Item 4E
City of Southlake, Texas
M E M O R A N D U M
October 31, 2007
To: Shana Yelverton, City Manager
From: Alison Ortowski, Assistant to the City Manager
Subject: Sixty Month Fixed Rate Agreement with TXU Energy for the Supply
of Electricity
Action
Requested:
Consider approving a sixty month fixed rate agreement with TXU Energy
for the supply of electricity
Background:
Recognizing future uncertainties in the electric and gas markets as well as
increased demand due to the construction of the new DPS central facility,
a committee composed of Ben Thatcher, Sharen Jackson and Alison
Ortowski (“Committee”) began investigating electric rate structures
associated with long term service agreements in an effort to reduce the
City’s electric cost. Since deregulation, the City has been paying for its
electric service from TXU Energy on a month-to-month basis with no
contract commitment. This has resulted in an average rate of 14.5 cents
per kilowatt hour with monthly rates continually changing due to market
fluctuations.
The Committee requested rate information from TXU Energy, the City’s
current electric service provider, as well as several other providers.
Overall, the quotes came in within fractions of a cent of one another and
were well below the average 14.5 cents per kilowatt hour the City
currently pays for electric service. The Committee recommends entering
into an agreement with TXU Energy because their rate was comparable to
others that were quoted, it included service for the new DPS facility, and
TXU Energy’s strong relationship with Oncor (electric distribution and
transmission provider) ensures that customer service issues due to service
interruptions will be handled directly with Oncor representatives and not
routed through a remote customer service phone number.
TXU Energy’s proposal includes:
$.0817262 per kilowatt hour rate*
*This rate was quoted as of October, 29, 2007. The final rate will depend on the
market rate at the time of council action and should not vary much from the
quote above.
60 month term
10% power from Renewable Energy sources (primarily Texas
wind generation)
The inclusion of the 86,000 square foot DPS facility slated to come
online in 2009
An estimated savings of $150,000 annually
By contracting now, the City of Southlake will be able to
1.Protect itself from any uncertainties in the market for the next sixty
months. Natural gas is used to generate the power for the majority
of power plants in Texas. Weather as well as the future generation
issues with Electric Reliability Council of Texas’ (ERCOT) could
cause future gas prices to dramatically increase. ERCOT’s reserve
margins are expected to fall to as low as 5% by 2012 as demand
increases while plant generation will not be enough to keep up
with demand. This could create a situation where prices rise as a
result of lower supply.
2.Lock in one of the lowest prices in over two years for electric
service because the natural gas is at a two year low, due to the mild
summer as well as a lack of hurricane activity in 2007. In 2005, a
rate contract would have included a price 2 to 2.5 cents greater
than today because of that year’s active hurricane season.
Financial
Considerations:
An estimated savings of $150,000 annually
Citizen Input/
Board Review:
N/A
Legal Review:
The City Attorney has reviewed the proposed agreement.
Alternatives:
1. Continue paying for electric service on month-to-month basis
2. Enter into a shorter term agreement (1 year or 2 year)
3. Choose a different electric provider
Supporting
Documents:
Supporting documents include:
Proposed agreement
Staff
Recommendation:
Council approval of the sixty month fixed rate electric service agreement
with TXU Energy.