DWP to Pay Less for Coal at Utah Plant

The major supplier of coal to the massive Utah power plant that provides a third of Los Angeles’ electricity has agreed to stop selling the fuel at above-market prices that add tens of millions of dollars a year to DWP customers’ utility bills.

The agreement between the city Department of Water and Power and Arch Coal Inc. to lower coal prices to market levels beginning in 2002 will help the nation’s biggest municipal utility shave its operating costs and become more competitive with cheaper suppliers of power.

DWP General Manager David Freeman hailed the agreement Thursday as one step in making his debt-laden utility better able to compete when California’s electric energy market is opened to full competition in four years. “We’ve licked the coal problem in Utah,” Freeman declared.

To lock in fuel for the huge Intermountain Power Project, the department and smaller Southern California cities signed long-term contracts that fixed the price of low-sulfur coal far above current market prices.

Besides Los Angeles, publicly owned utilities in Burbank, Glendale, Pasadena, Anaheim and Riverside draw power from the Utah plant and will benefit from the deal.

To fuel its boilers and create the steam that turns its turbines and produces electricity, the Delta, Utah, plant consumes an enormous amount of coal--nearly 14,000 tons a day.

Specially designed coal trains regularly feed the plant’s appetite for 5.2 million tons of coal a year.

The Times reported in 1997 that the above-market coal contracts were costing DWP’s Los Angeles customers tens of millions of dollars a year in extra energy costs. Freeman said the reduction in fuel prices coupled with the DWP’s efforts to pay down its remaining $3-billion power plant debt will produce a 20% reduction in the cost of electricity to customers by 2003.

The fuel savings “combined with paying down the debt ought to enable us to not just reduce our electric rates, but to slash them . . . not just for our industrial customers but for residential customers as well,” Freeman said.

Steven Leer, Arch Coal’s president and chief executive officer, said in a statement that the negotiated changes in the contracts “put the problems of the past behind us” and positioned his company and DWP “to be ready for the deregulated electric utility environment.”

Under terms of the new agreements, an Arch subsidiary, Canyon Fuel Corp., will deliver coal to the power plant at market-based prices and the supply contracts will be extended to 2010, with an option for another five years.