Natural gas is one of the factors lurking behind the scenes ofLong Beach’s continuing quest to buy a section of SouthernCalifornia Edison Co.’s power distribution system within its cityborders. The city recently rejected an offer by Edison that wouldhave ended the municipalization campaign. At least part of thereason for the city’s resolve is the likelihood it will be a majorend-point for large new gas loads. But that appears to be a smallpart of a much larger scheme behind the city’s recent activities.

“We see Long Beach becoming the energy capital of the world,”said Chris Garner, general manager of the Long Beach Gas andElectric Department. “We have Williams, AES, [the LA Department ofWater and Power], Enron’s cogeneration in the harbor and Enron’snew power plant proposal for the harbor. There are also the twoproposed pipelines, and we’ve talked with some of the other largecogeneration facilities that sit in bordering towns of Long Beach,so we have quite a few opportunities, plus we own our own gasutility.”

The city is in informal discussions with two new interstate gaspipeline operators, Williams and Questar, which have proposed tobring new supplies to Long Beach’s existing and proposed electricgenerating plants and cogeneration facilities. It is possible thata “gas-for-electricity deal” could be worked out if the city endsup taking over the electricity distribution system, said Garner.

Now it is up to the city council in Long Beach if it makeseconomic sense to seek takeover of Edison’s facilities within thiscity of 440,000 residents, the state’s fifth largest and thelargest municipality in Edison’s sprawling territory that includes4.2 million customers and a population of more than 12 million. Bymid-summer, the council will decide if the city will formallyrelease a request for proposal (RFP) for bidders among nationalenergy concerns that want to operate a Long Beach electricalsystem, assuming it is purchased from Edison.

A 2,000 MW generating plant in Long Beach formerly owned byEdison (Alamitos) is now part of AES Corp., which has a deal withWilliams to provide natural gas and market the power output of theplant. Williams also owns Kern River Pipeline, the interstatesupplier that is proposing to build a new southern extension toLong Beach. “If we could work out some sort of gas-for-electricitydeal that would be great,” Long Beach’s Garner said. “The more gasburned at the Alamitos Plant and the harbor facilities, the higherfranchise fees we get from SoCalGas. It is all based on the salesto those power plants. If Kern River or Questar come in here, I amsure we would have the same type of arrangement [collectingrevenues off the volumes of gas passing through].

“That is why we’d like to see those plants used as much aspossible. And if we took over the electric distribution system,there is the possibility of the city hooking up directly to thoseplants. Then, maybe we could do a gas-electric deal.” With orwithout the electricity distribution system, the city would plan tointerconnect with either or both of the new interstate gaspipelines, said Garner, noting that the existing Questar pipeline,which is a proposed conversion of a now-dormant oil pipeline linkedto New Mexico, runs right next to existing Long Beach citypipelines.

The possibility for the city acquiring the Edisonfacilities-roughly valued at $400 million by Edison-arose late lastyear as part of a review of a unique provision in Edison’s 60-yearfranchise with Long Beach dating back to the 1970s.

Initially, Long Beach had a letter of intent involving EnronCorp. that would have given the Houston-based energy giant theinside track for both helping purchase and ultimately run theelectric system under a contract with the city. Under pressure fromEdison and the community, the city council finally rejected thatarrangement but moved forward with preliminary review of the optionto buy Edison’s electric distribution system. Edison asked for, andwas granted time, to come up with an enhanced franchise proposal,which was provided confidentially to the city in May. On May 14,Long Beach formally rejected the Edison proposal, which included anaddition to annual franchise revenues plus other proposed economicbenefits for the city, totaling $3 million/year.

At the same time, Garner said the city has talked again withWilliams regarding the proposed Kern River expansion in the pastmonth, and it talked with Questar within the past two months.

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