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
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
"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
"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