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STAFF REPORT The City's electric contract through CAPP expires December 31, 2008. The current financial and credit market collapse has caused a rapid decline in natural gas prices, which is good news for the short terrn price of power. To take advantage of very favorable pricing in the market right now, the CAPP Board has approved a contract with CAPP's current providers, FPL Energy and Direct Energy, to serve CAPP accounts over the next five years beginning January 1, 2009. FPL Energy will supply power and Direct Energy will provide customer services and billing. If the City decides in the future to participate in the long term PPA option being discussed by CAPP, action on this resolution does not prevent exercise of that option. In fact, it provides an extra level of security. While we await the fizll ramifications of the unfolding financial and credit crisis, passing the 5 year full requirements resolution ensures that even if the worst case scenario occurs and the PPA option is no longer viable, the City will receive full service power requirements for the next five years at extremely favorable prices. The agreement with FPL Energy contains a special one time option that allows CAPP to back out of the deal a specific amount of base load power and substitute an alternative source (the Luminant PPA) anytime before June of 2009. FPL Energy will then resell the gas contracts associated with the power being replaced with the Luminant commitment. If gas prices rise prior to the sale, CAPP and its members will profit from the sale. If gas prices continue to fall, then the PPA will likely be abandoned. This plan maximizes protection for all CAPP members including the City of Paris. It takes advantage of the current economic decline in energy markets, while simultaneously preserving the option for the City Council to determine whether they want to lock down pricing on a significant portion of our electric load for future years. Indicative prices from FPL Energy are showing energy rates at or below the 8 cent range through 2013. That compares to average commodity prices for 2008 at around 10.25 cents per kWh. This means that the City will obtain significant budget savings regardless of whether or not the City corrunits to the long term PPA. Please keep in mind that indicative prices change every day with fluctuations in the natural gas market. Indicative prices (as of October 8th) would suggest an energy price around $0.0765/kWh for 2009 with prices during the five year term reaching a high of $0.0827/kWh. Actual prices will depend upon natural gas prices the day that CAPP executes the contract. The CAPP Board cannot execute a contract without commitments from members to purchase power through CAPP. - 000065