Having authorized the raw numbers and programs for its fiscal 2006-07 multi-billion-dollar budget, the Los Angeles Department of Water and Power (LADWP) oversight board Tuesday directed the city-run utility’s management to pursue 10-year contracts in its natural gas hedging strategy and calculate proposed electric fuel cost and renewable energy rate adjustments by the board’s July 18 meeting.

The nation’s largest municipal utility is estimating a $1.389 billion cost for purchased power and natural gas during the fiscal year starting July 1. Its estimated natural gas volumes for the year would hit 77 Bcf.

With the LADWP budget approved, the utility was authorized by its board to “enter into contracts for the purchase of financial transactions for natural gas that will reduce the volatility in the cost of gas projected to be consumed in the production of electricity to serve retail customers for fiscal years 2006-07 through 2015-16.” As a result, the board said it hoped to ensure it can transfer in the range of $175 million to $209 million annually to the city’s general fund through 2011, and keep its retail electric rates, which have been frozen for a decade, “stable for the foreseeable future.”

The latest budget estimates LADWP will pull in $2.5 billion in electric utility revenues in the next fiscal year, beginning July 1. Natural gas wholesale costs are projected to be $444 million in the new fiscal year and range between $470 million and $367 million annually over the next ten years. Capital expenditures will be $705 million next fiscal year, and stay between $700 million and $850 million annually over the next five years.

LADWP’s Board of Water and Power Commissioners ordered an audit by an outside firm earlier in the year, and received an independent report from the Barrington Wellesley Group in March, recommending that the energy cost surcharge part of the utility’s rates be unfrozen in the face of escalating natural gas costs and added costs to fund development of renewable energy programs to meet the RPS goal of 20% by 2010.

Although the board made reductions across the board, a rate increase was stilled viewed as needed in the face of the added fuel and renewable energy purchased power charges.

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