Committing to no electricity rate increases during the period, the nation’s largest municipal utility, the City of Los Angeles Department of Water and Power (LADWP), got approval last week from its oversight board for a five-year $3.2 billion capital expenditure plan, including a new natural gas supply pipeline to serve its LA Basin-based generation plants now under a massive repowering program.

The action was taken as part of the LADWP water/power commission approving the multi-billion-dollar city-run utility’s 2004-2005 fiscal budget, continuing an integrated resource plan (IRP) originally formulated four years ago. LADWP outlines a changing generation portfolio mix in which there will be increased dependence on natural gas and renewables, while holding coal as the utility’s primary source of power over the next 10 years. While coal remains a 48% portion over the next decade, natural gas will grow from a 17% to a 28% share of the generation portfolio. Similarly renewables, including hydro, will increase from 4% to 7%. Nuclear will remain about the same (11% to 10% in 2014).

On the electric side, which accounts for more than two-thirds of the city utility’s nearly $3 billion annual revenues, LADWP projects its total generation growing over the next ten years from 7,127 MW to 7,744 MW in 2014, while peak demand increases by about 800 MW from the 5,624 MW to 6,422 MW in 2014.

“(LADWP) uses a five-year budget and financial planning horizon to better plan for long-term operation and maintenance expense, capital investment requirements, personnel resources, borrowing programs, projected net income levels, city transfers (to the Los Angeles general fund supporting police/fire and other services), and anticipated power rate implications,” a report to the oversight board stated.

Outlined over the period were $1.45 billion in distribution system investment, $470 million in generation upgrades and a natural gas pipeline, $210 million in transmission investment, and $910 million for completing the implementation of the utility IRP plan. The gas pipeline budgeted amounts are $104 million spread over the next two fiscal years.

As part of the fiscal year budget approval, the LADWP board gave the city-run utility authority to move forward with a more aggressive natural gas risk management program. The new fiscal year budget beginning July 1 calls for 60% of the utility’s natural gas supplies hedged with financial contracts, with the hedges currently valued at $36 million as of last month.

With the authorization to do more hedging in 2005-06 also, LADWP now is pursuing natural gas prepayment for what amounts to 15%, or 20 MMcf/d, of its annual gas buying in 10-year deals that carry a cost of up to $250 million. LADWP is currently negotiating with its bidding short list of three firms on the potential gas prepayment deals.

For the next five years, LADWP assumes it will not need any retail power rate increases. Retail electric rates have stayed unchanged since 1996, although on the water side, a series of rate hikes is anticipated.

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