8.2.06

Board approves plan to cut gas costs

The Metropolitan Utilities District Board of Directors today approved participation in the Central Plains Energy Project (CPEP), which may save up to $3 million a year in gas costs.

CPEP is a municipal gas buyers pool. The pool will use pre-pay gas purchases to secure long-term gas supplies at below market price. Pre-pay gas purchases allow municipal utilities to take advantage of the ability to issue tax-exempt bonds to finance the pre-payment of a long-term gas purchase (10-20 years).

"We are excited to initiate pre-pay gas purchases because the potential for saving customers money on their utility bills is significant," said Board Chair Mary Kay Begley. "We plan to have the first gas purchase agreement in place for this winter."

Here's how the plan works:

• CPEP will issue tax-exempt bonds to pre-pay a certain volume of gas over a specified term, and will use the bond proceeds to provide an upfront payment to the gas supplier.
• Each CPEP member will have a gas supply contract with CPEP in which the member agrees to pay CPEP a below market monthly price for a specified volume of gas each month as the gas is delivered.
• Below market pricing is achieved from the differential between tax-exempt borrowing rates and taxable investment rates available to the gas supplier.

The major benefit of pre-pay gas purchase agreements through CPEP is that the District will not have liability for CPEP's bonded indebtedness. The operational and administrative costs also will be shared by all members.

Other utilities across the nation which have entered into pre-pay gas purchases include:

• BP, formerly British Petroleum, entered into a $1 billion gas supply deal with the Public Energy Authority of Kentucky for 170 billion cubic feet (BCF) of gas.
• JP Morgan signed a $756 million deal with Tennergy for 120 BCF over a 10-year period.

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