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HomeMy WebLinkAboutStaff Report 2440City of Palo Alto (ID # 2440) Finance Committee Staff Report Report Type:Meeting Date: 2/7/2012 February 07, 2012 Page 1 of 4 (ID # 2440) Summary T itle: Gas Utility Long-term Plan Revisions Title: Proposed Revisions to the Gas Utility Long-term Plan Objectives, Strategies and Implementation Plan From:City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend that the City Council approve the proposed revisions to the Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan. Executive Summary In November 2011, the City Council approved staff ’s recommendation to transition to market price-based, monthly-adjusted gas supply rates. The change from a philosophy of stabilizing gas supply rates for customers to passing through a market price signal to customers requires modifying the policy documents that guide staff ’s gas procurement activities. At its meeting in December 2011, the UAC recommended Council approve the proposed changes. Background At its November 1, 2011 meeting, the Council directed staff to develop market price-based, monthly-adjusted gas supply rates (Staff Report #2106). In that report, staff identified the need to revise some sections in the Council-approved GULP Objectives, Strategies and Implementation Plan (Staff Report #1313). Discussion The transition to market-based gas supply rates requires revisions of GULP Objective 1, Strategy 1 and Implementation Plan Items 1 and 2. The current language and the proposed revisions are shown in the table below: GULP Current Proposed Objective 1 Balancing Stability and Competitiveness Passing a market supply cost signal through to customers February 07, 2012 Page 2 of 4 (ID # 2440) GULP Current Proposed Strategy 1 Balance supply cost stability with market exposure by: a.Diversifying energy purchases for the pool across commitment date, delivery date, duration, suppliers,pricing terms & delivery points; b.Leaving some fraction of the forecasted gas pool needs exposed to near-term market prices; and c.Avoiding long-term (>10 years) fixed-price commodity contracts. Pass a market supply cost signal through to customers by: a.Purchasing natural gas at prices based on the monthly and daily market index prices; and b.Changing gas supply rates monthly to reflect market prices. Implementation Plan Items 1.Continue to implement a laddered commodity purchasing strategy for the pool. 2.Review the laddering strategy and rate stability with the Utilities Advisory Commission and recommend changes, if appropriate. 1.Transition from the laddering strategy to market price-based, monthly-adjusted gas supply rates by: a.Developing a new purchasing plan to be approved by the Director of Utilities; b.Designing a new monthly- adjusted gas supply rate; c.Recommending revisions to the reserve guidelines for Council approval; and d.Conducting customer communication and outreach. The transition to market-based gas supply rates makes gas storage (a seasonal price hedging tool) obsolete. Therefore, staff proposes deletion of the references to gas storage in Strategy 2 and the elimination of Implementation Plan Item 3. The current language and proposed changes are shown in the table below: GULP Current Proposed Objective 2 Lower delivered gas cost over the long term No change February 07, 2012 Page 3 of 4 (ID # 2440) GULP Current Proposed Strategy 2 Lower delivered gas cost over the long term by: a.Acquiring pipeline and/or storage assets that yield supply costs below market and meet operational needs; b.Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c.Optimizing existing assets. Lower delivered gas cost over the long term by: a.Acquiring pipeline assets that yield supply costs below market and meet operational needs; b.Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c.Optimizing existing assets Implementation Plan Item 3 Pursue cost-effective gas storage services by: a.Signing enabling agreements with available gas storage service providers; b.Monitoring gas prices for seasonal differences; and c.Purchasing gas storage services when cost-effective. Deleted The other GULP Objectives, Strategies and Implementation Plan tasks remain unchanged. Attachment A contains the entire proposed revised GULP Objectives, Strategies and Implementation Plan. Commission Review and Recommendations On December 7, 2011, staff presented that the UAC the proposed revisions to the GULP Objectives, Strategies and Implementation Plan. The UAC unanimously (5-0) approved without discussion a motion to recommend that the City Council approve the proposed revisions to the GULP Objectives, Strategies and Implementation Plan. Commissioners Keller and Eglash were absent. The excerpted draft minutes of the UAC’s December 7, 2011 meeting are available as Attachment B. Resource Impact Short-term resources will be required for implementation of the new gas commodity purchasing and rate strategy. In the long-term, it is anticipated that 0.4 FTE will be redeployed from gas portfolio management to other projects. This savings includes small amounts of time spread across multiple individuals in Utilities and Administrative Services. Policy Implications The Council direction to implement market price-based, monthly-adjusted rates represents a shift away from prior policy to provide stable gas rates to customers. The Supply Rate Stabilization Reserve Guidelines may also require revision. Changes to the reserve guidelines February 07, 2012 Page 4 of 4 (ID # 2440) will be considered as the new direction is implemented. A timeline for implementation of the new direction is provided in Staff Report #2427. Environmental Review The proposed changes to the GULP Objectives, Strategies and Implementation Plan do not meet the definition of a project pursuant to Section 21065 of the California Environmental Quality Act (CEQ A). Thus, no environmental review is required. Attachments: ·Attachment A: Proposed GULP Strategies and Objectives (PDF) ·Attachment B: Draft Minutes from Dec 7 UAC meeting (PDF) Prepared By:Karla Dailey, Sr. Resource Planner Department Head:Valerie Fong, Director City Manager Approval: ____________________________________ James Keene, City Manager ATTACHMENT A Proposed Gas Utility Long-term Plan (GULP) Objectives,Strategies and Implementation Plan GULP Objectives: 1.Market price transparency –Pass a market supply cost signal through to customers. 2.Supply Cost Management –Lower delivered gas cost over the long term. 3.Energy Efficiency –Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures. 4.Climate Protection –Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan. 5.Parity with PG&E –At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers. GULP Strategies: 1.Pass a market supply cost signal through to customers by: a.Purchasing natural gas at monthly and daily market index prices; and b.Changing gas supply rates monthly to reflect market prices. 2.Lower delivered gas cost over the long term by: a.Acquiring pipeline assets that yield supply costs below market and meet operational needs; b.Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c.Optimizing existing assets. 3.Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures by: a.Developing and implementing a ten-year gas efficiency plan every three years that includes a reasonable carbon price premium for traditional gas supplies; and b.Considering the impacts (cost, benefits, and GHG emissions) of substituting electricity-using appliances for gas-using appliances and vice versa in the ten-year gas efficiency plan. 4.Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan by: a.Designing and implementing a voluntary retail program using reasonably priced non- fossil fuel gas resources; and b.Purchasing non-fossil fuel gas for the portfolio as long as it can be done with no rate impact. 5.At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers by: a.Participating in the regulatory and legislative arenas when the potential impact on the City is aligned with the cost to intervene and the probability of success; b.Negotiating with PG&E for fair access to transportation and storage; and c.Exploring potential joint action with other public agencies. ATTACHMENT A GULP Implementation Plan: 1. Transition to market price-based, monthly-adjusted gas supply rates by: a.Developing a new purchasing plan to be approved by the Director of Utilities; b.Designing a new monthly-adjusted gas supply rate; c.Revising the reserve guidelines for Council approval; and d.Conducting customer communication and outreach. 2.Pursue below-market assets available through the Gas Transportation and Storage Settlement by: a.Evaluating the pipeline capacity reservation options available; and b.Contracting with PG&E for any pipeline capacity with an estimated cost below the forecasted market value. 3.Pursue opportunities for natural gas prepay transactions by: a.Hiring a consultant to help staff with: i.Identifying any internal policy changes needed including the policy on the use of financial instruments; ii.Identifying system and internal processes required; iii.Identifying opportunities; and iv.Evaluating opportunities and quantifying the benefits and costs; and b.Seeking UAC recommendation and Council approval regarding whether to proceed with a gas prepay transaction. 4.Develop an implementation plan to meet the gas efficiency targets by summer 2011 including the: a.Evaluation of the cost-effectiveness of substituting gas-using appliance for electric- using appliances and vice versa and the greenhouse gas impacts of such substitutions; and b.Incorporation of any cost-effective substitution measures in the implementation plan to meet the gas efficiency targets. 5.Track and report progress against adopted gas efficiency goals by: a.Providing quarterly updates on the gas efficiency program achievements to the UAC; and b.Providing annual updates on gas efficiency program achievements to the UAC and the City Council. 6.Continue evaluating new gas efficiency technologies and undertake pilot studies where appropriate. 7.Pursue reasonably priced non-fossil gas for a voluntary program through NGPP by: a.Reviewing the due diligence report to be provided to NGPP participants by the end of October 2010; and b.Based on the results, recommending whether to continue participating in the projects. Excerpted Draft Utilities Advisory Commission Meeting Minutes of December 7, 2011 ITEM 3: ACTION: Proposed Revisions to the Gas Utility Long-term (GULP) Objectives, Strategies and Implementation Plan Director Valerie Fong stated that the changes ensure that GULP is in line with the Council approval of the new gas purchasing/rate strategy. ACTION: Vice Chair Berry made a motion to recommend that the City Council approve the proposed revisions to the GULP Objectives, Strategies and Implementation Plan. Commissioner Cook seconded the motion. The motion passed unanimously (5-0).