19-MOTION TO APPROVE RESOLUTION AUTHORIZING THE TEXAS COALITION FOR AFFORDABLE POWER TO NEGOTIATE AND EXTENSION TO THE CURRENT ELECTRIC SUPPLYSubmittal Date:
2-1-11
Council Date:
I i n_i t
Finance
Gene Anderson
19.
RECOMMENDED MOTION:
Motion to approve a resolution authorizing the Texas Coalition for Affordable Power (TCAP) to negotiate an
extension to the current electric su 1 and related services a reement with Next Era.
POLICY ISSUE(S):
Fiscal management.
Please see the attached detailed staff report.
BOARD/COMMISSION RECOMMENDATION:
None
EXHIBITS:
Resolution, staff report, list of TCAP cities including contract extension information.
BUDGET INFO:
ACTION:
Financial Report
❑ Minute Order
Expense
$NA
~ Department Report
E] Resolution
Budgeted Amt.
$NA
❑ Presentation
❑ Ordinance
y'rD Actual
$NA
F] Public Hearing
❑ Other
Acct. Name
NA
Acct. Number
NA
FISCAL NOTES:
the contract extension would provi e
Besides an immediate savings of approximately $175,000 per year,
long term budget stability and predictability for a major city ex ense ($1,946,922 budgeted in 2010-11).
urv►FwFn ANn APPROVED BY:
z Administration
❑ Municipal Court
Z City Clerk ❑ Community Development
Z Legal ❑ Library ❑ Police
❑ EMS/IT
❑ Eng./Public Works
~ Finance ❑ Fire
❑ Utilities
Revised 2/04/08
CITY COUNCIL AGENDA ITEM BRIEFING SHEET
FAjnda eItem No.:
Originating Department: Presented By:
City of Paris 14 5
DRAFT
S:\RESWORK\CURRENT\TCAP Contract RES 2011.docx
RESOLUTION N0.
A RESOLUTION OF THE CIT PIOWER (TCAP) TO NIEGOTIATE
TEXAS COALITION FOR AFFORDABLE
AN EXTENSION TO THE CURRENT ELECTRIC SUPPLY AND NECESSARY
RELATED SERVICES AGREER HAN CIONTRACT RATESO FOR 20 1 2013,
P E R k W h T H A T I S L O W E
SAID EXTENSION TO COT NG WITH NEXT ERA AND AUTHORIZING
APPROVING TCAP CONTRA
THE CITY MANAGER TO SIGN A CONTRACT WITH TCAP FOR THE CITY'S
ELECTRICITY NEEDS FOR T CT AS POSSIBLEI AND EXTEND NG UPTTO
FINALIZATION OF A CONTRA
DECEMBER 31, 2018; COMMITTING TO BUDGET FOR ENERGY
PURCHASES AND TO HONOR THE ITSYr CELE TiRI ALE NEEDSO PURCHASE
POWER THROUGH TCAP FOR
DECEMBER 31, 2018.
WHEREAS, the City of Paris, Texas ("City") is a member of Texas Coalition for
Affordable Power ("TCAP"), a nonprofit political subdivision corporation dedicated to
securing electric power for its 157 political subdivision members in the competitive retail
market; and,
WHEREAS, TCAP negotiated favorable contract terms and a reasonable commodity
price for delivered electricity since 2002 resulting in significant savings for its members;
and,
WHEREAS, the City's current contract for power with Next Era arranged through
TCAP expires December 31, 2013; and,
WHEREAS, the TCAP Board of Directors is currently considering a blend and extend
contract with Next Era with indicative retail eptend a fix d lpri eufortenergy thro gh
the current contract for the next three years
December 31, 2018; and,
WHEREAS, the current contract is a master agreement between TCAP and Next Era
endorsed by contract with individual TCAP members; and,
WHEREAS, TCAP must be able to commit contractually to prices in a blend and
extend contract amendment within a 24-hour period in order to lock-in favorable prices;
and,
WHEREAS, experiences in contractingrio offer Aand may pena0lo e de ay w th lzigher
providers demand immediate response to a
prices; and,
146
WHEREAS, suppliers demand assurance that TCAP will pay for all contracted load;
and,
WHEREAS, the City must assure TCAP that it will budget for energy purchases and
honor its commitments to purchase power for its electrical needs through TCAP for the
period beginning January 1, 2011 and extending through December 31, 2018; and,
WHEREAS, TCAP intends to continue to contract with Next Era (power supply) and
Direct Energy (billing, administrative and other customer services); and,
WHEREAS, the current contractual relationships between TCAP and Next Era and
Direct Energy have been beneficial and cost effective for TCAP members and the City,
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
PARIS, TEXAS:
Section 1. The findings set out in the preamble to this resolution are hereby in
all things approved.
Section 2. That the TCAP Board and its consultants and advisors are agents
authorized to negotiate for the City's electricity needs as a member of TCAP and extend the
current supply agreement through December 31, 2018.
Section 3. That the City approves TCAP extending its current contract with Next
Era for the supply of electric power and related, necessary services for the City for a term Decembe to begin as soon after finalization of a co nt sains p over bhea udrreextending nt co t acpte~m of 2011r
31, 2018, so long as the extension result g
2013 and results in fixed prices through December 31, 2018.
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 TCAP that permits the President of
TCAP to sign a Commercial Electricity Supply Agreement ("CESA") for the City's electricity
needs and related, necessary services beginning January 1, 2011 and extending up to
December 31, 2018, as a member of TCAP and commits
TCAP Bard of Directors
pursuant to the contract recommended and pproved bY the
provided that the energy price to be paid per kWh in 2011-2013 is less than the current
contract price for 2011-2013 resulting in ber t3l, 201g nd that the fixed price for
the period 2011-2013 will continue through Dce
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
TCAP and signed by the President of TCAP on behalf of all TCAP members for the term
beginning as soon after finalization of a contract as possible and extending up to December
31, 2018.
~ 147
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 TCAP.
PRESENTED AND PASSED on this 14th day of February, 2011, by a
ayes and nays at a regular meeting of the City Council of the City of Paris,
Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
W. Kent McIlyar, City Attorney
148
vote of
Texas.
STAFF REPORT
The current energy supply agreement with Next Era (Florida Power & Light) expires December
31, 2013. Energy prices for each year of the current five-year coniract were locked or1 at the time the
contract was signed in the fall of 2008. Prices vary by ERCOT zone and for 2011, the energy prices are
scheduled to be only slightly higher than 2010 prices. The contractually scheduled prices for 2011 are:
North Zone 7.895¢ per kWh
South Zone 8.044¢ per kWh
West Zone 5914¢ per kWh
Houston Zone 8.447¢ per kWh
The City of Paris is in the North Zone.
New Offer Results in Savings
The City has an opportunity to reduce next year's price and achieve significant savings over the
next tlv'ee years by amending and extending the existing supply agreement.
Our supplier, Next Era, has offered to liquidate the natural gas futures contracts it secured in 2008
to give TCAP fixed electric rates for five years. Next Era would then purchase new gas futures contracts
to secure fixed pricing for an eight-year period at rates less than rates that must be paid next year under
the existing ternis and conditions of the contract with Next Era. For most TCAP members, Next Era's
offer to "blend and extend" would reduce 2011 prices by approximately 1¢ per kWh. For Paris, that
reduction should result in savings of approximately $175,000 per year.
Background
The current contract is referred to as a four-party agreement. It contractually convnits TCAP to
Next Era as supplier and Direct Energy Business Services ("DEBS") as retail electric provider responsible
for customer accounts and billing. Each TCAP member was reguired to pass a resolution agreeing to be
bound by the four-party agreement and pledging to sig» an individual customer energy supply agreenlent
with DEBS. The current contract became effective on January l, 2009 and will expire December 31,
2013. Under ordinary circumstances, bids for power to meet member needs in 2014 and beyond would
not have coniinenced until sometime in 2012.
In June, TCAP received an unsolicited offer for a block of base load energy to be available in
2014 from distressed generatian assets to be purchased by some West Texas investors and backed by J.P.
Morgan. The indicative pricing looked favorable for a five-to-twelve-year commitment.
The TCAP Board was interested in the proposal. The TCAP Board directed R.J. Covington Consulting to
perform a due diligence evaluation of the proposed pricing. Consultants were able to obtain several
comparable offers, including an offer from Next Era. However, Next Era indicated that wliile they were
149
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
The co»tractillg process for the blend and extend agreement is exactly like the process used in the
last several contracting periods. The City Council would need to approve the attached resolution in order
to enter into an amended agreement with Next Era.
PLEASE NOTE: Passage of the attached resolution does not guarantee that the Next Era
contract will be extended. That will only happen if the TCAP Board concludes that significant near-tenn
savings and fixed prices wi11 result. Passage of a resolution just ensures Paris the right to participate in
the blend and extend agreement, if it is finalized, approved, and recammended by the TCAP Board.
151
CAPP 2010 Membership (104)
Abileue i-ec'd 12i6110 (A)
Addison - rec'd 12/1 %10 (B)
Allen -rec'd 12%1/`10(B)
Atlna - rec'd 1!26%1 1 (B)
Viui i~I W s[) -,-ec'd iz 1410 (,q)
Arlingtun rec'd 12,~16; 10 (A)
Bellmead - agenda 2/8/11
Belton - rec'd 12!22!10 (A)
Benbrook - agenda 12/16 (A)
Benbrook Library District - agenda
v2 1/> >
Benbrook WSA - ree'd 12~K~10 (A)
Br«wnwoud -rec'd 1220'I0 (/a)
E3tlrkburnett rec'd I I;?9' 10 (B)
Burleson rec'd 12/9!10 (A)
Cedar Hill - rec'd 1220%10 (B)
Celina - agenda 1/3 1 / 11
Cisco - Odis left msg
Clebuine rec'd 12i2I10 (B)
('lyde - rec'd 12/20/ 10 (A)
Colleyville - agenda 1/18/11
('olorado C'ity - rec'd 12 17 10 (.A)
Comanche rec'd 12I14 (A)
C'ommerce - rec'd 11 '29!10 (A)
(`opperas Co,,e - rec' d I If I 9:1 U( B )
Corinth rec'd 12i29,/10 (B)
Crocketi - rec'd 12!7' 10 (B)
De Soto - agenda 2l1/11
Decatur - interested/Miles
Uenison rec"d 12!27'10 (B)
Dickiuson rec'd 12;20%10 (A)
Dublin - agenda 12/13
Duncanville rec'd 12,8-IU (A)
Eastland - agenda 2/15/11
Edgecliff Village- agenda 2/10(11
t'uless i-ec'd 12!21110 (A)
E'verman rec'd 12~15~10 (A)
1. 1owcr Mound - rec'd 12 ~13 (A)
Forest Hill - Jay left msg
Fort Stockton - agenda 2/8/11
Frisco rec'd 1/25i" 1 1( A)
Gainesville rec'd 12`1310 (A)
Gratid Prairie rec'd 1-241I(.A)
Grapevine - declined
Haltom City -rec'd 1 I Z3(10 (A)
Nainiltan rec'd 1 I 12 10 (A)
Harker Hei-hts - mc'd 12~28 10 (A)
Henrietta - agenda 2/8/1l
Highland Park rc,~'d 122t1 10 1B1
Howe - rec'd l 1 /29%10 (B)
J,.i,-ol, c~nsi n «ca i i i- i~, 0i
Kaufman - rec'd 11%29%10 (A)
Kennedale - next agenda
La Marque - Julie
Lake J ackson - approved l l/ 15
Lancaster - Randy left msg
I.ewis\•ille rec'd 12'8' 10 (A)
Lorena - agenda 2/21 1
Lovelady - GMG left msg
Mansfield - rec'd 12i20i 10 (B)
Merkel - agenda 2/14/11
Midlothia» rec'd 12I15%10 (A)
Mi,snuri ('itv rec'd 12%(0-10 (.A)
Murphy -rec'd 1124111 (A)
Nacogdoches - declined
Norlh Richl,uid }lill~ ru'd 1321 10 (13)
Oak Point rec'd 12i_' 1:10 (.A)
Odessa - rec'd 12%27/10 (B)
Palestine - agenda 2/14/1l
Pantego - agenda 2/14/11
Paris - agenda 2/14 or 2/28/11
Pearlanci ree'cl 1 1/29/10 (A)
Plano - rec'd 12!8110 (A)
Prosper rec'd 12/21/10 (A)
Red Oak - GMG left msg
Richland Hil(s rcc'd I2'27r 10 (E3)
Robinson - approved 12/14
Rockwall rec'd 12 21%10 (A)
Rotan - agenda 2/8/ 11
Kow lett rec'd 1 2-13%10 (A)
Sachse - rec'd 1 il 9/ 1 1( B)
SaL,inaw - rec'd 1 I /22/10 (B)
San Angelo rec'd 12%R-10 (B)
Shennan rec'd 11=19,'10 (A)
Snyder - rec'd 121/20l I {1(A)
Spring VaUcy rec'd 12,20IU (A)
Springto~x-ii - i-ec'd 12%3W 10 (A)
SuQar Lanci - rec'd 12 %20.%10 (A)
Sunnyvale - agenda 2/14/11
S-weetwater rec'd 12,1610 (13)
Terrell - Jay left msg
"i'he Colony i-ec'd 12i810 (A )
Trophy Club - declined
UniversihPark rcc-d 121(llQ(A)
Upper Leon River MWD -
Jay left msg
Verilon - rec"d 1 ]%30/10 (A)
Vvatauga rec'd 12 13110 (A)
Webster ree"d 1218"10 (A)
We:t Central lexas M WD - rcc'd
1;28!II (A)
White Set[lement-- sent pkg 1-12-I 1
Whitney - agenda 2/8/1 ]
Wichita Falls - rec'd i l%22/l 0 (A)
Woodway - agenda 12/6
Wylie - agenda in Dec. (A)
Hurst - rec'd 1/19i1 1 (A)
15 2
STAP MEMBERS AS OF OCTOBER 2010 (52)
Alamo - Mike/Rudy
A lice - rec'd 12/14110 (A)
Alton -rec'd 12/15!10 (B)
Aransas County MUD - Rudy
Aransas Pass - rec'd 12!1 Oi 10 (A)
Austwell - Rudy
Beeville - passed (A)
Bishop - rec'd 12120; 10 (A )
Calhoun Port Authority - declined
Carrizo Springs rec'd 12!17110 (A)
C"harlotte - rec'd 1 1/ 17i 10 (A)
Corpus Christi - rec'd 12i7/10 (A)
C'oijius Christi Housing Authority rci•'d 1 1=29 IU (,4)
Corpus Christi RTA - rec'd I-12-1 1(B)
Dilley - GMG left msg
Edna rec'd 12;210 (B)
Falfiurrias - t-ec'd l /2411 1 (A)
F ulton - rec'd 1 1/24/ ] 0(B )
George West - rec'cl 1 1%30i01 (A)
Harlingen - approved 12/15/ I 0
Harlingen Flousing Authority - rec* d 12 %910 (A)
Ingleside - rec'd 12%3/10 (A)
Ingleside on the Bay - rec'd I 2/$/ 10 (A)
Kingsville rec'd 1 1/9i ] 0(A)
La Feria - rec'd 12/2110 (A)
Laguna Vista - rec'd 12/15/10 (A)
Los Fresnos - rec'd 1 1.12.10 (A)
Lyford - rec' d 11. 1 0.10 (A)
McAllen -ree'd 12/9/10 (B)
McAllen Housing Authority i-ec'd 1 1-23'IO (A)
Mercedes - Mike/Rudy
Mission rec'd 11. 15.10 (A)
Mission Housing Authority rec'd 1128~10 (A)
Odem - approved 12/7
Orange Grove rec' d 1 1 , 24,' 10 (B)
Pleasanton - rec'd 1 1/2 3i 10 (A)
Point Comfort - rec'd 12/30%10 (B)
Poil Aransas - rec'd 12/27%10 (A)
Port Lavaca - agenda 2/14/11
Portland - rec'd 12i810 (A)
Premont - rec"d 1%711( A)
Refugio - Rudy
Rio Grande Citv - rec'd 1 1 23%10(B)
Rockport - rec'd 1 1/ 18/10 (A)
San Juan - rec'd 12,'22;10 (A)
Seadrift rec'd l 1/19/]0 (B)
Sinton - Rudy
South Padre Island - agenda 12/1
5outh 7'exas Water Authoriri, - rec'd 11. ] I.10 (A)
Taft - rec'd 12/271/10 (A)
Victoria - rec'd 12/910 (A)
Woodsboro - rec'd 12i8/ 10 (A)
153