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LADWP Enlists Reliant For Gas Supply

LADWP Enlists Reliant For Gas Supply

A $1.2 million discount paid up front in a lump sum and the prospects of picking up energy trading insights from an experienced national trader are what prompted the nation's largest municipal utility to sign a one-year gas agreement worth about $25 million with Houston-based Reliant Energy Services Inc. last month.

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

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

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

"I am not altogether certain that we can gain a lot of ideas from Reliant that we can translate into our own operations a year from now," Pettinato said. "As a gas utility and national deal-maker, Reliant can play the basin hedge game and move gas all around through displacement deals. That is something we can't do because we are not spread across half of the country, so they may be able to make better use of the transmission than we can. Whether we can duplicate their efforts later, I am not 100% certain. But unless we try it, we can't say that we've done everything that we could to manage our gas costs."

Beyond the $1.2 million up front bonus, Pettinato is unsure how much Reliant will be able to save LADWP in its operations. LADWP, he said, wants to look at two- or three-month advance periods in which it can lock in a price, buying stripper gas when the prices are 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 of the gas needed by the Los Angeles Department of Water and Power (LADWP) and maximize the municipal utility's gas assets. A one-year agreement calls for Reliant Energy to provide a minimum of 9 Bcf/year as well as administer the department's interstate gas transportation agreements. The gas to be purchased is worth about $25 million.

"We were looking for an experienced energy company to help us lower our fuel costs and maximize the value of our natural gas assets," said S. David Freeman, LADWP general manager. "In today's deregulated energy market, we need every advantage to provide competitively priced, reliable energy to our customers and we believe Reliant Energy Services Inc. will help give us that advantage."

"LADWP is the largest municipal utility in the nation and we're excited to be working together to manage its gas supply and other natural gas assets," said Tami Pallas, Reliant Energy Services senior vice president.

"We want to see if Reliant can maybe make some more money or optimize it or do something we haven't though of," said Robert Pettinato, LADWP natural gas manager.

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

Richard Nemec, Los Angeles; Joe Fisher, Houston

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