19-CAPPCITY COUNCIL AGENDA ITEM BRIEFING SHEET
Submittal Date:
Originating Department:
Presented By:
Agenda Item No.:
10-16-2008
Council Date:
Finance
Gene Anderson
19.
10-27-2008
RECOMMENDED MOTION:
Motion to approve a resolution authorizing CAPP to negotiate an electric supply agreement for the City of Paris;
and authorizing the City Manager to negotiate and
execute all necessary documents.
POLICY ISSUE(S):
Fiscal Management
See attached staff report.
BOARD/COMMISSION RECOMMENDATION:
EXHIBITS:
Staff Report and Resolution
ACTION:
BUDGET INFO:
❑ Financial Report ❑ Minute Order
Expense
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❑ Department Report Z Resolution
Budgeted Amt.
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❑ Presentation ❑ Ordinance
❑ P
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❑ O
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y'I'D Actual
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Acct. Name
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Acct. Number
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FISCAL NOTES:
None
REVIEWED AND APPROVED BY:
Z Administration Z City Clerk ❑ Community Development ❑ EMS/IT Z Finance ❑ Fire
❑ Municipal Court Z Legal ❑ Library ❑ Police ❑ Eng./Public Works ❑ Utilities
City of Paris
Revised 2/04/08
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DRAFT
attorney\reswork\current\CAPP Contract Res for 2009
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS,
AUTHORIZING THE CITIES AGGREGATION POWER PROJECT, INC. (CAPP)
TO NEGOTIATE AN ELECTRIC SUPPLY AGREEMENT FOR DELIVERIES OF
ELECTRICITY AND NECESSARY RELATED SERVICES EFFECTIVE JANUARY
1, 2009; APPROVING CAPP CONTRACTING WITH FPL ENERGY AND
DIRECT ENERGY AND AUTHORIZING THE CITY MANAGER TO SIGN A
CONTRACT WITH CAPP FOR THE CITY'S ELECTRICITY NEEDS FOR THE
PERIOD BEGINNING JANUARY 1, 2009 AND EXTENDING UP TO
DECEMBER 31, 2013; COMMITTING TO BUDGET FOR ENERGY
PURCHASES AND TO HONOR THE CITY'S COMMITMENTS TO PURCHASE
POWER THROUGH CAPP FOR ITS ELECTRICAL NEEDS FOR THE PERIOD
BEGINNING JANUARY 1, 2009, AND EXTENDING UP TO DECEMBER 31,
2013; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE
SUBJECT; AND DECLARING AN EFFECTIVE DATE.
WHEREAS, the City of Paris, Texas (City) is a member of Cities Aggregation Power
Project, Inc. (CAPP), a nonprofit political subdivision corporation dedicated to securing
electric power for its 111 political subdivision members in the competitive retail market;
and
WHEREAS, CAPP negotiated favorable contract terms and a reasonable commodiry
price for delivered electricity since 2002 resulting in significant savings for its members;
and
WHEREAS, the City's current contract for power expires December 31, 2008; and
WHEREAS, CAPP members must secure power supplies for 2009 or revert to high
price standard contracts and independently shop for a power contract; and
WHEREAS, the CAPP Board of Directors is currently considering indicative retail
energy prices that point to favorable pricing for the five year period ending December 31,
2013;and
WHEREAS, power providers desire to execute a contract with one, and only one,
entity rather than have unique contracts for each CAPP member; and
WHEREAS, CAPP believes that the pricing opportunity window for favorable 2009
deliveries will be short-lived and that CAPP must be able to commit contractually to prices
within a 24-hour period in order to lock-in favorable prices; and
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WHEREAS, experiences in contracting for CAPP load since 2002 demonstrated that
providers demand immediate response to an offer and may penalize delay with higher
prices; and
WHEREAS, aggregated rates contracted during favorable pricing periods are likely
to be lower than prices obtained by the City contracting individually during the same time
period; and
WHEREAS, suppliers demand assurance that CAPP will pay for all contracted load;
and
WHEREAS, the City must assure CAPP that it will budget for energy purchases and
honor its commitments to purchase power for its electrical needs through CAPP for the
period beginning January 1, 2009 and extending through December 31, 2013; and
WHEREAS, CAPP intends to continue to contract with both FPL Energy (power
supply) and Direct Energy (billing, administrative and other customer services); and
WHEREAS, the current contractual relationships between CAPP and FPL Energy
and Direct Energy have been beneficial and cost effective for CAPP members and the City.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
PARIS, TEXAS:
Section 1. That the findings set out in the preamble to this resolution are hereby in
all things approved.
Section 2. That the CAPP Board and its consultants and advisors are agents
authorized to negotiate for the City's electricity needs as a member of CAPP for a term to
begin January 1, 2009 and extending up to December 31, 2013.
Section 3. That the City approves CAPP contracting with FPL Energy and Direct
Energy for the supply of electric power and related, necessary services for the City for a
term to begin January 1, 2009 and extending up to December 31, 2013.
Section 4. That the City Manager be, and he is hereby authorized and directed to
execute on behalf of the City of Paris a contract with CAPP that permits the Chairman of
CAPP to sign a Commercial Electric Service Agreement ("CESA") for the City's electricity
needs and related, necessary services beginning January 1, 2009 and extending up to
December 31, 2013, as a member of CAPP and commits its load for the same period
pursuant to the contract recommended and approved by the CAPP Board of Directors.
Section 5. That the City will budget and approve funds necessary to pay electricity
costs proportionate to the City's load under the supply agreement arranged by CAPP and
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signed by the Chairman of CAPP on behalf of all CAPP members for the term beginning
January 1, 2009 and extending up to December 31, 2013.
Section 6. That a copy of the resolution shall be sent to Mary Bunkley with the City
Attorney's office in Arlington and Geoffrey M. Gay, legal counsel to CAPP.
PRESENTED AND PASSED on this 27th day of October, 2008, by a vote of ayes
and nays at a regular meeting of the City Council of the City of Paris, Texas.
Jesse James Freelen, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
W. Kent McIlyar, City Attorney
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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.
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