HomeMy WebLinkAbout~Master - Authorizing Staff to Approve Amending Contract for Natural Gas Supply RESOLUTION NO. 23-433
RESOLUTION AUTHORIZING STAFF TO APPROVE
AMENDING THE CONTRACT FOR NATURAL GAS SUPPLY
FOR THE CITY OF AMES,IOWA
WHEREAS, the Power Plant typically burns between 8,000 and 12,000 MMBtu of natural
gas daily in either of its two boilers. The natural gas, along with refuse-derived fuel (RDF) from
the Resource Recovery Plant(RRP), are combusted to generate electricity; and,
WHEREAS, on October 15, 2015, Macquarie Energy LLC was awarded a 5-year fixed
price contract for the purchase of 12,000 MMBtu/per day of natural gas for Electric Services.
Subsequently, a 3-year extension was added through December 31, 2023; and,
WHEREAS,in discussion with the City's natural gas consultant,City staff determined that
it is a prudent time to secure a price and add one to three years of supply to the existing contract
as the City has benefited from guaranteed natural gas prices through the expiring long-term
contract; and,
WHEREAS, committing the City to a one-, two-, or three-year extension to the current
contract while keeping cost increases to electric customers to no more than 5%is the goal of staff.
At current natural gas contract prices,the potential increase is dependent on market timing and the
amount of gas purchased. Future price estimates for one-to-two years out show natural gas figures
in the $3.50 to $5.60 MMBtu range; and,
WHEREAS, the natural gas purchased by Electric Services represents more than 20% of
the overall Electric utility budget. The approved FY 2023/24 operating budget includes
$13,980,000 for the purchase of natural gas to operate the Power Plant. This amount reflects an
anticipated 3% cost increase to Electric customers through the Energy Cost Adjustment (ECA)
compared to the current gas pricing of$2.77/MMBtu; and,
WHEREAS, staff identified the best alternative to be to purchase 8,000 MMBtu/day for
November through March and 12,000 MMBtu/day for April through October at a cost not to
exceed $4/MMBtu. This allows the seasonal differences in gas to arrive at a consistent price per
MMBtu. This option would allow RDF to be burned at full capacity for April through October,
and at reduced capacity for November through March; and,
WHEREAS, this approach creates insufficient gas to consume all the RDF generated
during the time period of January-March and November-December of 2024. Thus, economic
impacts are significant for the Resource Recovery Utility as fixed costs remain for the operation;
and,
WHEREAS, staff determined that the actual shortfall generated by this approach be
reimbursed by a transfer from the Electric Utility. This transfer will further increase the cost to
Electric customers through the ECA, but would be substantially less than the increased cost
Electric customers would experience if Electric purchased 12,000 MMBtu/day year-round.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Ames, Iowa,
that the authorization of staff to approve amending the contract with Macquarie Energy, LLC of
Houston, Texas, to extend the existing natural gas supply contract for a term of not less than one
but not more than three years at a price of not more than $4/MMBtu and a total cost of not more
than $14,900,000 and authorization of transfer of funds from the Electric Fund to Resource
Recovery Fund to offset the shortfall in net revenues due to the reduction in natural gas purchased
for the remainder of FY 2023/24 are hereby approved.
ADOPTED THIS 27th day of July, 2023.
Renee kall, City Clerk John A. Haila, Mayor
Introduced by: Corrieri
Seconded by: Gartin
Voting aye: Beatty-Hansen, Betcher, Corrieri, Gartin, Junck, Rollins
Voting nay: None Absent: None
Resolution declared adopted and signed by the Mayor this 271h day of July, 2023.