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LADWP Still Seeking Group Gas Pre-Pay Deal, Muni Official Says

The nation's largest municipal utility and a major purchaser of wholesale natural gas supplies in the West, Los Angeles Department of Water and Power (LADWP), is still considering taking the lion's share of a massive 20-year gas supply pre-pay deal that a consortium of public sector utilities in Southern California hopes to have Goldman Sachs structure for them, according to a LADWP executive who talked with NGI Wednesday.

A definitive contract is expected early next year, according to an earlier reports (see Daily/GPI, Nov. 15). Southern California Public Power Authority (SCPPA) is tapping Goldman to handle a massive pre-payment for future gas supplies stretching over the next 20 to 30 years.

"We are participating in it now, and I believe we will be included, but that could be overturned by the General Manager [Ron Deaton] as he did in deciding not to go forward with the acquisition of the gas reserves [Barnett Shale] in Texas, even though we led the charge and funded most of the due diligence work on the deal," said Randy Howard, LADWP's special assistant to the COO. "On that deal in the end, we didn't go forward, and all the rest of the cities did and took our share.

"It was a great price for the Barnett Shale reserves," he said.

"So while we plan on proceeding with the pre-pay because we think it makes economic sense and it's a good stabilizer for just our supply, it is hard to say what this board [LA Board of Water and Power Commissioners] will do," Howard said.

He said the goal for taking any pre-payment deal to the oversight board would probably be sometime in January.

SCPPA officials earlier in the month told NGI the public power financing arm had selected Goldman Sachs to do the proposed gas pre-payment deal, stemming from another request-for-proposal (RFP) the state-chartered unit issued late last year.

While cautioning that the contract with Goldman is still being finalized, SCPPA Executive Director Bill 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, the Goldman Sachs deal would lead a bond sale that would leverage SCPPA's low-cost financing ability and solid A credit rating.

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