Even in the current political maelstrom surrounding some of its past trading practices during California’s energy crisis of 2000-2001, the City of Los Angeles Department of Water and Power (LADWP), the nation’s largest municipal utility, is financially and operationally secure in mid-2002, looking to expand its natural gas buying and power generation portfolios, according to its General Manager David Wiggs.

Getting its long-term debt under $1 billion and holding a current “40% to 100% price advantage” over neighboring private-sector utilities, LADWP expects to launch a new gas-buying program this month in which the department’s management can make some longer term (year or more) commitments to strips of gas supply for its newly upgraded power plants in the Los Angeles Basin, Wiggs said during a recent interview with NGI.

“I have thought since I came here [in May 2001] that we needed some kind of policy that would allow the department to at least protect against big volatility in the natural gas industry,” said Wiggs, acknowledging for the first time that in fiscal (July through June) 2000-01, the department was $200 to $300 million under-collected because of high fuel costs and frozen retail rates. “This department doesn’t have a lot of major risks like in the investor-owned utility sector, but purchasing gas is one area in which we’re comparable.”

A new ordinance expected to be passed in the next few weeks will allow LADWP to physically tie up gas for longer than a year, but just for purposes of serving its customers within the city. “It won’t allow us to operate like a wholesale company,” Wiggs said. “We just want to tie down gas to take care of our retail load. It allows us to buy insurance that can keep us in a band [of high and low prices], so we won’t get hurt by price spikes. Hopefully, we’ll get it through the city council [by late July].”

Wiggs expects LADWP to implement it gas-buying program in phases, starting this summer, setting up a structure internally and getting some help from an outside marketer, too. He wants to do it in a step-by-step fashion so the giant muni doesn’t influence gas prices, he said.

“There is a whole market out there, and we’ll look at forward strips,” Wiggs said. “We’ll have some advisers help us put the best program we can in place for the department, but we don’t want to just rush out and buy a bunch of gas. We want to do it like buying in the stock market in a way that protects our price. So far, the prices on gas are holding pretty good.”

With its debt slashed over the past four or five years from more than $4 billion to around $800 million, LADWP will look seriously at investing in its own green power source and in keeping open its option to own a portion of the proposed added units at Utah’s coal-fired Inter-Mountain generation plant, in which the LA utility is a major participant.

“Right now, we have a very reasonable debt level for a company this size,” Wiggs said. “We still expect to be out of all of our generation debt in the next three or four years, but things have changed, so there is no need to be totally out of debt this year or next. I am redirecting some of the excess cash to infrastructure upgrades that had been deferred, including the repowering of the rest of the [natural gas-fired] plants in the LA Basin.”

He says the major rating agencies, which would probably increase the department’s credit rating if it were operating in any other state other than California, have encouraged LADWP to make the infrastructure investments.

“In four or five years when things sort their way out (the ongoing crises in the state and energy industry), we’ll be in very good shape from the standpoint paying down debt and improving our infrastructure.”

LADWP expects to keep retail rates frozen for another three to four years, however, because in the meantime, “nobody knows for sure where this market is likely to go,” Wiggs said.

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