Amidst the maelstrom that is California’s electricity marketthis summer, the nation’s largest municipal utility sits calm, cooland collected, making a small killing on the wholesale market andseemingly immune from power shortages for its 1.3 million customerswho make up the city of Los Angeles.

The Los Angeles Department of Water and Power (LADWP) has apeak-demand of between 4,500 and 5,000 MW, with another 2,000 MW itcan call on to sell into the over-heated wholesale market. Sincelast summer, LADWP reportedly amassed an extra $140 million inrevenues from selling wholesale power, including $35 million alonelast month.

At the same time LADWP is on the verge of getting authority fromcity elected officials that oversee the government utility to sellits 20% (316 MW) interest in the coal-fired Mohave Generating Plantin Nevada and take the proceeds of more than $190 million and applythem to an aggressive repowering program for some of its oldest LABasin natural gas-fired plants. The move is being characterized asa means of increasing the department’s reliability and its abilityto play the wholesale market, according to LADWP’s General Manager,S. David Freeman, who has steered the proposal through the city’scumbersome approval process.

“We’re in the catbird seat,” Freeman said last week in the midstof continuing power alerts for the investor-owned utilities. “LosAngeles has an old, inefficient power supply system, though, andalthough we are providing ample, reliable power to all ourcustomers this summer, we can’t just sit on our lead.”

LADWP’s “2000 Integrated Resource Plan” outlines a 10-year, $1.7billion repowering effort that will produce 2,300 MW of cleaner,more efficient natural gas-fired power. And Freeman proposes to payfor the program entirely through cash — no financing. In the pastthree years, LADWP has cut its generation debt from $4.1 billion tounder $2 billion, and its goal is to be “generation debt free by’03.”

The plan would produce power at under-market rates in thetimeframe of 2004-2010. LADWP’s math calculates that it can repowerfor about 2.8 cents/Kwh and sell that power at 4 cents, while itprojects the retail market to be around 4.7 cents/Kwh.

Meanwhile, there appears to be little reason or chance for LADWPto join the state’s investor-owned utilities in the CaliforniaIndependent System Operator (Cal-ISO), even though LADWP operatesabout 25% of California’s overall grid, which is interconnectedwith lines the Cal-ISO manages.

“We’re going to be sure we have plenty of power,” Freeman saidlast week. “By God, under this city’s charter, I feel personallyresponsible for the power supply of this city, and I ain’t countin’on Enron, Southern Company, Montana Power or anyone else to providethose supplies.”

Freeman is outspoken in his criticism of California’s currentstate of electric industry restructuring even though as a highlypaid trustee he was brought in from out of state to help pulltogether the first fragments of what today are the Cal-PX andCal-ISO. The restructuring “has hit the rocks,” he said.

“I said publicly some time ago that I thought the stateabandoned the old system before the new one got its britches on,”said Freeman, noting that it would have been better in retrospectto have had new power plants built and stranded costs paid offbefore the restructuring started.

Meanwhile Cal-PX officials have refuted charges that prices areinflated under their system. Aside from the almost doubling ofnatural gas prices (the prime California generating fuel), averageCal-PX prices over a full calendar year have remained relativelystable, they maintain.

“Average prices for this year are $47/MW,” a spokesperson said,”But that includes a more than 60% increase in the cost of naturalgas which equates to about $20 of the $47 average price.” Minus thegas run up, the price would be in the $27/MW range, which is whatit averaged all of 1999, following an average of $24/MW for ninemonths in 1998.

Even in the current peak price period, the Cal-PX prices arecompetitive, according to the spokesperson, who noted that averageCal-PX prices in June “were under $220/MW,” compared to prices atthe COB prices of $225/MW and Palo Verde prices of $275/MW.

Under its newly gained authority from the CPUC, San Diego Gas& Electric began Friday trading in the block-forward markets,although a Cal-PX source noted that the utilities traders wereencountering some problems in executing deals.

As for the added authority to go after bilateral contracts alsogranted by the CPUC, the Cal-PX source said there didn’t appear tobe any added activity today by PG&E or SoCal Edison.

“If anyone wants to look at our market, we are not going to hidefrom anything,” said the spokesperson. “We’ll tell you exactly whatis going on. We have responded to the market every time the markethas asked for something, and we’ve produced products for the marketeven when it hasn’t asked for it.

“We produced a block-forward product that could have savedSDG&E in the recent past and is going to save them for thefuture.”

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.