16-A-1 CAPP Report Notice of Special Meeting 9-27... CAPP City Hall map & Direction...
Attached is your city's notice of the Power Supply
Agreement Briefing and Special Meeting of the CAPP Board of Directors, plus a map of the location of the NRH Council
Chambers.
We need your help in distributing this information to your city's authorized representative to sign the power supply
agreement and determine economic benefit. Please be sure that they send a designee if they are unable to attend the
10:00 a.m,-12:00p.m, briefing.
An RSVP will help to ensure adequate seating. Please RSVP at bunkleym(~lci.arlington,tx.us if you have not already
done so.
Mary Bunkley
Assistant to the City Attorney
City of Arlington
Post Office Box 231
Arlington TX 76004-0231
(817) 459-6885
(817) 459-6897 fax
Alice Pinalto
From
Sent:
To:
Subject:
Mary Bunkley [bunkleym@ci.arlington.tx.us]
Tuesday, September 18, 2001 6:45 PM
a pinalto@lsta met.corn; Morrison@Abilenebc.com;
heath@airmail.net; ellagold2@aol.com; Ivestal@aol.com;
RCDFletch@aol.com; bellmead@ bellmead.com;
mslye@bu rkbu rnett.org; rclark@ burlesontx.com;
bwsadlw@bwsa.org; phil@calvaryftw.org;
Greg.Porter@ceda rhilltx, com; gmorton@chipshot.net;
rmoravec@ci.addison.tx.us; smassey@ci.allen.tx.us; Zvan
Bland; Mary Bunkley; ]ay Doegey;
cdaniell@ci, belton.tx.us; g butts@ci.brownwood.tx.us;
pchesser@ci.brownwood.tx.us;
boothec@ci.colleyville.tx.us; cgreen~ci.denison.tx.us;
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j.~ones@ci.hurst.tx.us; ccu n ning@ci.irving.tx.us;
d blackbu rn@ci.killeen.tx.us;
cathy.anderson@ci.mansfield.tx.us;
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arthu rp@ci.waco.tx.us; eddieharg roves@ci.watauga.tx.us;
conklin@cityofben brook.com;
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gpatterson@hptx.org; hamilton@htcomp.net;
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ken@kvrp.com; crocker@Icc.net; GGay@lglawfirm.com;
cloy@merkeltexas.com; joe.labeau@midlothian.tx, us;
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Notice of the 9/27/01 PSA Briefing and Special Meeting of
theCAPP Board
TO:
FROM:
DATE:
SUBJECT:
CAPP BOARD OF DIRECTORS
JAY DOEGEY, CHAIR
SEPTEMBER 18, 2001
POWER SUPPLY AGREEMENT BRIEFING AND SPECIAL MEETING OF
THE BOARD SET FOR SEPTEMBER 27, 2001 IN NORTH RICHLAND
HILLS
NOTICE OF POV~'~R SUPPLY AGI~EMENT BRIEFING AND
SPECIAI~ ~mETING OF CAPP BOARD OF DII~CTORS
There will be a Power Supply Agreement Briefing and Special Meeting of the CAPP
Board of Directors on Thursday, September 27, 2001, at the NORTH RICHLAND
HILLS COUNCIL CHAMBERS, located at 7301 NE Loop 820, North Richland Hills,
Texas. The Agenda is as follows:
10:00 a.m.
Power Supply A4greement Briefing: This briefing is being presented for
City representatives authorized by resolution to determine economic
benefit and designated as the signatory for the power supply agreement
in their city. If they are unable to attend, their designee should attend in
their place.
12:00 p.m. Lunch Recess
t:00 p.m.
Routine Business:
1. Consideration and approval of the minutes.
2. Treasurer's report and funding status.
3. Consideration and approval of invoices for payment.
2:00 p.m.
Policy-making Business:
1. Discussion of proposals.
2. Discussion of power supply contract issues.
3. Consideration of future meetings and agenda.
Please RSVP bunkleym~ci.arlington.tx.us
Non-board members of CAPP are invited to attend the CAPP board meeting that
begins at 1:00 if space is available.
DIRECTIONS:
The meeting will be in the City Council Chambers at 7301 NE Loop 820, NRH, TX
76180. The phone number is 817-427-6004. Take the Hohday Lane exit from Loop
820. City Hall is on the NE comer of Holiday Lane and Loop 820. The Council
Chamber is located in the two-story portion of the building. Parking is available on
the front, and east side of the building. Entry doors are located on the east and north
sides of the building.
(2)
LUNCH:
If you plan to attend the morning and afternoon meetings, several good restaurants
are located within a few minutes of the NRH Council Chamber.
LODGING:
If you need hotel accommodations, Country Inn & Suites is located about 1 block
west of City Hall on the north side of Loop 820. Their phone number is 817-268-
6879.
MARY BUNKLEY
Secretary/Treasurer
CITIES AGGREGATION POWER PROJECT, INC.
(3)
I~RECTION$ TO NORTH RICHLAND HILLS CITy HALL
E~ H~lidiy Lant MM NE Loop
Turn into the Cl~y I-i! ~ ~
· Tm ~ m ~r~ I~n; t~X wi~ the
Fol~w~ pe;t~l lot met to Cl~ Hill
LLOYD, GOSSELINK, BLEVINS, ROCHELLE,
BALDWIN & TOWNSEND, P.C.
111 CONGRESS AVENUE, SUITE 1800
AUSTIN, TEXAS 78701
TELEPHONE (5'/2) 322-5800
TELECOPIER (512) 472-0532
ATTORNEYS AT LAW
~v'a-. Oay's Dh-cci I~qe: (512) 322-5975
Email: gga.~ l~._.w~_._m~.~ ~_o.~m.
807 SOUTH AUSTIN AVENUE*
GEORGETOWN, TEXAS 78626
TELEPHONE (512) 930-1317
MEMORANDUM
TO:
FROM:
DATE:
RE:
CAPP Representatives
Geoffrey M. Gay
September 4, 2001
Material To CAPP Cities
Attached please find communication from the CAPP Board regarding need for the
designation of a representative to review the economic benefits of the electric supply comract
and sign necessary agreements. Please copy and present the attached materials to your Mayor
and City Council members.
I g 13'~00~nac\010904grng
LLOYD, GOSSELINK, RLEVINS, ROCHELLE,
RALDWIN & TOWNSEND, P.C.
ATTORNEYS AT LAW
111 CONGRESS AVENUE, SUITE 1800
AUSTIN, TEXAS 78701
TELEPHONE (5'12) 322-5800
TELECOPIER (512) 472~532
807 SOUTH AUSTIN AVENUE*
GEORGETOWN, TEXAS 78626
TELEPHONE (512) 930-1317
MEMORANDUM
TO:
FROM:
DATE:
RE:
Mayor and Council Members of CAPP Cities
Board of Directors of Cities Aggregation Power Project, Inc. (CAPP)
September 4, 2001
Request For Designation Of Individual To Evaluate CAPP Savings And To
Enter Power Contract On Behalf Of City
The CAPP Board of Directors has been pleased with the development of coordinated city
efforts and with the interest of the soon to be deregulated marketplace in meeting cities' needs.
Approximately fourteen major providers submitted replies to CAPP's request for qualifications
and five bids have been received from solid, financially secure electric providers. The CAPP
Board is optimistic regarding possible economic benefits of aggregation, both in the near term
and the long term.
Attached please find a model resolution to be used in designating a specific city
representative who will be authorized to confirm that the CAPP agreement with a power supplier
will provide economic benefit to your city and to sign the necessary agreements for the City to
receive electricity after electric retail deregulation occurs on January 1, 2002. Also attached is a
status report on CAPP.
Designation of a specific person is important because:
Confirmation of economic benefit needs to commence while the terms of
agreement with the winning bidder are still under negotiation and during a
continued period of confidentiality.
CAPP is exercising great care to ensure that maximum benefits flow to
each participant. That may entail isolating certain accounts and
negotiating with the bidder to let specific accounts be served by an
incumbent provider, outside of CAPP. That will require confidential
communication between a specific city representative, CAPP consultants
and the winning bidder.
3. Time pressures will frustrate taking the final CAPP contract back to each
city council for approval.
The time pressures that are facing CAPP as it attempts to negotiate a contract are
evidenced in the following:
Completion of the power supply agreement will be contingent upon
commitment of a specific load. General pricing should be known several
weeks prior to the completion of a ready to sign contract. Specific city
representatives can confirm the economic benefit to their cities assuming
aggregation of spec'fflc accounts and be ready to commit a specific load as
the contract is nearing completion.
The Public Utility Commission has failed to enter final orders critical to
certain elements of future electric pricing and even more critical to
quantification of benefits of aggregation. The most important of these is
the fuel price component of the price to beat. Orders defining that key
pricing component will not be known until the first week of October, at
the earliest. Commission delays in issuing orders that influence pricing
increase uncertainty among potential providers. That uncertainty indicates
to CAPP that it would be prudent to be flexible in timing the finalization
of an agreement in order to capture the best possible price and to avoid
being adversely impacted by a Commission Order after a contract is
signed. Prudent management of this situation necessitates having a
specific contact with each member city with whom CAPP can work to
confirm economic benefit for each city as circumstances attributable to
Commission action and contract negotiations change.
Each retail electric provider or power supplier with whom an end-user
deals in the deregulated market place will demand a written contract.
From discussions with potential providers, CAPP anticipates that the most
efficient mechanism will be for CAPP to negotiate one power supply
agreement which will be referred to and adopted by the provider and each
city, thus creating a contractual obligation between each city and the
provider. Designation of the person who will sign the power supply
contract on behalf of each city as soon as possible will enhance the
efficiency of CAPP's efforts.
CAPP recommends that each city designate the same person to both confirm economic
benefit and to sign the contract, but a different individual may be designated for each of the two
tasks (confirming economic benefit and signing the agreement on behalf of the city) if the City
Council desires.
Clarification Of Quantification Of Economic Benefit
Under retail electric deregulation effective January 1, 2002 there are two basic types of
electric accounts, those that are covered by price to beat (PTB)~ and those that are not. A retail
electric provider affiliated with the incumbent utility company can only offer service to PTB
eligible accounts at the price to beat rate, adjusted for fuel costs. Non-PTB accounts may be
charged whatever the supplier and customer agree upon. However, the retail electric provider
(REP) must recover non-bypassable charges that will be imposed by the transmission and
distribution utility pursuant to Commission Order if the competitive REP intends to make a
profit. A specific price quote may be economically beneficial to some PTB accounts and not
others dependent upon what tariff the Commission requires for se~Mce to a particular account
and what non-bypassable charges a REP will have to pay to provide se~ice to customers on that
tariff
Each city has a unique combination of accounts and a unique combination of PTB and
non-PTB load. The evaluation of economic benefit involves analyzing future PTB rates and
projected non-PTB rates of the incumbent provider (affiliated REP) against rates to be applied
under aggregation. It is CAPP's goal to confirm that cities are economically better off under the
aggregation project than they would be if they did nothing and remained under the PTB rates and
the standard offer for non-PTB rates. While CAPP is unique among aggregation projects in that
regard, CAPP consukants intend to take the analysis a step further. Not content that aggregation
of CAPP's entire load produces total savings or even savings for each city when compared to
doing nothing, CAPP's consultants w'dl attempt to isolate specific accounts that individually
produce negative savings (despite overall positive savings) and to negotiate with the winning
bidder to remove those accounts from the aggregated load, so that those accounts can remain
under PTB. Furthermore, CAPP had secured bids that permit separate evaluation of PTB and
non-PTB load so that even if economic analysis provides that it is best for an individual city to
leave some or all its PTB eligible accounts with the affiliated provider of the incumbent utility,
that city will still have an aggregation option for its non-PTB accounts.
The CAPP load in the initial request for proposal exceeds 700 million kWh annually. It
involves approximately 7000 electric accounts. Thorough economic analysis requires an
understanding of where existing accounts will be consolidated under new rate designations, as
well as an understanding of how price to beat will be calculated. Based upon existing
information, CAPP consultants have confirmed that several bids will produce total savings when
measured against the current understanding of the price to beat. The challenge now is to increase
the savings by removing accounts that would be better off under PTB and to protect and
hopefully increase savings by maintaining flexibility to react to changing market conditions and
Commission Orders. CAPP appreciates your patience and cooperation.
Under SB 7 passed in 1999, PTB is to be a 6 percent reduction to the bundled (fuel and base rates) price
in effect in January 1999, adjusted for fuel costs. Because fuel costs increased significantly in 2000-
2001, it is unlikely any PTB customer will realize a savings from 1999 rates.
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.
How will Cities in non-attainment areas and the State
Implementation Plan shave 5 percent load annually?
How can Cities pursue meaningful and reasonably priced load
management that can trim peak demand and thus contain power
costs?
How can Cities deal with the projected deregulation of street
lighting?
CAPP is a vehicle for providing necessary coordination.
Hopefully, this message confirms your decision to join CAPP. We anticipate mutual cost
savings and other mutual long term benefits as Cities work together through CAPP. A status
report is attached.
CAPP is willing to make available Board Members or Special Committee Members to
assist your designated representative or City Council in understanding electric deregulation and
CAPP's efforts to respond to the restructured and deregulated electric industry. If you desire
such assistance please contact Jay Doegey or Geoffrey Gay as indicated in the next paragraph.
Upon passage of the attached sample or similar resolution please forward a copy of the
resolution to Jay Doegey, Chairman of CAPP (201 East Abram Drive, Suite 300, Arlington,
Texas 76010, email: doegeyj~c[arlington.tx.us) and a separate copy to Geoffrey Gay, Counsel
to CAPP (111 Congress Avenue, Suite 1800, Austin, Texas 78701, email:
ggay~lglawfirm.com).