19-MOTION TO APPROVE RESOLUTION AUTHORIZING THE TEXAS COALITION FOR AFFORDABLE POWER TO NEGOTIATE AND EXTENSION TO THE CURRENT ELECTRIC SUPPLY

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willing to discuss the block power commitment, better pricing could be offered in a biend and extend arrangeinent. Indeed, their blend and extend proposal contained more favorable pricing with less risk tha» any other offer. Next Era proposed to liquidate the gas futures contracts obtained in 2008 to serve TCAP load through 2013 and to purchase i7ew gas futures contracts at lawer prices to serve CAPP's and STAP's full requirements through 2018. The energy price offered to members would be fixed for eight years subject to the same adjustment provisions (for ancillary services, nodal market prices and changes to total meinber load) in the current contract. Generally speaking, members in the North, South, and Houston ERCOT Zones would see a reduction in next year's price of about l¢ per kWh. In 2008, the excess supply in West Texas permitted TCAP members in the West Zone of ERCOT to realize about a 2¢ reduction off of North Zone prices during the tive-year contract. Over the last year, pricing differentials between zones have narrowed significantly. Under the biend and extend arranbement, West Zone members, including Wichita Falls, Abilene, San Angelo, and Odessa and others should see some reduction in contract prices currently set for 2011-2013, but not nearly as great as the 1¢ per kWh price reduction that should be availabie in the otlier three zones. Do Near Term Savings Justifv a Five Year Extension? Two factors largely determine electric prices in the Texas deregulated market: natural gas futures prices and heat rates which are in turn influenced by market perceptions of available generation capacity. At this point in time, natural gas prices are low and stable and there is excess capacity. Whether natural gas prices will remain low and stable through 2013 depends a great deal upon the future of shale gas extraction. If environmental factors such as potential groundwater contamination limit the production of shale gas or if the economy recovers and industrial and electric company demand for gas increases, natural gas prices will rise. Most analysts of population growth predict significant expailsion of the population of Texas. How soon such growth will cause demand for electricity to grow faster than supply is unknown, but some forecasts suggest that the reserve margins for generation of electricity may dip below a reasonable level by as early as 2013. lf that happens, electric prices will rise above current levels. An optimistic forecast would indicate that natural gas prices will remain around current levels for the next three or four years. To pass on an offer to reduce current contract rates and achieve a fixed price guarantee for eight years, ane has to count on gas prices continuing to decline and for electric generation supply to remain comfortably greater than peak deinand at least through the end of 2013. Even if gas prices decline so as to justify a lower rate vl 2013 for the 2014-2016 period, it is unlikely that the rate would be sufficiently lower to justify foregoing the potential near-term savings afforded by a blend and extend arrangement. Our Oution Paris is under contract throubh 2013. You may reject the blend and extend opportunity and remain under the current terms and conditions. If you desire to take advantage of a blend and extend offer that produces both immediate savings and price stability for the next eight years, the City Council will need to authorize an amended agreement with Next Era, if and when the TCAP Board approves and recommends an amendnient. Exqlanation of the Contracting Process 150