Unfamiliar Position for Utility : Cheap Oil Allows SDG&E; to Sell Excess Electricity

San Diego Gas & Electric has apparently become the nation’s first utility to take advantage of sharply lower oil prices to generate and sell excess electricity, thus reversing its longtime reputation as a power-poor company.

For the past month, SDG&E; has been burning relatively cheap oil to generate electricity for sale to utilities in Mexico as well as Arizona and New Mexico.

For SDG&E; and a handful of other utilities that signed long-term oil contracts during the 1970s as sky-high oil prices boosted utility rates, the current cheap-oil scenario has proven to be sweet.

2 Plants Switched to Oil

“As oil prices have come tumbling down . . . fuel oil has become competitive with coal for the first time in my memory,” said Mike Niggli, SDG&E;’s director of fuel and power contracts, who has chronicled fuel prices for nearly 15 years.

By burning low-cost oil in a pair of generating plants that normally burn natural gas, SDG&E; has been meeting its own electricity demand and, on an hour-by-hour basis, selling about 100 megawatts of excess power to utilities that normally count on coal for their lowest-cost electricity, Niggli said.

SDG&E; regularly purchases between 400 megawatts and 500 megawatts of electric power from coal-rich utilities in the Southwest, some of which are now purchasing cheaper electricity from SDG&E.;

“Just a few months ago, it used to cost over 5 cents per kilowatt-hour to generate electricity at our oil-fired plants,” Niggli said. “Today that electricity costs just about 2 cents per kilowatt-hour.”

Probably Won’t Last Long

Oil, which accounted for just 6% of SDG&E;’s electric power mix during 1985, now accounts for nearly 40%, and Niggli suggested that the utility could buy nearly 3 million barrels of cheap oil by year-end.

However, Niggli acknowledged that SDG&E;’s role as a low-cost electric supplier likely won’t last long.

“This situation should continue into the summer or fall and might start to change when the demand for fuel oil picks up in the Northeast,” Niggli said.

“Of course, that’s subject to OPEC not regaining control of the market,” he said.

“San Diego is the first utility we’ve heard about that has switched from gas to oil and actually started generating excess electricity,” said a spokeswoman for the Edison Electric Institute, a Washington industry association. “But we do see a lot of them that are replacing a portion of their coal-fired (electricity) with cheaper oil.”

Although Southern California Edison has benefited from reductions in the price of natural gas that have been forced by the drop in oil prices, the utility has “no plans to burn oil,” a spokesman said.

Edison in the past has burned oil only during cold spells when its supply of natural gas lags demand.

Florida Power & Light, which like SDG&E; burdened itself during the 1970s with expensive long-term oil contracts, has moved cautiously on replacing its supply of coal-fired electricity with suddenly cheaper oil-fired electricity.

Although FP&L; reported that sales of oil-fired electricity to other utilities have increased “significantly” during the past six weeks, oil use has risen just 6% over last year at this time.

San Onofre Costs

However, plunging oil prices likely won’t translate into equally attractive price drops for SDG&E;’s customers because the utility is still paying for its portion of the expensive San Onofre Nuclear Generating Station and a transmission line that links the utility with electric-rich utilities in the Southwest.

Additionally, SDG&E; has had to bolster its capital spending program to meet the demand generated by a record-breaking number of new hookups.

The utility serves customers in San Diego and southern Orange counties.