HomeMy WebLinkAboutAgenda Report - August 6, 2008 E-19AGENDA ITEM # 11
CITY OF LODI
COUNCIL COMMUNICATION
TM
AGENDA TITLE: Adopt Resolution Authorizing the City Managerand Electric Utility Director
to Issue Request for Bids, Determine the Best Bid and Execute a Contract for
a 25 Megawatt Baseload Power Purchasefor the Period of July 2010 through
March 2012 at a Cost Not to Exceed $79 per megawatt -hour (EUD)
MEETING DATE: August 6,2008
PREPARED B Y Electric Utility Director
RECOMMENDED ACTION: Adopt a resolution authorizing the City Manager and Electric Utility
Directorto issue a requestfor bids, determine the best bid and
execute a contract for a 25 megawatt baseload power purchase for
the period of July 2010 through March 2012 at a cost not to exceed
$79 per megawatt-hour(MWH).
BACKGROUND INFORMATION: Lodi's Electric Utility Department (EUD) must procure wholesale
energy in order to economically meet its customer load obligations.
Presently, EUD has a 25 megawatt (MW) baseload power purchase contract with ConocoPhillips that
began on July 1, 2008 and expires June 30, 2010. The price for this energy is fixed at $68IMWH for the
transaction period. At the time it was consummated, this purchase was intended to bridge the period until
commercial operation of the Lodi Energy Center (LEC). The current projected LEC in-service date is now
April 2012. As a result, EUD will have a significant "open position" from July 2010 through March 2012.
In FY 11, 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 FY12 is similar until construction of the
Lodi Energy Center is complete.
Through material previously provided 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 need in the
FY10 and beyond timeframe was through participation in the Lodi Energy Center at the 30 MW level.
Due to delays in obtaining full participation in the Phase 2 developmentwork of LEC, however, the
current projected LEC in-service date is April 2012.
The pricefor longer-term power has recently softened on the wholesale market. Within the past week,
EUD received an indicative price (non binding quote) of about $751MWH for a 25 MW block of baseload
energy for the July 2010 through March 2012 period. This is 15 percent less than recent price projections
and less than the $831MWH includedfor power purchases under base electric rates. (Note that forward
electric prices can change dramatically in a matter of days.)
As a result, Staff recommendsthat EUD seek to procure a 25 MW block of power "around the clock for
the July 2010 through March 2012 timeframe (21 months). A 25 MW baseload energy purchasewill
reduce EUD's projected 65% open position for this period to a level of about 25%. Such an acquisition at
APPROVED: _
-� ng, City Manager
Adopt resolution authorizing the City Manager and Electric Utility Director to issue a requestfor bids, determine the
best bid and execute a contract for a 25 megawatt baseload power purchase for the period of July 2010 through March
2012 at a cost not to exceed $79 per megawatt -hour (EUD)
August 6,2008
Page 2 of 3
favorable pricing terms will significantly reduce EUD's exposure to adverse price risk associated with
market volatility. This type of stabilizing transaction is also expected to be received favorably by the
financial ratings community.
Calendar Year 2011 Forward Prices by Hub
NP16 GOB -SP15 Mid C PV
Sias
As a means of visually showing the trend of future electric prices in the hedge market, the above graph
shows prices for power (Lodi purchase point is NP15 which is depicted by the red line) for calendar year
2011.
The proposed 25 MW block of powerwould be acquired on a bilateral basis. That is, EUD would contract
directlywith a seller. The Northern California PowerAgency (NCPA) will assist EUD with this
procurement by issuing the request for bids, advising on bid evaluation and providing contract
support/advice. Presently, Lodi and NCPA have "enabling" 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 similarto a contract that either Lodi or NCPA has with such bidder. Due to the short
period in which a sales bid is valid in today's electric wholesale market, authorization is requested for the
City Manager to execute necessary sales documents for a transaction with unanimous concurrence of
the City's Risk Oversight Committee (ROC). In addition to the City Manager, ROC Members include the
Deputy City Manager, City Attorney and Electric Utility Director.
For information, if the initial requestfor bids does not produce a satisfactory offer for any reason (i.e.
price too high, credit/collateral requirements unsatisfactory, inabilityto consummate acceptable contract,
etc.), it is expected that EUD could go to the market on a number of occasions prior to November 30,
2008. if an acceptable baseload purchase arrangement is not completed by this date, the authorization
underthe proposed City Council resolutionwould expire.
FISCAL IMPACT: At $791MWH, the average monthly cost of procuring 25 MW of baseload energy is
about $1.37 million per month. (For information, EUD's average monthlytotal cost
of power is about $3.8 million.)
FUNDING: Costs associated with procurement underthis authorization will not be incurred
until energy is delivered in fiscal years 2011 and 2012. The City has not adopted a
Adopt resolution authorizing the City Manager and Electric Utility Directorto issue a requestfor bids, determine the
best bid and execute a contract for a 25 megawattbaseload power purchase for the period of July 2010 through March
2012 at a cost not to exceed 579 oer megawatt-hour(EUD)
August 6,2008
Page 3 of 3
budget for these fiscal years, and as a result, funding has not yet been established
Funding for this authorization will be supported by retail electricity sales revenue,
once the applicable fiscal year budgets are established and approved by the City
Council.
Georg -&P. Mo ow
Electric Utility Director
RESOLUTION NO. 2008-155
A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING
THE CITY MANAGER AND ELECTRIC UTILITY DIRECTOR TO
ISSUE REQUEST FOR BIDS, DETERMINETHE BEST BID, AND
EXECUTE CONTRACT FORA 25 MEGAWATT BASELOAD
POWER PURCHASE FOR THE PERIOD OF JULY 2010
THROUGH MARCH 2012 AT A COST NOT TO
EXCEED $79 PER MEGAWATT HOUR
WHEREAS, Lodi presently has a 25 megawatt baseload power purchase from
ConocoPhillips that expires on June 30, 2010; and
WHEREAS, due to a deferral in the projected in-service date of the Lodi Energy Center
until April 2012, Lodi has a significant "open position" (approximately 65%) from July 2010
through March 2012; and
WHEREAS, recent softening of wholesale power prices in 2010 and beyond make it
practicalto acquire baseload power to close a significant portion of such open position.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council hereby authorizes the
City Manager and Electric Utility Director to issue one or more request for bids, determine the
best bid, and execute a contract for a 25 megawatt baseload power purchase for the period of
July 2010 through March 2012 at a cost not to exceed $79 per megawatt hour (subject to the
unanimous consent of the Lodi Electric Risk Oversight Committee) and authorizes the Electric
Utility Director or his designee to administer any such contract.
Dated: August 6, 2008
hereby certify that Resolution No. 2008-155 was passed and adopted by the Lodi City
Council of the City of Lodi in a regular meeting held August 6, 2008, by the following vote:
AYES: COUNCIL MEMBERS — Hansen, Hitchcock, Johnson, Katzakian, and
Mayor Mounce
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS— None
ABSTAIN: COUNCIL MEMBERS— None
4NDI JOHL
City Clerk
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