capital structure and historically aggressive debt-funded growth, “which, in turn, has led to a liquidity crisis that the company is attempting to address” through the insolvency proceedings.

Previously, Moody’s downgraded Abengoa’s credit rating and placed it in a negative outlook, noting that a default to creditors is possible, even though many aspects of Abengoa’s operations continue to perform well.

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