20 - TCAP and GEXA Energy's Commercial Electric Service Agreement for power

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Item No. 20 Memorandum TO: Mayor & City Council Grayson Path, City Manager FROM: Gene Anderson, Finance Director SUBJECT: TCAP STRATEGIC HEDGING PROGRAM DATE: September 28, 2020 BACKGROUND: The Texas Coalition for Affordable Power (TCAP) has procured electricity for the City of Paris and its other city members since the beginning of retail electric deregulation in Texas in 2002. Historically, TCAP has bought electricity through a fixed price longer term contract. It has become evident that the electric market and the mix of available sources and supplies have changed dramatically. While the current electric fixed price/fixed term contract has worked well, TCAP believes that a more optimum program—called the Strategic Hedging Program (SHP) will outperform the traditional fixed price/fixed term pricing model. Instead of buying electricity through a fixed price longer term contract, SHP will procure one twelfth of the annual supply each month, two years forward year-to-year. This provides the lowest market pricing to reduce carrying charges and risk premiums that longer term contracts must charge. Pricing will never be out of the market. SHP features an ultra -competitive RFP process of 20+ vetted creditworthy suppliers. At least 4 suppliers will be in each TCAP portfolio at all times. Prices will be known to members well prior to fiscal year budgeting needs. It avoids the "all -in" guess of a single fixed price multi-year deal. It also provides members with twice a year periodic off ramps if a member desires to revert to a traditional fixed price/fixed term contract. STATUS OF ISSUE: In order to prepare for an electric supply contract beyond the 2022 end date of our current fixed price contract, it is necessary for TCAP members to have their governmental bodies pass a resolution approving a Professional Services Agreement and a Commercial Electricity Service Agreement. The resolution authorizes TCAP to function as a procurer of energy in addition to serving as an agent in negotiating contracts. However, it is important that TCAP members intending to participate in SHP do so by September 30, 2020 in order to be included in the monthly auctions beginning in January 2021. OPTIONS: (1) Approve the SHP resolution and participate in the new pricing model. (2) Do not approve the SHP resolution and continue to use a fixed price/fixed term pricing method.