07-A CAPP Ltr of Intent - Laserfiche WebLink

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AGENDA INFORMATION SHEET PROJECT: Approving CAPP'S Letter ofIntent to enter into negotiations for a capacity contract with the owner of coal (including Texas Lignite) generation to supply the base load Electric power needs (approximately 55%-60% of total energy needs) for CAPP members over a IO-year period. BACKGROUND: · The Local Government code was amended in 1999 to provide for creation of political subdivision corporations with all the powers of Texas non-profit corporations. The specific purpose of political subdivision corporations is to aggregate the electric loan of all member political subdivisions and to contract for power on behalf of all members. Cities Aggregation Power Project, Inc. (CAPP) of which the City of Paris is a member, was created in 2001 to prepare for electric deregulation effective January I, 2002. Since that date, CAPP has delivered on average more than 20% savings per year when measured against prices the City would have paid if the City had stayed on the regulated price to beat (PTB) offered by incumbent utilities through affiliated retail electric providers (REPs). · Despite well-timed and executed contracts that have delivered significant savings off the PTB, electricity costs have climbed steadily upward with adverse impact on city budgets. Prices have increased because of the volatility of natural gas prices and because all REPs base their contract offers on NYMEX gas futures prices as of a particular time and date. · While competition is theoretically possible, the conclusion reached by the CAPP Board and the consultants that serve it is that the market reflects a rivalry between a handful of energy providers who all use similar gas-based formulas for pricing their products regardless of actual source or actual cost. · Without a proactive stand to secure sources of power that are not exclusively dependent upon natural gas as the means for establishing price, the City can expect dramatic, costly and unpredictable swings in its electric bills over the next few years. The price of electricity today is twice what CAPP members paid in 2004. If the City desires some electric price stability and predictability, it is necessary to fix a set price over a long period (10 years). If the City wants to reduce its electric bill by shifting to a fuel source less costly than natural gas, the best opportunity today is for CAPP to commit to the output from a specific coal plant in Texas. IfCAPP does not take advantage of the opportunity in the next several months, a similar opportunity is not likely to reappear for a number of years. · The CAPP Board of Directors has attempted several investigations and proactive strategies to circumvent the fact that the electric retail market is at the mercy of all REPs who price electricity, regardless of source, as if produced by natural gas. CAPP activities have uncovered a unique opportunity to stabilize more than one-half of CAPP' s annual energy costs by contracting at a fixed price, with a small escalator, for a I O-year period with the owner of coal-fired generation. The coal plant in question has advanced technology and is not associated with the environmental criticisms frequently levied at coal facilities. CAPP consultants have modeled the indicative coal generation costs available to CAPP and have compared the costs of meeting each CAPP member's base load needs with coal capacity and all residual needs with gas generation to 100% reliance on gas, assuming application of the most recent Department of Energy long-term gas price forecast in both cases. The modeling demonstrates economic benefit for each member above and beyond the type of savings CAPP has been able to achieve in each of the last 3 1/2 years from entering a long-term supply contract (10 years) with CAPP, whereby CAPP secures coal capacity to serve base load needs. .,.- '-"r