The nation’s largest municipal utility, the Los Angeles Department of Water and Power (LADWP), feels secure in being able to avoid any negative impact from Wednesday’s federal decisions on pending California electricity crisis cases, and in hedging against the current and projected volatility in wholesale natural gas prices, according to General Manager David Wiggs in an interview Monday with NGI/Power Market Today.

Even if the worst case of the Federal Energy Regulatory Commission’s decisions developed for the large muni, it would require the return of a relatively small amount of the upwards of $180 million that the city-run utility claims it is still owed for wholesale power it sold during the 2000-2001 western energy crisis, said Wiggs, who summarizes the State of California’s evidence targeted at LADWP as mostly “unsubstantiated inferences,” with only two or three specific charges.

In terms of the volatile natural gas prices, LADWP gained city council authorization in ordinances passed last year to have the flexibility to hedge with both financial and physical supply contracts for up to five years. The utility hasn’t had to use the new authority yet, but it will later this year. It has the flexibility to enter deals without the elected officials having to ratify the market moves, Wiggs said.

An internal risk management committee first has to okay the hedges, then they go to Wiggs for final approval, along with submittal to the LADWP mayor-appointed oversight board. The utility’s previous one-year hedges have protected it from any major impact from the recent wholesale gas price spikes.

“We haven’t had to hedge much yet,” Wiggs said. “We have already had gas purchased out a year and protected ourselves from the recent price increases. But we’ll look to eliminate some of the future volatility through financial or gas supply contracts and extend the time period up to five years. We want the ability to tie down gas strips for longer than one-year periods, and we have that ability now.”

In terms of FERC’s upcoming actions and the recent settlement between California parties and El Paso Corp. over the allegations that its subsidiaries helped spike natural gas prices during the 2000-2001 crisis, LADWP does not expect a lot impact, and if it is found there is more of a “credible basis” for the municipal utility paying more in restitution, Wiggs said he would take a look at the facts.

Wiggs is not anxious to extend the legal or regulatory processes, having spent more than “a million dollars” in outside legal help, along with the LA City Attorney’s involvement. But, he also said that the city-run utility has the fallback position of arguing that FERC has no legal jurisdiction over its municipal operations.

“We have the legal position that FERC has no authority over us anyway to order us to do anything,” he said. “We have participated because we feel it is in our best interest to do so and be involved, and they (FERC) clearly wanted us involved. But I think we have additional arguments we could use (if needed).”

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