In a type of deal that is becoming increasingly popular amongmarketers selling to public entities, Aquila Energy has signed tosupply 91 Bcf over 12 years to municipal members of the NebraskaPublic 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 raisedthe money through municipal revenue bonds. “For us this is anextraordinary opportunity to take advantage of low interest ratesand favorable prices for gas,” said Roger Mock, APEA president.

Members of the Nebraska Public Gas Agency actually include munisin four other states as well: Colorado, Iowa, Kansas, andWisconsin. Mock said APEA plans to obtain energy for publicentities nationwide and already has signed up supply for otherlocations. Its activities are not confined to municipal systemsbut include other public agencies such as school districts.

Mock said all the elements are favorable right now with both gasprices and interest rates low. He can make deals for gas atdiscounted prices and fund the purchase with low interest ratebonds. He said APEA contracts for the gas at a rate below marketprices for the duration of the contract and then buys a swapdiscounted for present value. “You get a price benefit and then youget more benefits when you issue bonds.” Since it was created in1995 APEA has negotiated four deals valued at about $250 million.

The APEA, formed by NPGA, based in Lincoln, NE, and anotherorganization of Nebraska municipals (the state is totally served bymunicipals), recently sold its first publicly offered revenue bondissue, raising $186 million. The bond proceeds were used to makethe purchase from Aquila. APEA then sold the gas to NPGA for itsown use or for sale to other wholesale customers such as publicschools and municipal utility systems. Gas will be offered at acompetitive guaranteed market price with a net margin to NPGAparticipants over the next 12 years.

“We hope that this is just the first of several pre-payarrangements we can put together to bring back benefits to NPGA andMEAN,” said Larry Marquis, NPGA director. Proceeds from the gassales will be used to build equity in NPGA, give participants lowerprices and shield them from price volatility. The NPGA Board ofDirectors, comprised of a representative from each of the NPGAmember 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 tostart deliveries of 20 MMcf/d for ten years to the Municipal GasAuthority of Georgia for an advance payment of $117 million.

Earlier this month Unocal Global Trade announced its own 10-yeardeal with the Public Energy Authority of Kentucky Trust to supply72 Bcf of gas. The contract calls for a nonrefundable advancepayment of $120 million on Jan. 1, 1999 and a fixed monthlyreservation fee over the life of the contract. (See Daily GPI, Oct.28, 1998)

Ellen Beswick

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.