As electricity demand surges due to data centers and other large loads, a new NRECA report offers considerations on long-term service agreements for electric cooperatives acquiring natural gas units.

Along with load growth, rapid turbine deployment and greater strain on turbine components are making long-term service agreements (LTSA) more crucial for co-ops, the report notes.

“As newer design gas turbines enter into operations to support growing demand, it’s increasingly important that electric co-ops understand what protections and responsibilities are built into their service agreements,” said Dan Walsh, NRECA senior power supply and generation director.

“Co-ops should thoroughly consider how these multiyear contracts will meet their members’ needs and reduce the potential for unexpected costs and service interruptions due to maintenance.”

The report notes that LTSA negotiations with third parties can be lengthy and complex, and co-ops may need to allow for two years of fine-combing contract language with their legal representatives to ensure their best interests are served.

“The stakes are high,” the report says. “Excessive LTSA costs may ultimately be borne by co-op members through rates. It can be difficult and costly to exit contracts once signed. This is why it can be beneficial for co-ops to approach LTSA planning and negotiations with the right expertise at the table.”

In addition to allowing sufficient time for negotiations, co-ops preparing to negotiate a service agreement should keep other key steps in mind:

• Thoroughly assessing technical and operational requirements of their gas units.
• Understanding key contract terms and pricing structures.
• Carefully evaluating potential service providers.

LTSA should be regarded as “living documents,” the report says, and co-ops may want to consider inserting renegotiating provisions and addendums to account for future shifts in plant operations due to changes in demand, evolving risks and technological advances.

“Co-ops that are building new gas plants with the newer technologies should keep in mind that when it comes to maintenance of these units to negotiate a highly customizable LTSA,” said Walsh. “A well-structured, well-tailored LTSA aligns with the plant’s operating profile, the co-op’s risk tolerance, budget and its staff’s technical capacity.”

Read the full report here (login required).