American Municipal Power – Ohio, Inc.
AMERICAN MUNICIPAL POWER – OHIO, INC.
(AMP-Ohio)
American Municipal Power – Ohio, Inc.
What is AMP-Ohio?
A private, not-for-profit, membership corporation
organized in Ohio in 1971
Exempt from federal income tax under IRC Section
50(c)(12) and Section 115
Managers power supply arrangements for 119 Public Power
Systems in Ohio, Michigan, Pennsylvania, West Virginia,
and Virginia
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American Municipal Power – Ohio, Inc.
Project based organization
Largest Municipal energy operation in ECAR
Peak load of approximately 3,500 MW
1,326 MW of generation; heavily dependent on purchased power
Issues tax-exempt debt based on IRS Private Letter Rulings
AMP-Ohio is not a joint action agency
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American Municipal Power – Ohio, Inc.
AMP-Ohio Members
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American Municipal Power – Ohio, Inc.
Transmission Dependent Utility
Member of both MISO and PJM
About half of AMP-Ohio Members are in MISO and half in PJM
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American Municipal Power – Ohio, Inc.
Member Energy Requirements
Increase in Membership and subsequent increase in load =
increase in power supply requirements
Wholesale power market is volatile
Members are asking for stability and price certainty
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American Municipal Power – Ohio, Inc.
AMP-Ohio Plan to Meet Future Energy Requirements
Build base load assets
New 1,000 MW coal-fired plant COD 2012
Re-power Gorsuch Station to clean coal technology
Additional hydro projects in the Ohio River (150-200 MW)
Additional wind turbines in Ohio and Pennsylvania
Buy existing generating assets
New Power Supply Contracts
For power supply requirements until generation projects in-service
For load growth beyond 2012
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American Municipal Power – Ohio, Inc.
AMP-Ohio Decision to Trade with Higher Rated Counterparties
Most longer term transactions are now with commodity providers
(usually investment banking firm) rated in A or AA category as
opposed to investor-owned utilities usually rated in BBB range
Power purchase contracts supported by $250 million bank line
facility to cover contingent credit assurances
Most EEI agreements between AMP-Ohio and investment banking
firms supplying power have a margin of permitted exposure
before collateral thresholds are triggered for either party
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American Municipal Power – Ohio, Inc.
AMP-Ohio’s Criteria for a Prepayment of Energy Contracts
AMP-Ohio has been interested in this option since tax law was
changed to permit prepayment for energy
Savings. Prepayments offer the potential to generate savings
through tax-exempt debt service costs that are lower than the
physical delivery price of the power, including the present value
discount factor
Free-up credit. No bank line support needed.
Prepayment contract replaces EEI. With prepayment would have
no obligation to post collateral.
Goldman performance guarantee
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American Municipal Power – Ohio, Inc.
Long-Term Power Supply Arrangement
After solicitation of several commodity providers in 2005 AMP-Ohio
entered into 7 year, 225 MW fixed price 24 x 7 contract with J Aron,
subsidiary of Goldman Sachs
Delivery effective 1-1-06
EEI negotiated contract with collateral threshold for each party
Goldman Sachs parental guarantee (Aa3 Moody’s/A+ S&P/AA- Fitch)
Intent was to enter into tax-exempt prepay transaction
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American Municipal Power – Ohio, Inc.
Roadblocks To Prepayment
Time consuming process
Each investment banking firm proposed a different prepayment
structure – too much to consider
Conservative approach by AMP-Ohio and tax counsel - do nothing
to jeopardize a future project financing
Be prepared to spend money for legal fees to research proposed
structures.
Continuing to explore economic options to guarantee
performance of Goldman Sachs
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American Municipal Power – Ohio, Inc.
AMP-Ohio Tax Counsel is
Sidley Austin in New York
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American Municipal Power – Ohio, Inc.
Prepayment Structure A
SPE formed
Proceeds from prepayment tax-exempt bonds are held by SPE and
invested in GIC
GIC pays J Aron as power is delivered
GIC proceeds could be returned to AMP-Ohio in event of default
Tax Counsel Advice: High Risk
IRS might say proceeds were not spent for
intended purpose
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American Municipal Power – Ohio, Inc.
Prepayment Structure B
Private placement tax-exempt bonds
No recourse to AMP-Ohio if J Aron defaults
Tax Counsel Advice: High Risk
IRS might say that private bonds are taxable
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American Municipal Power – Ohio, Inc.
Prepayment Structure C
AMP-Ohio obtains bank letter of credit to guarantee Goldman
performance
Problem: Goldman reluctant to enter into reimbursement
agreement with banks
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American Municipal Power – Ohio, Inc.
Prepayment Structure D
Similar to recent gas prepay structure
AMP-Ohio issues tax-exempt bonds to fund prepay
Take-and-pay contracts with members source of payment as
J Aron makes commodity deliveries
Bondholder recourse to Goldman if J Aron defaults
Bonds would carry AA3/A+/AA– Goldman credit ratings
Problem: AMP-Ohio still obligated for MTM and credit posting
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American Municipal Power – Ohio, Inc.
Prepayment Structure E
AMP-Ohio buy Credit Default Swap to guarantee Goldman
performance
Otherwise a straight forward tax-exempt bond issue
Problem: Cost of CDS might make transaction uneconomical
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American Municipal Power – Ohio, Inc.
Prepayment Structure F
AMP-Ohio issues traditional fixed rate tax-exempt bonds to fund
prepayment
No Goldman performance assurance
Problem: AMP-Ohio members might not enter into prepayment
without Goldman performance guarantee
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American Municipal Power – Ohio, Inc.
Conclusion
Prepayment structure might not happen
CDS might not be economical
Members might not enter into prepay without performance
assurance
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American Municipal Power – Ohio, Inc.
Robert W. Trippe
Chief, Financial Officer
btrippe@amp-ohio.org
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