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R2008-134 2008-10-20RESOLUTION NO. R2008-134 A RESOLUTION OF THE CITY OF PEARLAND, 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. WHEREAS, the City of Pearland, 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 RESOLUTION NO R2008-134 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. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: RESOLUTION NO R2008-134 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. 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. PASSED, APPROVED and ADOPTED this the 20t" day of October, A.D., 2008. uat' TOM REID MAYOR RESOLUTION NO R2008-134 ATTEST: ~nne,..n~q„ ..,°QEARL,q,~; O_~ UNG R IN MC ='=€ i ~-~, Y S ETARY `~~' ....., APPROVED AS TO FORM: ~,~ / ~. u --~-~ DARRIN M. COKER CITY ATTORNEY Lloyd816 Congress Avenue,Suite 1900 Austin,Texas 78701 Gosselink Telephone:(512) 322-5800 Facsimile: (512)472-0532 ATTORNEYS AT LAW www.lglawfirm.com Ms.Doyle's Direct Line: (512)322-5820 Email: kdoyle@Iglawfirm.com MEMORANDUM TO: CAPP Members FROM: Geoffrey Gay Kristen Doyle DATE: October 10, 2008 RE: ACTION NEEDED BY ALL CAPP MEMBERS - Resolution to support locking in electric prices and authorizing contracts with Direct Energy and FPL Energy IMPORTANT NOTICE — PLEASE PLACE THE ATTACHED RESOLUTION ON THE AGENDA FOR COUNCIL CONSIDERATION AT THE NEXT SCHEDULED MEETING. CAPP's current electric contract will expire on December 31, 2008. The CAPP Board has approved indicative electric pricing available through FPL Energy and Direct Energy Business Services (DEBS) for all CAPP members for a five (5) year term beginning January 1, 2009 through December 31, 2013. Energy markets have been falling in response to recessionary pressures and the CAPP Board desires to lock-in very favorable gas based pricing for as long as possible (five years). If members act quickly, CAPP should be able to fix rates for each of the next five years at commodity prices (i.e. excluding non-bypassable wires charges) that range from 8.0 cents (possibly lower) to 8.5 cents per kilowatt hour. This means that CAPP members will lock-in prices for five years that are below electric prices members are currently paying. Adopting this resolution is a necessary step for all CAPP members that will not participate in the long term contract. The contract with FPL Energy and DEBS that will be negotiated and secured as a result of the authority granted by the attached resolution is structured like the energy contracts CAPP has put together for members over the past six years. There is no prepayment of capacity costs or debt allocation associated with this contract. For those members that have passed or are planning to pass an ordinance to participate in the long term purchase power agreement (PPA) with Luminant, you should also take action to pass the attached resolution. FPL Energy will be the wrap energy provider for the power needs not served by the PPA. Because of this and at the Board's instruction to provide added protection for all CAPP members, FPL Energy has agreed to initially secure 100 percent of the power needs for all CAPP members, including those participating in the PPA. For those members participating in the PPA, FPL Energy will allow CAPP/STAP to exercise a one- time option to back out of the FPL Energy contract the portion of energy associated with base load and substitute energy under the Luminant agreement. Although we don't anticipate that Lloyd Gosselink Rochelle &Townsend, P.C. Page 2 October 10, 2008 CAPP will be unable to issue bonds to fund the prepayment required by the PPA, this added security provided by FPL Energy is critical as we await the full ramifications of the unfolding credit crisis. Explanation of the Contracting Process The contracting process is exactly like the process used the last several contracting periods. Your council will need to approve one of the two attached model resolutions. One resolution (Model Resolution A) authorizes CAPP to act as an agent to negotiate and execute a contract for the member's electricity needs while the other resolution (Model Resolution B) requires the city to contract with CAPP to purchase power for the member through CAPP and to designate an individual with the power to execute the contract. The resolutions streamline contracting procedures. The resolutions empower the Chairman of CAPP to sign a contract with the selected power provider on behalf of all CAPP members for 2009 - 2013 energy needs. A majority of CAPP members previously authorized the CAPP Chairman to execute the 2007 energy contract on their behalf. Model Resolution A accomplishes that objective for 2009 - 2013. Model Resolution B is to be adopted by those cities whose charters prevent the cities from delegating contracting power to anyone but the mayor or other designated city representative. For those cities, the resolution directs the city to contract with CAPP for the city's 2009 -2013 electricity needs. In addition, both resolutions reiterate that each member is obligated only for its proportionate share of the contracted load. Every CAPP member should expeditiously adopt one of the two resolutions and provide a copy of the resolution to our office. (To assist you in determining which model resolution your city should adopt this year, the following cities adopted Model Resolution B last contracting cycle: Addison, Allen, Benbrook Library District, Cisco, Colleyville, Colorado City, Comanche, Copperas Cove, Crockett, Denison, Fort Stockton, Highland Park, Irving, Lewisville, Mansfield, North Richland Hills, Odessa, Paris,Richland Hills, Rotan, Saginaw, San Angelo, Sweetwater, and Watauga.) If you have any questions or need more information, please contact Geoffrey (512/322- 5875, ggay@lglawfirm.com) or Kristen(512/322-5820, kdoyle@lglawfirm.com). • Lloyd Gosselink Rochelle &Townsend, P.C. ATTENTION--To secure power beginning January 1,2009, all CAPP members must take action on one of the two resolutions attached to this email as soon as possible. Action on one of these two resolutions allows CAPP to lock-in very favorable rates for a five year period. CAPP's current electric contract expires December 31, 2008. Pursuant to CAPP Board approval, CAPP accounts over the next five years will be served by FPL Energy and Direct Energy beginning January 1, 2009. FPL Energy will supply power and Direct Energy will provide customer services and billing. For those members participating in the long term PPA, FPL Energy will be the wrap contract power provider. For those members not participating in the long term PPA, FPL Energy will supply the members' full requirements. All CAPP members should take action on one of the two attached resolutions. The difference between the two resolutions (explained in the attached memo) is based upon specific charter provisions of certain members. To assist you in determining whether Model Resolution A or B is appropriate for your city,the memo lists the members that passed Model Resolution B for the last contracting cycle in 2007. Natural gas prices are extremely favorable right now. Power costs under the new arrangement, without participation in the 24 year agreement, should range between 8.0 cents/kWh(possibly even lower depending upon timing) and 8.5 cents/kWh over the next five years. This means that CAPP members will lock in prices at a level that is about 2.5 cents/kWh lower than CAPP's average price of power for the past year. (West Zone member savings will be approximately 4 cents/kWh off of 2008 power prices.) Savings may be even greater depending upon natural gas prices when CAPP locks in power. However,this favorable pricing is subject to further changes in the markets and thus members will be urged to act quickly so that CAPP can capture favorable, stable pricing. Members who want to participate in the 24 year contract will still need to pass the previously distributed ordinance approving the PPA, but members who do not want to participate in the 24 year offer need do nothing more than pass and return the resolution. If you ARE NOT planning on participating in the long term contract option, action on this resolution will secure your full power needs for up to five years at extremely favorable prices. This contract is structured like the energy contracts CAPP has put together for members over the past six years. There is no prepayment of capacity costs or debt allocation associated with this contract. If you ARE planning to participate in the long term contract option, action on this resolution provides an extra level of security. FPL Energy will be the wrap contract provider, supplementing the base load power supplied by the long term contract. For members who want to participate in the 24 year deal, FPL Energy will take possession of the energy from Luminant and substitute the Luminant energy for some of FPL's energy and Direct Energy will bill a blended rate. As a special accommodation, FPL Energy will initially secure 100 percent of the power needs for all CAPP members, including those participating in the PPA. While we await the full ramifications of the unfolding financial and credit crisis,passing this resolution ensures that even if the worst case scenario occurs and the PPA option is no longer viable, all CAPP members will receive full service requirements for the next five years at extremely favorable prices. Please contact me if you have any questions. My direct line is 512/322-5820. Geoffrey's number is 512/322-5875. 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