Subject
title
Authorize the City Manager to Enter into Electricity Supply Agreements
end
Department
Rec & Parks - Parks & Facilities
Recommendation
Staff recommends that the Mayor and Council authorize the City Manager to monitor and execute agreements to lock-in prices for City electricity supply accounts from WGL Energy Service, Inc. in a form approved by the Office of the City Attorney and substantially similar to the sample agreement with WGL for MGT LV II Accounts (Attachment A), by utilizing the Baltimore Regional Cooperative Purchasing Committee (BRCPC) Contract #00003312 for terms between December 2024 and December 2025.
Discussion
Pepco is the sole distributer of electricity within the service area covering City of Rockville (“City”) facilities and infrastructure. Because Maryland has deregulated the natural gas and electricity industries, the City can choose an electricity supply provider separate from Pepco. As a result, Pepco electricity bills are broken down as follows:
• Electricity distribution services: Pepco meters usage and issues utility bills to collect all service fees (including the distribution, transmission and supply fees, taxes, surcharges and taxes).
• Electricity supply generation service: Under a supply contract, a seller promises to deliver electricity to a delivery point in the system for a period of time to serve a set number of accounts. As stated above, customers are not limited to their local utility and can shop rates between vendors to find the lowest price per kilowatt-hour.
To provide electricity to its facilities and infrastructure, the City has approximately 120 Pepco accounts within four Pepco Maryland commercial rate schedules. Each schedule has different rates and pricing conditions, as follows:
• Commercial large usage accounts: Pepco Maryland Medium General Service Low Voltage Type II (MGT LV II) rate schedule.
• Water Treatment Plant account: Pepco Maryland Time Meter Medium General Service Primary Service Type III (MGT III) rate schedule.
• Small usage accounts: Pepco Maryland General Service (GS) rate schedule.
• Street light accounts: Pepco Maryland Street List Service (SL) rate schedule.
For each rate schedule type listed above, the City can enter into a contract with an electricity supply provider or return the accounts to Pepco. If the accounts are returned, Pepco will buy electricity for City electric accounts and charge the City according to rates approved by the Maryland Public Service Commission. This is called the "Standard Offer Service" (SOS) program and is administered under rules established by the Commission. Pepco updates the SOS rates in each rate schedule every few months and some rate schedules vary by hour or by time of day.
Historically, the City utilizes energy supply contracts for municipal accounts that are competitively bid and awarded by other state/local governments or public agencies. This allows the city to enter into fixed price agreements to protect against price volatility and support budget planning. In 2022, the City entered into an electricity supply service contract with WGL Energy Services, Inc. through the Baltimore Regional Cooperative Purchasing Committee (BRCPC) Electric Supply Services Contract #00003312. The contract term for the pricing ends in December 2024. The BRCPC contract is utilized by various Maryland county, city and local government jurisdictions, boards of educations, and other government entities and has nine annual renewable periods that continue through July 31, 2026.
WGL Energy Services is offering various electricity supply pricing through BRCPC Contract #00003312.
WGL provided indicative pricing for each rate schedule type listed above for terms ranging from 12 to 48 months. The market has been trading in a Contango, where prompt months are trading at a discount compared to future months, resulting in the 12-month term to be lower than the 18 and 24-month term. Table 1 summarizes the current rate, WGL 12-month indicative pricing, and Pepco SOS rates for comparison. The recommended option for each electricity account type is highlighted in blue. The Pepco SOS rates listed below factor in both generation and transmission rates to be comparable with WGL indicative pricing.
WGL indicative pricing for large commercial accounts and the water treatment plant are 11 to 13 percent below current rates and may result in modest savings in electricity supply; however, other fees and charges may vary and offset overall electricity cost savings. The City’s utility consultant recommends the City consider a fixed price agreement with WGL Energy to protect against price volatility. The Pepco SOS prices for these meters are variable and either change every couple of months or hourly (for MGT III). MGT III hourly prices are unknown and will fluctuate each hour of the day with no price ceiling. This volatility associated with SOS pricing can have significant budget impacts; therefore, it is not recommended to take a chance on hourly prices for the larger meter accounts.
WGL indicative pricing for streetlights and small accounts are below Pepco’s SOS rate, but higher than current rates. The smaller usage by these accounts results in modest estimated cost increases.
Table 1: Electricity Supply Option Summary and Recommended Approach (highlighted in blue)*
|
Account Type |
Current Contract Electricity Supply Pricing (Fixed Price $ per kWh) |
WGL Indicative Pricing for 12 Months (Fixed Price $ per kWh)** |
PEPCO Maryland Standard Offer Service (SOS) ($ per kWh) |
Estimated Annual Cost Impact from Current Contract to Recommended WGL (blue cells) |
|
Large Commercial Accounts (Pepco MGT LV II Accounts) (such as City Hall and various community centers, facilities and parks) |
$0.10825 to 12/24 |
$0.09655 (12/24 to 12/25) |
The next SOS rates will not be published until early October 2024 |
($66,026) |
|
Sandy Landing/Water Treatment Plant Account Pepco Time Meter Medium GS Prim Svc III (MGT III) Rate |
$0.1008 to 12/24 |
$0.08755 (12/24 to 12/25) |
Variable hourly rates |
($63,673) |
|
Small Usage Accounts Pepco General Service (GS) Rate |
$0.07297 to 12/24 |
$0.09545 (12/24 to 5/25) |
$0.11328 GS Rate generation + transmission from 10/1/2022 through 5/31/2023 |
$9,191 |
|
Streetlight Accounts Pepco Street Lighting (SL) Rate |
$0.07297 to 12/24 |
$0.07345 (12/24 to 12/25) |
$0.10076 SL Rate generation + transmission from 10/2024 through 5/2025 |
$710 |
* These rates are a main component of electricity prices; however, there are additional fees added to the contract rate by Pepco, such as distribution fees and other charges that make up the total electricity cost.
** Rates are based upon on indicative prices obtained by WGL Energy Services on September 10, 2024.
Given the pending December 2024 expiration of the City’s current electricity rate contracts with WGL and the volatile energy market, the City needs a strategy to minimize costs and risks for all electricity accounts. The electricity market can be quite volatile and requires contracts to be signed to lock-in prices within one to three hours of receiving final prices. According to the City’s utility consultant, there are several drivers for the price volatility: natural gas is a global commodity, there is increased demand for natural gas as the fuel source for electric power generation, and the production of natural gas has not kept pace with increased global demand. The U.S. Energy Information Administration (EIA) forecasts natural gas prices will remain relatively flat in the upcoming shoulder season during September and October before prices generally rise in 2025.
The City’s utility consultant recommends the City be in the position to monitor pricing and take advantage of pricing when it exists for the different account types. For this reason, staff recommends that the Mayor and Council authorize the City Manager to utilize the BRCPC electricity supply contract #00003312, monitor pricing, and execute agreements, in a form approved by the Office of the City Attorney, at the most appropriate opportunity for accounts in each of the four rate schedules. A sample agreement with WGL for MGT LV II Accounts is attached, and staff does not believe this will substantially change (Attachment A).
Mayor and Council History
The Mayor and Council have authorized the City Manager to utilize competitively bid electricity supply contracts to lock into favorable pricing on several occasions (October 3, 2022; July 15, 2019; October 24, 2016; April 4, 2016; June 16, 2014 and October 17, 2011). This enables the City to take advantage of favorable market commodity rates when they are available, to secure electricity supply rates for future budgets, and to protect against variable price increases.
Procurement
Section 17-87(3) of the Rockville City Code (Code) exempts purchases of water, sewer, electric, postage, or other utility services and motor vehicle license plates from competitive procurement.
Section 17-71(b) the Code, Cooperative Procurement, allows the City to contract with any contractor who offers goods, services, insurance, or construction on the same terms as provided other State and local governments or agencies thereof, who have arrived at those terms through a competitive procurement procedure similar to the procedures used by the City.
In 2022, the City entered into an electricity supply service contract with WGL Energy Services, Inc. through Baltimore Regional Cooperative Purchasing Committee Electric (BRCPC) Supply Services Solicitation No. P-146 and Master Agreement ID #00003312 with amendments, together referenced as the “BRCPC Contract.” In order to lock-in rates through December of 2025, the City can utilize the underlying BRCPC contract which has an annual automatic renewal term remaining through July 31, 2026.
Section 27 (Cooperative Purchase) of the BRCPC contract allows the contract to be bridged (utilized) by other entities, including municipalities.
WGL Energy Services, Inc. is a non-Minority, Female, Disabled or Veterans (non-MFD-V) business.
To view the BRCPC contract and associated documents, click the link below:
<https://www.swisstransfer.com/d/dcdeb1ae-f215-466e-ae8f-bd3bbf970548>
Fiscal Impact
Funds for the purchase of electricity are budgeted annually in various operating accounts in the Department of Recreation and Parks and the Department of Public Works. The FY 2025 electricity budget for all funds is $2.9 million.
The electricity supply contract accounts for roughly 50 percent of the electricity costs and does not include distribution charges, energy charges and taxes, and other charges by Pepco. Compared to current pricing, the estimated prices could result in modest annual electricity costs savings for the last six months of FY 2025. Actual savings will be dependent on the lock-in price, additional fees and charges added to the supply rate, and future usage.
Next Steps
Upon Mayor and Council approval, the utility consultant will monitor the market and notify staff when to seek indicative prices from WGL Energy Service for each type of rate category. When the City, in consultation with the utility consultant, decides that prices reflect a favorable time to lock-in pricing, a final set of firm prices will be obtained. Once firm prices are received, the City Manager will execute the appropriate agreement(s) in a form approved by the Office of the City Attorney and substantially similar to the sample agreement with WGL for MGT LV II Accounts (Attachment A).