M.U.D. long-term gas buy to save $91 million
The Metropolitan Utilities District on Thursday announced a natural gas purchase plan that will save its customers $91 million over 30 years.
Such natural gas purchases, which derive savings from the size of the deals, pre-purchase the gas using the publicly owned utility's ability to finance long-term debt and do so while exempt from taxes.
This is the third such deal by M.U.D. since 2007. Combined, the three agreements allow M.U.D. to purchase 43 percent of its gas at a guaranteed discount to the market price. The new deal alone covers about 14 percent of M.U.D.'s annual gas usage.
“This is a great day for our customer-owners,” said Doug Clark, president of M.U.D.
For the average homeowner, the three agreements equate to about $15 a year in savings, according to M.U.D. If that sounds small, think of it this way, said Mark Doyle, senior vice president and chief customer officer: This is one of a number of steps the utility is taking to trim costs.
“Fifteen dollars here, $13 there, and you start to see why our customers' bills are considerably lower than those of the privately held gas company right next to us,” Doyle said.
M.U.D. is purchasing the gas with four other municipal utilities who make up the Central Plains Energy Project. The others are the City of Fremont, Watertown Municipal Utilities in South Dakota, the City of Cedar Falls, Iowa, and Osage Municipal Utilities of Iowa.
With this deal, the partnership will issue $609 million in fixed-rate bonds to fund the pre-purchase of 193 million decatherms of natural gas. M.U.D. will purchase 84 percent of the gas in the contract, which begins June 1.
Jim Knight, vice president of M.U.D. gas operations, said this contract guarantees a 35-cent discount on a decatherm of natural gas for 10 years. The discount jumps to 63 cents for the final 20 years.
A decatherm is a way of measuring natural gas, much like oil is measured in barrels. The average home in M.U.D.'s territory uses 80 decatherms a year.
M.U.D. currently buys natural gas at $2 a decatherm. Under the approaching discount, M.U.D. would have been able to buy that gas at $1.65 a decatherm.
The broker for the gas purchase is J. Aron & Co., a subsidiary of the Goldman Sachs Group that provides energy services in the U.S. and Canada.
Interest rates on the bonds vary from 1.5 percent on a one-year bond to 5 percent on 30-year bonds. All have been sold to large institutions.
“There are not that many options for people trying to invest in the longer term today,” said Deb Schneider, M.U.D. senior vice president and chief financial officer. “There is money out there. People are looking for where they can get a decent return.”
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