Florida Municipal Power Agency. Executive Committee Meeting

Transcription

1 Florida Municipal Power Agency Executive Committee Meeting September 17, :00 a.m. Executive Committee Howard McKinnon, Havana - Chairman Lynne Tejeda, Key West Vice Chairwoman Bruce Hickle, Bushnell Danny Williams, Clewiston Fred Hilliard, Fort Meade Clay Lindstrom, Fort Pierce Robert Page, Green Cove Springs Allen Putman, Jacksonville Beach Larry Mattern, Kissimmee Patrick Foster, Leesburg Bill Conrad, Newberry Mike Poucher, Ocala Tom Ernharth, Starke Meeting Held 10:00 a.m. Thursday, September 17, 2015 Florida Municipal Power Agency 8553 Commodity Circle Orlando, FL Page 1 of 127

2 TO: FROM: FMPA Executive Committee Nicholas Guarriello DATE: September 8, 2015 RE: Executive Committee Meeting Thursday, September 17, 2015 at 10:00 a.m. (Or Immediately After the Board of Directors Meeting) PLACE: Florida Municipal Power Agency, 8553 Commodity Circle, Orlando, FL Board Room, Orlando, Florida DIAL-IN INFORMATION: or ACCESS CODE 91583# (If you have trouble connecting via phone or internet, please call ) Chairman Howard McKinnon, Presiding AGENDA 1) Call to Order, Roll Call, Declaration of Quorum ) Set Agenda (By Vote) ) Recognition of Guests ) Public Comments (Individual Public comments to be limited to 3 minutes) ) Comments from the Chairman (Howard McKinnon) ) Report from the General Manager (Nick Guarriello) ) Sunshine Law Update (Jody Finklea) Page 2 of 127

3 FMPA Executive Committee Meeting September 8, 2015 Page 2 8) Consent Agenda a) Approval of Meeting Minutes Meeting Held August 20, 2015; ARP Telephonic Rate Workshop Minutes Workshop Held August 7, b) Approval of Treasury Reports As of July 31, c) Approval of the Agency and All-Requirements Project Financials as of July 31, d) Approval of Rate Schedule B-1 for FY2016 (Jim Arntz) ) Action Items a) Approval of Follow-up Response to Auditor General Finding No. 2 - Natural Gas Supply Agency Participation Procedure/Policy (Public Gas Partners) (Mark Larson/Nick Guarriello) b) Approval to Periodically Evaluate Employee Benefits Auditor General Finding No. 5 (Mark McCain/Nick Guarriello) c) Approval for Expansion of FMPA s Disaster Recovery Site Auditor General Finding No. 15 (Mark Larson/Nick Guarriello) d) Approval of Peak Shaving Monitoring and Corrective Action Procedure Auditor General Finding No. 13 (Frank Gaffney/Nick Guarriello) ) Information Items a) Update on Travel Expenditures Auditor General Finding No. 12 (Mark McCain/Nick Guarriello) b) SEC Compliance, Continuing Disclosure Policies and Procedures (Jody Finklea) c) Wells Fargo Line of Credit Renewal (Janet Davis) d) Hedge Position Portfolio Update June 2015 (Rich Popp) ) Other Information a) FYI Invoice Summary Report from Spiegel and McDiarmid ) Member Comments ) Adjournment One or more participants in the above referenced public meeting may participate by telephone. At the above location there will be a speaker telephone so that any interested person can attend this public meeting and be fully informed of the discussions taking place either in person or by telephone communication. If anyone chooses to appeal any decision that may be made at this public meeting, such person will need a record of the proceedings and should accordingly ensure that a verbatim record of the proceedings is made, which includes the oral statements and evidence upon which such appeal is based. This public meeting may be continued to a date and time certain, which will be announced at the meeting. Any person requiring a special accommodation to participate in this public meeting because of a disability, should contact FMPA at (407) or 1-(888) , at least two (2) business days in advance to make appropriate arrangements. Page 3 of 127

4 AGENDA ITEM 1 CALL TO ORDER, ROLL CALL, DECLARATION OF QUORUM Executive Committee September 17, 2015 Page 4 of 127

5 AGENDA ITEM 2 SET AGENDA (By Vote) Executive Committee September 17, 2015 Page 5 of 127

6 AGENDA ITEM 3 RECOGNITION OF GUESTS Executive Committee September 17, 2015 Page 6 of 127

7 AGENDA ITEM 4 PUBLIC COMMENTS (INDIVIDUAL COMMENTS TO BE LIMITED TO 3 MINUTES) Executive Committee Meeting September 17, 2015 Page 7 of 127

8 VERBAL REPORT VERBAL REPORT AGENDA ITEM 5 COMMENTS FROM THE CHAIRMAN Executive Committee September 17, 2015 Page 8 of 127

9 VERBAL REPORT VERBAL REPORT AGENDA ITEM 6 REPORT FROM THE GENERAL MANAGER Executive Committee September 17, 2015 Page 9 of 127

10 VERBAL REPORT VERBAL REPORT AGENDA ITEM 7 SUNSHINE LAW UPDATE Executive Committee September 17, 2015 Page 10 of 127

11 AGENDA ITEM 8 CONSENT AGENDA a) Approval of Meeting Minutes Meetings Held August 20, 2015; ARP Telephonic Rate Workshop Minutes Workshop Held August 7, 2015 Executive Committee September 17, 2015 Page 11 of 127

12 CLERKS DULY NOTIFIED....June 10, 2015 AGENDA PACKAGES/CDS FEDEXED TO MEMBERS.... June 10, 2015 MINUTES EXECUTIVE COMMITTEE THURSDAY, AUGUST 20, 2015 FLORIDA MUNICIPAL POWER AGENCY 8553 COMMODITY CIRCLE ORLANDO, FL PARTICIPANTS PRESENT Bushnell - Bruce Hickle Clewiston - Danny Williams (via telephone) Fort Meade - Fred Hilliard (via telephone) Fort Pierce - Clay Lindstrom Green Cove Springs - Robert Page Havana - Howard McKinnon Jacksonville Beach - Allen Putnam Key West - Lynne Tejeda Kissimmee - Larry Mattern Leesburg - Patrick Foster Newberry - Bill Conrad Ocala - Mike Poucher PARTICIPANTS ABSENT Starke - Tom Ernharth OTHERS PRESENT STAFF PRESENT Randy Old, Vero Beach Grant Lacerte, Kissimmee Joe Hostetler, Kissimmee Donna Painter, nfront Consulting, LLC David Anderson, Ocala George Forbes, Jacksonville Beach (via telephone) Craig Dunlap, Dunlap & Associates, Inc. Paul Jakubczak, Fort Pierce Bruce Christmas, RBC Consultants (via telephone) Nick Guarriello, General Manager and CEO Jody Finklea, Assistant General Counsel and Manager of Legal Affairs Mark McCain, Assistant General Manager, Public Relations & Human Resources Page 12 of 127

13 Executive Committee Meeting Minutes August 20, 2015 Page 2 of 5 Mark Larson, Assistant General Manager, Finance and Information Technology and CFO Frank Gaffney, Assistant General Manager, Power Resources Michelle Pisarri, Administrative Coordinator Sue Utley, Executive Assistant to the CEO/Asst. Secry to the BOD Janet Davis, Treasurer Rich Popp, Contract Compliance Audit and Risk Manager Jim Arntz, Senior Financial Analyst Rick Minch, Controller Carol Chinn, Regulatory Compliance Officer Tom Richards, Executive Consultant ITEM 1 - CALL TO ORDER, ROLL CALL, AND DECLARATION OF QUORUM: Chairman Howard McKinnon, Havana, called the FMPA Executive Committee meeting to order at 12:00 p.m. on Thursday, August 20, 2015 in the Boardroom, Florida Municipal Power Agency, 8553 Commodity Circle, Orlando, Florida. The roll was taken and a quorum was declared with 12 members present out of a possible 13. ITEM 2 SET AGENDA (BY VOTE): MOTION: Mrs. Tejeda, Key West, moved to set the agenda as presented. Mr. Putnam, Jacksonville Beach, seconded the motion. Motion carried ITEM 3 RECOGNITION OF GUESTS: None. ITEM 4 PUBLIC COMMENTS: None. ITEM 5 COMMENTS FROM THE CHAIRMAN: Chairman McKinnon had no comments. ITEM 6 REPORT FROM GENERAL MANAGER: Nick Guarriello, General Manager and CEO reported on the following items: Duke ROE transmission settlement and correction on July 24, 2015 minutes. Page 13 of 127

14 Executive Committee Meeting Minutes August 20, 2015 Page 3 of 5 ITEM 7 SUNSHINE LAW UPDATE IN A MINUTE: Jody Finklea, Assistant General Counsel & Manager of Legal Affairs, provided a verbal report on a recent Florida Supreme Court public records law decision. ITEM 8 CONSENT AGENDA: Item 8a Approval of Meeting Minutes Meetings Held July 24, 2015 and July 30, 2015; ARP Telephonic Rate Workshop Minutes Workshop Held July 9, 2015 Item 8b - Approval of Treasury Reports - As of June 30, 2015 Item 8c Approval of Agency and All-Requirements Project Financials as of June 30, 2015 MOTION: Mr. Putnam, Jacksonville Beach, moved approval of the consent agenda as presented. Mr. Poucher, Ocala, seconded the motion. Motion carried ITEM 9 ACTION ITEMS: Item 9a Approval of Resolution 2015-EC5 Approval of All-Requirements Budget for Fiscal Year 2016 MOTION: Mr. Mattern, Kissimmee, moved approval of Resolution 2015-EC5, and approval of a $2,000 spending authority limit for the plant manager at the Stock Island Generating Facility in Key West. Mr. Hickle, Bushnell, seconded the motion. The Resolution was read by title. RESOLUTION OF THE EXECUTIVE COMMITTEE OF THE FLORIDA MUNICIPAL POWER AGENCY: (I) ESTABLISHING THE ANNUAL FLORIDA MUNICIPAL POWER ALL-REQUIREMENTS POWER SUPPLY PROJECT BUDGET FOR THE FISCAL YEAR BEGINNING OCTOBER 1, 2015, AND ENDING SEPTEMBER 30, 2016; (II) DEFINING BUDGET AMENDMENTS; (III) ESTABLISHING LEVELS OF APPROVAL REQUIRED FOR BUDGET AMENDMENTS; (IV) PROVIDING FOR ACCOUNT ADJUSTMENTS; (V) PROVIDING FOR LAPSE OF UNEXPENDED FUNDS; (VI) RATIFYING, APPROVING, AND ADOPTING THE ANNUAL FLORIDA MUNICIPAL POWER AGENCY ALL-REQUIREMENTS POWER SUPPLY PROJECT BUDGET FOR THE FISCAL YEAR BEGINNING OCTOBER 1, 2015, AND ENDING SEPTEMBER 30, 2016, AND THE CORRESPONDING BUDGET DOCUMENTS; (VII) PROVIDING FOR INTERIM FUNDING AND REIMBURSEMENT FROM DEBT FINANCING OF CAPITAL Page 14 of 127

15 Executive Committee Meeting Minutes August 20, 2015 Page 4 of 5 IMPROVEMENTS AND PROVIDING FOR DELEGATION TO AUTHORIZED OFFICERS; (VIII) MAKING A DETERMINATION OF A PUBLIC PURPOSE FOR BUDGETED EXPENDITURES; AND (IX) PROVIDING AN EFFECTIVE DATE. Motion carried Item 9b Approval for Expansion of FMPA s Disaster Recovery Site Auditor General Finding No. 15 MOTION: Mr. Mattern, Kissimmee, moved to table this item until the next meeting. Mrs. Tejeda, Key West, seconded the motion. Motion carried ITEM 10 INFORMATION ITEMS: a. All-Requirement Rate Cost Category Assignment for Taylor Swap Termination Financing Costs b. Update on Natural Gas Supply Agency Participation (Public Gas Partners) - Auditor General Finding No. 2 c. Update on Employee Benefits Auditor General Finding No. 5 d. Update on Peak Shaving Auditor General Finding No. 13 e. Status of the 2014 Management Letter Comments f. Quarterly Compliance Update g. Hedge Portfolio Position Update June 2015 Staff reported on the above items with discussion from the Executive Committee. For item 10.f., it was requested that staff track costs of compliance for FMPA and FMPA s members, including implementation costs for changes to comply with reliability standards. ITEM 12 MEMBER COMMENTS: Mrs. Tejeda of Key West complimented Carl Turner and his staff. She stated she was very impressed with their work efforts and expressed her gratitude. Mr. Page of Green Cove Springs, suggested that the group look at the value of having Page 15 of 127

16 Executive Committee Meeting Minutes August 20, 2015 Page 5 of 5 the ARP Rate calls monthly. He stated that while he doesn t often call in for them, but the information sent out is valuable. Chairman McKinnon stated that for the foreseeable future, the ARP monthly rate calls will be cancelled, however the monthly packet will still be sent out before the 10 th of each month. Mr. Lacerte, Kissimmee, stated that he d like the group to have discussion on future agendas on solar storage and distributive generation. ITEM 13 ADJOURNMENT: There being no further business, the meeting was adjourned at 1:41 p.m. Howard McKinnon Chairperson, Executive Committee Sue Utley Assistant Secretary Approved: Seal Page 16 of 127

17 AGENDA PACKAGES SENT TO MEMBERS... August 6, 2015 PUBLIC NOTICE SENT TO CLERKS... July 30, 2015 DRAFT MINUTES EXECUTIVE COMMITTEE ALL-REQUIREMENTS POWER SUPPLY PROJECT TELEPHONIC RATE WORKSHOP FRIDAY, AUGUST 7, 2015 FLORIDA MUNICIPAL POWER AGENCY 8553 COMMODITY CIRCLE ORLANDO, FLORIDA COMMITTEE MEMBERS PRESENT Bushnell - Bruce Hickle (via telephone) Clewiston - Danny Williams (via telephone) Green Cove Springs - Robert Page (via telephone) Kissimmee - Larry Mattern (via telephone) Key West - Lynne Tejeda (via telephone) Jacksonville Beach - Allen Putnam(via telephone) Ocala - Mike Poucher (via telephone) Leesburg - Patrick Foster (via telephone) COMMITTEE MEMBERS ABSENT OTHERS PRESENT Fort Pierce - Clay Lindstrom Fort Meade - Fred Hilliard Havana - Howard McKinnon Newberry - Bill Conrad Starke - Tom Ernharth David Anderson, Ocala (via telephone) STAFF PRESENT Mark Larson, Assistant General Manager, Finance and Information Technology and CEO Sue Utley, Executive to the GM and CEO and Assistant to the BOD Rich Popp, Contract Compliance Audit and Risk Manager Jim Arntz, Senior Financial Analyst Jody Lamar Finklea, Assistant General Counsel and Manager of Legal Affairs (via telephone) Page 17 of 127

18 EC ARP Rate Telephonic Workshop Minutes August 7, 2015 Page 2 of 2 Item 1 Call to Order Vice Chairwoman Lynne Tejeda called the Executive Committee All-Requirements Telephonic Rate Workshop to order at 2:00 p.m. on Friday, August 7, 2015, via telephone. A speaker telephone for public attendance and participation was located in the 1 st floor conference room at Florida Municipal Power Agency, 8553 Commodity Circle, Orlando, Florida. Item 2 Information Items Mr. Popp gave a verbal update on the natural gas markets. Mr. Larson gave a verbal update on ARP liquidity. Mr. McKinney provided a verbal report on Florida Municipal Power Pool Operations for July. Mr. Arntz reviewed the loads, costs and ARP rate calculations for the month of July and estimated rate ranges for August 2015 and September Item 3 Member Comments None. There being no further business, the meeting was adjourned at 2:17 p.m. Approved ML/JA/mlp Page 18 of 127

19 AGENDA ITEM 8 CONSENT AGENDA b) Approval of Treasury Reports - As of July 31, 2015 Executive Committee September 17, 2015 Page 19 of 127

20 TO: FROM: AGENDA PACKAGE MEMORANDUM FMPA Executive Committee Gloria Reyes DATE: September 8, 2015 ITEM: EC 8(b) Approval of the All-Requirements Project Treasury Reports as of July 31, 2015 Strategic Relevance FMPA s Relevant Strategic Goals 1. Be the lowest cost, sustainable wholesale power provider in Florida 2. Foster a positive communication culture Policy Decisions/Implications To report operation and effectiveness of asset management To report on the current opportunities and risk environment affecting FMPA Introduction Debt Discussion This report is a quick update on the Treasury Department s functions. The Treasury Department reports for July are posted in the member portal section of FMPA s website. The All-Requirements Project has fixed, variable, and synthetically fixed rate debt. The variable rate portion is 1.58%. The fixed and synthetic fixed rate percentages of total debt are 72% and 26%, respectively. The estimated bonded debt interest funding for fiscal year 2015 as of July 31, 2015 is $ million. The total amount of debt outstanding is $1,125, Page 20 of 127

21 EC 8(b) Approval of the All-Requirements Project Treasury Reports as of July 31, 2015 September 8, 2015 Page 2 Hedging Discussion The Project has 16 interest rate swap contracts. As of July 31, 2015, the cumulative termination value of the interest rate swaps in the All- Requirements Project was $59,638, The last of the forward starting swaps ( Taylor Swaps ) were terminated in July. The Swap Valuation Report is a snap shot of the mark-to-market values at the end of the day on July 31, The report for July is posted in the Member Portal section of FMPA s website. Investment Discussion The investments in the Project are comprised of debt from the government-sponsored enterprises such as the Federal Farm Credit Bank, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae), as well as investments in U.S. Treasuries, Municipal Bonds, Commercial Paper and Money Market Mutual Funds. As of July 31, 2015, the All-Requirements Project investment portfolio earned a weighted average rate of return of 0.350%, reflecting the All- Requirements Project need for liquidity given its 60-day cash position. The benchmarks (SBA s Florida Prime Fund and the 10 year US Treasury Note) and the Project s yields are graphed below: Page 21 of 127

22 EC 8(b) Approval of the All-Requirements Project Treasury Reports as of July 31, 2015 September 8, 2015 Page % All-Requirement's Weighted Average Yield 5-Year History 3.00% 2.00% 1.00% 0.00% Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 FL Prime 10 Yr. Treasury All Requirements Project Page 22 of 127

23 EC 8(b) Approval of the All-Requirements Project Treasury Reports as of July 31, 2015 September 8, 2015 Page 4 Below is a graph of U.S. Treasury yields for the past 5 years US Government Treasury Securities Interest Rates 5-Year History /31/ /31/2010 1/31/2011 4/30/2011 7/31/ /31/2011 1/31/2012 4/30/2012 7/31/ /31/2012 1/31/2013 4/30/2013 7/31/ /31/2013 1/31/2014 4/30/2014 7/31/ /31/2014 1/31/2015 4/30/2015 7/31/ Yr Treasury Yield 5-Yr Treasury Yield 10-Yr Treasury Yield The Investment Report for July is posted in the Member Portal section of FMPA s website. Recommended Motion Move approval of the Treasury Reports for July 31, 2015 Page 23 of 127

24 AGENDA ITEM 8 CONSENT AGENDA c) Approval of the Agency and All-Requirements Project Financials as of July 31, 2015 Executive Committee September 17, 2015 Page 24 of 127

25 AGENDA PACKAGE MEMORANDUM TO: FMPA Executive Committee FROM: Rick Minch DATE: September 8, 2015 ITEM: EC 8c Approval of the Agency and All-Requirements Project Financials for the period ended July 31, Discussion: The summary and detailed financial statements of the Agency and All-Requirements Project for the period ended July 31, 2015 are posted on the members only FMPA website. Recommended Motion: Move approval of the Agency and All-Requirements Project Financial reports for the month of July 31, RM/DF Page 25 of 127

26 AGENDA ITEM 8 CONSENT AGENDA d) Approval of Rate ScheduleB-1 for FY2016 Executive Committee September 17, 2015 Page 26 of 127

27 AGENDA PACKAGE MEMORANDUM TO: FMPA Executive Committee FROM: Jim Arntz DATE: September 8, 2015 ITEM: 8d Approval of Rate Schedule B-1 for FYE 2016 Introduction The ARP budget approved in August of 2015 included the ARP base billing rates for FYE The ARP energy rate was listed as $22.30 per MWH, the demand rate was listed as $24.24 per kw month, and the transmission rate was listed as $2.58 per kw month. Discussion The attached Rate Schedule B-1 (clean and redline versions) has been revised to reflect the ARP FYE 2016 budgeted billing rates. Per Rate Schedule B-1, and as is done currently, the rates listed will be adjusted each month to reflect ARP s cash position and projected operating and maintenance expenses. Recommended Motion Move approval of Rate Schedule B-1, effective October 1, Page 27 of 127

28 RATE SCHEDULE B-1 PAGE 1 OF 5 EFFECTIVE: October 1, 2015 FLORIDA MUNICIPAL POWER AGENCY POWER SUPPLY RATE SCHEDULE FOR ALL-REQUIREMENTS PROJECT PARTICIPANTS 1. Applicability. Electric service for All-Requirements Services and Back-up and Support Services as defined in the All-Requirements Power Supply Project Contract for their own use and for resale. 2. Availability. This Schedule B-1 is available to the Project Participants purchasing electric capacity and energy from FMPA under the terms of the All-Requirements Power Supply Project Contracts as All-Requirements Services and, if applicable, as Back-Up and Support Services. 3. Character of Service. Electricity furnished under this Schedule B-1 at one or more Points of Delivery as set forth in Schedule A shall be sixty-hertz, three phase, alternating current. 4. Billing Rate for All-Requirements Services. (a) For electricity furnished hereunder as All-Requirements Services, the charges for each month shall be determined as follows: Customer Charge Demand Capacity Charge Demand Transmission Demand Transmission Kissimmee Utility Authority Energy Charge Reactive Demand Charge For each Project Participant, previously referred to as the East Group (Clewiston, Fort Pierce, Green Cove Springs, Jacksonville Beach, Key West, Lake Worth, Starke and Vero Beach) the charge is $1, per Point of Delivery. The Project Participants previously referred to as the West Group (Bushnell, Leesburg, Ocala, Ft. Meade, Havana, Kissimmee and Newberry). The charge is $ per Point of Delivery. $ per kilowatt ("kw") of capacity billing demand $ 2.58 per kilowatt ("kw") of transmission billing demand $.77 per Kilowatt ("kw") of transmission billing demand $ per megawatt-hour ("MWh") for all energy supplied as All-Requirements Service $0.00 per kilo-var ("kvar") of excess billing reactive demand Page 28 of 127

29 RATE SCHEDULE B-1 PAGE 2 OF 5 EFFECTIVE: October 1, 2015 (b) Delivery Voltage Adjustment for All-Requirements Services. The Billing Rates under paragraph (a) are based on delivery of electric capacity and energy to the Project Participant at 115,000 volts or higher. Where capacity and energy is delivered at voltages less than 115,000 volts, the Billing Rates under paragraph (a) shall be increased as follows: Demand Energy Charge Charge Delivery Voltage Adjustment Adjustment 69,000 volts $0.00/kW $0.00/kWh 12,000/25,000 volts.722/kw $ Under 12,000 volts.722/kw $ Billing Metering For All-Requirements Services. The metered demand in kw in each month shall be the individual Project Participant's total 60 minute integrated demand at the time of the highest 60 minute integrated demand for the total of all ARP system Project Participants (or corrected to a 60 minute basis if demand registers other than 60 minute demand registers are installed) measured during the month. The metered reactive demand in kvar in each month shall be the reactive demand, which occurred during the same 60-minute demand interval in which the metered kilowatt demand occurred. Demand and energy meter readings shall be adjusted, if appropriate, as provided in Schedule A of the All-Requirements Power Supply Project Contract. 6. Billing Demand-Capacity for All-Requirements Services. The billing demand capacity in any period shall be the metered demand for the period as determined under paragraph 5, giving effect to all adjustments, less the Project Participant's, Excluded Power Supply Resources capacity, if any. 7. Billing Demand-Transmission for All-Requirements Services. The billing demand capacity in any period shall be the metered demand for the period as determined under paragraph 5, giving effect to all adjustments, but including the Project Participant's, Excluded Power Supply Resources capacity, if any. Page 29 of 127

30 RATE SCHEDULE B-1 PAGE 3 OF 5 EFFECTIVE: October 1, Billing Reactive Demand for All-Requirements Services. The billing reactive demand for any month shall be the amount of reactive demand in kvar by which the metered reactive demand exceeds one-half of the metered kilowatt demands, or such other amount as shall be determined from time to time by FMPA. 9. Energy Cost Adjustment for All-Requirements Services. The monthly bill computed hereunder shall adjust the base energy rate by an amount to the nearest one-thousand of a cent, determined by use of the formula below: ER = $ kWh +ETCA Where: ER = Energy Rate to be applied each kwh of billed energy. ETCA = Energy Total Cost Adjustment to be determined according to the following procedure: 1. The number days of available cash will be determined each month and rounded to the nearest five days. 2. A confidence percentage based on following table will be selected to determine the amount of the total cost adjustment. The Confidence Percentage will then be applied to the output of the probabilistic model discussed below. Days of Available Cash 30 day or less 95% 35 days 88% 40 days 80% 45 days 73% 50 days 65% 55 days 58% 60 days 50% 65 days 43% 70 days 35% 75 days 28% 80 days 20% 85 days 13% 90 days and over 5% Associated Confidence Percentage Page 30 of 127

31 RATE SCHEDULE B-1 PAGE 4 OF 5 EFFECTIVE: October 1, A probabilistic model will be used to estimate next four months of projected energy total cost and projected total kwh sales for providing the All- Requirements Project power supply. For purposes of this adjustment, FMPA s owned and controlled generating units including purchased power or interchange power purchased by FMPA from other suppliers less the energy cost of sales to other utilities, will be used in the calculations. 4. A probabilistic model will also be used to allocate the most current ARP Participant over-recovery and under-recovery balance as listed ARP s Comparative Statement of Net Asset report. This balance will be applied over the next four months and tied to the appropriate percentage level listed in the table above. 10. Demand and Transmission Cost Adjustment for All-Requirements Services. The monthly bill computed hereunder shall adjust the base demand capacity rate by an amount to the nearest one-thousand of a cent, determined by use of the formula below: DR = Demand or Transmission per kw/month +DTCA Where: DR = Demand Rate to be applied each kw of billed demand. DTCA = Demand Total Cost Adjustment to be determined according to the same procedure as the ETCA except where kwh will be replaced by kw in item 3 within section Funding for Participants Load Retention Programs. Each Participant shall be credited with an amount equal to the Participants monthly billing energy times $0.30 per MWh. This credit may be used by the Participant to fund Load Retention Programs approved by the Participants governing body, or for other lawful usage. 12. Tax Adjustment Clause for All-Requirements Services. In the event of the imposition of any tax, or payment in lieu thereof, by any lawful authority on FMPA for production, transmission, or sale of electricity, the charges hereunder may be increased to pass on to the Project Participant its share of such tax or payment in lieu thereof. 13. Late Payment Charge. FMPA may impose a late payment charge on the unpaid balance of any amount not paid when due. Such charge shall be equal to the interest on the unpaid balance from the due date to the date of payment, with the interest rate being the arithmetic mean, to the nearest one-hundredth of one percent (.01%) of the prime rate values published in the Federal Reserve Bulletin for the fourth, third, and second months prior to the due date. The interest required to be paid under this clause will be compounded monthly. Page 31 of 127

32 RATE SCHEDULE B-1 PAGE 5 OF 5 EFFECTIVE: October 1, Month. The month shall be in accordance with a schedule established by FMPA. 15. Special Jacksonville Beach Charge. In the event that FMPA pays or is billed for any amounts by the JEA for back-up transmission capability and/or transmission services and /or back-up electric service supplied by JEA for the City of Jacksonville Beach, such amounts shall be added to any amounts otherwise billed to the City of Jacksonville Beach by FMPA pursuant to this Schedule B-1, less $9, per month, at such times as FMPA shall determine. Page 32 of 127

33 RATE SCHEDULE B-1 PAGE 1 OF 5 EFFECTIVE: October 1, FLORIDA MUNICIPAL POWER AGENCY POWER SUPPLY RATE SCHEDULE FOR ALL-REQUIREMENTS PROJECT PARTICIPANTS 1. Applicability. Electric service for All-Requirements Services and Back-up and Support Services as defined in the All-Requirements Power Supply Project Contract for their own use and for resale. 2. Availability. This Schedule B-1 is available to the Project Participants purchasing electric capacity and energy from FMPA under the terms of the All-Requirements Power Supply Project Contracts as All-Requirements Services and, if applicable, as Back-Up and Support Services. 3. Character of Service. Electricity furnished under this Schedule B-1 at one or more Points of Delivery as set forth in Schedule A shall be sixty-hertz, three phase, alternating current. 4. Billing Rate for All-Requirements Services. (a) For electricity furnished hereunder as All-Requirements Services, the charges for each month shall be determined as follows: Customer Charge Demand Capacity Charge Demand Transmission Demand Transmission Kissimmee Utility Authority Energy Charge Reactive Demand Charge For each Project Participant, previously referred to as the East Group (Clewiston, Fort Pierce, Green Cove Springs, Jacksonville Beach, Key West, Lake Worth, Starke and Vero Beach) the charge is $1, per Point of Delivery. The Project Participants previously referred to as the West Group (Bushnell, Leesburg, Ocala, Ft. Meade, Havana, Kissimmee and Newberry). The charge is $ per Point of Delivery. $ per kilowatt ("kw") of capacity billing demand $ per kilowatt ("kw") of transmission billing demand $.797 per Kilowatt ("kw") of transmission billing demand $ per megawatt-hour ("MWh") for all energy supplied as All-Requirements Service $0.00 per kilo-var ("kvar") of excess billing reactive demand Page 33 of 127

34 RATE SCHEDULE B-1 PAGE 2 OF 5 EFFECTIVE: October 1, (b) Delivery Voltage Adjustment for All-Requirements Services. The Billing Rates under paragraph (a) are based on delivery of electric capacity and energy to the Project Participant at 115,000 volts or higher. Where capacity and energy is delivered at voltages less than 115,000 volts, the Billing Rates under paragraph (a) shall be increased as follows: Demand Energy Charge Charge Delivery Voltage Adjustment Adjustment 69,000 volts $0.00/kW $0.00/kWh 12,000/25,000 volts.722/kw $ Under 12,000 volts.722/kw $ Billing Metering For All-Requirements Services. The metered demand in kw in each month shall be the individual Project Participant's total 60 minute integrated demand at the time of the highest 60 minute integrated demand for the total of all ARP system Project Participants (or corrected to a 60 minute basis if demand registers other than 60 minute demand registers are installed) measured during the month. The metered reactive demand in kvar in each month shall be the reactive demand, which occurred during the same 60-minute demand interval in which the metered kilowatt demand occurred. Demand and energy meter readings shall be adjusted, if appropriate, as provided in Schedule A of the All-Requirements Power Supply Project Contract. 6. Billing Demand-Capacity for All-Requirements Services. The billing demand capacity in any period shall be the metered demand for the period as determined under paragraph 5, giving effect to all adjustments, less the Project Participant's, Excluded Power Supply Resources capacity, if any. 7. Billing Demand-Transmission for All-Requirements Services. The billing demand capacity in any period shall be the metered demand for the period as determined under paragraph 5, giving effect to all adjustments, but including the Project Participant's, Excluded Power Supply Resources capacity, if any. Page 34 of 127

35 RATE SCHEDULE B-1 PAGE 3 OF 5 EFFECTIVE: October 1, Billing Reactive Demand for All-Requirements Services. The billing reactive demand for any month shall be the amount of reactive demand in kvar by which the metered reactive demand exceeds one-half of the metered kilowatt demands, or such other amount as shall be determined from time to time by FMPA. 9. Energy Cost Adjustment for All-Requirements Services. The monthly bill computed hereunder shall adjust the base energy rate by an amount to the nearest one-thousand of a cent, determined by use of the formula below: ER = $ kWh +ETCA Where: ER = Energy Rate to be applied each kwh of billed energy. ETCA = Energy Total Cost Adjustment to be determined according to the following procedure: 1. The number days of available cash will be determined each month and rounded to the nearest five days. 2. A confidence percentage based on following table will be selected to determine the amount of the total cost adjustment. The Confidence Percentage will then be applied to the output of the probabilistic model discussed below. Days of Available Cash 30 day or less 95% 35 days 88% 40 days 80% 45 days 73% 50 days 65% 55 days 58% 60 days 50% 65 days 43% 70 days 35% 75 days 28% 80 days 20% 85 days 13% 90 days and over 5% Associated Confidence Percentage Page 35 of 127

36 RATE SCHEDULE B-1 PAGE 4 OF 5 EFFECTIVE: October 1, A probabilistic model will be used to estimate next four months of projected energy total cost and projected total kwh sales for providing the All- Requirements Project power supply. For purposes of this adjustment, FMPA s owned and controlled generating units including purchased power or interchange power purchased by FMPA from other suppliers less the energy cost of sales to other utilities, will be used in the calculations. 4. A probabilistic model will also be used to allocate the most current ARP Participant over-recovery and under-recovery balance as listed ARP s Comparative Statement of Net Asset report. This balance will be applied over the next four months and tied to the appropriate percentage level listed in the table above. 10. Demand and Transmission Cost Adjustment for All-Requirements Services. The monthly bill computed hereunder shall adjust the base demand capacity rate by an amount to the nearest one-thousand of a cent, determined by use of the formula below: DR = Demand or Transmission per kw/month +DTCA Where: DR = Demand Rate to be applied each kw of billed demand. DTCA = Demand Total Cost Adjustment to be determined according to the same procedure as the ETCA except where kwh will be replaced by kw in item 3 within section Funding for Participants Load Retention Programs. Each Participant shall be credited with an amount equal to the Participants monthly billing energy times $0.30 per MWh. This credit may be used by the Participant to fund Load Retention Programs approved by the Participants governing body, or for other lawful usage. 12. Tax Adjustment Clause for All-Requirements Services. In the event of the imposition of any tax, or payment in lieu thereof, by any lawful authority on FMPA for production, transmission, or sale of electricity, the charges hereunder may be increased to pass on to the Project Participant its share of such tax or payment in lieu thereof. 13. Late Payment Charge. FMPA may impose a late payment charge on the unpaid balance of any amount not paid when due. Such charge shall be equal to the interest on the unpaid balance from the due date to the date of payment, with the interest rate being the arithmetic mean, to the nearest one-hundredth of one percent (.01%) of the prime rate values published in the Federal Reserve Bulletin for the fourth, third, and second months prior to the due date. The interest required to be paid under this clause will be compounded monthly. Page 36 of 127

37 RATE SCHEDULE B-1 PAGE 5 OF 5 EFFECTIVE: October 1, Month. The month shall be in accordance with a schedule established by FMPA. 15. Special Jacksonville Beach Charge. In the event that FMPA pays or is billed for any amounts by the JEA for back-up transmission capability and/or transmission services and /or back-up electric service supplied by JEA for the City of Jacksonville Beach, such amounts shall be added to any amounts otherwise billed to the City of Jacksonville Beach by FMPA pursuant to this Schedule B-1, less $9, per month, at such times as FMPA shall determine. Page 37 of 127

38 AGENDA ITEM 9 ACTION ITEMS a) Approval of Follow-up Response to Auditor General Finding No. 2 - Natural Gas Supply Agency Participation Procedure/Policy (Public Gas Partners) Executive Committee September 17, 2015 Page 38 of 127

39 TO: FROM: Executive Committee (EC) Mark Larson DATE: Sept 8, 2015 ITEM: AGENDA PACKAGE MEMORANDUM EC-9(a) Approval of Follow-up Response to Auditor General Finding No. 2 Natural Gas Supply Agency Participation [Public Gas Partners] Strategic Relevance FMPA s Relevant Strategic Goals 1. Be the lowest cost wholesale electricity provider in Florida Introduction At the EC s August 2015 meeting, staff presented information on past actions and current efforts to respond fully to the Auditor General s (AG) Operational Audit Finding No. 2 Natural Gas Supply Agency Participation. The only follow-up action needed to completely respond, which will fulfill our commitment made in our formal reply to this item, is to develop reserve acquisition criteria for any new, future investment. Last month s memo and attachments are included herein for ease of reference; most importantly Attachment 3, the list of criteria for new natural gas reserve acquisitions, titled FMPA Policy on future gas production investments (Policy). Consideration of and a vote on this Policy is the purpose of this action item. The Auditor General s Operational Audit Finding No. 2 recommended establishing written policies regarding future gas production investments in three ways, which are noted in summary fashion below: 1. Establish written policies which state the circumstances under which current PGP projects or any other gas production investments are considered, 2. Establish written policies which state the circumstances under which current PGP contracts exits are considered, 3. Establish written risk policies under which new or increased gas production investments are risk identified and evaluated. Page 39 of 127

40 EC-9(a) Approval of follow-up response to Auditor General Finding No. 2 Natural Gas Supply Agency Participation [Public Gas Partners] Sept 8, 2015 Page 2 Discussion In regards to the three components of the AG s recommendation shown above, #1 has been addressed by the EC through its stated decision to not participate in any additional reserve acquisition activities in existing programs, and #2 has been addressed previously by way of Legal s written review of exit provisions of the PGP contracts. The last of the three components - #3, which deals with criteria for new or future investments in reserves, is proposed to be addressed by virtue of the proposed Policy. (Attachment 3 to last month s memo.) This Policy was first presented and reviewed by the EC at its August 2015 meeting. No changes have been made to the Policy as presented in August. Recommended Move approval of Attachment 3, FMPA Policy on future gas production Motion investments, in FMPA s response to the AG s Finding No. 2. Page 40 of 127

41 TO: FROM: Executive Committee Mark Larson DATE: August 11, 2015 AGENDA PACKAGE MEMORANDUM ITEM: EC-10(b) Update on Natural Gas Supply Agency Participation [Public Gas Partners] - Auditor General Finding No. 2 Strategic Relevance FMPA s Relevant Strategic Goals 1. Be the lowest cost wholesale electricity provider in Florida Introduction The Auditor General s Operational Audit Finding No. 2 recommended establishing written policies regarding future gas production investments in three ways, which are noted in summary fashion below: 1. Establish written policies which state the circumstances under which current PGP projects or any other gas production investments are considered, 2. Establish written policies which state the circumstances under which current PGP contracts exits are considered, 3. Establish written risk policies under which new or increased gas production investments are risk identified and evaluated. The specific language of the Auditor General (AG) recommendation is as follows: The FMPA should establish written policies regarding future gas production investments. These policies should state the circumstances under which the FMPA may consider participation in further PGP projects or other gas production investments, and the circumstances under which the FMPA may consider exiting its PGP participation. Additionally, these policies should identify the category of risk that must be considered by the FMPA when deciding on new or increased gas production investments and place an appropriate value on risk. Discussion The Executive Committee, many months prior to the Auditor s General s review of the ARP s Public Gas Partner participation activity, had taken action in several Page 41 of 127

42 EC-10(b) Update on Natural Gas Supply Agency Participation [Public Gas Partners] -Auditor General Finding No. 2 August 11, 2015 Page 2 ways which work to currently satisfy the Executive Committee that sufficient direction to staff on PGP is already written and thus part of the public record. These prior actions would include the following: 1. Each PGP project participation Pool 1 and Pool 2 were authorized with specific participation details, including gas reserve property and project characteristics. Contracts were executed by all PGP participants prior to any transactions by PGP. 2. Each PGP project Pool 1 and Pool 2 had specific end dates, after which no new acquisition activity is authorized. These end dates were November 2007 for Pool 1 and June 2008 for Pool 2. The only capital activity in either Pool is as a result of those initial contract commitments. 3. The ARP did not join PGP Pool 3 when it was formed in At its July 2013 meeting, the Executive Committee requested an analysis by our legal staff of the exit rights under the PGP participation contracts. This analysis was completed in August. See analysis memo Attachment 1. The results were subsequently verbally shared with the EC by Fred Bryant. A comprehensive background and status memo was written by staff in 2007 shortly before the acquisition period for Pool 1 ended. The memo notes the reasons for forming/joining PGP, the anticipated and actual economics at that time, the acquisition parameters, perspectives on the size of the investment in PGP, the associated gas reserves, as well as the risk mitigation strategies. See Attachment 2. Of the total debt of $140 million invested in reserves and ongoing capital expenditures associated with acquired reserves, $59.8 million will be paid off by 10/1/2018, a total of $75 million by 10/1/2019, $90,028,734 by 10/1/2023 and all but $5 million by 10/1/2025. The amortization of the PGP debt follows the 20 year reserve life estimated at time of acquisition and coordinated therewith thereafter. The Executive Committee has declined any further natural gas reserve acquisition activity. (Capital expenditures associated with existing reserve assets continue, by virtue of contractual obligations or enhancement of existing asset values.) In its response to the AG, the Executive Committee said it will consider the auditor s recommendation for establishing written policies and would do so with the help of an independent management consulting firm. So to this end, suggested new acquisition criteria was requested and received from Bruce Christmas, an independent advisor on natural gas issues. The agreed upon list of policy recommendations for new natural gas reserve acquisitions is included herein as Attachment 3. Additionally, if at some future date for competitiveness considerations, business opportunity or any other appropriate public purpose reasons, the Executive Committee were to explore increasing its natural gas reserve acquisition efforts, whether through Public Gas Partners or some other entity or vehicle, the EC would Page 42 of 127

43 EC-10(b) Update on Natural Gas Supply Agency Participation [Public Gas Partners] -Auditor General Finding No. 2 August 11, 2015 Page 2 revisit the AG s findings and recommendations (all components therein, inclusive of exiting reserves), the recommended acquisition policies attached, as well as consider any other then current guidance or information (which may have developed since from similar programs authorized by State Public Service Commissions in Florida, Louisiana and Mississippi, for example) in the development of EC approved written policies describing the circumstances and risk conditions under which such investments would be deemed appropriate. This updating process would ensure that the best industry practices are reviewed and considered before additional natural gas reserve acquisition activity took place, consistent with the recommendations from the AG. Recommended Action Information item. No action at this time. Page 43 of 127

44 ATTACHMENT 1 Page 44 of 127

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48 ATTACHMENT 2 MEMORANDUM To: FMPA All-Requirements Project Participants FMPA Executive Committee From: Mike Taran Date: March 12, 2007 Subject: ARP7g/EC 7g PGP Value Proposition Review Introduction: The FMPA All-Requirements Power Supply Project (the ARP ) is a member of Public Gas Partners ( PGP ) Gas Supply Pools #1 and 2. The ARP owns approximately 21.9% of Pool #1 and 25.9% 1 of Pool #2. This memo will review the original value proposition that FMPA and other members of PGP sought to achieve through ownership of natural gas reserves and the results to date for those goals. Additionally, this memo will look at the financial benefits achieved to date from PGP and how the forward portions of these transactions are valued in the current market. Discussion: Original Value Proposition in The original PGP members listed six value propositions that they hoped to achieve through their participation in PGP. The six were: Diversification of the supply portfolio An opportunity to use each municipal utilities ability to finance projects with tax-exempt financing Achieve a long-term price hedge Participate in a larger portion of the value chain through property development opportunities available with purchases Maintain control of the physical asset in a highly uncertain market Minimize both credit and default risks in securing long-term supplies. 1 The ownership share of Pool #2 is reduced by approximately 3.4% through a sale to Fort Pierce Utility Authority leaving the ARP with an ownership share of approximately 25%. Page of of

49 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 2 The landscape was very different in the long-term supply market in 2004 as compared to today. Natural gas prepay transactions were not available due to an inability to financially secure (credit support) those types of transactions in the marketplace. Also, producers and marketers really were not in the market to sell their supply on a long-term basis. So, in 2004 there really weren t many alternative opportunities to accomplish some of the objectives noted above, except to purchase natural gas reserves. Let s review each of the value propositions and see where PGP stands in achieving them: 1. Diversification of the Supply Portfolio by joining together to form a bigger pool of natural gas requirements, PGP would be able to acquire multiple properties in multiple producing areas to diversify the overall portfolio of purchases. Within Pools #1 and 2, PGP owns interests in over 2500 wells in 8 states. (Please see the maps in Attachments #1 and #2 that show the general areas of PGP owned production for the Pools.) Created working relationships with five independent producers and have ongoing discussions with at least three more. 2. Opportunity to Use Low Cost of Capital the use of tax-exempt financing will create additional value for PGP members. PGP has credit ratings from all three rating agencies in the A category. PGP secured $500 million of interim financing at LIBOR plus 45 bps. PGP filed an IRS ruling request letter to clarify the rules around its ability to issue tax-exempt financing for the purchases in Pools #1 and #2. One negative in this area is that the letter request was sent five months later than anticipated due to the involvement of multiple law firms in the process. [Note: FMPA requested that our bond counsel be involved in this process.] Another negative is the reserving of funds that is required under the interim, and for that matter any, funding put in place by PGP. 3. Creates Opportunity for Long-Term Price Management opportunities for hedging for a twenty year period are very limited. PGP members have the ability to decide when, if ever, to convert from a fixed price to a floating price through price hedging at either the PGP level or on their own.. Page of of

50 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 3 Long-term volumes are valued at a fixed price of approximately $5.10/mmBtu. Hedging can be executed within PGP or by the individual members. PGP has executed three ISDA agreements with counterparties that provide hedging liquidity. All volumes that PGP members will receive after the twenty-year time frame are heavily discounted since the purchase price calculation only assumed a twenty year life. 4. Capture a Larger Share of the Value Chain the creation of business relationships within the natural gas production industry will lead to opportunities for ancillary transactions that will create additional value. Sundown (Pool #1) has brought additional development opportunities to PGP that were not valued in the original purchase. Previous discussions with Kerr-McGee Corp. led to the development deal that was structured for Pool #2. 5. Control of the Physical Asset in Uncertain Market with the talk of declining reserves nationally and a lack of replacement prospects, owning a commodity that one s business depends on is a form of risk management. Physical delivery to the members of the reserves that PGP owns will be accomplished by signing re-delivery agreements with one or more large physical market operations (e.g. BP, ExxonMobil, etc.). 6. Minimize Credit and Default Risks remember, in 2004 there was no mechanism in place to accomplish this while doing a prepay transactions. The rules changed for those types of transactions and credit and default risks have been lowered for prepays. PGP has achieved direct asset ownership in all acquired assets, which is protected from bankruptcy of service providers. The table below summarizes the achievements of PGP as they relate to the original value propositions developed when PGP was organized: Original Value Proposition Diversification of supply portfolio Opportunity to use low cost of capital Long-term price management Capture larger share of value chain Has PGP Achieved This Satisfactorily? Yes Yes, once IRS Ruling is completed Yes Yes Page 508 of of

51 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 4 Control physical asset Minimize credit and default risks Yes, once re-delivery agreements in place Yes PGP has or will shortly meet all of the expected value propositions for the organization. Financial Benefits of PGP Acquisitions Based on FMPA s ownership percentages in the two PGP Gas Supply Pools, FMPA has a liability of: Pool #1 - $59.5 million Pool #2 - $27.8 million 2 This makes FMPA s total liability to PGP $87.3 million to date. Everyone is probably saying, Wow, that s a lot of money!! Well maybe we can help put this amount into some sort of perspective. First, one has to recognize that the monies spent are for a long-term stream of natural gas. It s just not for this year or next, but for twenty-plus years in most cases. Next, the chart below shows FMPA s annual requirements for natural gas based on the assumptions for generation and load in the 2006 IRP. We ve included the expected production from the PGP acquisitions to further put into perspective what FMPA owns. IRP Natural Gas Exposure 35,000,000 30,000,000 25,000,000 mmbtu/year 20,000,000 15,000,000 10,000,000 5,000, Calendar Year PGP Pool 1 Purchase PGP Pool 2 Purchase Physical Requirements Less PGP The previous chart doesn t put the purchase price for the PGP assets into perspective though. The chart below adds in a second axis that shows the nominal dollars that FMPA will spend annually in order to be able to meet the IRP forecasted natural gas requirements. These total annual dollar expense 2 This number does include the FPUA ownership share of PGP Pool #2. All remaining discussion will assume the total value of the FMPA/FPUA investment. Also, please note that this value is calculated using the actual expenditure numbers for the Pool #2 projects and differs from the values on Attachment #2. Page of of

52 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 5 estimates are based on the assumption that once we get beyond the first five years of the NYMEX forward curve ( ), the price is fixed at $6.00 per mmbtu. The annual total expenses are in millions. IRP Natural Gas Exposure and Nominal Annual Cost 35,000,000 $250 30,000,000 $200 25,000,000 mmbtu/year 20,000,000 15,000,000 $150 $100 $millions/year 10,000,000 5,000,000 $50 - $ PGP Pool 1 Purchase Calendar PGP Year Pool 2 Purchase Physical Requirements Less PGP Yearly Nominal Gas Cost So, if FMPA could lock in the current forward curve today for its forward natural gas requirements, it would have to spend $3.14 billion in nominal terms. However, that s not the correct number to compare the PGP purchases with. The $87.3 million spent to acquire the PGP assets is based on the present value of a stream of income that the PGP reserves would generate assuming some forward value for the natural gas. So, if we calculate the present value of the nominal cash expenditures above (using a 4% discount factor) FMPA would have to spend $2.21 billion to meet its forecasted requirements. Thus the $87.3 million expenditure on PGP represents 3.95% of FMPA s forecasted natural gas costs. Now the question has to be, What benefit is FMPA getting out of this purchase of natural gas reserves? We ll need to split this discussion into two parts. First we should talk about the benefits accrued between the acquisition dates and now and then address the benefits on a forward looking basis. The tables below represent the estimated benefit created from the start of the various PGP deals through March We use the term estimated to recognize the fact that there is a lag between the time that PGP receives revenues and when costs are posted. This lag often extends for up to six months but the majority of the revenues are realized within two to three months. Pool 1 Results Reserves at PGP $449, Paid to/(from) FMPA ($2,629,922.00) Hedge Gains $1,379, Page of of

53 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 6 Total ($800,923.00) Pool 2 Results Reserves at PGP $5,503, Paid to/(from) FMPA ($132,003.00) Hedge Gains $97, Total $5,469, Some additional explanation of the terms used above would be helpful. Reserves at PGP means the earned income that is held at PGP for working capital and to meet requirements under the interim financing arrangements. Paid to/(from) FMPA are the dollars that FMPA has collected or paid to PGP less the distribution of $0.20/mmBtu of assumed savings under the transactions. Hedge Gains represents the net benefit FMPA received from the purchase of put options that were used to hedge against the downward movement of natural gas prices against the fixed prices established under the PGP purchases. Some discussion of the results would also be helpful. For Pool #1, the large negative in the Paid to/(from) FMPA represents the amount paid by FMPA to PGP. This was created mainly by the collapse in prices during calendar year When the Sundown transaction was finalized in October 2005, we were in the midst of hurricanes Katrina and Rita and natural gas prices were at their alltime highs. FMPA hedged a large portion of the expected production for 2006 through the purchase of put options with a strike price of $9.25/mmBtu. However, the purchase price was $10.13/mmBtu. So, the combination of the loss on the unhedged portion of the production plus the loss of the difference between $10.13 and $9.25/mmBtu accounts for the majority of the shortfall in Pool #1. The large reserve for Pool #2 was created early on in the life of the Apache drilling program that began in early When the economics of that program were put together, the then current pricing was significantly lower, around the $7.00/mmBtu level. As prices began to increase during 2005, the volumes under the drilling program were also increasing so a significant reserve was built and is being held by PGP. Thus the net benefit created by participation in PGP from January 2005 through March 2007 is approximately $4.67 million dollars. Per the interim financing agreements that PGP has with its bankers, the vast majority of these revenues must be retained at PGP until the debt is paid off. Now the discussion needs to turn to the forward benefits of the investments. There are two things to note regarding the calculation of the forward benefit. First, the volumes that are used in the economic analysis for the project are what are termed, risked volumes. This means when a reservoir engineering firm analyzes the project s capability, they must assume a certain price for natural gas in the future. Based on that price assumption, they attempt to predict how much of the reserves can be economically produced. If the reserves are not economical, they assume that they are not produced in the future and those reserves are not included in the resulting report. This creates a somewhat conservative view of the reserves and acts as a form of risk management in the event of an unforeseen disruption in the producing reservoirs. The second thing to note is that all of the discussion to this point has been based on the natural gas reserves. However, when PGP acquired Sundown, they acquired 50% of the Page of of

54 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 7 company s entire assets. This included a significant amount of crude oil reserves. To a lesser extent, the majority of the deals in PGP Pool #2 also include some crude oil reserves. So any discussion of forward value must include some assumption of the value of the crude oil into the future. The tables below represent the estimated forward value of the PGP acquisitions. For the natural gas analysis the Current Market case assumes the NYMEX price curve calculated on March 7, 2007 for the first 5 years (2008 through 2012) and then assumes a forward price of $6.00/mmBtu (2013 through 2024). Scenario #1 assumes a forward curve of $7.00/mmBtu while Scenario #2 assumes a fall to $5.00/mmBtu. For crude oil, the Current Market case assumes the NYMEX price curve for the first 5 years and then assumes a long term price of $50.00/bbl. We included two additional case, Scenario #1 that assumes a forward curve of $60.00/bbl and Scenario #2 with a forward curve assumption of $40.00/bbl. Using the Current Market cases for both natural gas and crude oil and adding in the estimated actual benefit of $4.67 million, the total expected benefit from PGP is $29.41 million. This would represent a 33.5% return on the investment of $87.3 million. GAS Years 1-5 ( ) Years 6-17 ( ) Present Value of Mark-to- Market Purchase Price $/mmbtu $/mmbtu - Current Market $/mmbtu $/mmbtu $13,475, Scenario # $/mmbtu $/mmbtu $18,353, Scenario # $/mmbtu $/mmbtu $8,596, OIL Years 1-5 ( ) Years 6-17 ( ) Present Value of Mark-to- Market Purchase Price $/bbl $/bbl - Current Market $/bbl $/bbl $11,269, Scenario # $/bbl $/bbl $15,602, Scenario # $/bbl $/bbl $7,699, Using Scenario #1 results for both commodities, the total expected benefit increases to $38.62 million and the return increases to almost 44%. Using Scenario #2 results, the total expected benefit decreases to $20.95 million, which lowers the return to 24%. So in any scenario, there are benefits accrued to the PGP participation by FMPA. Page of of

55 ARP7g/ EC 7g - PGP Value Proposition Review March 12, 2007 Page 8 Conclusion: Based on the current results and the expected benefits, it appears that the FMPA participation in PGP is achieving and will achieve the expected value propositions that were desired when the organization was formed. Of course, the expected benefits can change if the reserves prove to not be there or the prices do not reach the levels currently forecasted. However, moving into the future if prices do start to move down, FMPA can always execute hedges to prevent the total erosion of that value. Motion Requested: This is an information item only and no motion is requested. Page of of

56 Attachment 1- PGP Pool #1 Acquisitions Transaction Locations # Wells Closed Price Sundown TX, AR, OK, NM, AL, MS, LA 2000 Jan $ Field/Project Cedar Cove Chesterville-Bohlwhite/McNic II Cheyenne-Putnam/McNic II Cymreac Exploration FGL/Future H S A Permian/Jetta Potash Dome/Greka Tiger/Exco Page 56 of 127

57 Attachment 2 PGP Pool #2 Acquisitions Transaction Locations # Wells Closed Price Apache TX, OK, LA 170 June 2005 $ 50.5 Davis 4 Corners TX 5 Dec Edna Hollow KS/OK 30 Oct East Liberty OK 20 Nov TGP TX, MS 40 June Kerr McGee TX 11 Nov $ 90.5 Page 57 of 127