Los Angeles Department of Water and Power (LADWP) missed a special meeting Tuesday of its oversight board but hopes to get approval in the next few weeks for a public power consortium’s pre-paid natural gas supply contract. A source close to the arrangement that was brokered by a public power financing arm, the Southern California Public Power Authority (SCPPA), said LADWP is taking more time than previously anticipated to get the deal approved.
“We were initially targeting the gas pre-pay for [Tuesday’s] LADWP meeting, but there are a few loose ends to be tied up,” said Bill Carnahan, executive director at SCPPA, a joint power authority created by the state legislature in 1981. Inside LADWP, the prime SCPPA member, some of the utility attorneys are beginning to worry some of the deal’s proponents because they are picking apart what one observer thinks are only ancillary points of the deal.
“We’re waiting on signoff by the LA city attorney, and that is not a substantive discussion, then they will start putting the proposal through LADWP’s approval process that ends with its Board of Water and Power Commissioners. Some of the other cities involved in the deal have already begun their processing,” Canahan said.
At stake is a contract with Goldman Sachs to handle a massive pre-payment for future gas supplies stretching over the next 20 to 30 years. The investment bank finalized 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 period (see Daily GPI, Nov. 27, 2006).
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. If approved by the oversight officials for LADWP and the other munis, the Goldman Sachs deal would lead to a bond sale that would leverage SCPPA’s low-cost financing ability and solid A credit rating.
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