2003 AGN JUN 17 I24 - Laserfiche WebLink

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Item #24 CITY OF COLTON CITY COUNCIL AGENDA REPORT For Council Meeting of June 17, 2003 TO: Honorable Mayor and City Council Members FROM: Thomas K. Clarke, Utility Director—K-�� APPROVAL: Daryl J. Parrish, City Manager SUBJECT: Approval of the Amended and Restated Services Agreement between the City of Colton and Coral Power DATE: June 9, 2003 BACKGROUND Coral Power, a subsidiary of Shell Trading, has been under contract to the City of Colton for scheduling and dispatching services for the Electric Utility. Under the existing contract Coral schedules our resources and balances our hourly energy needs. In periods where we are in an excess power situation, Coral markets the surplus energy. Compensation is a combination of a nominal fixed monthly payment and incentives linked to minimizing purchases and maximizing sales. DISCUSSION / ANALYSIS The Ague Manse Power Plant will use natural gas as the fuel for generating power. This component will be the largest single expense associated with the operation of the facility. Depending on market conditions for gas and electricity, the annual cost of gas could go anywhere from $1 million to $15 million per year. Because of the volatility of gas and electricity markets, the prices can change significantly on an hourly basis. The Electric Utility does not have qualified staff to monitor gas markets on a fulltime basis. Thus, the department issued an RFP for qualified firms to assist with the acquisition and management of gas for the power plant. Coral Power was awarded the gas procurement. In order to optimize the operation of the Agua Manse Plant, and continually benchmark it against both gas and energy markets, the scheduling and dispatching function has to be linked to the gas procurement activity. That is why the contract presented for approval is an amended and restated agreement. Coral already had the scheduling part, and since the two activities are intertwined, it made more sence to redraft the arrangement that is now in place. ALTERNATIVES There are virtually none. Some entity has to provide these services. Coral prepared the best response to the RFP. FINANCIAL IMPACTS The monthly fixed payment will increase from $5,000 per month for just scheduling and dispatching to $12,500 per month for the combined services. In addition, the City will pay a gas management fee to Coral based on the monthly delivery volumes. Also, there are some incentives, on a split savings approach, for optimizing our energy shortages and surpluses. All forecasted costs are included in the FY 2003-04 budget.