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Exhibit 1 - Agenda Information SheetCity of Denton _____________________________________________________________________________________ AGENDA INFORMATION SHEET DEPARTMENT: Procurement ACM: Cassey Ogden DATE: June 18, 2024 SUBJECT Consider adoption of an ordinance of the City of Denton, a Texas home-rule municipal corporation, ratifying the expenditure of funds by the City Manager for the emergency purchase of property, boiler, machinery, and business interruption insurance coverage for the Denton Energy Center through the City’s broker of record, Lockton Companies, LLC; and providing an effective date (File 8544 – awarded to Associated Electric & Gas Insurance Services Limited (AEGIS), for one (1) year, with the option for two (2) additional one (1) year extensions, in the total three (3) year not-to-exceed amount of $2,707,349.29). The Public Utilities Board recommends approval (6-0). INFORMATION/BACKGROUND The City of Denton purchases property, boiler, and machinery insurance coverage to protect assets totaling approximately $250,000,000 in buildings, machinery, contents, and equipment. This insurance policy covers the Denton Energy Center (DEC) buildings and facilities from the standard exposures such as fire, windstorm, hail, tornado, etc. In addition, the policy provides insurance coverage for loss due to mechanical or electric breakdown of covered equipment (boiler & machinery coverage), and coverage for loss of income suffered as a result of not being able to use the property due to a covered cause of loss (business interruption). Power generation risks are seeing hard market conditions across the board as capital continues to leave the segment due to poor loss experience. Insurer submission flow is at an all-time high due to changes in market conditions. Differing terms and pricing across the program by each market is common and lender compliance requirements remain challenging. Given the complexities of this insurance product solicitation as described in greater detail below, and given that Chapter 252.024 of the Texas Local Government Code provides that the City can utilize the services of our broker of record, Lockton, to assist with competitively procuring this coverage, the City elected to work with our broker of record to complete this solicitation. Over the past several months, Lockton has been actively engaged in working with the carriers writing commercial property insurance, boiler, machinery, and business interruption coverage for public entity electric power generation facilities in the Texas market. This has involved ongoing communication between the City, the plant manager at the DEC, and the underwriters at the various insurance companies. City Hall 215 E. McKinney Street Denton, Texas www.cityofdenton.com Lockton marketed the property placement to several markets, including Associated Electric & Gas Insurance Services Limited (AEGIS) (incumbent), AIG, Munich Re, Starr, Swiss Re and Zurich. Ultimately, only AEGIS was able to quote 100% of the risk, which is a favorable policy structure. AIG & Munich Re offered terms on a quota-share basis, whereby they would split the risk with AEGIS, however, it was determined that this option was not advantageous as the premium savings were nominal. The current incumbents’ proposal included a premium increase of 11.7% due to the impacts of inflation on the City’s total insurable value: the full value of the property, inventory, equipment, and business income coverage necessary. AEGIS is a leading mutual insurance company that provides liability and property coverage, as well as related risk management services, to the energy industry. The company’s premium revenues are $1.8 billion, total assets are more than $7.9 billion, and has an A.M. Best rating of A (Excellent) with a stable outlook. It is the opinion of staff and Lockton that the AEGIS proposal represents the best overall value for the City. PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS) On June 10, 2024, the Public Utilities Board (PUB) recommended this item to the City Council for consideration. RECOMMENDATION Award a contract with Associated Electric & Gas Insurance Services Limited (AEGIS), for the emergency purchase of property, boiler, machinery, and business interruption insurance coverage for the Denton Energy Center through the City’s broker of record, Texas Series of Lockton Companies, LLC, in a one (1) year, with the option for two (2) additional one (1) year extensions, in the total three (3) year not-to-exceed amount of $2,707,349.29. PRINCIPAL PLACE OF BUSINESS Lockton Companies, LLC Kansas City, MO ESTIMATED SCHEDULE OF PROJECT This is an initial one (1) year contract with options to extend the contract for two (2) additional one (1) year periods, with all terms and conditions remaining the same. Policy Period Total Due 24/25 $704,213.63 25/26 825,690.48 This estimated premium includes the 5%TIV +10% RateYOY increase 25/26 931,322.52 This estimated premium includes the 5%TIV +10% RateYOY increase Contingency 246,122.66 10% Contingency Total NTE $2,707,349.29 FISCAL INFORMATION Funding for property insurance for the DEC is available in the Denton Energy Center 600105.6706.5500. Requisition # 165087 has been entered into the Purchasing software system in the amount of $704,213.63. Additional capacity has been built into the not-to-exceed amounts to allow for increases in property values and anticipated premium increases and fees year over year. This amount will be reimbursed to the Denton Energy Center by Denton Municipal Electric. EXHIBITS Exhibit 1: Agenda Information Sheet Exhibit 2: Declaration of Emergency Exhibit 3: Recommendation Letter Exhibit 4: Comparison Summary Exhibit 5: Ordinance Respectfully submitted: Lori Hewell, 940-349-7100 Purchasing Manager For information concerning this acquisition, contact: Megan Gilbreath, 940-349-8357. Legal point of contact: Marcella Lunn at 940-349-8333.