HARLINGEN — As natural gas prices double, city officials are negotiating a longer-term energy contract to try to hold down soaring costs.
Earlier this week, commissioners gave City Manager Gabriel Gonzalez the go-ahead to broker a new contract with Dallas-based TXU Energy.
In October, Gonzalez worked to negotiate a five-year contract charging about $1 million a year, with a rate slightly below 5 cents a kilowatt hour.
Now, soaring natural gas prices are forcing the city to negotiate a contract with higher rates based on terms that could range from three to seven years.
Mulling longer contracts to trim higher rates
Based on current market prices, a new five-year contract would cost the city about $1.26 million, Gonzalez told commissioners during Wednesday’s meeting.
Meanwhile, a 10-year contract would bring down rates to about 5 cents a kilowatt hour, Eric Holtz, TXU’s representative, said.
“There’s a certain amount of savings to be captured in taking a longer-term view,” he said. “Most governmental entities have been taking a very long view on power. You have the ability to effectively take advantage of the market, to secure a rate that’s lower than a short-term price.”
During discussion, Mayor Norma Sepulveda said officials could re-negotiate the new contract if prices fall during its term.
“The further the term, the more savings we see,” she said. “If there’s room to save money, and then go back and revisit the contract if there’s a significant drop — they’re allowing us to do that.”
Russian invasion blamed for driving natural gas demand
During the meeting, Holtz blamed rising energy costs on Russia’s January invasion of Ukraine.
“Now that we’ve seen what happened in Russia, it’s put this huge disruption into the global demand for Texas-based natural gas and really shot the prices through the roof,” he told commissioners. “Natural gas that drives your power prices 10 months out of the year have doubled this year. Effectively, lack of stability in Europe is likely to prolong U.S. price volatility. Until there’s some kind of normalcy, as we call it, in Europe, analysts are saying we’re going to continue seeing elevated costs.”
New contract protects against last year’s mind-boggling electric bill
On Dec. 31, the city’s current contract with TCAP, charging about $1 million for 26 million kilowatt hours, expires.
After more than 10 years, commissioners scrapped TCAP after the city was hit with a $649,128 bill for six days of power during February 2021’s historic deep freeze.
“My fear is getting hit with another $649,000,” Commissioner Frank Morales said.
As part of its new agreement, TXU’s contract will protect the city against such high bills, Holtz told commissioners.
“A lot of folks around Texas know that having ancillary costs hedged in the commodity price is very important as we saw some pretty nasty bills coming in as a result of winter storm Uri,” he said.
Background
Last year, commissioners agreed to pay the Electric Reliability Council of Texas’ $649,128 bill “under protest.”
In May 2021, GEXA Energy billed the city $649,128 to cover ERCOT’s charges based on unrestricted record rates from Feb. 14 to 20.
During the storm that dropped temperatures below freezing, factors including frozen gas pipelines led electricity generators to pump insufficient power into the state’s electric grid.
So ERCOT turned to “ancillary” electricity providers, who charged $25,000 per megawatt because the industry does not require them to keep costs at the state’s cap of $9,000 per megawatt.
Through the storm, power outages blacked out much of the state as ERCOT ordered AEP Texas and the state’s electric companies to pull power from the electric grid to avoid overloads that could damage the network made up of power lines.
