Attempting to lower its energy costs, Washington-based PugetSound Energy announced yesterday an agreement to buy out theremainder of a large gas-supply contract from Cabot Oil & GasCo. for $12 million. As a result of this deal, Puget will becomethe supplier to its own 160 MW co-generation plant near Bellingham,WA, which it purchased earlier this year. Puget expects to reduceits gas costs by 5 to 15% annually for the duration of theremaining nine years of the contract.

Puget is filing today with the Washington Utilities andTransportation Commission (WUTC) a request for accounting andratemaking treatment of the buyout. It is subject to receipt ofacceptable regulatory treatment from the WUTC. If approval isreceived, the company plans to close the transaction beforeyear-end. To accommodate a year-end closing date, Puget hasrequested the WUTC issue its order on or before Dec. 30.

The buyout represents the third such restructuring Puget SoundEnergy has completed. “These restructurings steadily strengthen ourfinancial and strategic position,” said Puget Sound Energy CEOWilliam S. Weaver. “Completion of another high-cost contractrestructuring demonstrates our continued drive to reduce costs ofabove-market contracts that were signed under the federalrequirements of the Public Utility Regulatory Policies Act (PURPA).This buyout will benefit both customers and investors.”

“Although our purchase of the Bellingham plant earlier this yearhelped integrate cost-savings through PURPA contract elimination,it was not complete until we also restructured the escalated gascontract associated with the plant. This purchase does just that,”said Dorothy Bracken, a Puget Sound spokeswoman.

Puget purchased the co-generation plant from Encogen NorthwestLP Nov. 1, and in the process, eliminated its second largest PURPAcontract. The company, Washington’s largest energy utility serving900,000 electric customers and 555,000 gas customers, reworked itslargest PURPA contract, a 12-year deal with Tenaska Washington foroutput from a 245 MW facility, in December 1997. The savings onthat contract were about 20%, Bracken said. Yet despite thiscontract work, the Tenaska facility is still a PURPA-qualifyingfacility.

She added that Puget Sound is continuing efforts to restructureits two remaining PURPA contracts. Still in existence are PugetSound’s 123 MW, 13-year deal with Sumas Cogeneration Co. and its13-year contract for 140 MW from the March Point facility inAnacortes, WA. Bracken said the company expects the reworking ofthese last contacts to take “a couple of years.”

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