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Nebraska Munis Pay $162 M For 12-Year Supply

November 9, 1998
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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. 28, 1998)

Ellen Beswick

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