In 2002, the State's electric deregulation legislation authorized the creation of electric aggregation groups to consolidate city electric procurements and thereby negotiate beneficial pricing. The Texas Coalition for Affordable Power (TCAP) now aggregates the electric needs of 165 members, which includes the Town of Addison.  

In previous TCAP contracts, the aggregation group looked for an electric purchase with one generator for up to five years in duration. The challenge was always when to lock-in for the next contract term. Electric costs are directly tied to present and future natural gas costs in the commodities futures markets.  A weather event like a hurricane in the Gulf of Mexico or international tensions in the Middle East can affect oil and natural gas prices and make finalizing an electric deal at the wrong time significantly more expensive.

With the hope of reducing future electric costs, TCAP studied past natural gas cost trends to seek an opportunity to take advantage of trends in the natural gas futures market. This led to a new contracting proposal that is termed the TCAP "Strategic Hedging Program" (SHP). The program aims to look forward for advantageous future natural gas costs and over time award shorter-term electric supply contracts to up to five highly qualified generators rather than just award the contract to a single vendor for many years at one point in time. TCAP will solicit these competitive contracts as frequently on a monthly basis and will allow TCAP to fill its total electric needs in a series of contracts with multiple qualified vendors. Should an adverse weather event or international tensions cause a temporary increase in future commodity costs, this procurement method allows TCAP the time to ride out the increase before going back into the electric market. TCAP looks to be purchasing electricity for future needs that are a year and a half to two years looking forward.

The TCAP Board of Directors believes that if at least 30 percent of its members endorse this strategy, it will be cost-effective to administer. Thirty-nine members that represent 23 percent of the 165 TCAP members have already signed agreements to participate in SHP. TCAP looks to easily achieve the thirty percent participation by early fall of 2020 to proceed with this initiative.

For cities that do not desire SHP, TCAP will still conduct its traditional bid solicitation to select one vendor that will likely be contracted for a three to five-year period.  However, comparing the SHP process to the fixed price model, the program does help secure consistently low comparative prices when compared to past market trends.

For cities that transition to SHP, TCAP is providing two "off-ramps" per year to allow these cities the opportunity to go back to the traditional type contract.  These cities will still have to use the electricity purchased under SHP, but their future contracts will be for a fixed-term at a fixed cost.

There are two documents that TCAP circulated for City Council consideration

1. A Professional Services Agreement between the Town and TCAP.  Under the contract TCAP will perform among other things: electric commodity contract negotiations with generators; interface with our REP GEXA on TCAP member billing and scheduling of purchased electricity on the ERCOT grid, and settlement of the electric market with ERCOT; performing legislative advocacy; coordinating member city activities at ERCOT, advising cities on completion of various state reports; and assisting member cities with electric budget preparation.
2. A Commercial Electric Service Agreement (CESA) between the Town and GEXA Energy, the current Retail Electric Provider (REP) of the Texas Coalition for Affordable Power (TCAP).  GEXA schedules the purchased electricity on the ERCOT grid to meet member demands, bills member cities, settles the market at ERCOT, assists with new individual account establishment and account termination, and interfaces with Addison's Transmission and Distribution Company, ONCOR electric.