Possible sales of hundreds of millions of dollars in assets by the nation’s largest municipal utility to help avoid large rate increases are still being considered, according to Austin Beutner, the acting head of the Los Angeles Department of Water and Power (LADWP). An upcoming integrated resource plan is expected to show more detailed plans.

During an interview with NGI Thursday, Beutner clarified an announcement made in mid-June on the city-run utility’s plans to shed assets (see Daily GPI, June 17). He said the utility is exploring a lot of possibilities, but there was no effort yet to put anything up for sale.

“We’re looking at a lot of options, and it is important to understand those are ratepayer assets,” Beutner said. “The headquarters building we own is forced savings in effect; most investor-owned utilities today would only be charging their customers for the lease costs of a building. Having this building that we own is forced savings, and the good news is that we have savings, but we’re in an environment where we have a need to spend a lot of money [on renewables, complying with water/air regulations, etc.] and it is a real priority.”

Another one of Beutner’s proposed sales involves LADWP’s substantial natural gas reserves in Wyoming’s Pinedale Basin. LADWP holds roughly 74% of a $300 million reserves purchase made five years ago by a coalition of Southern California public-sector power providers (see Daily GPI, June 24, 2005). LADWP originally worked with its public-sector utility financing arm, the Southern California Public Power Authority (SCPPA), to line up the natural gas reserves.

“At the end of the day, money can only come from our ratepayers; it doesn’t come out of thin air,” Beutner said. “So I have said let’s put some of these choices on the table, and let’s strip the emotion out of the building discussion. If we can free up $300 million, that can make a big impact in replacing obsolete poles, new pipe, reclaimed water. These are choices our ratepayers through their neighborhood councils ought to weigh in on.”

For both the gas reserves and the headquarters building, LADWP is crunching the numbers and — in the case of the reserves — talking with SCPPA, according to Beutner.

Some proponents are urging the city to split the water and power functions in the city, and the current look at asset sales raises the question of whether the city would be better off to sell its electrical utility operation to a private-sector operator, getting a fixed deal for ratepayers and the city in terms of the annual revenues that would be transferred to the city’s general fund.

Beutner dismissed the notion and said there is no serious economic analysis of that scenario at this time. “I think that would be much more of a political decision than an economic one,” he said. “It hasn’t come up on my watch, which is all of six weeks right now. Economically, I don’t think it makes any sense.”

Separately, LADWP is also looking at how it can accelerate its move away from interests it owns in two major coal-fired facilities — the 2,250 MW Navajo plant in Arizona and the 1,600 MW Intermountain (IPP) project in Utah. Beutner said the utility definitely plans to sell its 21.2% interest in Navajo, but the IPP plant, which involves SCPPA and other smaller munis, has a contract running until 2027 and is more difficult for LADWP to back away from.

Although Beutner did not mention it, an industry source said LADWP will later in July release a completely revised integrated resource plan that will spell out in more detail what power or gas assets might be sold and what resources will be obtained or upgraded to replace them. The same source predicted that LADWP will not try to sell its gas reserves.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.