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Home My WebLink AboutItem 11 - Cities Aggregation Power Project �r��; �� ___-`_-�= � � MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: BRUNO RUMBELOW, CITY MANAGER � t� MEETING DATE: OCTOBER 21, 2008 SUBJECT: CITIES AGGREGATION POWER PROJECT (CAPP) FIVE YEAR CONTRACT FOR ELECTRICITY RECOMMENDATION: City Council consider approving a resolution authorizing staff to execute a five year contract with CAPP for purchase of electricity. BACKGROUND: CAPP is a non-profit group created in 2001 that pools Texas cities' electric power needs in order to negotiate lower, more stable prices through bulk purchasing. CAPP currently has more than 100 members. The City of Grapevine became a member of CAPP in August 2008. � The City's current contract with Reliant Energy expires on December 31, 2008. The CAPP Board has approved obtaining indicative pricing through FPL Energy (the energy provider) and Direct Energy Business Services (the billing services provider) for all CAPP members for a five year term beginning January 1, 2009 through December 31, 2013. Once member cities pass resolutions authorizing the contract, CAPP will lock in a firm (transactional) price. Since prices fluctuate by significant amounts in any single day, a firm price cannot be locked in until the day the actual contract is executed. Grapevine is paying approximately 8.9c/kwh as part of our current contract with Reliant Energy. Just a few months ago, electric rates (for 2009) were between 9.Oc/kwh and 10.Oc/kwh. However, energy markets have been falling rapidly over the last month and CAPP is looking at locking in very favorable rates (between 8.Oc/kwh and 8.5c/kwh). CAPP has also negotiated a long term power purchase agreement (24 years) directly with an electric generator (Luminant Generation Company, LLC.). Staff is still evaluating the merits of entering into this long term contract. A decision on the long term contract is not due until December 17, 2008. The long term contract covers about 60% of our power needs. In case we decide to enter into a long term agreement, the five year contract will take care of the remaining 40% of our power needs for the next five years. In the event the City decides against the long term contract, the five year contract will provide for 100% of our power needs for the next five years. � October 15,2008(10:04AM) Staff believes that the timing is right to lock in a price for the purchase of electricity. We also believe that since CAPP can aggregate all the members' power needs, they can get better pricing than the City (by itselfl can procure. The City also gets the benefit of the standardized billing process. Staff recommends approval. RC/rc O:\agenda\10212008�agmemo.capp five year contract.doc October 15,2008 (10:04AM) � � RESOLUTION NO. A RESOLUTION OF THE CITY OF GRAPEVINE, 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; AUTHORIZING CAPP TO ACT AS AN AGENT ON BEHALF OF THE CITY TO ENTER INTO A CONTRACT FOR ELECTRICITY; APPROVING CAPP CONTRACTING WITH FPL ENERGY AND DIRECT ENERGY AND AUTHORIZING THE CHAIRMAN OF CAPP TO EXECUTE AN ELECTRIC SUPPLY AGREEMENT FOR DELIVERIES OF ELECTRICITY EFFECTIVE JANUARY 1, 2009; COMMITTING TO BUDGET FOR ENERGY PURCHASES AND TO HONOR THE CITY'S COMMITMENTS TO PURCHASE POWER THROUGH CAPP FOR ITS ELECTRICAL NEEDS BEGINNING JANUARY 1, 2009 THROUGH DECEMBER 31, 2013 AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City of Grapevine, 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 commodity 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 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 needs to 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 GRAPEVINE, TEXAS: Section 1. That the CAPP Board and its consultants and advisors are agents authorized to negotiate for the City's electric power needs as a member of CAPP and to contract for the electric power supply and related, necessary services for the City for a term to begin January 1, 2009 and extending up to December 31, 2013. Section 2. 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 3. That the Chairman of CAPP is hereby authorized to sign a Commercial Electric Service Agreement ("CESA") for the City pursuant to the contract approved and recommended by the CAPP Board of Directors within 24 hours of said approval and recommendation. RES. NO. 2 Section 4. 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 the CESA signed by the Chairman of CAPP on behalf of the City for the term beginning January 1, 2009 and extending up to December 31, 2013. Section 5. 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. Section 6. That this resolution shall take effect from and after the date of its passage. PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS on this 21st day of October, 2008. APPROVED: ��:,.. ATTEST: APPROVED AS TO FORM: RES. NO. 3