Independence Power & Light (IPL) uses natural gas as a fuel for the Substation H combustion turbine generating units. The primary use of gas at these stations is for electric generation. The firm supplying natural gas management services for IPL is Symmetry. Symmetry was awarded this service based on an invitation to bid that was approved by Council in February 2020.
Pricing was requested for an initial 14-month term from May 1, 2020, through June 30, 2021, with four consecutive one-year renewal periods at the City’s option. The contract IPL has with Symmetry stipulated that the commodity price of natural gas must be based on daily index pricing for gas deliveries on the Southern Star Central Gas Pipeline as published in the publication Platt’s Gas Daily. This index pricing reflected the current market-wide natural gas prices for this area.
The City operated under this Price agreement from 2020 through 2022. During FY2022, the two units at Sub H incurred damaged rendering them inoperable. During the FY2023, the City did not use the Price agreement. In Summer of 2023, when the units at Sub H became operable, we reached out to Symmetry about the price agreement. Symmetry informed us that the pricing established in 2020 was no longer financially feasible to operate with because of pricing increases to market conditions and natural gas pipeline cost increases.
There have been significant changes to the market dynamics since our price agreement was originally executed so the pricing is no longer market relevant. These changes were largely the result of the events of Feb 2021 and the realization that there are more inherent risks to the natural gas market than previously thought. One of the impacts to price has been the costs over index in the production zone incurred just to source the gas. The physical premium had always been negligible but now natural gas producers are charging higher premiums for gas and competition for long term supplies has intensified. Additionally, the large interstate pipeline that serves Independence, Southern Star Central Gas Pipeline (SSCGP), has dramatically raised its transportation, demand, and fuel surcharges that Symmetry was previously covering from when the agreement was originally established.
Symmetry has proposed the following addendum to the Price agreement for Renewal Year 3 (July 2023 – June 2024) and Year 4 (July 2024 – June 2025). The new pricing is $0.60/mcf for the management fees. This pricing will allow both parties to be able to maintain the existing Price Agreement. The City would still have the option to extend the agreement for the final Renewal Year 4.