Market price projections and the advent of expanded native generation load have the Sacramento Municipal Utility District (SMUD) on the prowl for more of its own natural gas supplies, a muni official heading the effort said last week in an interview with NGI.

It is nearly a certainty that SMUD will buy additional natural gas reserves in the coming months, following its $135 million purchase of the New Mexico Rosa Unit from a subsidiary of Houston-based El Paso Corp.

“We are contemplating some other properties — either in the Southwest or the Rockies,” said Jim Shetler, SMUD assistant manager. “We view gas reserve purchases as a piece of our portfolio as a means of hedging the risk in our natural gas needs (which are expected to double by 2005).”

Shetler said the nation’s fifth largest public sector power utility hasn’t set a specific percentage it is shooting for in gas reserves, but the El Paso purchase is about one-third of its current natural gas needs. “We’ll be doubling that usage in 2005 when we put a new power plant on line,” he said. “So at this stage we are definitely looking at additional fields and areas of opportunity, and there is a decent possibility that we would purchase more if the price were right.”

SMUD is nearing approval from the state siting authority — the California Energy Commission — for a 1,000 MW, two-phase natural gas-fired power generation complex on 30 acres of its abandoned Rancho Seco nuclear plant in southeast Sacramento County, which is in the decommissioning process. Called the Cosumnes Power Project, the first 500 MW phase is expected to start construction this summer and begin operations in the summer of 2005, using about 60 MMcf/d. When the full 1,000 MW plant is operating, SMUD estimates it will add about 120 MMcf/d of natural gas requirements to the utility’s portfolio needs.

A new 26-mile, 24-inch-diameter natural gas transmission pipeline will be built by SMUD to link the new power plants with the public sector utility’s share of the Pacific Gas and Electric Co. north-south backbone transmission system. “We own a share on PG&E’s north-south pipeline,” Shetler said. “So we have access to both the north and south California borders through pipe we already own a share in. And we have a lease arrangement with other pipelines that will get us into both the Rockies and the Southwest.

“The purchase of the gas reserves will save SMUD ratepayers millions of dollars compared to the contract market alternatives without incurring any counterparty credit risk,” said Shetler. “Additionally, the purchase will provide SMUD with reliability benefits and a hedge against gas price volatility in the face of an expected tightening of gas supply in North America.”

SMUD’s Shetler said the utility currently purchases an average of about 60 MMcf/d of natural gas to supply its three cogeneration plants and a single-cycle peaker plant at McClellan Business Park on a portion of a converted U.S. Air Force base. At the Rancho Seco site, SMUD also has a solar generating facility that provides about 5 MW. Eventually, it will have an additional 80 acres for possible development when the nuclear plant completes its decommissioning and dismantling.

The El Paso gas reserve property consists of 54,209 acres of producing oil and gas leases, operated as the Rosa Unit in Rio Arriba and San Juan counties of New Mexico by Williams Production Company LLC. The property SMUD is acquiring currently has over 250 producing gas wells with the opportunity to drill additional in-fill development wells, according to the utility’s announcement of the purchase earlier this month.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.