The Source - Winter 2008 - (Page 26)

feature Natural gas Their rise and current status By James R. Choukas-Bradley public gas distribution systems meet the challenges raised by the deregulation of the gas production markets by Congress and the Federal Energy Regulatory Commission (FERC) in the 1980s and early 1990s. N atural gas prepayment transactions have become an important component of the gas supply portfolios of scores of public gas distribution systems in the United States over the last several years. The concept of prepaying for gas, and taking advantage of the ability of governmental entities to finance public projects using tax-exempt financing, was developed to help The full unbundling of gas supply from gas transportation by the FERC in Order No. 636 was implemented on all interstate gas pipeline systems by the end of 1993. The pipelines, which traditionally had exercised monopoly control as buyers of gas production in the field and monopoly control as sellers of gas-to-gas distribution systems and large direct-sale customers, were barred under Order No. 636 from performing the merchant function any longer. Public gas distribution systems, which had relied upon the pipelines for their gas supply throughout their entire existence, were required by law to purchase their own gas supplies in the marketplace for the first time. Prepaid purchases of gas supply were developed to help meet the needs of public gas distribution systems for secure, long-term supplies to replace the supplies they no longer purchased from the pipelines and to provide that secure source of supply at the most economical cost possible consistent with the maintenance of supply security. The first gas prepayments were completed in 1994 by the City of Clarksville, Tenn., through its Natural Gas Acquisition Corporation (an instrumentality of the city created under specific provisions of Tennessee law) and by the Municipal Gas Authority of Georgia (a statutory joint action gas agency created by the Georgia Legislature that had been operating as a gas supplier and manager of transportation and storage services for dozens of Georgia municipalities since the late 1980s). By the late 1990s, other joint action gas supply agencies in a number of states, including Tennessee, Nebraska, Kentucky, Mississippi, and Florida, had successfully completed natural gas prepayment transactions involving longterm gas supplies, and had financed the prepayments through the issuance, in the aggregate, of several billion dollars of taxexempt gas revenue bonds. Secure supplies at a discount The end result of the natural gas prepayment transactions was then, and is now, the delivery of long-term gas supplies at a discount to market prices. Since 2006, 27 natural gas prepayment transactions have been completed, for terms ranging from 10 years to 30 years, and involving the issuance of more than $20 billion of tax-exempt gas revenue bonds for the purchase of about 4.5 TCF of natural gas. Joint action agencies, public gas distribution systems, and municipal electric utilities from the Atlantic to the Pacific and from the Gulf Coast to the High Plains have participated. Gas prepayments are now undertaken not only by, or for the benefit of, public gas distribution systems for sale to their retail customers, but also for the generation of electricity by or for municipal electric distribution systems for sale to their core retail electric customers. Current status Market disruptions triggered by the sub-prime mortgage crisis, beginning in August 2007, resulted in adverse market conditions for the completion of gas prepayment projects and a consequent slowdown in the closing of transactions from that time through July 2008. Numerous projects were awaiting completion when the current meltdown in financial markets and the gridlock in municipal bond markets occurred. Prepayment projects involving the issuance of variable rate demand bonds are the only ones that are likely to close between now and the end of the first quarter of 2009. 26 THE SOURCE | THE VOICE AND CHOICE OF PUBLIC GAS

Table of Contents Feed for the Digital Edition of The Source - Winter 2008

The Source - Winter 2008 Contents First Person The Bridge to Renewable Energy Future Natural Gas: The Comfortable, Responsible Energy Solution Gas Hydrates: Poised for the Next Phase The Role of Natural Gas in a Carbon-Constrained World Natural Gas Prepays Taking the Leap to Natural Gas Vehicles The Pipeline Legislative Outlook Advertiser's Index Advertiser.com At Last

The Source - Winter 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.