The nation’s largest municipal utility, and one of the public sector bulk power suppliers that has made some money supplying power to the rest of California recently, the Los Angeles Department of Water and Power (LADWP) is reassessing its natural gas strategy for its fleet of in-state power plants in and around the LA Basin.

Some of the options being looked at range from purchasing the utility’s own reserves, rekindling previous plans to build its own in-state transmission pipeline (thus bypassing Southern California Gas Co., the department’s current transporter) and/or hedging more of its supply purchases.

The multi-billion-dollar city utility also is reassessing its interests in two out-of-state coal-fired power plants, including a pending sale of one that has been held up by various outgrowths of the state’s electricity crisis for private sector utilities.

With former LADWP General Manager S. David Freeman helping Gov. Gray Davis as his chief energy adviser and likely candidate to head the state public power authority when it takes shape later in the summer, the huge municipal utility is under the temporary care of David Wiggs Jr., a former Texas lawyer/utility CEO who has been a consultant operating out of Southern California for the past five years.

A veteran of a difficult four-year bankruptcy at El Paso Electric Co. (1992-96), Wiggs said one of LADWP’s most immediate challenges involves its natural gas purchasing strategy.

“We don’t have anything in place that would allow us to really hedge (against the risk of wholesale price spikes, such as have been experienced in the past 12 months),” he said. “Now that we are building more gas power plant units and with all the volatility of gas prices over the past couple of years, I think it would be prudent for the department to do that.”

One of Wiggs’ first acts when he came on board as interim general manager May 1 was to hire some outside expertise from PricewaterhouseCoopers to help LADWP’s people assess the gas situation and recommend how the utility might want to hedge its gas buying. (He brought in the same consultants in Sacramento to help give the legislature some expertise in what happened to the natural gas market as part of a consulting assignment earlier this year with the speaker of the state Assembly.)

“In the next few months I want to implement a natural gas strategy,” Wiggs said. “That is one of the few areas where we have a lot of risk, and we don’t have a lot of control of the situation. We have good control over other costs on the generation side and we’ve done a good job of getting our employee (overall payroll) costs in line, but the gas side is still one we want to take a look at.”

LADWP, which is still owed about $180 million in unpaid bulk wholesale power sales to the state’s two largest investor-owned utilities, Pacific Gas and Electric and Southern California Edison, is assessing its options regarding the potential sale of its interest in the large Nevada coal-fired generation plant, Mohave. The deal originally was tied to similar sales from Edison and Nevada Power, both of which hold interests in the plant.

California regulators blocked Edison from going through with the deal, which originally involved AES Corp. buying all three interests in the plant. Another interest-holder, Salt River Project in Arizona, now wants to exercise its first right of refusal and buy the interests, at least the LADWP’s 20% share (316 MW).

“There are still legal questions about whether the department is obligated to go forward with that deal,” Wiggs said. “I have talked to the (prospective buyer) Salt River Project in Arizona, and they understand we’re taking a hard look at it. I think it is fair to say they feel we are obligated to go forward on it. We are re-evaluating it. It doesn’t mean that we will go forward. It may mean there are other ways we could get at it. With the market the way it is and the way it has changed over the last year, I want to take another look.”

Wiggs noted that if the sale doesn’t go forward, then LADWP will be liable for additional costs to upgrade the Mohave plant’s air emission mitigation equipment. Whether or not the department would owe Salt River Project anything for the failed deal is a legal question still being explored.

“It is 300 megawatts of power and it is three- to four-cent (per kilowatt) power even after you do the pollution improvements, so with the marketplace being as uncertain as it is throughout the state, it is prudent to take another look at that,” Wiggs said.

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