Indiana Bond Bank Prepaid Gas Bonds

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Indiana Bond Bank Prepaid Gas Bonds
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• Richard Mourdock, Indiana Treasurer of State

N A S T   C O N F E R E N C E Sunriver, Oregon
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Natural gas prices have been historically volatile
NYMEX Henry Hub Natural Gas (USD/MMBtu)
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Source NYMEX, September 10, 1997 to September 7,
2007
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Indiana Bond Bank prepaid gas project provides
savings to municipal utilities
Highlights of transaction
Indiana Bond Bank 308,570,000 Seri
es 2007A and 2007B

• Issued over 300 million in July 2007 to prepay
  for a 15-year supply of natural gas
• Indiana Bond Bank loaned the proceeds to the
  Indiana Municipal Gas Purchasing Authority
  (IMGPA) to prepay JPMorgan Ventures Energy for a
  long-term supply of natural gas
• Citizens Gas, City of Batesville and Town of
  Lapel entered into long-term supply contracts
  with the IMGPA
• Prepaid for 58 Billion Cubic Feet (Bcf) of
  natural gas with deliveries on Panhandle and
  TETCO
• 3 public gas systems in the State of Indiana
  participated in the project
• Total project savings of 25.5 million
• NPV savings of 18.3 million
• Savings of 0.44 per Million BTU (MMBtu)
• Combination of fixed rate bonds, BMA FRNs, LIBOR
  FRNs, CPI Index bonds helped IBB achieve a
  compelling discount to index in a difficult
  market environment
• Series 2007A 158.7 million Fixed Rate Bonds
• Series 2007B-1 22.5 million LIBOR Index Rate
  Bonds
• Series 2007B-2 49.7 million BMA Index Rate
  Bonds
• Series 2007B-3 77.6 million CPI Index Rate
  Bonds
• Transaction structured by JPMorgan
• Marked JPMorgans 6th senior-led gas prepayment
  since 2006

Prepaid natural gas transactions are driven by
the spread between taxable and tax-exempt rates,
which is what ultimately generates the savings
the deals create for public utilities because the
tax-exempt borrowing rate of the municipal
utility is lower than the gas suppliers taxable
cost of obtaining capital -Bond Buyer
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Gas prepayment project overview

• Overview
• Indiana Municipal Gas Purchasing Authority is
  formed (IMGPA)
• Indiana Bond Bank issues tax-exempt bonds and
  loans the proceeds to the IMGPA to finance the
  upfront payment
• IMGPA makes an upfront payment to JPMorgan
  Ventures Energy Corporation (JPMVEC) in
  exchange for daily deliveries of firm gas over 15
  years
• JPMVEC makes daily gas deliveries to the IMGPA at
  specified pooling points
• IMGPA makes daily gas deliveries to Indiana
  municipal gas utilities (Participating
  Utilities) at the same specified pooling points
• IMGPA converts the fixed gas price, implicit in
  the prepayment, to a floating price to hedge
  price exposure for Participating Utilities
• Participating Utilities can then work with
  ProLiance Energy to use seasonal hedges over the
  course of the project to tactically fix prices
• Gas supply managed and administered by ProLiance
  Energy
• Participating Utilities lock in a secure,
  reliable gas supply at a discounted market price

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Overview of project
Proceeds
Indiana Bond Bank
JPMorgan Chase Co.
Municipal Bondholders
Debt Service
Proceeds
Debt Service
Guaranty
Customer Insurance
Gas
Gas
IMGPA
JPMVEC
Participating Utilities
Prepayment
Index Minus
Annual Refund
Fixed Payment
Fixed Payment
Project Management
Floating Index
Floating Index
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ProLiance
BNP Paribas
Bond Bank issues tax-exempt debt secured by
revenues from IMGPA, which includes gas sales and
swap receipts
IMGPA delivers daily gas volumes to the
participating utilities in exchange for a
floating index minus price and an annual refund
Bond Bank loans proceeds to IMGPA
ProLiance serves as Agent for IMGPA, managing gas
supplies for the project
IMGPA uses loan proceeds to prepay JPMVEC for a
15 year supply of firm natural gas delivered
daily to PEPL and TETCO
IMGPA and JPMVEC execute matched commodity price
hedges with BNP Paribas (Aa1/AA/AA) to convert
fixed price to a floating Index
JPMorgan Chase Co. (Aa2/AA-/AA-)
unconditionally guarantees JPMVEC obligation to
IMGPA
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Citizens Gas is the largest customer, comprising
nearly 95 of volumes

• Citizens Gas is the largest customer, comprising
  nearly 95 of volumes
• Citizens Gas (Aa3/A) is a public charitable trust
  operated by the City of Indianapolis
  (Aaa/AAA/AAA) Board of Directors for utilities
• 4th largest public gas system in the United
  States
• Provides retail gas service at cost-based rates
• Total Customers 265,839
• Permitted to recover fuel costs through a Gas
  Cost Adjustment (GCA)
• Total gas usage in 2006 was 47.5 Bcf
• Conservatively sized prepaid volumes
• Total annual prepaid volumes of 3.6 Bcf/year is
  approximately 10 of Citizens expected gas needs
  over the project

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