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California may rely on more gas-fired generation due to drought

Jan 10 (Reuters) - California power companies may be forced to rely more on higher-cost natural gas-fired generation in 2014 as record drought conditions are expected to reduce the state's hydropower output for a third year in a row.

Public power utilities that rely heavily on hydroelectric generation may be forced to use more expensive power sources, such as gas-fired plants, and purchase power to make up for any hydropower shortfall, Fitch Ratings, a credit rating agency, said in a report on Friday.

Fitch said eight of the 14 public power companies it rates receive between 10 percent and 32 percent of their power from hydroelectric resources. Among them is the Sacramento Municipal Utility District, one of the state's largest power providers.

The biggest investor-owned and public power utilities in California include units of PG&E Corp, Edison International, the City of Los Angeles, Sempra Energy , the City of Sacramento, the Imperial Irrigation District and the Modesto Irrigation District.

Fitch said hydropower accounted for an above-average 21.3 percent of in-state electricity generation in 2011 before dropping to just 13.8 percent under drier conditions in 2012. That corresponded with an increase in gas-fired generation to 61.1 percent in 2012 from 45.4 percent in 2011 .

The California Department of Water Resources (CDWR), operator of the state water projects, said the state is currently experiencing record low water conditions, with more than one-fourth of the October-September water year having elapsed.

In its first snow survey of the winter, released last week, the CDWR said it "found more bare ground than snow" and noted the snowpack's water content was about 20 percent of average for this time of year.

The last time statewide snowpack was this dry was 2012, when it also was 20 percent of the historical average. The CDWR said the readings now and in 2012 were the driest on record.

The CDWR said there is still time for the snowpack to build prior to the usual peak in early April before melting into streams and reservoirs used to provide a third of the water used by California's cities and farms.

"While we hope conditions improve, we are fully mobilized to take every action possible to ease the effects of dry weather on farms, homes and businesses as we face a possible third consecutive dry year," CDWR Director Mark Cowin said in a release.