SMUD Moves to Lower Gas Price Volatility

By Published On: September 4, 2004

To lower its exposure to the natural gas market, the Sacramento Municipal Utility District gave staff unanimous approval to sign deals through 2016 for up to 20,000 decatherms/day at its September 2 meeting. Gas prices on the forward market have dropped, and the district wants to lock in increased supplies ?if the price is right,? said Jim Shetler, SMUD assistant general manager of energy supplies. The vote occurred a day after the NYMEX October gas futures hit an all-time low for the year at $5.03/MMBtu. ?We wanted to get more stability in the future gas market,? Shetler said. Staff were previously limited to signing deals five years out and for a maximum of three years at a stretch. Staff requested the expanded delegation because of the combination of gas price volatility and the fact that SMUD needs to double the amount of its gas supplies to feed its 500 MW Cosumnes project, expected to come on line next fall. SMUD currently needs about 60,000 Dth/day to feed its peaker and three cogeneration plants?the 172 MW Sacramento Power Authority, the 163 MW Sacramento Cogeneration Authority facility, and the 94 MW Central Valley Financing Authority. A total 120,000 Dth/day will be needed once the Cosumnes plant fires up. Earlier this year, the muni planned to issue bonds to secure new gas supplies but decided to direct the funds to cover Cosumnes instead (<i>Circuit</i>, April 23, 2004). Shetler emphasized that SMUD pursues a mix of strategies, which includes signing short-, medium-, and long-term deals. Previously, SMUD had purchased gas fields in New Mexico, which are expected to supply 50 Dth/day.

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