Municipal Bond Forum
Prepaid gas contracts
Q
In the prepaid gas contracts, is the utility able to treat the entire block of prepaid gas as an asset and “rate base it”? I suppose that would only be relevant to regulated gas utilities? Also, have you ever heard of this structure being used to sell blocks of electricity at a fixed price?
A
James A. Klotz responds:
The issuers of pre-paid gas bonds are not necessarily public utilities. The gas is sold to member municipalities at a rate discounted from what they would otherwise buy it for in the marketplace. I am not aware of a case where there is a traditional application of utility regulated pricing.
I am also unaware of a case in which this model has been applied in the electricity market. Electricity is not generally sold as a commodity, as is natural gas.
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