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A contract with Gainesville Regional Utilities (GRU) dating back to 1988 will likely be extended yet again after Alachua commissioners voted 5-0 Monday night to continue buying its wholesale power from the nearby electric provider.

If approved by the City of Gainesville commission, the most recent changes would mark the third amendment to the long-standing agreement which has apparently returned favorable utility rates for the City of Alachua over the last two years.

The updated agreement extends the contract for 10 years with a five-year opener, which gives either party the option of going back out to market to seek bids.

Public Services Director Mike New said the amendments include fixed costs that will increase 2.5 percent annually after the first year of the new agreement.  But those fixed costs only account for about 20 percent of the total cost of wholesale power.

The largest determining factor in the cost of power is the fuel cost, half of which will be calculated on GRU’s retail fuel charge and the remaining half on the average price of natural gas for the last three days of each month as published by NYMEX then multiplied by GRU’s heat rate for natural gas combustion.  In prior arrangements, the natural gas price component was based on the price of natural gas only on the last day of the month, leading to a higher rate of volatility. 

Both New and consultant William Herrington of WHH Enterprises said the City of Alachua has substantial exposure to the natural gas sector which could lead to volatility and considerable and uncontrollable increases if those rates go up. 

That’s a scenario Herrington seems to think is a foregone conclusion since natural gas has been on an 18-month decline.  He suggested the City consider locking in at least some of its projected natural gas usage over the next few years to avoid a massive increase should supplies tighten.

The City of Alachua has some of the lowest power costs when compared to other cities in Florida.  Over the last year or so, Alachua’s power cost has averaged out to $73.38 per megawatt hour.  Other utilities had costs between $82.37 and $104.78 per megawatt hour. 

Herrington said Alachua’s new agreement won’t bring the lowest rates in the state, but they should remain among the lowest and are competitive, especially considering Alachua’s small size compared to other utilities.  He estimates that Alachua will have an average rate of $71.04 or less per megawatt hour in the next fiscal year under the amendments.

The contract is awaiting approval from the Gainesville City Commission, which is expected to review the matter at a Nov. 18 meeting.  If approved, the agreement would go into effect Jan. 1, 2011.