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SCPPA Expands TX Gas Buy, Taps Goldman Sachs for Pre-Pay Deals

Southern California Public Power Authority (SCPPA) is expanding its gas-buying efforts for some of its municipal utility members, adding to a previously announced purchase of Barnett Shale reserves. It also has tapped Goldman Sachs to handle massive pre-payment of future gas supplies stretching over the next 20 to 30 years. Neither contract is a done deal yet, but both should be wrapped up by early next year, a SCPPA official said Monday.

Several SCPPA member city-run utilities have received authorization from their city councils to exercise an option for an additional 13% interest in the previously announced $65.1 million purchase of 67 Bcf of Barnett Shale reserves for five California public sector utilities (see Daily GPI, Oct. 27). 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.

The deal announced last month is now being restructured to include the option for the added amount, according to SCPPA Executive Director Bill Carnahan. It should be final later this month, and included the cities of Anaheim, Burbank, Colton and Pasadena, joined by Turlock Irrigation District in the north-central valley in the purchase.

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

Separately, SCPPA now has selected Goldman Sachs to do the proposed gas pre-payment deal, stemming from another request-for-proposal (RFP) the state-chartered municipal utility financing arm issued late last year.

While cautioning that the contract with Goldman is still being finalized, Carnahan said SCPPA should finalize that and the financing and operational details for a number of munis, including LADWP, that would pre-pay between $500 million to $1.5 billion in future gas supplies. They would buy so-called "index-minus-priced" supplies over a 20- to 30-year periods.

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. When unleashed early next year, Goldman Sachs would lead a bond sale that would leverage SCPPA's low-cost financing ability and solid A credit rating.

Last month Carnahan said that if it comes to fruition, the gas pre-buy would be "the biggest deal we have ever done, including the Intermountain power project in Utah."

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