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like CAPP, regardless of source have been priced as if the energv was produced exclusivelv from natural gas-fired plants The price of natural gas is extremelv volatile. Energy experts, including the Chairman of the Public Utility Commission of Texas, agree that this trend will continue over the long term. In 2005, the CAPP Board authorized its consultants to find alternatives to purchasing the entirety of CAPP power requirements in a market that links the price of all energy to natural gas prices. The CAPP long-term contract to be approved by this ordinance is a result of these efforts. Contracting for a 24-vear commitment of lignite/coal-fired canacitv at a fixed price (with slight escalation over the term of the contract to serve a portion of inembers' power requirements will lower overall energy costs and nrovide nolitical subdivisions with an abilitv to more accurately_predict and stabilize the impact of energy prices on annual budgets The CAPP long-term contract allows for better, more fiscally responsible budgets resulting from the stable and predictable long term energy costs that will be available to CAPP members through the baseload contract. Taxpayers benefit because CAPP member cities do not have to cut services or pass higher energy costs on through higher taxes when electricity prices experience volatility and spiking because of fluctuating market prices. Puraose of the Ordinance: This ordinance approves the CAPP Member Contract that commits the City to purchasing electric power to satisfy approximately 60-70% of its recent energy needs through the CAPP PPA for up to 24 years and to pay a capacity payment equal to its proportionate amount of the debt service obligation associated with CAPP's prepayment of PPA capacity costs. The ordinance acknowledges review of the Member Contract and the Disclosure Statement and authorizes the City Manager, city officer or city employee as may be appropriate to sign or modify the Member Contract and to take all necessary actions to carry out the terms of the ordinance, the Member Contract, and Disclosure Statement. The Member Contract approved by this ordinance makes certain that capacity payments (debt service obligation) payable by the City will be public property finance contractual obligations pursuant to Texas Local Government Code Chapter 271, Subchapter A, secured by a pledge of such member's ad valorem taxes, which will be assigned to support debt issued by CAPP to pay the capacity costs of the PPA. The CAPP Board's recommendation and belief that the long-term contract will result in lower prices for electricity and member savings was made after carefully weighing the benefits and risks of this transaction. The benefits and risks inherent in the long-term contract will impact our respective municipalities. The CAPP Board endorses participation in the long-term contract as the most economically attractive alternative despite these identified risks. The decision whether to participate in the long-term contract must be made by individual CAPP members on or before December 17, 2008. 2 • ~Jt)~~~~i;,