Patriots Energy Group (PEG) is a joint agency under South Carolina law, organized as a public body and a body corporate and politic in 2003 pursuant to the state’s Joint Agency Act (the Act). PEG is governed by a six-person Board of Directors. It has three members that are natural gas authorities located in the north central region of South Carolina: Chester County Natural Gas Authority (CCNGA), Lancaster County Natural Gas Authority (LCNGA) and York County Natural Gas Authority (YCNGA) (the Members or Authorities). The General Assembly of South Carolina created each of the Authorities in 1954 to provide retail natural gas service through their transmission and distribution facilities in their respective service territories. The Members are political subdivisions of the state of South Carolina and are considered special-purpose districts. The Members do not have the authority to levy taxes. All revenues of the Members are derived from the sale and distribution of natural gas and appliances.
Lower Cost. More Efficient.
The Members’ purpose in forming PEG was to achieve lower costs of operation and greater efficiencies in a competitive environment. From April through June 2003, the Members operated by mutual agreement, and in July 2003, PEG adopted bylaws and executed member contracts with each of the Authorities (collectively, the Agreements) and became a joint action agency under the Act. PEG updated its bylaws in 2010.
In conjunction with the issuance of bonds in June 2006, the Members executed new member contracts similar to those previously in place. Under the Agreements, PEG acquires natural gas supplies for the full requirements of the Members and manages their transportation and storage capacity on three interstate pipelines. During fiscal year 2011, PEG completed construction of a 39.5 mile transmission line that connects the distribution systems of the Authorities directly to the Transco interstate transmission line. The transmission line became operational in January of 2011 and gives the Authorities the flexibility not to rely completely upon CGT’s transportation system.
YCNGA, LCNGA and CCNGA each operate autonomously within their respective service territories. Nevertheless, through joint action, these public entities share the costs of like undertakings, such as natural gas purchasing, and accomplish those tasks more efficiently than if they were addressed individually. In addition, by contracting with PEG, the Members have diversified their source of supplies through a portfolio of supply arrangements, rather than depending upon the services of a single provider. Similarly, they have pooled their pipeline capacity resources and own facilities jointly. Through joint action, PEG’s Members have used economies of scale to reduce the overall cost of natural gas to their ultimate customers.
Operations & Supply
For its day-to-day operations, PEG has a contract with the Municipal Gas Authority of Georgia (the Gas Authority); a large joint-action agency created in 1987 that provides gas supply and capacity planning services and acts as PEG’s agent with certain third-party vendors. PEG also contracts with one of its members, YCNGA, for day-to-day operations and maintenance of PEG’s pipeline facilities.
PEG obtains a significant portion of its gas supplies on a long-term basis and obtains the remainder from various suppliers on a short-term basis. Under each of the long-term transactions, the gas is priced at a discount to spot market pricing with potential additional discounts distributed annually. In fiscal 2007, PEG entered into two contracts to acquire a total of 65,062,500 Mcf of gas from the Tennessee Energy Acquisition Corporation (TEAC) over 20 years on a pay-as-you-go basis. PEG entered into a similar transaction in 2007 with Main Street Natural Gas, Inc. to acquire 17,599,408 Mcf over a 15-year term.
Public Gas Partners
PEG has entered into three natural gas production-sharing agreements (PSAs) with Public Gas Partners, Inc. (PGP), a Georgia nonprofit corporation originally composed of seven municipal gas and electric systems and joint action agencies that acquire and manage pools of long-term natural gas supplies on behalf of its members. Each PSA obligates PEG to pay, as a component of gas operations expense, its share of all costs incurred by the related PGP pool (Pool 1, Pool 2, or Pool 3) until all related PGP or participant debt has been paid and the last volumes have been delivered. In addition, each pool has the option, with at least six months’ notice, to require PEG to prepay for its share of pool costs, which may be financed by PEG through the issuance of bonds or some other form of long-term financing. PEG has decided to participate in joint financing by PGP on behalf of certain of its members. PEG’s share of acquisitions is 8.29%, 10.00%, and 2.66% in Pools 1, 2 and 3, respectively. The PSAs include a step-up provision that could obligate PEG to increase its participation share in the pool by up to 25% in the event of default of another member. PEG expects to receive physical gas supplies from PGP through at least 2027 for volumes and prices established by PGP.