City Council Briefing - Council Briefing. ... Chesapeake Energy, Hunt Oil ... Defense Council, State Energy Conservation Office and

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<ul><li><p>CityCouncilBriefingJune16,2010</p><p>1</p></li><li><p>ReviewtheCityselectricityprocurement programandupcomingcontractforthe</p><p> periodbeginningJanuary1,2011.HowwebuyelectricityHowwellwedidonourlastprocurementWhatweareproposingandwhyWhatareplansbeyondthiscontractperiodRecommendations</p><p>2</p></li><li><p>HowWeBuyElectricity</p><p>3</p></li><li><p>Nuclear,7%</p><p>Wind,11%</p><p>Coal,22%</p><p>NaturalGas,59%</p><p>GenerationGeneration(Competitive)(Competitive)</p><p>%InstalledCapacity</p><p>54%ofCost54%ofCost</p><p>CustomerCustomer</p><p>CityofDallas</p><p>100%ofCost100%ofCost</p><p>CustomerServiceBilling</p><p>Scheduling</p><p>WholesaleSupply</p><p> Contracts</p><p>9%ofCost9%ofCost</p><p>RetailElectricProviderRetailElectricProvider(Competitive)(Competitive)</p><p>RegulatedDeliveryRegulatedDelivery((PassThroughatCostPassThroughatCost))</p><p>Transmission</p><p>Distribution</p><p>Substation</p><p>35%ofCost35%ofCost</p><p>4</p><p>TaxesTaxes2%of2%ofCostCost</p></li><li><p>Fourcountiestotal</p><p> 48%ofloadinERCOT:</p><p>1.Harris2.Dallas3.Tarrant4.Bexar</p><p>CityofDallasis</p><p> approximately 192MW,or2%of</p><p> DallasCounty.Source: ERCOT Electric System Constraints and Needs Assessment Report, December 2009)</p><p>5</p></li><li><p>*Energyusageisestimatedonly.</p><p>6</p></li><li><p>2,600accounts(includes800+buildings,1500trafficsignals,</p><p> outdoorlights,etc.)and752millionkWh/Yr (enoughtopower41,000singlefamilyhouseholds)</p><p>ConsumptionbyDepartment(percentagesbyvolumes)</p><p>Water</p><p>55%</p><p>PublicWorks(Includesstreetlightsandtrafficsignals)</p><p>12%</p><p>Parks</p><p>6%</p><p>OfficeofCulturalAffairs</p><p>5%</p><p>Aviation</p><p>5%</p><p>EquipmentandBuildingServices(includesmultiuse</p><p>5%buildings,e.g.CityHall,OCMC,Courts)</p><p>PoliceandFire</p><p>4%</p><p>ConventionCenter</p><p>4%</p><p>Library</p><p>2%</p><p>Other</p><p>2%</p><p>7</p></li><li><p>RequestforQualificationsadvertisedAugust2009</p><p>10Firmssubmittedproposalswith5firmsshortlisted</p><p>QualificationsandExperience</p><p>Projectunderstandingandapproach</p><p>PastPerformance</p><p>MWBE</p><p>RequestedcostproposalsinOctober2009</p><p>PriorityPowerManagement,LLC</p><p>R.W.Beck</p><p>ContractwithPriorityPowerManagement,LLCapprovedby</p><p> CouncilonDec.9,2009(Resolution#092943)</p><p>9</p></li><li><p>PriorityPowerManagement,LLCQualifications</p><p>Staffhasover250yearsofcombinedexperienceinenergy</p><p> markets</p><p>Procurementandmanagementofanestimated$1billionin</p><p> annualenergyspending</p><p>Managingpowerrequirementsfor32ofTop100Texas</p><p> independentoilandgasproducers</p><p>Notableclientsinclude:ChesapeakeEnergy,HuntOil</p><p> Company,DevonEnergy,TexasHealthResources,Universityof TexasSystemandCityofMidland</p><p>10</p></li><li><p> Useindependentconsultantforspecialized</p><p> expertise</p><p> Analyzedataanddevelopspecification</p><p> UseacompetitiveRFPprocesswithBusiness</p><p> Development&amp;Procurement</p><p> 972totalcontactsincluding:</p><p>138RetailElectricityProviders(AllREPs </p><p>inTexas)</p><p>104MWBEs</p><p>11</p></li><li><p>Evaluateproposalsandshortlistfirmsbasedon:</p><p>Financialstability</p><p> 25%</p><p>Invoicingcapabilityincludingelectronicinvoicing 20%</p><p>MWBEparticipation 15%</p><p>Agreementtocontractterms 10%</p><p>Levelofexperience</p><p> 10%</p><p>Productexperience</p><p> 10%</p><p>Abilitytoproviderenewableenergycredits 5%</p><p>Customerservice 5%</p><p>Preparecontractdocumentsforshortlistedfirms.</p><p>12</p></li><li><p>CityCouncilauthorizestheCityManagertoenterinto contract</p><p>Acceptbestandfinaloffers</p><p>DeterminemostadvantageousoffertotheCity</p><p>Totaldeliveredcostofpower 70%</p><p>Finalcontractterms</p><p>20%</p><p>Invoicingrequirements 10%</p><p>Executethecontract(Completedondayofofferwhile</p><p> commoditymarketisopen)</p><p>REPentersintothirdpartyagreementstosecure wholesaleelectricitysupplytoserveCityload.</p><p>13</p></li><li><p>Howwellwedidonour lastprocurement</p><p>14</p></li><li><p>NaturalGasPricesarethePrimaryDriverofthetrendsinelectricityprices.</p><p>1</p><p>1.</p><p>Monthlyaveragegenerationpriceisderivedbytheactualsimple</p><p>averageoftheERCOTnorthzonemarketclearingpriceofenergy</p><p>(MCPE)multipliedbyaCityofDallasloadshapingfactorof1.035.</p><p>15</p><p>Deregulated</p><p>Regulated</p></li><li><p> OnAugust27,2008,Councilapproved</p><p> strategyandauthorizedCityManagertoenter intocontract</p><p> CityManageracceptedBestandFinalOffers</p><p> andexecutedthecontractonSeptember26, 2008</p><p> Currentcontractfor2009,2010withGDF</p><p> SUEZEnergyResources</p><p>16</p></li><li><p> ContractwasaLoadFollowingHeatRate</p><p>Supplierprovidesapricethatfluctuateswiththe priceofnaturalgas(untillocked)fortheentire</p><p> estimatedloadwithinabandwidthof+/10%</p><p> StrategyapprovedbyCouncilonAugust27,2008</p><p> providedguidelinesforlockingnaturalgasprices</p><p> Fixedtriggerpointswere+15%and30%</p><p>Limitsallowedustotakeadvantageofdeclining priceswhilelimitingexposuretoincreasingprices</p><p>17</p></li><li><p>18</p></li><li><p>19</p><p>Index100%ofLoadCompletelysubjecttomarket</p><p> pricevariations</p><p> Retainabilitytolockfixedprice</p><p> forallorportionsoftheload.</p><p>Index100%ofLoadIndex100%ofLoadCompletelysubjecttomarketCompletelysubjecttomarket</p><p> pricevariationspricevariationsRetainabilitytolockfixedpriceRetainabilitytolockfixedprice</p><p> forallorportionsoftheload.forallorportionsoftheload.</p><p>ActiveTradingActivelytryingtobeatthe</p><p> market</p><p> VeryresourceIntensive</p><p>ActiveTradingActiveTradingActivelytryingtobeattheActivelytryingtobeatthe</p><p> marketmarketVeryresourceIntensiveVeryresourceIntensive</p><p>FixedPriceNotexposedtomarketvariations.Budgetcertainty.Priceis100%dependenton</p><p> marketconditionsattimeof</p><p> purchase.</p><p>FixedPriceFixedPriceNotexposedtomarketvariations.Notexposedtomarketvariations.Budgetcertainty.Budgetcertainty.Priceis100%dependentonPriceis100%dependenton</p><p> marketconditionsattimeofmarketconditionsattimeof</p><p> purchase.purchase.</p><p>DefinedLockStrategyDefinespecificobjectivesDevelopquantifiableplanStrictlyadheretoplan</p><p>DefinedLockStrategyDefinedLockStrategyDefinespecificobjectivesDefinespecificobjectivesDevelopquantifiableplanDevelopquantifiableplanStrictlyadheretoplanStrictlyadheretoplan</p><p>LOWLOW</p><p>HIGHHIGH</p><p>HIGHHIGHProactiveness</p><p>Risk</p><p>Tolerance</p><p>RiskTolerance&amp;ProcurementStrategies</p></li><li><p>20</p><p>FIXED</p><p>Block&amp;</p><p> IndexINDEX</p><p>HeatRate abilitytolockgasprice</p><p>FIXED</p><p> HYBRID</p><p> FLOAT</p><p>RANGEOFCO</p><p>ST</p><p>OUTC</p><p>OMES</p><p>(+)</p><p>()</p><p>RANGEOFCO</p><p>ST</p><p>OUTC</p><p>OMES</p><p>(+)</p><p>()</p><p>RiskPremium</p></li><li><p>$7.9M GasPriceatCouncilAuthorization</p><p>Avg</p><p>GasLockPrice</p><p>21</p><p>$2.49(27%)=Differential$21.3MOver2Yrs</p><p>AverageGasLockPrice</p><p>CouncilAuthorizationAugust27,2008</p><p>ContractStartJanuary1,2009</p><p>$2.3M</p><p>GasPriceonJan1,2009Differential=$3.2MOver2Yrs</p><p>RESULTS:</p><p> AchievedBudget</p><p> Certainty.</p><p> Executedgaslockstrategy</p><p> resultedinlowerprice.</p><p>RESULTS:</p><p> AchievedBudget</p><p> Certainty.</p><p> Executedgaslockstrategy</p><p> resultedinlowerprice.</p></li><li><p>54%54%</p><p>9%9%</p><p>35%35%</p><p>TotalEstimatedCostComponents EstimatedRetailCostComponents</p><p>3%3%</p><p>2%2%</p><p>3%3%</p><p>1%1%</p><p>22</p></li><li><p>Anticipatedratesbasedon</p><p>indicativepricing.Actual</p><p>resultswillvary.</p><p>23</p></li><li><p>Whatweareproposing andwhy</p><p>24</p></li><li><p>LowestPrice=$5.20</p><p>CurrentPrice,Jan11Start=$5.83(5.5%arelower)</p><p>HighestPrice=$12.03</p><p>Reason#1:Pricesareneara6YearLowNYMEXNG3YearRollingAverageStripPrice</p><p>25</p></li><li><p>Reason#2:ERCOTReserveMarginCapacityisUncertain2014</p><p>Eventhoughthereisasignificantamountofplanned</p><p>generationinthe</p><p> future,uncertaintyexistsaboutERCOTs</p><p>reservemarginsin2014andbeyond.</p><p>26</p></li><li><p>Reason#3:WTXWindPowerBeginstoFlowintoNTXin2014PUCTapproved$5+billionCREZProjecttobuildtransmissionlinestoconnectwestTexaswind</p><p> farmsintohigherdemandareassuchasDallas/FortWorthwithexpectedcompletioninDec2013.</p><p>Source:ERCOTandthePublicUtilityCommissionofTexas</p><p>27</p></li><li><p> Accountsdefinedintwogroupsto</p><p> facilitatepricing</p><p>Group1 </p><p>LargeuserssuchasDWU,City Hall,ConventionCenter(75%volume)on</p><p> 15minuteprofilemeters</p><p>Group2 Mostbuildings,streetlights, trafficsignals(25%volume)onmonthly</p><p> metersorunmetered</p><p>28</p></li><li><p>FixedPriceBlock</p><p>supplierprovidesafixedpriceforpredeterminedblocksof</p><p> power.Blocksaresizedatapproximately96%oftotalloadwith</p><p>excessandor</p><p> deficienciesboughtandsoldatmarketspotprice.</p><p>29</p></li><li><p>LoadFollowingFixedPrice</p><p>supplierprovidesafixedpricefortheentire</p><p> estimatedloadwithinabandwidthof+/10%.Anyusageoutsideofthe</p><p> bandwidthisboughtandorsoldatthemarketspotprice.</p></li><li><p>Optionof20,40or60percentofload</p><p>Dallasis#2onEPATop20LocalGovernmentlist:</p><p>LocalGovt</p><p>ListMillionkWh/Yr</p><p> ofRECs%TotalVolume</p><p>Houston 438 34%</p><p>Dallas 333 40%</p><p>Chicago 214 20%</p><p>MontgomeryCountyClean</p><p> EnergyBuyersGroup161 30%</p><p>WashingtonSuburbanSanitary</p><p> Commission70 33%</p><p>31</p></li><li><p> TodaysCostat40%</p><p> $950Kperyear</p><p> EstimatedCostGoingForward:</p><p>Costincrementfor20%renewableenergy</p><p> $250Kto$550K</p><p> peryear</p><p>Costincrementfor40%renewableenergy</p><p> $500Kto$1.1M</p><p> peryear</p><p>Costincrementfor60%renewableenergy</p><p> $750Kto$1.6M</p><p> peryear</p><p>32</p></li><li><p>WhyBuyThem?</p><p> Environmentalbenefitstoimproveairquality</p><p> 40%renewableenergyresultsinreductionof</p><p> pollutants</p><p> 225,000tonreductionincarbondioxide(CO2)peryear</p><p> 250tonreductionofnitrogenoxide(NOx)peryear</p><p>Reductioninpollutanttonnagecanbesubmittedas apotentialstrategyontheStateImplementation</p><p> Plan(SIP)togettheregionoutofnonattainment statusontheEPAstandardforozone</p><p>33</p></li><li><p>WhyBuyThem?</p><p> Economicbenefitstofundprojectsandgrow</p><p> taxbase</p><p> Potentiallossofhighwayand/orgrantfundsiffail</p><p> tomeetEPAozonestandards</p><p> Attractbusinessrelocation</p><p> Poorairquality</p><p> wasonestatedreasonToyotadidnot</p><p> locateinDallas</p><p>Attractvisitors</p><p> Conventionorganizersconsidergreeninitiativeswhen</p><p> choosinglocations</p><p>34</p></li><li><p>WhyBuyThem?</p><p>Continuegreenleadershipandreceiptofnational recognition/awards</p><p>In2006,theMayorofDallassignedU.S.MayorsClimate</p><p> ChangeAgreementalongwithmayorsfromaroundthe countrytoreducegreenhousegasemissionsby7%</p><p> below1990levelsbytheyear2012</p><p> ReceivepointstowardLEEDbuildingcertifications</p><p>BolsterDallasimagewithrecognition/awardsfrom</p><p> EnvironmentalProtectionAgency,NationalResources DefenseCouncil,StateEnergyConservationOfficeand theTexasEnergyPartnershipforenergyefficiency</p><p>35</p></li><li><p> 3yearContractTerm</p><p> FixedPriceElectricity</p><p> Group1 FixedPriceBlock</p><p>Group2 LoadFollowingFixedPrice</p><p> 40%Texasrenewableenergycredits</p><p>36</p></li><li><p> FixedPriceBlockforGroup1</p><p> LoadFollowingFixedPriceforGroup2</p><p> 20,40or60percentrenewableenergy</p><p> 24or36monthterm</p><p> 30daypaymentterms</p><p> Automatedbilling</p><p>37</p></li><li><p> Noterminationforconvenience</p><p> Terminationpayment=Costs+(ContractValue</p><p> MarketValue)</p><p> REPisfinanciallycommittedtothirdpartiesforload</p><p>Adropinpriceleavesnomarkettosellourload</p><p>Terminationcouldcostmillionsofdollars</p><p>38</p></li><li><p>SevenREPs </p><p>wereshortlistedtosubmitfinaloffers</p><p>ConstellationNewEnergy,Inc.</p><p>GDFSUEZEnergyResourcesNA,Inc.</p><p>Gexa</p><p> Energy,L.P.</p><p>ReliantEnergyRetailServices,LLC</p><p>SempraEnergySolutions,LLC</p><p>TexasGeneralLandOffice</p><p>TXUEnergyRetailCompany,LLC</p><p>39</p></li><li><p> CityCouncilauthorizestheCityManagertoenter</p><p> intocontract</p><p> Acceptbestandfinaloffers</p><p>DeterminemostadvantageousoffertotheCity</p><p> Totaldeliveredcostofpower 70%</p><p> Finalcontractterms 20%</p><p> Invoicingrequirements</p><p> 10%</p><p> RequestMWBEdocumentationfromselectedREP</p><p>Executethecontract(Completedondayofofferwhile</p><p> commoditymarketopen)</p><p>40</p></li><li><p>Whatareplansbeyond thiscontractperiod</p><p>41</p></li><li><p>ContinueanalysisofCitybecomingaselfservingRetailElectric</p><p> Provider:</p><p>Itwilltakeatleast12monthstoprepareforbecomingselfservingREP</p><p>Annualsavingsareestimatedtobe$4.4MofwhichGFis$1.9Monce</p><p> implemented</p><p>Longtermconsiderationcouldexamineoptionstoenlargethe</p><p> customerbasebeyondCityownedfacilities</p><p>TheCitycouldconsiderexpandingitsinterestinpower</p><p> generation:</p><p>CurrentlyDallasWaterUtilitiesisconstructingafacilitythat</p><p>generates</p><p> powerfrommethanegasattheSouthsideWWTP</p><p>Potentialinvestmentinfacilitiessuchaswindfarms</p><p>42</p></li><li><p>Recommendations</p><p>43</p></li><li><p>CityCouncilauthorizetheCityManagertoacceptbest andfinaloffersfromthesevenshortlistedREPs</p><p> and</p><p> enterintoElectricSupplyAgreement(s)determinedto bemostadvantageoustotheCity</p><p>Group1 FixedPriceBlock</p><p>Group2 LoadFollowingFixedPrice</p><p>Include40%TexasRenewableEnergyCredits</p><p>36monthterm</p><p>44</p></li><li><p>Appendix</p><p>45</p></li><li><p>Meters/accountsaregroupedsothatbestenergyproductistargetedfor</p><p> eachgrouptoachievebestpriceandconservationincentives</p><p>Group1</p><p>84meters,75%oftotalload</p><p>IntervalDataRecorder(IDR) recordstotaluseandrateofuseevery15</p><p> minutes(ex.DWU,CityHall,ConventionCenter)</p><p>Group2</p><p>2512Meters,25%oftotalload</p><p>DemandMeter recordstotaluseandhighestrateofuseina15minute</p><p> periodduringbillingperiod(ex.Libraries,RecreationCenters,</p><p>PoliceFacilities)</p><p>NonDemandMeter recordstotaluseonlyanddoesnotprovideinformation</p><p> onpeakuseorbreakdownofuseoverbillingperiod(ex.Traffic</p><p>lightsand</p><p> warningsigns)</p><p>Unmetered electricchargesarebasedsolelyonexpecteduse(ex.</p><p> Streetlights)</p><p>46</p></li><li><p>Thereareavarietyofelectricitypricingofferingsinthe</p><p> market</p><p>LoadFollowingFixedPrice</p><p>supplierprovidesafixedpriceforthe</p><p> entireestimatedloadwithinabandwidthof+/10%</p><p>LoadFollowingHeatRate</p><p>supplierprovidesapricethatfluctuates</p><p> withthepriceofnaturalgasfortheentireestimatedloadwithina</p><p> bandwidthof+/10%</p><p>FixedPriceBlocks</p><p>supplierprovidesafixedpricefor</p><p> predeterminedblocksofpower</p><p>HeatRateBlocks</p><p>supplierprovidesapriceforblocksofpowerthat</p><p> fluctuatewiththepriceofnaturalgas</p><p>Currently,DallasusesLoadFollowingHeatRatepricing</p><p>47</p></li><li><p>Themaptotherightillustratesthe</p><p> balanceofloadandgeneration</p><p> withineachcountyintheERCOT</p><p> Regionforthesummerof2009.</p><p>Acountywithmoregeneration</p><p> thanloadwillexportgenerationto</p><p> othercounties;comparatively,a</p><p> countywithmoreloadthan</p><p> generationwillimportgeneration</p><p> fromothercounties.</p><p>Pleasenotethismapisforgeneral</p><p> illustrativepurposesonly,however</p><p> itclearlyshowsthatthe</p><p> Dallas/FortWortharea,the</p><p> Houstonarea,andthe</p><p> Austin/RoundRockareaare</p><p> importersanddependenton</p><p> transmissiontoserveload. Source: ERCOT Electric System Constraints and Needs Assessment </p><p>Report, December 2009)</p><p>48</p></li><li><p>Currentinstalledgeneration</p><p> capacityintheERCOTRegionis</p><p> about84,000MW,whichincludes</p><p> about3,000MWofgenerationthat</p><p> hassuspendedoperationsorbeen</p><p> mothballed.</p><p>Intermsofenergyproducedwithin</p><p> ERCOTin2008,approximately43%</p><p> wasfueledbynaturalgas,followed</p><p> bycoalat37%,nuclearat13%and</p><p> windat5%.</p><p>Themaptotherightisanindicator</p><p> ofgeneratingfacilitiesacrossthe</p><p> regionbyfueltype.</p><p>Source: ERCOT Electric System Constraints and Needs Assessment Report,</p><p> December 2009)</p><p>49</p><p>Electricity Procurement Cover MemoElectricity Procurement BriefingElectricity Procurement 2Electricity Procurement 3Electricity Procurement 4Electricity Procurement 5Electricity Procurement 6Electricity Procurement 7Electricity Procurement 8Electricity Procurement 9Electricity Procurement 10Electricity Procurement 11Electricity Procurement 12Electricity Procurement 13Electricity Procurement 14Electricity Procurement 15Electricity Procurement 16Electricity Procurement 17Electricity Procurement 18Electricity Procurement 19Electricity Procurement 20Electricity Procurement 21Electricity Procurement 22Electricity Procurement 23Electricity Procurement 24Electricity Procurement 25Electricity Procurement 26Electricity Procurement 27Electricity Procurement 28Electricity Procurement 29Electricity Procurement 30Electricity Procurement 31Electricity Procurement 32Electricity Procurement 33Electricity Procurement 34Electricity Procurement 35Electricity Procurement 36Electricity Procurement 37Electricity Procurement 38Electricity Procurement 39Electricity Procurement 40Electricity Procurement 41Electricity Procurement 42Electricity Procurement 43Electricity Procurement 44Electricity Procurement 45Electricity Procurement 46Electricity Procurement 47Electricity Procurement 48Slide Number 49</p></li></ul>