TITLE
Recommendation to authorize City Manager to enter into a Gas Services Agreement with Coral Energy Resources, L.P., for a term not to exceed 20 months; terminate the existing Energy Master Purchase/Sale and Services Agreement with Coral Energy Resources, L.P.; execute an ISDA (International Swaps and Derivatives Association) Master Agreement; and execute a NAESB (North American Energy Standards Board) Contract. (Citywide)
DISCUSSION
On August 21, 2007, the Long Beach Gas and Oil Department (LBGO) requested City Council approval of a Resolution authorizing the issuance of bonds by the Long Beach Bond Finance Authority related to the prepayment of a natural gas supply through Merrill Lynch for a term of 30 years in an amount not to exceed $1.3 billion.
A gas prepay transaction is an agreement whereby a municipal utility, leveraging its ability to issue tax-exempt debt, will cause bonds to be issued so as to enter into a firm, long-term gas supply contract at a reduced cost, far below the cost that might otherwise be obtainable. The bond proceeds are paid upfront to the gas supplier in exchange for future gas deliveries at market prices less a fixed discount. The discounted price is possible because the tax-exempt borrowing rate of the gas purchaser is lower than the gas supplier's taxable cost of capital.
In order for the City of Long Beach (City) to move forward with the prepay transaction, authorization and approval of auxiliary contracts and agreements must take place to facilitate the deliveries of prepay gas and begin realizing cost savings. Coral Energy Resources, L.P., (Coral) has worked diligently in conjunction with the City and Merrill Lynch to develop a solution to initiate the prepay volumes and gas discount to the City on the proposed date of October 1, 2007.
The existing Master Purchase/Sale and Services Agreement with Coral, which was approved by the City Council on February 14, 2006 must be terminated effective 12:00 a.m. on October 1, 2...
Click here for full text