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LADWP Nears Long-Term Gas Supply Deal

LADWP Nears Long-Term Gas Supply Deal

Los Angeles Department of Water and Power (LADWP), the nation's largest municipal utility, is near the end of a three-month RFP-process seeking a pre-paid firm 15-year deal on 10,000 MMBtu/d of natural gas. The bidding process has been narrowed to two potential suppliers and negotiations with each are under way, a high-ranking LADWP official told NGI in a brief interview Wednesday.

The large city-run utility, which maintains a fleet of re-powered gas-fired generation plants in the LA load center, along with major coal, nuclear and hydro-electric generation out of state, hopes to have a proposed deal on its oversight governing board's agenda next month, the LADWP official said. Supplies are to begin flowing July 1 under the deal being sought.

In addition, the department, one of the largest customers of its neighboring Los Angeles-based utility, Southern California Gas Co., is supporting any and all of the proposals to import liquefied natural gas (LNG) along the California or North Baja coasts. The utility is stepping up its collective lobbying with the California Municipal Utilities Association (CMUA) to develop increased gas resources for the state overall.

The state "desperately needs" new sources of natural gas, the LADWP official said, and the municipal utilities are "trying to assure that the review process will be expedited" on the various proposals for building LNG receiving terms, such as the one by a U.S. subsidiary of Japan's Mitsubishi Corp. LADWP eventually hopes to cut a deal for part of the LNG coming to California with a supplier, and then contracting for transportation over SoCalGas' pipeline system.

LADWP's largest current gas supply deal -- 35,000 MMBtu/day from Duke Energy -- expires in 2007, said the official who is heading the giant muni's attempt to craft a comprehensive long-term natural gas strategy, including financial hedges, long-term supply contracts, and even potentially buying a chunk of gas reserves.

The seven-point request-for-proposals issued by LADWP last November, with an initial response deadline of Dec. 4, 2003, included the following: (1) a lump-sum payment for the entire supply from LADWP, with a pre-specified discount method, (2) a fixed price for the "entire terms of the contract," (3) a discount rate shall be specified by the supplier as either a "fixed rate or alternately a rate quoted in terms of the 10-year U.S. Treasury Note, and (4) the supplier shall deliver pipeline quality natural gas as mutually agreed upon in terms of receipt point and the specifications of Southern California Gas Co." for gas quality.

Supplies could come over one of three interstate pipelines -- Kern River, El Paso or Mohave, the LADWP official said, at any of more than a dozen receipt points, the RFP specified.

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