Having locked up reserves and pre-pay natural gas deals in the past two years, the infrastructure financing arm for a dozen Southern California municipal utilities is assessing its member utilities to determine if their tanks are full, or they still want to buy some peace of mind in terms of future fuel supplies for generating electricity in the southern half of the state. The assessment will come the first half of next year.
The Southern California Public Power Authority (SCPPA) has been busy since 2005 securing renewable energy sources and long-term natural gas plays for its public power members, which include the Los Angeles Department of Water and Power (LADWP). The question now is how much need there is for additional gas price mitigation programs.
“We intend to take a further look at whether or not there is an appetite for more gas in the ground,” said Bill Carnahan, SCPPA executive director, during an interview with NGI. “My guess is that there might be, but it wouldn’t be the volumes that we necessarily have looked at before [including the need of LADWP, the nation’s biggest muni].
“LADWP did our first gas deal  but not the second one; they did the Wyoming one, but not the Texas [Barnett Shale] one,” Carnahan said. “This put LA [Los Angeles] sort of out of the game and it meant the other utilities had to step up their shares, so that pretty much filled their baskets by now.”
With LADWP dropping out, the Barnett Shale gas now is jointly owned by five smaller public sector utilities in the cities of Anaheim, Burbank, Colton and Pasadena, along with the Turlock Irrigation District in the north-central valley. (Turlock is not a SCPPA member.) It was A-credit-rated SCPPA’s second reserves purchase in the last two years, the first being the purchase of Wyoming gas reserves in 2005 for $300 million.
The smaller munis took more supplies upfront in the Barnett Shale deal that they originally planned, so that combined with LADWP’s board wanting to keep the utility on the sidelines right now, Carnahan said it is “probably only 50-50 whether we have enough critical mass among our members to do another gas project right now, but we’re going to take a look at it.”
Carnahan expects SCPPA to get serious with making an assessment of its members’ gas needs toward the middle of next year. “Right now, we have concentrated mostly with the pre-pay agreements.”
SCPPA did a $500 million index-minus pre-pay deal earlier this fall for some of its smaller members; LADWP is going to be a second phase of that deal with $500-800 million for the large city-run utility by itself, Carnahan said.
“Hopefully, that second phase with LA will come together before the end of the year,” Carnahan said. “We’re still negotiating that deal, and the markets moved away from them a little bit. Unfortunately, they weren’t ready to go when everyone else was, so the other folks jumped in and we hit that market almost perfectly. Prior to that and after that, the market sort of moved away, making the index-minus savings only about half of what they were before.”
Under the deal, Goldman Sachs handles a massive pre-payment for future gas supplies stretching over the next 20 to 30 years, finalizing the financing and operational details for a number of munis in a pre-pay that could total between $500 million to $1.5 billion in future gas supplies, if LADWP is eventually included.
“We are now trying to get the LADWP part tied up before we think about going out for more gas reserves,” Carnahan said. “LADWP’s board may approve it and then have to wait a few months until the market is more favorable.”
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