Nebraska Munis Pay $162 M For 12-Year Supply
In a type of deal that is becoming increasingly popular among
marketers selling to public entities, Aquila Energy has signed to
supply 91 Bcf over 12 years to municipal members of the Nebraska
Public Gas Agency (NPGA) for an advance payment of $162 million.
The contract was signed with the American Public Energy Agency
(APEA), which was created by the Nebraska munis, and which raised
the money through municipal revenue bonds. "For us this is an
extraordinary opportunity to take advantage of low interest rates
and favorable prices for gas," said Roger Mock, APEA president.
Members of the Nebraska Public Gas Agency actually include munis
in four other states as well: Colorado, Iowa, Kansas, and
Wisconsin. Mock said APEA plans to obtain energy for public
entities nationwide and already has signed up supply for other
locations. Its activities are not confined to municipal systems
but include other public agencies such as school districts.
Mock said all the elements are favorable right now with both gas
prices and interest rates low. He can make deals for gas at
discounted prices and fund the purchase with low interest rate
bonds. He said APEA contracts for the gas at a rate below market
prices for the duration of the contract and then buys a swap
discounted for present value. "You get a price benefit and then you
get more benefits when you issue bonds." Since it was created in
1995 APEA has negotiated four deals valued at about $250 million.
The APEA, formed by NPGA, based in Lincoln, NE, and another
organization of Nebraska municipals (the state is totally served by
municipals), recently sold its first publicly offered revenue bond
issue, raising $186 million. The bond proceeds were used to make
the purchase from Aquila. APEA then sold the gas to NPGA for its
own use or for sale to other wholesale customers such as public
schools and municipal utility systems. Gas will be offered at a
competitive guaranteed market price with a net margin to NPGA
participants over the next 12 years.
"We hope that this is just the first of several pre-pay
arrangements we can put together to bring back benefits to NPGA and
MEAN," said Larry Marquis, NPGA director. Proceeds from the gas
sales will be used to build equity in NPGA, give participants lower
prices and shield them from price volatility. The NPGA Board of
Directors, comprised of a representative from each of the NPGA
member communities, will direct the use of the funds.
This is the second of this type of deal for Aquila recently,
according to spokesman Al Butkus. Aquila signed last December to
start deliveries of 20 MMcf/d for ten years to the Municipal Gas
Authority of Georgia for an advance payment of $117 million.
Earlier this month Unocal Global Trade announced its own 10-year
deal with the Public Energy Authority of Kentucky Trust to supply
72 Bcf of gas. The contract calls for a nonrefundable advance
payment of $120 million on Jan. 1, 1999 and a fixed monthly
reservation fee over the life of the contract. (See Daily GPI, Oct.
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