New Electric Supply Contract Accepted
OCEAN CITY- Resort officials this week agreed on a new electric supply contract for municipal service with an option that could save the town hundreds of thousands of dollars.
City Engineer Terry McGean told the Mayor and Council on Tuesday the town's current electric power agreement is about to expire at the end of June and it was time to review bids for a new agreement that will last the next few years. McGean said the town recently received five bids for providing electric service and recommended the elected officials accept the low bid submitted by Strategic Electric.
McGean said the town typically bases its electric power agreement on a fixed-rate basis, but recommended the council consider a combination proposal that includes both fixed rate prices and prices subject to the whims of the open market. The decision could result in significant savings for the town in the long run. 'We're paying about $1.8 million annually right now,' he said. 'If we didn't shop it around, we could have paid as much as $2.1 million this year. At just the fixed rate proposal, we could pay around $1.87 million, but this other option could keep it right around what we paid this year.'
At such a high volume of power use, any slight difference in the rate per kilowatt hour can make a huge difference in the bottom line, according to McGean.
'Any one-cent change in the rate results in about a $200,000 impact on our budget,' he said.
The council approved the low bid submitted by Strategic Electric with a unanimous 7-0 vote, but McGean returned later in Tuesday's meeting with updated information about the bid offering after conferring with the consultant. McGean explained the 'Option D' offered by Strategic Electric combined purchasing blocks of electric power with fixed rates and supplementing that with energy purchased on the open market.
'We can lock in the fixed rate price for three years, but we can also shop some of our electric power purchase, which we think will bring our cost down significantly. We think it will result in about $100,000 in savings a year.'
However, McGean said the plan was not without flaws. Opting not to purchase all of the electric power at the fixed rate leaves the town open to unstable influences in the volatile electric power market.
'There is some risk involved,' he said. 'That's why the rates are lower. We'll be somewhat more exposed to the market.'
It was a risk the council was willing to take given the potential for big savings in the long run. After considerable discussion, the council voted unanimously to accept the low bid from Strategic Electric.