01/28/2015 - Laserfiche WebLink

Home Browse Search

****PRELIMINARY AND TENTATIVE FINDINGS**** 11ie PGP's acquisition activities are organized by gas supply pools, and FMPA members elected to participate in two gas supply pools. Each gas supply- pool stands alone with rights and obligations separate from the PGP's other pools. As a member of the PGP, the FMPA is obligated to pay its share of all common costs and 100 percent of any costs incurred by the PGP on FMPA's behalf. By contract, FMPA also has accepted a step-up provision that requires a maximum additional exposure of 25 percent of its original contracted amount if other PGP members default on any of their obligations. No rights exist to withdraw from the PGP without the unanimous consent of the PGP Operating Committee and the subsequent unanimous consent of the PGP Board of Directors. In calendar years 2004 and 2005, the FMPA's ARP became a participant in PGP Gas Supply Pool 1 (PGP1) and PGP Gas Supply Pool 2 (PGP2). Section 12.2 of the PGP agreements indicates that the PGP will acquire interests in gas reserves and that the member shall be responsible for paying its participation share of all such capital expenditures. Pursuant to its participation in the pools, the FMPA has issued ARP revenue bonds as described in Table 8. Table 8 Calendar Bond Issuance Year 2006 $45,000,000 (1) 2008 60,000,000 2009 15,000,000 2013 15,000,000 Total $135.000.000 Note (1): The original bond issuance amount was $50,000,000; however, $5,000,000 was refunded by the 2008 issue. Source: FMPA Records Participation in a natural gas development project, similar to FMPAs' participation in the PGP, should fix gas costs at a rate equal to operational expenses plus depletion of gas properties, less revenues (e.g., the sale of nonmethane products like ethane and liquid petroleum), such that PGP participation is reasonably expected to be a natural physical hedge to the price of natural gas. An analysis of 17 comparable JAAs- disclosed that only one of those JAAs was involved in similar natural gas pool activity. The results of this analysis indicate that the FMPA's investment in natural gas exploration and production via its participation in PGP was not a common industry practice or common form of fuel hedging, with the most typical forms of such hedging consisting of a combination of long and short-term natural gas purchases, contracted storage, and use of financial hedges. The natural gas procurement strategy most similar to the FMPA's PGP participation is a prepaid natural gas contract. Table 9 compares the relative risk characteristics of the two natural gas procurement strategies: 2 Comparability to the FMPA was based on reported peak MW load, wholesale electric revenues, the number of member municipalities, total number of retail customers served, and the generation fuel types employed. 10 12