Board hears plan to refinance NMEA prepaid gas agreement; consultants cite strong market conditions

Los Alamos County and the county’s NMEA partners are preparing to remarket a prepaid natural gas transaction in March 2025 and are examining whether to add volumes and extend delivery dates, county staff and outside financial advisers told the Board of Public Utilities on Feb. 5.

Board members heard a detailed presentation from Ben Ulbrich, deputy manager for power supply; George Majors, financial advisor to the New Mexico Municipal Energy Acquisition Authority; and representatives from Royal Bank of Canada (RBC). The presenters said municipal “prepaid” gas transactions are driven by the spread between tax-exempt municipal borrowing rates and the taxable reinvestment rates financial counterparties pay, and that the current interest-rate environment has produced unusually large spreads.

Why it matters: The county already participates in NMEA prepaid transactions that lowered gas costs for customers in prior rounds. The board must decide whether to authorize staff to pursue additional volumes or an extension now, or wait until market pricing and the precise discount are known at pricing. If the market discount meets or exceeds a contractual repricing threshold tied to the county’s 2019 transaction, the 2019 repricing agreement may obligate the county to proceed, advisers said.

Presentation highlights - History and structure: Advisors said NMEA prepaid gas deals date back to 2009 and that RBC has underwritten prior NMEA transactions in 2009, 2014 and 2019. The 2019 transaction is approaching a scheduled maturity this spring, and NMEA participants are evaluating a 2025 remarketing or refinancing. - How savings arise: Presenters explained the economics result from selling tax‑exempt municipal paper, using proceeds to prepay a financial counterparty, which discounts the seller’s future contract cash flows at the counterparty’s higher cost of funds; the arbitrage is shared with participants in the form of a per‑unit discount to the index price of gas. - Market conditions: RBC representatives said the recent Federal Reserve rate increases widened the spread that makes these transactions attractive, and they described the current market as more favorable for pricing than in 2014 or 2019. - Minimum discount and repricing agreement: Participants recalled a repricing clause tied to the 2019 transaction that sets a minimum discount level (discussed as about 33¢ per MMBtu). If the discount available at remarketing is at or above that level, the repricing agreement could require Los Alamos to continue in the remarketing; if the discount is below that threshold, Los Alamos would have the option, not the obligation, to proceed.

Board questions and clarifications Board members pressed advisers on how past discounts compare to the 33¢ threshold and how savings translate to county budgets and ratepayers. County staff provided summary figures from Attachment C of the packet showing historical per‑unit discounts: roughly $0.20/MMBtu for the 2009 series, about $0.289/MMBtu for 2014 and about $0.295/MMBtu for 2019. Staff and advisers cautioned that earlier transactions used slightly different structures and that historical fixed discounts do not capture supplemental investment earnings credited to participants; advisers said some of those supplemental earnings will be guaranteed under the proposed structure for the upcoming remarketing.

Estimates of savings and risks County and RBC estimates discussed in the meeting produced a range of possible financial outcomes. Staff presented a conceptual calculation (Attachment C) showing historical aggregate savings expressed as notional amounts; board members converted those numbers to ballpark annual savings and discussed order‑of‑magnitude estimates. One board member summarized the historical savings as roughly $200,000–$500,000 a year for Los Alamos under prior transactions, and staff and advisers said present market conditions could materially increase the per‑unit discount available in 2025 if the board chooses to extend or add volumes.

Risk and operational mechanics Advisers and staff emphasized these operational points: - You are never obligated to take physical gas you do not need; if the county’s actual consumption falls below committed volumes, excess volumes can be remarketed under the contract provisions. As George Majors put it during the meeting, “You’re never obligated to take gas you don’t need, ever.” - Committing to additional volumes increases the amount prepaid and therefore the potential per‑unit discount, but also creates an administrative duty to identify and remarket any long‑term excess volumes if consumption declines faster than projected. - The transaction as described does not fix the future market price of gas; it provides a discount to index pricing rather than locking in a fixed commodity price.

Next steps discussed Staff said they plan to bring a resolution to the regular BPU meeting on Feb. 19 and, if the board agrees, to seek council approval so the remarketing can proceed in March. Advisers said the final per‑unit discount and structure will be known only when the bonds are marketed, and the county could set a minimum acceptable discount in a resolution or delegate authority to staff to proceed once market pricing met a board‑approved threshold.

Speakers - Ben Ulbrich, Deputy Manager for Power Supply, Los Alamos County (government) - George Majors, Financial advisor to NMEA (business/consultant) - Jason Gross, RBC representative (business) - Jim Lasdee, RBC representative (business) - Board member Jen (name as spoken on record; role: Board member, Los Alamos Board of Public Utilities) (government) - Board member Heffner (Board member, Los Alamos Board of Public Utilities) (government) - Board member Stromberg (Board member, Los Alamos Board of Public Utilities) (government) - Chairman Gibson (Chair, Los Alamos Board of Public Utilities) (government)

Authorities - {"type":"statute","name":"Federal law codifying municipal prepaid transactions (2005)","citation":"referenced in presentation (Feb 2005)","referenced_by":["nmea-prepaid-gas-refinancing"]} - {"type":"contract","name":"2019 NMEA repricing agreement (repricing clause)","citation":"not specified in packet","referenced_by":["nmea-prepaid-gas-refinancing"]}

Clarifying details - {"category":"minimum_discount","detail":"Repricing agreement referenced a 33¢/MMBtu minimum discount for the 2019 remarketing; if the discount available at remarketing equals or exceeds that threshold, participants could be obligated to proceed","value":"0.33","units":"USD/MMBtu","approximate":true,"source_speaker":"George Majors"} - {"category":"historical_discounts","detail":"Illustrative fixed discounts in earlier transactions: 2009 ~ $0.20/MMBtu, 2014 ~ $0.289/MMBtu, 2019 ~ $0.295/MMBtu","source_speaker":"Ben Ulbrich"} - {"category":"annual_savings_estimate","detail":"Attachment C and board discussion produced ballpark county savings in the low hundreds of thousands per year historically; advisers said present market conditions could materially increase that level","value":"220000","units":"USD","approximate":true,"source_speaker":"Board member Heffner"}

Discussion_decision":{"discussion_points":["Whether to add volumes and extend delivery dates in the NMEA remarketing","How the 2019 repricing agreement and 33¢ minimum discount affect county obligations","Operational risk of holding excess prepaid volumes if a rapid phase‑out of gas reduces demand"],"directions":["Staff to prepare a resolution for the Feb. 19 BPU meeting and to recommend a minimum discount threshold or a delegation of authority to staff to act at pricing"],"decisions":[]},"searchable_tags":["NMEA","prepaid gas","RBC","natural gas","finance","Los Alamos"],"provenance":{},