HomeMy WebLinkAbout1996-05-23 City Council (11)City
BUDGET 1996-98
City of Palo Alto
Manager’s Report
TO:
ATTENTION:
FROM:
AGENDA DATE:
SUBJECT:
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
CITY MANAGER
MAY 23, 1996
DEPARTMENT:UTILITIES
CMR:236:96
Proposed Gas Rate Decrease
REQUEST
This report requests Council approval of a proposal to reduce the Gas Fund revenue
approximately 12 percent effective July 1, 1996. This proposal is a result of lower
wholesale gas prices, which have reduced the cost of purchased gas to the City’s Gas
Utility.
RECOMMENDATIONS
Staff recommends that Council adopt the attached resolution to decrease Gas Fund
revenue approximately $2.271 million, or 12 percent, effective July 1, 1996.
POLICY IMPLICATIONS
Approval of this rate proposal does not represent a change to existing policies.
DISCUSSION
Reasons for a Rate Decrease
The Gas Fund revenue requirements consist of several components, including the cost to
purchase gas, the cost to operate and maintain a reliable system, finance an appropriate
CMR:236:96 Page 1 of 4
level of the capital improvements from current operating revenues, fund prudent reserve
levels, and produce a return on investment which is then transferred to the City’s General
fund. A significant change in any of these factors, as well as a change in sales level, can
trigger a rate adjustment.
This report recommends a rate adjustment to reflect lower purchased gas costs. Due to
a Sul~lus of natural gas, market prices have dropped this year and are expected to hold
next year. There is still much uncertainty with regard to natural gas price forecasts
beyond 1997. A review of the Rate Stabilization Reserve (RSR) balance indicates the
favorable impact of substantial purchased gas cost savings this fiscal year, which are
estimated to be approximately $2.5 million. As a result, the reserve balance is expected
to end the current fiscal year were above its maximum level guideline. Although the
proposed rate decrease is expected to lower the RSR over the next two years, the RSR
is not projected to fall below its maximum guideline level until FY 98-99. In the event
that the gas market continues to be soft, another rate decrease may be proposed for FY
1997-98 or1998-99.
Application of the Proposed Revenue Decrease
Presently, the Gas Utility is well positioned to reduce rates. Staff’s proposal would
reduce gas rates approximately $2.271 million, or 12 percent, effective July 1, 1996. The
primary ratemaking objective, in spreading this decrease between the customer classes,
was to improve Palo Alto’s rate comparability with PG&E gas rates. A rate comparison
with PG&E indicates that Palo Alto’s residential rates compare more favorably with
PG&E than Palo Alto’s commercial and industrial gas rates. On this basis, staff’s
proposal applied a 13.5 percent decrease to the core commercial and industrial Gas Rate
Schedule (G-2) compared to a 10.9 percent decrease applied to the residential Gas Rate
Schedule (G-l). The largest decrease (22.8 %) was applied to core Gas Rate Schedule G-
7, which applies to 13 industrial facilities. With this proposed decrease, G-7 rates are
approximately 6 percent below PG&E rates.
Also, the Gas Utility serves nine large industrial customers who qualify as non-core
customers under Rate Schedule G-3, because they use more than 250,000 therms per
year. G-3 customers are subject to curtailment by the Utility. Core customers are the
remaining approximately 23,500 customers. Since non-core customers already receive
the benefits of lowering gas prices through monthly tracking of price changes, staff has
not applied the revenue decrease to Gas Rate Schedule G-3 which serves these nine
customers.
Finally, to narrow the differential of the inverted rate structure on residential Gas Rate
CMR:236:96 Page 2 of 4
Schedule G-l, the price for usage within the first rateblock was decreased 5 percent,
while the price of usage within the second rateblock was reduced by 20 percent.
Application of the decrease in this manner will bring it closer to the comparable PG&E
residential rate structure.
Impact on Customer Bills
A comparison of PG&E current gas bills with Palo Alto proposed gas bills is attached.
Figure 1.a. (Residential Summer Bill Comparison) and Figure 1 .b. (Residential Winter
Bill comparison) indicate that the City’s residential gas rates are approximately 24 percent
below PG&E’s residential bills on a year-round basis. Figures 2.a. and b. (Non-
residential Summer/Winter Bills) indicate that Palo Alto’s non-residential gas rates in
comparison to PG&E gas rates are lower in the winter and higher in the summer.
However, in comparing total bills over a 12 month period, Palo Alto non-residential bills
are approximately 5 percent to 12 percent below PG&E non-residential bills.
The following table shows the impact of the proposed rate decrease on customer monthly
bills.
Table 1.
Impact of Proposed Rate Decrease on Customer Bills
Customer
Residential/Winter
Residential/Winter
Residential/Summer
Residential/Summer
Commercial-Core
Industrial-Core
Industrial-Core
Usage
Therms
100
150
26
45
500
3,200
10,000
Monthly
Bill
$43.91
75.61
12.42
24.47
254.00
1625.60
5,080.00
Amount
of
Decrease
(2.93)
(10.73)
(1.42)
(4.38)
(41.00)
(262.40)
(820.00)
Percent
Decrease
-6.3%
-12.4%
-10.3%
-15.2%
-13.9%
-13.9%
-13.9%
CMR:236:96 Page 3 of 4
Industrial G-7-Core 30,000 10,980.00 (3,240.00) -22.8%
Industrial G-3 Non-Core 55,000 18,000.00 0 0%
FISCAL IMPACT
The fiscal impact of the proposed 12 percent rate decrease is a reduction in sales revenue
of approximately $2.271 million in FY96-97 and a suspension of funding the RSR. The
RSR is projected to decline annually and fall below the maximum guideline level in
FY98-99.
ENVIRONMENTAL ASSESSMENT
Adoption of the attached resolution does not constitute a project under the California
Environmental Quality Act; therefore, no environmental assessment is required.
ATTACHMENTS
Gas Bill Comparison (Figure la & lb, Figure 2a & 2b))
Resolution
Rate Schedules G-l, G-2, G-7
PREPARED BY:Lucie Hirmina, Manager of Utilities Rates
Randy Baldschun, Assistant Director of Utilities
DEPARTMENT HEAD REVIEW:
CITY MANAGER APPROVAL
CC: Utilities Advisory Commission
Jo
of Utilities
~ FLEMt/N~ ~"(-’f
y Manager
CMR:236:96 Page 4 of 4
RESIDENTIAL GAS BILL COMPARISON
Winter
I[]Palo Alto []PG&E I
140.00 -
120.00 -
100.00 -
80.00 -
60.00
40.00
20.00
0.00
Figure 1.a.
$ Monthly Bills
70
38,02
43.91!
75.61I
59.37
94.96
107.31
100 150
Therms
130.55
200
Summer
30.00
25.00
20.00
15,00
10,00
5.00
0.00
$ Monthly Bills
10.73
20
12.42
26
15.00
17.85
14.96
30
24.47
28.53
45
Figure 1 .b. Therms
NON=RESIDENTIAL GAS
Winter
BILL COMPARISON
I[]Palo Alto []PG&E
2,500
2,000
1,500
1,000
500
0
Figure 2.a.
$ Monthly Bills
152 196
318254
622
35(
1,231
1,01
300 500 700 1000 2000 3200
Therms
1,961
1,62
2,000
1,500
500
Summer
$ Monthly Bills
1,626
1,016
152 149
254 239
356 329
508 464
300 500 700 1000 2000 3200
Figure 2.b. Therms
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING UTILITY RATE SCHEDULES G-l, G-2 AND G-7
OF THE CITY OF PALO ALTO UTILITIES RATES AND
CHARGES PERTAINING TO GENERAL AND LARGE COMMERCIAL
NATURAL GAS SERVICE
The Council of the City of Palo Alto does hereby RESOLVE as
follows:
SECTION I. Pursuant to Section 12.20.010 of the Palo Alto
Municipal Code, Schedules G-I (General Natural Gas Service), G-2
(Genera! Natural Gas Service), and G-7 (Large Commercial Natural
Gas Service) of the Palo Alto Utilities Rates and Charges are
hereby amended to read in accordance with Sheets G-l-l, G-2-1, and
G-7-1 attached hereto and incorporated herein by reference. The
foregoing Utility Rate Schedules, as amended and as adopted, shall
become effective July i, 1996.
SECTION 2. The Council finds that the revenue derived from
the authorized adjustments of the general natural gas service rates
shall be used only for the purposes set forth in Article VII,
Section 2, of the Charter of the City of Palo Alto.
SECTION 3. The Council finds that the adoption of this
resolution does not constitute a project under the California
Environmental Quality Act, California Public Resources Code section
21080, subdivision (b) (8).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT :
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Deputy City Manager
Administrative Services
Director of Utilities
960416 syn 0070950
GENERAL NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
A. APPLICABILITY:
This schedule applies to all natural gas service to individually metered single family
premises, including those separately metered in a multi-family complex.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C. RATES:
1. G1-R Commodity Charge:
(A)
(B)
(For individually metered residential customers.)
Per Meter
Summer Rate (May 1 to October 31):Per Month
0-20 therms per therm ...................................43.1¢
Over 20 therms per therm ............... .................63.4¢
Winter Rate (Nov. 1 to April 30):
0-96 therms per therm ...................................43.1¢
Over 96 therms per therm ................................63.4¢
D. SPECIAL NOTES:
Seasonal rate changes: The applicable residential rate structure will be prorated in
the May and November billing periods based on the rates of the number of days
prior to May 1 and subsequent to October 31, respectively, to the total number of
days in the billing period.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. G-1-1 dated 7-1-94
GENERAL NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
A. APPLICABILITY:
This schedule applies to all non-residential core customers. Core customers are defined
as customers using less than 250,000 Therms per year at a single address. In addition,
this schedule applies to non-core customers who elect to be served under this schedule.
B.Territory:
Within the service area ofthe City of Palo Alto and on land owned or leased by the City.
C.Rates:
All year-round delivered commodity:
Per Therm ...............................................50.8¢
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-1-1 dated 7-1-94
Effective 7-1-96
Original Sheet No. G-2-1
GENERAL NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-7
A. APPLICABILITY:
This schedule applies to non-residential customers who use at least 250,000 therms per year
at one site. Customers served under this Rate Schedule accept a higher risk of curtailment
than customers served on Commercial natural Gas Rate Schedule G-2.
B, Territory:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C. Rates:
Per Meter
Per Month
All year-round delivered commodity
Per Therm ...................................................36.6¢
D. SPECIAL CONDITION:
Service under this schedule is subject to discontinuance in whole or in part in case of
actual or anticipated shortage of natural gas resulting from an insufficient supply,
inadequate transmission or delivery capacity of facilities, or shortage requirements.
Customers served under this schedule wil! be curtailed only if the City experiences
supply or transmission shortages in excess of its non-core service under Rate Schedules
G-3 and G-4 as specified in the non-core service agreement.
The City will attempt to minimize the disruption of providing adequate notice prior to
curtailment. The City will not be liable for damages occasioned by interruption or
discontinuance of service supplied under this schedule.
A customer may qualify for service under this schedule for more than one account if the
accounts are located on one site. A site shall be defined as contiguous parcels of land
with no intervening right-of-way (e.g. streets) and have a common billing address.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Original Sheet No. G-7-1 dated 7-1-95
Effective 7-1-96
Sheet No. G-7-1