A $1.2 million discount paid up front in a lump sum and theprospects of picking up energy trading insights from an experiencednational trader are what prompted the nation’s largest municipalutility to sign a one-year gas agreement worth about $25 millionwith Houston-based Reliant Energy Services Inc. last month.

The Los Angeles Department of Water and Power (LADWP) agreed totake at least 9 Bcf of gas over the next 12 months. The dealcarries a provision for a one-year extension, without the need fora new bidding process. In selecting Reliant, LADWP went through 24proposals from 13 different bidders, according to Robert Pettinato,natural gas manager for the nearly $3 billion (revenues) city-runutility.

Reliant also will manage LADWP’s interstate gas transportationagreements. The utility has transportation capacity of 85.5 MMcf/don the Kern River system, 50 MMcf/d on the Mojave Pipeline and 36MMcf/d on El Paso.

The vertically integrated Los Angeles utility traditionally hastried to play the spot gas market and broker some of itstransmission rights, along with drawing from a firm supply contractit has with a part of Duke Energy, Pettinato said.

“I am not altogether certain that we can gain a lot of ideasfrom Reliant that we can translate into our own operations a yearfrom now,” Pettinato said. “As a gas utility and nationaldeal-maker, Reliant can play the basin hedge game and move gas allaround through displacement deals. That is something we can’t dobecause we are not spread across half of the country, so they maybe able to make better use of the transmission than we can. Whetherwe can duplicate their efforts later, I am not 100% certain. Butunless we try it, we can’t say that we’ve done everything that wecould to manage our gas costs.”

Beyond the $1.2 million up front bonus, Pettinato is unsure howmuch Reliant will be able to save LADWP in its operations. LADWP,he said, wants to look at two- or three-month advance periods inwhich it can lock in a price, buying stripper gas when the pricesare down and using it as a hedge. “Maybe we’ll save a few dollars,but I wouldn’t want to speculate on how much.”

Houston-based Reliant Energy Services Inc. will supply most ofthe gas needed by the Los Angeles Department of Water and Power(LADWP) and maximize the municipal utility’s gas assets. A one-yearagreement calls for Reliant Energy to provide a minimum of 9Bcf/year as well as administer the department’s interstate gastransportation agreements. The gas to be purchased is worth about$25 million.

“We were looking for an experienced energy company to help uslower our fuel costs and maximize the value of our natural gasassets,” said S. David Freeman, LADWP general manager. “In today’sderegulated energy market, we need every advantage to providecompetitively priced, reliable energy to our customers and webelieve Reliant Energy Services Inc. will help give us thatadvantage.”

“LADWP is the largest municipal utility in the nation and we’reexcited to be working together to manage its gas supply and othernatural gas assets,” said Tami Pallas, Reliant Energy Servicessenior vice president.

“We want to see if Reliant can maybe make some more money oroptimize it or do something we haven’t though of,” said RobertPettinato, LADWP natural gas manager.

The Los Angeles Department of Water and Power, established atthe turn of the century, is the largest municipally-owned utilityin the nation with annual revenues exceeding $2.6 billion. LADWPprovides water and electricity to nearly 3.8 million residents andbusinesses in a 464-square-mile area. The utility supplies morethan 23 million megawatt hours of electricity a year.

Richard Nemec, Los Angeles; Joe Fisher, Houston

©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.