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Long Beach Jockeys for Central Spot in CA Energy Market

Long Beach Jockeys for Central Spot in CA Energy Market

Natural gas is one of the factors lurking behind the scenes of Long Beach's continuing quest to buy a section of Southern California Edison Co.'s power distribution system within its city borders. The city recently rejected an offer by Edison that would have ended the municipalization campaign. At least part of the reason for the city's resolve is the likelihood it will be a major end-point for large new gas loads. But that appears to be a small part 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 and Electric Department. "We have Williams, AES, [the LA Department of Water and Power], Enron's cogeneration in the harbor and Enron's new power plant proposal for the harbor. There are also the two proposed pipelines, and we've talked with some of the other large cogeneration facilities that sit in bordering towns of Long Beach, so we have quite a few opportunities, plus we own our own gas utility."

The city is in informal discussions with two new interstate gas pipeline operators, Williams and Questar, which have proposed to bring new supplies to Long Beach's existing and proposed electric generating plants and cogeneration facilities. It is possible that a "gas-for-electricity deal" could be worked out if the city ends up taking over the electricity distribution system, said Garner.

Now it is up to the city council in Long Beach if it makes economic sense to seek takeover of Edison's facilities within this city of 440,000 residents, the state's fifth largest and the largest municipality in Edison's sprawling territory that includes 4.2 million customers and a population of more than 12 million. By mid-summer, the council will decide if the city will formally release a request for proposal (RFP) for bidders among national energy concerns that want to operate a Long Beach electrical system, assuming it is purchased from Edison.

A 2,000 MW generating plant in Long Beach formerly owned by Edison (Alamitos) is now part of AES Corp., which has a deal with Williams to provide natural gas and market the power output of the plant. Williams also owns Kern River Pipeline, the interstate supplier that is proposing to build a new southern extension to Long Beach. "If we could work out some sort of gas-for-electricity deal that would be great," Long Beach's Garner said. "The more gas burned at the Alamitos Plant and the harbor facilities, the higher franchise fees we get from SoCalGas. It is all based on the sales to those power plants. If Kern River or Questar come in here, I am sure we would have the same type of arrangement [collecting revenues off the volumes of gas passing through].

"That is why we'd like to see those plants used as much as possible. And if we took over the electric distribution system, there is the possibility of the city hooking up directly to those plants. Then, maybe we could do a gas-electric deal." With or without the electricity distribution system, the city would plan to interconnect with either or both of the new interstate gas pipelines, said Garner, noting that the existing Questar pipeline, which is a proposed conversion of a now-dormant oil pipeline linked to New Mexico, runs right next to existing Long Beach city pipelines.

The possibility for the city acquiring the Edison facilities-roughly valued at $400 million by Edison-arose late last year as part of a review of a unique provision in Edison's 60-year franchise with Long Beach dating back to the 1970s.

Initially, Long Beach had a letter of intent involving Enron Corp. that would have given the Houston-based energy giant the inside track for both helping purchase and ultimately run the electric system under a contract with the city. Under pressure from Edison and the community, the city council finally rejected that arrangement but moved forward with preliminary review of the option to buy Edison's electric distribution system. Edison asked for, and was 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 an addition to annual franchise revenues plus other proposed economic benefits for the city, totaling $3 million/year.

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

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