Loading...
HomeMy WebLinkAboutAgenda Report - January 17, 2007 E-14AAI�IDA IT= W14 S �'P'P1e rne�ctl isCrry m Lai COUNCIL COMMUNICATION TM AGENIX IWLE: Adopt resolution autimmtkV the CIW Manager and Ekm*ic UtllRy Dkwtor ID issue 0 eaWd for bids, dew the best bid and execuie a conWact for a 25rrre await beselood power purchase for fiscal years 2000 throw 2010 at a cost not to exceed $68 per megawaidww (EUD) MEETING DATE: Januavy 17, 2007 PREPA D BY: Elecft Ud ty Director RECO ACTION: Adopt a resolution authorizing the City Manager and Electric Unity Director to issue a request for bids, determine the best bid and execute a contract for a 25 megawatt baseload power purchase for fiscal yeers 2008 through 2010 at a cost not to exceed $68 per megawatthour. BACKGROUND INFORMATION: Lodi's Electric Utility Department (EUD) must procure wholesale energy in order to economically meet its customer load obligations for fiscal year 2007-08 (FY08) and beyond. In FY08, EUD's projected "open position" is approximately 340 gigawatt -hours (GWH) or about 65% of EUD's total custom load obligation. The utility's open position in FY09 and FY10 is similar. Through prior material providlld to the City Council, EUD has a baseload energy need going forward of about 30 MIN. EUD's strategy for Ming a significant part of its "baseload" energy needs in the FYOB-FY10 period has been to obtain up to 25 MW of rights in the Resource 500 Project -- an existing power plant for which the Northem California Power Agency (NCPA) was negotiating to acquire. EUD was notified recently, however, that the proposed transaction was not viable due to lack of interest by the current Resource 500 owner. A compkvnw4ary strategy for filling EUD's long-term basebad power needs involves the construction of the New Lodi Project — a 255 #NAW combined cycle natural gas project currently under development at White Slough for projected operation in FY11. The NCPA Commission recently approved Phase 2A of the development program (permits and licensing) and interested parties are in the process of executing Phase 2A development agreements. EUD expects to bring this agreement to the City Council for consideration at the February 7 City Council meeting for participation at the 20 MW level. The prise for longer-term pouter has recently softened on the wholesale market. Within the past two weeks, EUD received an indicative price (non binding quote) of about $67/MWH for a 25 MW block of baseload energy for the FY06-FY10 period. This is 10* percent less than recent price projections. For comparison, the projected price for Resource 500 and New Lodi energy were in the $70-72/MWH range when last evaluated in December 2005. EUD's most recent financial forecast projects average market prices of $69.36 in FY08, $69.37 in FY09 and $66.85 in FY10 — a simple average of $68.52. (Note that forward electric prices can change dramatically in a matter of days.) APPROVED: Blair KhirClty i �—er Adapt sa Won WthorWng the y Y�r and c � tl ft Dir�or b loin a requ� for bids, drM� de beat bid a cw*u@t a 20 � baaload power purchase fray fiscal years 2008 through 2010 ate cost not iii owed So per nwgajlistthour UCS) January 17, 2W Page 2 af3 As a result, Staff recommendis that EUD seek to procure a 25 MW block of power "around the clock' for the FYWFY1O tirnefrome. A 25 MW baseload energy purchase will reduce EUUs 65% open position in FY08-FY10 to a level of about 25%. Such an acquisition at favorable pricing term wit sigrMcantty reduce EUD's exposure to adverse price risk associated with market volatility. Such a stabilizing transacfDn is also expected to be received favorably by the financial ratings community. As a mems of visually showing the trend of future electric prices in the hedge market, the above graph shows pts for power (Lodi purchases point is NPI 5 depicted by the red line). EUD procures energy through its membership in the NCPA. NCPA is presently authorized to assist power pool members obtain market energy for a future period not beyond one year. To make market power pwc hasse beyond this period through NCPA, members can execute a Single Member Servioes Agreement (SMSA), which is written to minimize the risk to other NCPA meftere when energy is purchased for the benefit of a single member. EUD is reviewing the feasibility of consummating such an arrangement with NCPA in the near future. The SMSA will require EUD to meet certain relatively strict credit/collateral requirements. The proposed 25 MW block of power would be acquired on a bilateral basis. That is, EUD would contract directly with a seller. It is expected that NCPA will mist EUD with this procurement by issuing the request for bids, advising on bid evaluation and providing contract supportladvice. Presently, NCPA has "enablinf agreements with a number of qualified energy suppliers in the California market. It would be EUD's objective to enter into a contract with the successful bidder in a form similar to the contract NCPA has with such bidder. For information, if the initial request for bids does not produce a satisfactory offer for any reason (i.e. price toobigfh, crodWoollateral requirements unsabfactory, inability to consummate acceptable contract, etc.), it is expected that EUD could go to the market on a number of occasions prior to June 30, 2007. If an acceptable baseload purchase arrangement is not completed by this date, the authorization under the proposed City Councd resolution would expire. Mld � _NP15 —Wig Pv 008 $100 _ ...,...... ------. - - - . ... .......... _..-- - ..........- - ---- - ------------. ..... .. .. .......... Sss-- --------- .... - ......... ..... ........ .............. --- - - ... ............. ...... .. ....-- ----- -- - --- ..... . ..............__-__-........... $85 ---- - .. ..... - -- ......... ._____......... $W -------- --- ..,._,.-._--------- --r� $70- $" ._. ... - ..._. - - ---- 00 - -..... - - -- _ --- --- .. - -- .... .. ....- - -- - --- 05 - .. ...... . - - .. ................... .-....................... --------------------- 550 -- - - `.._... I $45FL t R N As a mems of visually showing the trend of future electric prices in the hedge market, the above graph shows pts for power (Lodi purchases point is NPI 5 depicted by the red line). EUD procures energy through its membership in the NCPA. NCPA is presently authorized to assist power pool members obtain market energy for a future period not beyond one year. To make market power pwc hasse beyond this period through NCPA, members can execute a Single Member Servioes Agreement (SMSA), which is written to minimize the risk to other NCPA meftere when energy is purchased for the benefit of a single member. EUD is reviewing the feasibility of consummating such an arrangement with NCPA in the near future. The SMSA will require EUD to meet certain relatively strict credit/collateral requirements. The proposed 25 MW block of power would be acquired on a bilateral basis. That is, EUD would contract directly with a seller. It is expected that NCPA will mist EUD with this procurement by issuing the request for bids, advising on bid evaluation and providing contract supportladvice. Presently, NCPA has "enablinf agreements with a number of qualified energy suppliers in the California market. It would be EUD's objective to enter into a contract with the successful bidder in a form similar to the contract NCPA has with such bidder. For information, if the initial request for bids does not produce a satisfactory offer for any reason (i.e. price toobigfh, crodWoollateral requirements unsabfactory, inability to consummate acceptable contract, etc.), it is expected that EUD could go to the market on a number of occasions prior to June 30, 2007. If an acceptable baseload purchase arrangement is not completed by this date, the authorization under the proposed City Councd resolution would expire. Adopt ra"Won art hoftng tl> r Mmnqar and Ehcbk tOft Dior to bow a requef for huts, doww* a tfw best bid end exedde a oonVW i1r a 25. w4pbaseload power pub for decal years 2000 trrrouo 2010 at a cost notMb esossrt 30 per tnegaWdh wr (EUD) January 47, 2W Page 3 oV3 On November 15, 2006, the City Cowl authorised the purchase of up to $25 million of electric energy and naiwal gas to close EU[Ys open position in FY08 through a series of stirrate& acquisitions. if Ell© is succes&l in consummating a 25LWV baseload purchase affecting FY08, the $25 million authorization amount vAll be reduced accordingly. FISCALAVACT: At $6MM, the annual cost of procuring 25 MW of baseload energy is about $14.9 w9lion. FLMWING: Costs *ssoc fated with procurement under this authorization will not be incurred until e"y is delivered in fiscal years 2006, 2009 and 2010. The City has not adopted a budget for thew fiscal years, and as a result, funding has not yet been estabWied. Funding for this authorization will be supported by retail electricity sales revenue, once the applicable fiscal year budgets are established and appro b the City Council. Fundhq Agpirmail: �►s vlans, Budwat Manager Eieclaic Utifity Director GFMAst AMMA IT1MIi sar 14 CITY o' LOBI COUNCIL COMMUNICATION TM AGENDA TITLE: Adopt resolution autitorking the Citi) Manager and Eleab is Utility Dheeto r to Issue a reqLwat for bids, del mkn the bent bid and execute a contract for a 25 me rag— baseload power purchase for fiscal years 2041 through 2019 at a cost lit to exceed $65 per rnegawatthour (EUD) MEETINIS DATE: Januaey 17, 2007 P REPAXED BY: Electric utility Director RECOiIr N M D ACTION: Adopt a resolution authorizing the City Manager and Electric Utility Director to issue a request for bids, determine the best bid and execute a contract for a 25 megawatt baseload power purchase for fiscal years 2008 through 2010 at a cost not to exceed $65 per megawatthour. BACKS IWORMATIDN: Lodi's Electric Utility Department (EUD) must procure wholesale energy in order to economically meet its customer load obligations for fiscal year 2007-08 (FY08) and beyond. In FY08, EUD's projected "open position" is approximately 340 gigawatt -hours (GWH) or about 65% of EUD's total customer load obligation. The utility's open position in FY09 and FYI is similar. Through prior material providwd to the City Council, EUD has a baseload energy need going forward of about 30 MW. EUD's strategy for filling a significant part of its "baseload" energy needs in the FY08-FY 10 period has been to obtain up b 25 MW of rights in the Resource 500 Project -- an existing power plant for which the Northern Califomia Power Agency (NCPA) was negotiating to acquire. EUD was notified recently, however, that the proposed transaction was not viable due to lack of interest by the current Resource 500 owner. A complomenthry strategy forfilling EUD's long -terra baseload power needs involves the construction of the New Lodi Project — a 255 MW combined cycle natural gas project currently under development at White Slough for projected operation in FYI 1. The NCPA Commission recently approved Phase 2A of the devabpment program (permits and licensing) and interested parties are in the process of executing Phase 2A development agreernents. EUD expects to bring this agreement to the City Council for consideration at the February 7 City Council meeting for participation at the 20 MW level. The price for longer-term power has recently softened on the wholesale market. Within the past two weeks, WD received an indicative price (non binding quote) of about $67/MWH for a 25 MW block of baseload energy for the FY08-FY10 period. This is 10+ percent less than recent price projections. For comparison, the projected price for Resource 500 and New Lodi energy were in the $70-72/MWH range when last evaluated in December 2005. EUD's most recent financial forecast projects average market prices of $69 in FY08 and FY09 and $66.85 in FYIO. (Note that forward electric prices can change dramatically in a matter of days.) APPROVED: r—) Bla , City Manager Adopt mwoWkn aAhwL-dng the QW NwA4W and Eloctrlc Ulft Dkw l or /o lass* a mpmot for bids, dei mkw the best bid aid emcuy a ca haat fat' a 25 tusdosd power purchase for 1laW cars 2108 Through 2010 at a cost rmt t exwed 185 per mgpv*Vho u ( l Januaq 110, 29W Page 2 of 1 As a resW, Staff recommend* that EUD seek to procure a 25 MW block of power "around the dock" for the FY04WY10 Reframe. A 25 MW baseload energy purchase will reduce EUD's 65% open position in FY08-FYI 0 to a level of about 25%. Such an acquisition at favorable pricing terms will significantly reduce SUlYs exposure to adverse pride risk associated with market volatility. Such a stabilizing transactMn is; also expected til be received favorably by the financial ratings community. As a moons of visually showing the trend of future electric prices in the hedge market, the above graph shows Micas for power (Lodi purchases point is NPI 5 depicted by the red line). EUD procures energy through its membership in the NCPA. NCPA is presently authorized to assist power pool merrrbers obtain market energy for a future period not beyond one year. To make market power purchases beyond this period through NCPA, members can execute a Single Member Services Agreerront (SMSA), which is written to minimize the risk to other NCPA members when energy is purchased for the benefit of a single member. EUD is reviewing the feasibility of consummating such an arrangement with NCPA in the near future. The SMSA will require EUD to meet certain relatively strict credit/c011aieral requirements. The proposed 25 NW block of power would be acquired on a bilateral basis_ That is, EUD would contract directly with a seller. It is expected that NCPA will assist EUD with this procurement by issuing the request for bids, advising on bid evaluation and providing contract support/advice. Presently, NCPA has "enabling" agreements with s number of qualified energy suppliers in the California market. It would be EUD's abjechve to enter into a contract with the successful bidder in a form similar to the contract NCPA has with such bidder. For inf%martion, if the initial request for bids does not produce a satisfactory offer for any reason (i.e. price too high, crediftollateral requirements unsatisfactory, inabiNty to consummate acceptable contract, etc.), it (s eked that EUD could go to the market on a number of occasions prior to June 30, 2007. If an acomptable baseload purdhase arrangement is not completed by this date, the authorization under the proposed City Council resokition would expire. Mid c -1016 --SP15 PV •• ••cos ............. .... -..-.. - "0 .... ---------- - .... ............ .. ......... - - - ---- ..... !05 _.. _._ -. _.-...... ------------------ - ...._.._. _._... - ........... -................ 00 $70 -- -- ..... -- ... . _ ..... - .. V "0 .... ................ .............-------------------- ................. $55 ... ...... . ...... - - --- $50---------- ---------- -- ..... ...... .. As a moons of visually showing the trend of future electric prices in the hedge market, the above graph shows Micas for power (Lodi purchases point is NPI 5 depicted by the red line). EUD procures energy through its membership in the NCPA. NCPA is presently authorized to assist power pool merrrbers obtain market energy for a future period not beyond one year. To make market power purchases beyond this period through NCPA, members can execute a Single Member Services Agreerront (SMSA), which is written to minimize the risk to other NCPA members when energy is purchased for the benefit of a single member. EUD is reviewing the feasibility of consummating such an arrangement with NCPA in the near future. The SMSA will require EUD to meet certain relatively strict credit/c011aieral requirements. The proposed 25 NW block of power would be acquired on a bilateral basis_ That is, EUD would contract directly with a seller. It is expected that NCPA will assist EUD with this procurement by issuing the request for bids, advising on bid evaluation and providing contract support/advice. Presently, NCPA has "enabling" agreements with s number of qualified energy suppliers in the California market. It would be EUD's abjechve to enter into a contract with the successful bidder in a form similar to the contract NCPA has with such bidder. For inf%martion, if the initial request for bids does not produce a satisfactory offer for any reason (i.e. price too high, crediftollateral requirements unsatisfactory, inabiNty to consummate acceptable contract, etc.), it (s eked that EUD could go to the market on a number of occasions prior to June 30, 2007. If an acomptable baseload purdhase arrangement is not completed by this date, the authorization under the proposed City Council resokition would expire. Adopt resqpWm au@mwtftg the Cly NaneW and ENctric Wil/ D kedw io kwie a request for bids, dole Msft Welt bid aq e3ftuiwa eodmet f baadaad Pe�wsr pwchaaa for i tel years 2008 Brough 20'i0 st a cost not fq*xo0vd $86 w maga m(OW) .bnwry 1t 2OW Page 3 of 3 On NoVeMber 15, 2006, the City Council authorized the purchase of up to $25 million of electric energy and natual gas to dose EUD'# open position in FY08 through a serer of strafegic acquisitions. If EUD is successfW in consummating a�25NNV baseload purchase affecting FY08, the $25 million authorization amount dill be reduced ecoor4 tgly. DISCAL l%CT: At $65A111WH, the annual cost of procuring 25 NNV of baseload energy is about $14.3 n�lflion. FUNDINS: Cosi associated with procurement under this authorization will not be incurred until enemy is de8vered in Rascal years 2008, 2009 and 2010. The City has not adopte4aa budget for these fiscal years, and as a result, funding has not yet been establi . Funding for this authorization wiN be supported by retail ekctricity sales revrue, once the applicable fecal year budgets are established and apprcipo y the City Council. Faurrdln� P oval: Budlo .: George F. Morrow GFMAst Lod� E�e�er�c E�eii+ey 25 MW Power Purchase (FY08 - FYI 0) City Council January 17, 2007 • EUD must purchase energy in the wholesale market to meet customer needs • FY08 "open position" is 340 GWH or 38 avg MW per hour • Annual open position is about 65% of load • FY09 and FY1 0 open position is similar Existing Power Resources Geothermal } 16.4 1009780 Hydroelectric 26.8 55,918 CT1 Project 43.4 0 Lodi STIG Project 19.7 0 Western Hydro 5.7 16,382 Seattle Contract r.�w wrrr�.rrr rrr rr rrrrr -------- 25.0 rrrrrr rrrrrrrr (10,349) rrrrrrrrrrrrrrr Totals 137 1621731 Lodi Needs 130 4959707 Net +7 (332,970 rs :FY08 Open Poslatimo 4 10% 0% -10% -20% -30% —40% -50% -60% -70% -80% CL 0 CL Q0 � y CL � cc Net Energy Bala"I t Y 20.0 10.0 0.0 -10.0 -20.0 1° -30.0 -40.0 -50.0 -60.0 -70.0 7 7 C] O O l � j •� oo m O � n� Month HLH LLH Prior Open Position Strategy • Resource 500 project would haus provided 25 MW of the 38 average MW open position for FY08 and beyond. ,9 Resource 500 no longer viable option due to owner's desire not to sell New Lodi Project still in planning stages for FY1 1 and beyond. Staff expects to recommend a 30 MW participation for Lodi. v Current., Open Position Strategi • Replace Resource 500 with an open market purchase (25 MW) • Wholesale market has retreated in recent months by about 10% or so • Prior cost estimates for Resource 500 were about $70/MWH • Current EUD financial forecast projects average open position cost of $68-52/MWH Procurement Process • Bilateral purchase (Lodi is counterparty) —No other alternative presently • NCPA will assist in preparing and issuing RFP as well as bid evaluation Desire for purchase contract to track bidder's current contract with NCPA • No guarantee of a successful bid —Maximum price of $68/MWH —Possible credit and/or contract issues Impact • $68/MWH price cap is consistent with current financial assumptions for FY08- FY1 0 • Annual cost of 25 MW at $68/MWH is about $14.9 million per year •Will reduce EUD open position from 65% to about 25% • Transaction expected to be viewed favorably by financial community a. w Authorize issuance of 25 MW Request For Proposals • Maximum price of $68/MWH (approximately current market price) • City Manager and EUD Director to oversee procurement process including execution of contract with successful bidder • Authorization expires June 30, 2007 Questions/comments? RESOLUTION NO. 2007-12 A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING THE CITY MANAGER AND ELECTRIC UTILITY DIRECTOR TO ISSUE A REQUEST FOR BIDS, DETERMINE THE BEST BID, AND EXECUTE A CONTRACT FOR A 25 MEGAWATT BASELOAD] POWER PURCHASE FOR FISCAL YEARS 2008 THROUGH 2010 AT A COST NOT TO EXCEED $68 PER MEGAWATT HOUR NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby authorize the City Manager and Electric Utility Director to issue a request for bids, determine the best biql, and execute a contract for a 25 megawatt baseload power purchase for fiscal years 2008 through 2010 at a cost not to exceed $68 per megawatt hour. Dated: January 17, 2007 I hereby certify that Resolution No. 2007-12 was passed and adopted by the City Council of the City of Lodi in a regular meeting held January 17, 2007, by the following VQte: AYES: COUNCIL MEMBERS - Hitchcock, Katzakian, and Mayor JMWSon NOES: COUNCIL MEMBERS - None ABSENT: COUNCIL MEMBERS - Hansen and Mounce ABSTAIN: COUNCIL MEMBERS - None RANDIJOHL City Clerk 2007-12