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Contract RFP went into effect April 2007 Cost-based bid process Large single-supplier bid

North Little Rock Electric Department City Council Presentation Wholesale Power Contract October 12, 2009. Current Wholesale Electric Contract Put NLR at the Mercy of the Market. Contract RFP went into effect April 2007 Cost-based bid process Large single-supplier bid

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Contract RFP went into effect April 2007 Cost-based bid process Large single-supplier bid

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  1. North Little Rock Electric DepartmentCity Council PresentationWholesale Power Contract October 12, 2009

  2. Current Wholesale Electric Contract Put NLR at the Mercy of the Market • Contract RFP went into effect April 2007 • Cost-based bid process • Large single-supplier bid • Only one bidder submitted proposal • Resulting retail rates rose 38.5% • Ordinance 8075 Issuance $15 million Bonds • Two mild summers

  3. 2010 Wholesale Electric Contract Process Gave NLR More Control • Ordinance 8122 of Dec. 8, 2008 defined “Wholesale Power Negotiator” as a professional service under Arkansas Law • Four requirements for WPN: • Experienced wholesale negotiator for municipal power contracts • Strong relationships with wholesale power marketers • Experienced with Entergy Transmission System • Expertise in development of municipal Integrated Resource Plans

  4. GDS Associates Retained as WPN for North Little Rock • Extensive review of candidates led to choice of GDS Associates – Consultants & Engineers based in Atlanta • Satisfied all requirements of Ordinance 8122 • Garrett Cole, P.E., Project Manager for NLR, led negotiating team • Findings • Recommendation

  5. Historical Pricing Volatility Natural Gas vs. On-Peak Market Power $/MWh Note: Entergy on-peak price as published in Platt’s Electric Trader Natural gas prices based on Henry Hub spot price

  6. Natural Gas Historical/Futures Pricing $/MMbtu Note: Forecasted prices based on NYMEX natural gas futures from September 28, 2009

  7. NLR 2007 Fuel Diversity Waste Management • Completely at the mercy of the market • Replacing large percentage of load requirements at one time • Frequent/possibly large retail rate changes required Murray Hydro Market

  8. NLR 2010 Fuel Diversity Waste Management Diversification Strategy • More control in NLR’s hands • Market purchases are smaller percentages of load and staggered over time • Guided by Least Cost Integrated Resource Plan Plum Point 1 Murray Hydro Market

  9. Existing Electric Resources & Requirements Energy Deficiency

  10. Electric Resources & Requirements w/ New Wholesale Contract

  11. NLR Initial Market Approach • NLR issued a Request for Proposals (RFP) conducted by GDS to find most competitive contract • Responses received from the following bidders: • Constellation (Only 2007 bidder) • Eagle Energy • J.P. Morgan/Williams • NRG • Westar

  12. Wholesale Power ContractEvaluation Criteria • GDS evaluated supplier proposals based on the following criteria: • Competitiveness of Price • Proposal Pricing Risk(s) • Transmission Deliverability Risk • Long-Term Relationship

  13. Evaluation Results • NLR/GDS declared short list and negotiated terms and conditions with Constellation and NRG • Based on the evaluation criteria, NLR/GDS entered contract negotiation with NRG 1Note: Price for purchased power requirement only (does not include other NLR resources.

  14. Summary of NRG Energy • NRG’s corporate headquarters located in Princeton, NJ • NRG has ownership interest in 44 power generating facilities worldwide. • NRG’s global portfolio of projects totals over 24,000 MW Big Cajun II is a 1,490 MW coal-fueled plant in New Roads, LA

  15. Major Contract Terms • Term is April 1, 2010 – December 31, 2013 (3 years, 9 months) • Fixed price for term of the contract • Proposal includes cost of capacity, energy and energy management services • Demand-Side Management • Additional Generation NEW NEW

  16. Treatment of Key Risks NEW • Potential Carbon Tax • Cost of potential carbon tax covered by NRG for power provided by them if legislation/regulation is enacted • Plum Point 1 and future generation is NLR’s responsibility • NLR responsible for any Renewable Portfolio Standard requirements enacted by legislation • NRG Default - Performance Assurances • NRG provides for $10 million in the form of a letter of credit and $75 million in the form of a parental company guaranty NEW

  17. Treatment of Key Risks (Cont.) • Unit Outage Risk • NRG replaces NLR resources at fixed price in the event of a unit outage Premium price paid to NRG to manage gas price risk in the event of a unit outage 1 1Replacement power price based on natural gas futures at the time of NRG’s indicative price quote

  18. Wholesale Power ContractConclusions • Based on competitiveness of proposed supply and favorable terms and conditions negotiated, NRG provides the most beneficial & flexible energy supply available to NLR in the market at this time • Flexibility to add generation in the future allows NLR to plan for and proceed with development of new resources • Capability to manage customer load with economic demand-side measures • Fixed price over term of the contract of $53.96/MWh • Recommendation: Approve purchased power contract with NRG

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