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IID votes to buy natural gas well, 5-0

April 25, 2001|By DARREN SIMON, Staff Writer

In a gamble to secure a natural gas supply to fuel local power plants for 15 years, the Imperial Irrigation District directors voted Tuesday to bid on a natural gas well field in Durango, Colo.

The board took its action in closed session and there was little discussion on the matter in public session.

Board President Andy Horne told the public the action the board had taken, reading from a statement.

Horne said the board voted unanimously to submit the bid. He indicated there had been "deliberations" in closed session that led the board to submit the bid.

Horne further stated there was little detail the board could release on the matter.

"Because of the confidential nature of the process, I cannot disclose the amount of the bid at this time," Horne stated, adding, "However, the board carefully considered all of the assembled information before agreeing on an amount."

Horne has said only it could cost hundreds of millions of dollars to bid on the well field.

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While the board will not release financial details related to the field, a reporter asked IID attorney Orlando "Lanny" Foote if the board has information indicating it would be cheaper to pay for the well field as opposed to buying natural gas on the open market.

Foote responded the board must have such information if it made the choice to pursue the well field.

Foote suggested to the board the idea of investing in a well field. He said he had a conversation with an engineering consultant who asked Foote if the board had ever considered such an idea.

Foote said he brought the concept to the board, and it directed Foote look into the matter.

Purchasing natural gas has become a critical concern for IID officials. IID depends on natural gas to run its power plants.

Common practice for IID has been to purchase natural gas on the open market, but in recent months the cost of gas has risen sharply.

A year ago IID was paying just over $2 per million BTU. This summer IID will pay three times that, which will increase power rates for customers.

People can expect to pay an average of $14 more per month for power this summer.

The price IID will pay for natural gas this summer — $7.90 per million BTU — came about as a result of a contract to hold the cost at that level. District officials said if they did not sign such a contract, the cost of gas could exceed that level, which would mean even higher power bills during the summer.

That contract ends in September, when the demand for power in the Imperial Valley is still high as people depend on air conditioners to offset 100-plus degree temperatures.

IID officials have said they have to take some action before the end of the contract or IID could be subject to the open market. They have said the natural gas price has risen as high as $50 per million BTU.

IID officials concede there is risk in attempting to invest in a well field but said there is a risk in not taking any action.

As part of the bid process, IID would seek to invest in 49 percent of the Colorado well field. Other investors have interest in the other 51 percent.

Should IID's bid be accepted, district officials think the well field could exceed IID's needs for the next seven years. Beyond that, the well field could serve as a fuel source for about 15 years, they said.

To cover the cost of the bid, the district would use bond financing. It would pay off that bond over the same time IID gets use from the field — about 15 years.

On top of the bond payment, the district would face costs tied to the operation and further development of the field, taxes and transportation costs.

Foote said the idea is the bond payments and all other costs would be less than what the district would pay if it bought natural gas on the market.

One sticking point, Foote pointed out, is the district has no way to transport the gas to the district.

IID is placing its hopes on a proposal by El Paso Natural Gas Co. to expand the capacity of an interstate gas line. IID has asked for a portion of that expanded capacity.

That expansion would not be complete until 2003, so the district would have no way to move the gas for the first two years of its investment in the well field.

The idea, IID officials said, is IID would sell the gas to other agencies during the first two years and use the money to purchase gas and meet bond payments.

During a workshop Monday, Imperial Valley residents told the board it is gambling with customers' money.

They cautioned the board that it is reacting to a crisis situation and in coming months or years the natural gas market could drop.

IID officials responded they are being careful.

In the prepared statement, Horne said the bidding process should end in two to three weeks, at which point IID will release more on costs related to the field.

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

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