title
Contract for Fuel Risk Management Services (B)
explanation
Over the past several years the nature of the fuels market has changed markedly. GRU has taken appropriate steps to keep in stride with these changes. These steps have included implementing and conducting successful hedging strategies, instituting guidelines for hedging energy requirements, and using The Energy Authority (TEA) to execute the financial trading for GRU. In June 2003, the City Commission authorized staff to enter into an agreement for risk management services with Infinite Consulting to assist GRU in achieving greater efficiency and desirable results for its natural gas hedging strategies. GRU desires to expand the scope of the risk management services being provided by ICL to include additional fuel types.
Due to the specialized nature of this work, the need to tailor unique programs and information to GRU's specific needs, and the level of interaction required with the firm providing these services, GRU recommends entering into a new contract for risk management services with ICL. ICL is a local firm with unique and extensive knowledge of GRU's utility operations and natural gas burn histories, experience in hedge program operation, both nationally and within the state, for utilities and industrial concerns, and an extensive knowledge of commodity trading. Since ICL has a local base of operation, GRU stands to avoid a number of expenses for travel while having the ability to meet with ICL personnel on relatively short notice. Given the fact that market price fluctuations can change GRU's hedge positions by several hundred thousand dollars per day, this flexibility is highly desirable and is valuable to GRU's ratepayers.
The initial contract term will be a period of one (1) year with the option to extend the contract annually for up to four (4) additional years upon the mutual agreement of the parties. The base contract cost remains the same as it was in June 2003, with an option to purchase services for additional fuel types.
recommendation
The City Commission: 1) authorize the General Manager or his designee to execute a contract with Infinite Consulting, L.L.C. (ICL) for fuel risk management services, subject to approval of the City Attorney as to form and legality; and 2) approve the issuance of a purchase order(s) in an amount not to exceed $60,000 for the initial term of the contract and amounts not exceeding budgeted amounts for subsequent years of the term, if extended by mutual agreement of the parties, subject to the appropriation of funds.
fiscal impact
Funds for these services are currently available in the Energy Supply Operation & Maintenance Expenses Budget and will be requested in subsequent fiscal year budgets.
drafter
Prepared by: Randy Casserleigh, Interim AGM for Energy Supply
Submitted by: Michael L. Kurtz, General Manager