UPDATE: UTILITIES GAS PURCHASE

0 Comments | Gazette, The (Colorado Springs), Mar 26, 2008 | by Pam Zubeck,

The issue

Colorado Springs Utilities wants to issue bonds to pre-pay for natural gas for up to 30 years under a plan that would give the city- owned utility a price break. The plan could save ratepayers at least $53 million over 30 years, or about $2 million a year.

Background

Pre-paid gas contracts have swept the nation, with about $8 billion in bonds issued so far by municipalities that qualify under the special legislation enabling such issues.

The city began researching a deal about a year ago and chose Merrill Lynch as its gas provider in a competitive process last fall. Since then, Merrill Lynch's credit rating has slipped due to the mortgage loan meltdown, causing some council members to express concern about the deal.

The gas deal is different from a long-term coal contract Utilities entered into years ago, because the city will get a set amount discounted from the going rate during the life of the agreement. The coal deal locked in the price of coal, and when coal prices plunged, Utilities was stuck paying a higher price.

What's new

Tuesday, the City Council unanimously approved documents that enable Utilities officials to negotiate a deal and market the bonds.

But the council made three changes. One requires Merrill Lynch's bond rating to decline no more than one notch before the deal is done. If it falls below that, the city may choose a new partner.

The council also delegated authority to lock in terms to Utilities CEO Jerry Forte, not two lower-level officials as the documents originally proposed.

Lastly, the council removed the emergency clause from the ordinances, requiring they go through a second reading next month before becoming effective.

What's next

Utilities officials will negotiate a deal with a discount rate of at least 30 cents per million BTUs for up to 20 percent of the city's supply spanning from 20 to 30 years.