3.06.07

Midwest munis ink $529 million gas supply deal
by Rodney White, Gas Daily

Gas Daily is published daily by Platts, a division of The McGraw-Hill Companies. Registered office Two Penn Plaza, 25th Floor, New York, NY 10121-2298
 
Central Plains Energy Project, a gas supply aggregator based in Nebraska, has entered a 20-year, prepaid supply contract with Goldman Sachs affiliate J. Aron for $529 million.
 
Central Plains was created last year by the Metropolitan Utilities District of Omaha, Nebraska, and Cedar Falls Utilities of Cedar Falls, Iowa. Under the deal, M.U.D. will receive 13.2 Bcf/year for the life of the contract while CFU will get 2.3
Bcf in the first year and 655,000 Mcf/year thereafter. M.U.D. serves about 205,000 customers and CFU has 12,500.
 
“When we formed CPEC, we envisioned the day when a transaction of this type would be completed,” said Jim Knight, a Central Plains director who also is vice president of gas operations for M.U.D. “But even in our most optimistic projections, we did not envision the high level of savings we achieved for our customers.”
 
M.U.D. estimated that its customers will save $58.3 million over 20 years, while CFU estimated savings of $3.7 million.
Central Plains said it issued tax-exempt bonds to fund the purchase. Fitch Ratings said it has assigned an AA- rating to the bonds, largely due to the high credit quality of the parties involved.
 
Hiran Cantu, a senior director in Fitch’s public finance group, noted that longterm prepaid supply deals have become popular among municipally owned utilities because of the volatility of gas prices in recent years.
 
“A lot these transactions are structured so that the price of gas is an index price minus a discount,” he told Platts. “The price still varies, it still goes up and down, but the munis get a discount, which is nice, and they lock in a supply with
a highly rated counterparty.”
 
As many as 30 percent of the nation’s munis are using long-term, prepaid deals now that the tax implications have been clarified and the process is more cost-effective, said Les Fyock, vice president of regulatory affairs for the American Public Gas Association.
 
In December, the Tennessee Energy Acquisition Corporation announced one of the largest pre-paid contracts yet — a $1.06 billion, 20-year deal with J. Aron for Memphis Light, Gas & Water, the Harriman, Tennessee Utility Board, four
other munis and a joint action agency. The agreement calls for 262 Bcf to be delivered over the life of the contract.
 
Omaha World-Herald editorial page, March 6, 2007
 
Furthermore…

With the annexation to Omaha comes a substantial cut in water bills for Elkhorn residents. Metropolitan Utilities District noted that water will cost residents 33 percent less. For the average user, the reduction will mean a total annual bill around $200, for a decrease of around $100.
 
Gas bills may go down, too, when M.U.D. successfully negotiates to buy facilities from the private utility now serving the community. The annexation was controversial, but it does have its compensations.

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