16-A-1 CAPP Report - Laserfiche WebLink

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Warning Regarding Misrepresentation Of Savings From Sources Outside Of CAPP Several non-CAPP cities have recently signed contracts for future power where an incumbent provider has promised savings when measured against current rates and costs. Some cities in CAPP have been tempted to ask why they should participate in an aggregation project when the city could capture a benefit without aggregation. Please note, all PTB accounts whether aggregated or not, should expect savings when measured against existing rates because of the disappearance on January 1, 2002 of fuel cost surcharges that have been imposed throughout most of 2001 and implementation of the 6 percent reduction to 1999 bundled rates. Ihe appropriate economic comparison is not whether a power contract can produce savings in comparison to current charges but whether it can produce savings in comparison to the future price to beat.2 The cities that have signed contracts with their incumbent provider (affiliated REP) without testing the market place, most likely have received no better deal than they could have received if they had done nothing other than accept the costs that would have otherwise been imposed under PTB. Moreover, those cities may not have pursued due diligence regarding an evaluation of what the market has to offer. Additionally, cities that depend upon the graciousness of an incumbent provider may be placing themselves in a precarious position because PTB protection will disappear within five years and all accounts of every city will be subject to market conditions. Collective effort by aggregation is the most rational, efficient and least costly approach because: The devil is in the detail of power contracts. Terms and conditions can be of greater importance than the quoted price per kWh. No city alone can obtain the clout of CAPP's load, and it would be inefficient for a single city to retain and bring to the bargaining table consultants with the expertise of CAPP's consultants. Cooperation now should produce benefits in 2002, but the benefits should grow as the markets mature and as providers become acquainted with CAPP's continuous diligence in pursuing the most economic path for its members. Deregulation brings permanent change that requires continuous monitoring of economic and electric market conditions. Even assuming that a city can luck into a favorable initial contract, it is unreasonable to rely on luck every time a one or two year power contract expires. Long term success in competitive markets requires knowledge, experience and bargaining ability. Numerous issues are on the horizon that will require a coordinated response from Cities. These include: As can be seen in the foregoing discussion regarding economic benefit, an evaluation of a competitive offer against the price to beat can be a difficult proposition without the assistance of rate consultants who am familiar with recent Commission Orders that reclassify tariffs and set non-bypassable charges that REPs must pay and will likely pass on to customers.