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SoCal Public Power Unit Buys Barnett Shale Reserves

A-credit-rated Southern California Public Power Authority (SCPPA) said it has completed a $65.1 million purchase of 67 Bcf of Barnett Shale reserves for five California public sector utilities. The majority of the gas will fuel the new 300 MW Magnolia power project in Burbank, CA, as well as other local power plants.

It is the second reserves purchase in a year by SCPPA for some of its public power members. SCPPA bought Wyoming gas reserves last year for $300 million (see Daily GPI, June 24, 2005). This gas purchase, however, does not include its largest member, the Los Angeles Department of Water and Power (LADWP).

Municipal utility SCPPA members, including the cities of Anaheim, Burbank, Colton and Pasadena, joined Turlock Irrigation District in the north-central valley in the purchase. The assets made up about 62% of the Barnett reserves held by Collins & Young Holdings LP. The deal also includes an option to gain another 13% of the Collins/Young interest in the next 45 days if the city-run utilities can gain authority to increase the added volumes from their respective city councils, Carnahan said.

Devon Energy Corp., the largest operator in the Barnett Shale, will be the operator/producer for the SCPPA reserves.

SCPPA said once this transaction is closed it will begin canvassing its members to see if there is new interest in putting out another request-for-proposals for additional supplies from somewhere in the West, including Canada.

Separately, SCPPA also is getting close to signing a major gas pre-payment deal with an investment bank, stemming from another RFP issued late last year. SCPPA is in the process of finalizing a financing for a number of munis, including LADWP, that would pre-pay up to $1 billion for so-called "index-minus-priced" supplies over a 20- to 25-year period. The complex deal involves taking advantage of the public sector borrowing authority's lower interest costs to reap gas prices 40-90 cents/Mcf below the index at a given time.

"If it comes to fruition, this would be the biggest deal we have ever done, including the Intermountain power project in Utah," said SCPPA Executive Director Bill Carnahan. He said that he has been counseling SCPPA members who are making a big push in the renewables area that even when up to 30% of the power comes from renewable sources, the majority will still be from traditional fuels and gas will be the bulk of that. "The utilities are going to have a lot of gas-fired facilities in their systems for a long time."

Carnahan said SCPPA has focused on building a diverse western gas supply portfolio. Although the consortium has not purchased any supplies from producers in California of Canada, both those areas have been included in the search, which for the most part has been headed by a committee led by LADWP officials. For the most recent Barnett Shale reserves deal, LADWP's oversight board overruled its management, which had recommended joining the purchase.

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