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Ratepayers: Well field purchase too risky

April 24, 2001|By DARREN SIMON, Staff Writer

The Imperial Irrigation District directors on Monday started to release more details on a proposed district investment in a natural gas well field as a way to become its own supplier of the resource.

During a public workshop on the issue just one day before the board is to vote on whether to bid on the field, IID officials said the ultimate goal is to save power customers money.

Still, those Imperial Valley residents who attended the meeting urged the board to be cautious, stating the district is taking a dangerous step with ratepayers' money.

Natural gas is the fuel source for the IID's power plants. As the cost of natural gas has risen sharply over the last year, the district has taken steps that likely will lead to higher power bills this summer.


As a result, the need for a more cost-effective means of obtaining the fuel has become an issue.

To date, IID has purchased natural gas on the open market from suppliers. However, IID officials say it is becoming too costly. For this reason, the district is looking to invest in a natural gas well field.

The well field the IID is interested in is in the San Juan basin near Durango, Colo.

IID officials declined to say how much they might bid on the field, stating to do so would give away their standing in the bid process.

However, officials did say they would not be bidding on 100 percent of the well field.

According to IID attorney Orlando "Lanny" Foote, the district would invest in 49 percent of the well field. The other 51 percent would be owned by other investors.

Foote added some of those investors have preferential rights, meaning they have a right to match IID's bid. Those investors could take a portion of the 49 percent of the well field upon which the district would bid.

Ultimately, that means the amount of the field that would be available to the district if it did place and win its bid could be something less than 49 percent.

Foote said if that happens the amount the district would pay for interest in the well field would drop. He said the district would not pay for any portion of the field it would not use.

District officials reminded those at the meeting Monday the district has not yet made a decision on a bid.

The board likely will make the decision in closed session during its meeting today. The decision would be announced in public session at 5 tonight.

The board will meet in the IID auditorium at 1285 Broadway in El Centro.

If the board was to bid and obtained interest in 49 percent of the gas well field, the supply of natural gas would be enough to exceed the district's need for seven years.

District officials said they likely would get the use of the field they need for a period of 15 years, although the life of the well field could last 30 years.

While officials have declined to say how much they will bid, the cost is expected to be hundreds of millions of dollars, according to IID board President Andy Horne.

The district would depend on bond financing to cover the cost. They would then pay off that bond for the same time period the district gets use out of the fuel — about 15 years.

IID officials said it important to note the district will not be in a position of paying off the bond beyond the period of time the well field is producing the gas the district needs.

Even if a decision to bid comes tonight, district officials said they will continue to analyze the well field to determine if costs tied to the well field are less than the cost the district would face if it continued to purchase on the open market.

Along with the initial investment costs, the district will face operational, development and transportation costs, along with taxes and processing fees.

Foote said the district has to consider the cost it would face to pay off the bond, coupled with all the other costs tied to the venture. He said if those costs are more than the district would otherwise pay, then the well field becomes a bad deal.

There is another major concern in the project — the issue of transportation.

At this time the district has no way to transport the gas to the Imperial Valley. IID is placing its hopes in an expected capacity increase of an El Paso Natural Gas Co. interstate gas line to occur by 2003. The district is seeking to obtain a portion of that expanded capacity.

If that deal does not work, the IID would have to find other means of bringing the gas to the area, and there are few options.

If the district did decide to invest in the well field, for the first two years the fuel produced would be sold to other agencies.

The district would then use the money to both pay off the bond and purchase gas until it finds some way to transport the gas to the Valley.

Those attending the IID meeting said they are concerned the district would be gambling with ratepayers' money.

They told the district the natural gas issue is a critical matter now, but the cost of natural gas could decrease. If the district invested in a well field it would be stuck with a certain cost that could exceed market costs in years to come.

They urged the board to look at all the options before making a decision.

IID General Manager Jesse Silva said the district basically has three options. It could invest in the well field, develop longterm contracts to receive a gas supply, or continue to purchase gas on the open market.

District officials said there is risk involved in every action the district might take.

"There is a risk involved in just sitting here and doing nothing," Foote said.

He added the district has received bids from companies offering longterm gas prices, and the district is considering such bids as one option to protect ratepayers.

Staff Writer Darren Simon can be reached at 337-4082.

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