Municipal gas authority starts process on $800 million purchase of natural gas

The governing board of the Municipal Gas Authority of Mississippi voted unanimously at a hearing Wednesday to start the process on a natural gas purchase contract that could last for 31 years and cost up to $800 million.

MGAM is tasked by law with supplying the state's 48 municipal-owned natural gas associations with natural gas in an economical and dependable manner. The organization was created by a bill passed in the Legislature in 1988.

The so-called natural gas prepaid project would allow the state's municipal natural gas associations to buy natural gas at present low prices ($2.87 per one million British Thermal Units or MBTU) for the next three decades.

MGAM executive director Geoffrey Wilson said that the project isn't an authorization for the agency to buy bonds immediately. The group would start a project and would go back to the customers for approval once the structure and terms of a deal was established.

Not everyone supported the move. Howard Randolph, the CEO of UMC Solutions, had several questions for the MGAM board about the purchase, including what would happen if one of the municipalities went bankrupt and whether the other municipal customers would have to pay for the default.

Wilson said that answer awaited the structure of a deal. He also said that state and city taxpayers would not be responsible for paying back any default on the bonds.

The board said the move would likely be financed by the Mississippi Development Bank, which was created by the Legislature in 1986 to issue revenue bonds to any local governmental entity, which would include municipalities and municipally-owned utilities.

Despite what was said at the meeting, Mississippi taxpayers are on the hook for defaults. The bank can get its money back from borrowers that don't pay their bonds back by way of withholding by the state Sales Tax Commission on sales tax, homestead exemption, and other state funds disbursed to municipalities.

"This will be third or fourth prepay (natural gas purchase) that we've done," Wilson said during the hearing. "There's been 10 of these deals throughout the country and our customers are eager to participate.

"If we can get a 15 to 20 percent discount off that price, I think a lot of customers would do that."

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