SMUD Bonds for Cosumnes, Not Gas Reserves

By Published On: April 24, 2004

Instead of securing natural gas supplies through an upcoming bond issuance, the Sacramento Municipal Utility District will use the funds to cover costs of the muni?s Cosumnes power plant project. The original $375 million total figure for the electric revenue bonds is now $120 million to $140 million, according to SMUD officials. The muni?s board of directors voted in favor of the bond issue late last week. SMUD has been trying to acquire gas reserves in anticipation of operations at Cosumnes next year but will not be able to work out a deal soon enough to coincide with the bond issue, said treasurer Noreen Roche-Carter. Some $150 million to $200 million of the issuance would have been apportioned for gas reserves. Instead, approximately $115 million will be used to pay for costs already incurred in developing the gas-fired 500 MW Cosumnes unit, construction of which is now 20 percent complete. The project is moving toward an online date in fall 2005. The bonds might also cover a reserve fund and refinance more senior bonds, Roche-Carter added. Federal activity this week on lending rates is chipping away at the bond plan. Federal Reserve chair Alan Greenspan?s warning of higher interest percentages pushed rates in that direction, leading SMUD to consider scaling back its projected $140 million issuance by an additional $20 million. ?I don?t think the figure will go any lower than $120 million,? Roche-Carter predicted?even with a dramatic rise in municipal interest rates. ?Rates are still at a historic low, and we?re happy to go forward.? The bonds will trigger no increase for SMUD ratepayers. In addition to Cosumnes supplies, SMUD is on the lookout for more gas to fuel its three existing cogeneration plants: the 172 MW Sacramento Power Authority unit, the 163 MW Sacramento Cogeneration Authority plant, and the 94 MW Central Valley Financing Authority unit. The muni picked up about 20 decatherms per day in gas via a deal made last year, but that meets just one-quarter of SMUD?s gas needs?and once Cosumnes rumbles to life, it will cover only 15 percent of total gas demand. Through other gas procurements, SMUD has purchased all the gas it will need through 2005 and has contracted for nearly half of its expected requirements for 2006, including Cosumnes, said Roche- Carter. The muni currently must have 60,000 Dth/day of natural gas, and that figure will more than double (to 130,000 Dth/day) with the debut of the Cosumnes plant. SMUD will price the bonds and determine their terms and interest rate on May 11. The bonds would then be issued by late May or early June.

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