Finance Committee Page 2
September 7, 2016
since fiscal 2008 roughly about $700,000 from the budgeted amount at that time and the magnitude of these
budgets, just so we know, the electricity budget for the total general fund amount is $3.5 million and the natural
gas is $1.3 million so it’s a pretty big portion of the general fund expenses. The reason we procure from a third
party is so we can typically beat the default rate and some of the numbers that | have here are; we typically
beat the natural gas default rate about 17% on average over the last several years and for electricity, for
example, right now we are about 19% below the default rate. Both of these supply rates make up a substantial
cost of electricity and natural gas. The supply for electricity is about 60% of the total electricity cost and for
natural gas it’s about 70%. The reason that we are asking for pre-approval is that these contracts; we typically
as vendors for pricing for a certain day or we refresh daily as the market changes and we evaluate the pricing
and then we would need to assign the contract by about 3:00 p.m. because commodity markets close and their
pricing is as of that day and time. We if we put it out to bid you pay for the suppliers to hedge any price risk
that they may have, fluctuations that may happen after hours, etc.
Mayor Donchess
On that last point what you are saying is that in order to enter a binding bid you need to be able to respond on
the same day and obviously the committee doesn’t continually meet so you are seeing pre-approval to enter
these contracts.
Mr. Danielson
Correct.
Alderman Deane
Those figures that you gave out, that was cost avoidance for the last seven fiscal years?
Mr. Danielson
Roughly, yes, in the budgeted amount. We have been able to reduce the budgets.
Alderman Deane
So | take it that $700,000 figure...so that was $100,000 per year.
Mr. Danielson
Roughly, yes.
Alderman Deane
Why did you wait this long? Aren't there better times a year to be buying than now?
Mr. Danielson
Typically we like to look at pricing on the shoulder months and shoulder months are May and June and
September and October. A few weeks ago may have been better but as we met with the Mayor and staff on
this issue this is when we could get it in front of the Finance Committee. The prices have come down in the
last week or so since the last time we have looked at pricing; it’s not a terrible time. Supply for natural gas is
high and weather is still uncertain for the winter so that factors into the price. As we get closer and predictions
for the winter may or may not affect the price more.
