Council approves extension of natural gas supply agreement tied to San Juan index; staff projects commodity discount

Los Alamos County Council on Feb. 25 voted 7-0 to adopt a resolution authorizing the county to continue participation in the New Mexico Municipal Energy Acquisition Authority (NMMEAA) natural gas supply agreement and to proceed with document changes and actions necessary to obtain a gas discount under that program.

Deputy Utility Manager Ben Ulbrich and financial adviser George Majors presented the proposal and answered council questions about structure, expected savings and risks. Ulbrich said the county’s participation leverages a financing structure that yields a discount on the San Juan index settlement price for the gas quantities placed under the agreement. “Historically, it’s ranged anywhere from I think around 20 to 30¢ per unit of gas,” Ulbrich said, and he added current indications were closer to “50¢ plus per unit.” Ulbrich and Majors said exact savings depend on market conditions at issuance but described the arrangement as a cost‑saving tool for customers.

What the county will do: the resolution authorizes execution of amendments to the existing agreement and to pursue issuance and related documents that capture the discount for a committed physical gas volume (the county currently plans to commit about 80% of recent historical consumption). The transaction involves issuance and remarketing features that produce fixed financing for an initial period (speakers said the fixed-rate portion is effectively five and a half years) and a longer nominal maturity; the financing mechanics allow a discount to be applied to the index price for participating quantities.

Benefits and numbers cited

- Ulbrich told council that over the previous 15-year participation period the program produced about $2,350,000 in cumulative commodity savings compared with benchmarks; he noted total gas purchases were about $41,000,000 in that period, so the program-level savings were a relatively small percentage of total commodity cost but still material in dollars. - Majors explained an illustrative near-term number: at about 670,000 units, a 50¢ per‑unit discount would equal roughly $330,000 annually; that was a current expectation rather than a guaranteed figure.

Key risk and limitations

Councilors asked whether the agreement protects customers from extreme price spikes like those seen in winter 2023. Majors and Ulbrich said the NMMEAA structure provides a discount on the index but does not, by itself, hedge against all commodity price spikes; county staff can separately pursue hedging or fixed-price financial transactions if the council wished to pay the premium those instruments require for greater price certainty. Ulbrich said buying fixed prices for winter protection is possible but carries additional cost and administrative work.

Other technical points raised during the discussion included lien/put mechanics tied to bond issuance, the program’s required physical delivery quantities (the county plans to commit about 80% of expected consumption), the role of Royal Bank of Canada in the financing structure, and the administrative workload for county utility staff. Majors and Ulbrich said they did not expect material opportunity costs from participating and recommended proceeding.

Outcome: Councilor Hand moved and Councilor Reedy seconded the resolution authorizing the amendments and execution of documents; the measure passed 7-0 on roll call. Staff said the discount amount will be finalized when the financing is struck; the county will incorporate the discount into its published commodity component of the gas rate and will present budget adjustments if actual commodity costs later require additional appropriations.

Ending: The county renewed its commitment to the NMMEAA purchasing structure to capture a projected commodity discount tied to tax‑exempt financing mechanisms and will continue to evaluate whether to layer additional hedging for price spikes.