For a fourth consecutive year, the oversight board for Los Angeles Department of Water and Power (LADWP) has approved another one-year, $1.795 million contract with Southern California Gas Co. for underground natural gas storage services to help the nation's largest municipal utility manage its fuel supplies for a fleet of gas-fired generation plants in the greater LA metropolitan area. The contract requires city council and mayoral approval.
Under the agreement, LADWP gets up to 10 MMcf/d withdrawal and 20 MMcf/d injection rights with overall storage capacity of 500 MMcf for the 12-month period of April 1, 2007 through March 31, 2008.
"Storage is getting more and more expensive," said LADWP's Randy Howard, an assistant general manager working with the city-run utility's chief operating officer. For the electric muni, storage has become less of a hedging tool and more of a load balancing tool as there is less winter-summer seasonal variation, Howard said. "You can find high prices in the middle of the summer as well as the winter. It is hard to gauge now."
While it used to be "somewhat beneficial" to the large municipal electric utility to buy gas in the summer, store it and pull it out in the winter, that is no longer the case, according to Howard. "You'd do okay on the hedge back then, but we don't see those opportunities as much any more. You can still find some opportunities in real time, but it is less so for us, and now is more of a daily balancing help when we have less or more gas needed for the scheduled electrical load for the day."
The LADWP board agenda item described the extended contract as "a follow-on to four other storage agreements from the last five years, which brings [it] into the purview of the city council approval for continuous contracting for more than three years. The storage capacity, injection, withdrawal and pricing are determined in a controlled auction process managed by SoCalGas."
While the contract extension is being processed at LADWP and among city elected leaders, the utility cannot fully use its storage rights, so LADWP said it is working with the mayor's chief administrative officer to develop an ordinance for the city council to pass that would delegate future storage agreement approval to the utility's oversight board.
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