TITLE
Recommendation to authorize City Manager to execute an International Swap and Derivatives Association (ISDA) Master Agreement with Merrill Lynch Commodities, Inc. (MLCI) to authorize various natural gas financial transaction programs, as the City Manager may deem appropriate. (Citywide)
DISCUSSION
Effective November 1, 2007, the Long Beach Gas & Oil Department (LBGO), through the Long Beach Bond Finance Authority, entered into a thirty-year gas prepay contract with Merrill Lynch Commodities, Inc. (MLCI). Under the terms of the contract, MLCI is the primary supplier of natural gas to LBGO. As such, in order to facilitate necessary and beneficial financial transactions related to the purchase of natural gas for LBGO's customers, LBGO requests authorization and approval to enter into an International Swap and Derivatives (ISDA) Master Agreement with MLCI.
An ISDA Master Agreement would allow LBGO to establish programs for the financial swap of the LBGO natural gas pricing index and/or future price protection programs with MLCI. These programs would be secured to provide price reductions and/or price protections for the purchase of natural gas for LBGO's customers.
LBGO expects to utilize the ISDA Master Agreement with MLCI immediately to allow LBGO to swap the current contracted pricing index for a historically lower cost price index. Under the current method, LBGO purchases half of its natural gas volume at the Southern California Gas Company Core Procurement Cost (SoCalGas index) and the other half at NGI Southern California Border Index (Border index). Historically, the Border index has been comparable with the SoCalGas index. However, current gas market conditions have resulted in the Border index averaging $0.18 less than the SoCalGas index over the past 12 months. An executed ISDA Master Agreement would allow LBGO to alter its pricing method and purchase all of its contracted MLCI volumes at the Border index, which is expected to lead to substantial...
Click here for full text