HomeMy WebLinkAbout2004-12-13 City Council (8)City of Palo Alto
City Manager’s Report
8
TO:
FROM:
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT:UTILITIES
DATE:DECEMBER 13, 2004 CMR:493:04
SUBJECT:FINANCE COMMITTEE RECOMMENDATION FOR APPROVAL
OF A RESOLUTION AND APPROVAL OF A BUDGET AMENDMENT
ORDINANCE ADOPTING A GAS RATE INCREASE AND CHANGES TO
THE G-l, G-2 AND G-6 RATE SCHEDULES
COMMITTEE REVIEW AND RECOMMENDATION
The Finance Committee recommends by a vote of 4-0 that Council approve a resolution and a
budget amendment ordinance adopting a gas rate increase and changes to the G-I, G-2 and G-6
Rate Schedules effective January 1, 2005.
CMR:493:04 1 of 2
ATTACHMENTS
A: Resolution
B: CMR:478:04 Approval Of A Resolution and Approval of A Budget Amendment Ordinance
Adopting A Gas Rate Increase and Changes to The G-1, G-2 and G-6 Rate Schedules
C: Minutes from Finance Committee Meeting of November 16, 2004
PREPARED BY: ~~./t..~..---~
TO~ENNE
Assistant Director
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
es
Assistant City Manager
CMR:493:04 2 of 2
***NOT YET APPROVED***
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO AMENDING UTILITY RATE SCHEDULES G-l, G-2,
AND G-6 OF THE CITY OF PALO ALTO UTILITIES RATES
AND CHARGES PERTAINING TO GAS RATES
The Council of the City of Palo Alto does RESOLVE as
follows:
SECTION i. Pursuant to Section 12.20.010 of the Palo
Alto Municipal Code, Utility Rate Schedule G-I (Residential Gas
Service) is hereby amended to read in accordance with sheet G-l-
i, attached hereto and incorporated herein. The foregoing
Utility Rate Schedule, as amended, shall becomeeffective
January i, 2005.
SECTION 2. Pursuant to Section 12.20.010 ofthe Palo
Alto Municipal Code, Utility Rate Schedule G-2 (Commercial Gas
Service) is hereby amended to read in accordance with sheet G-2-
i, attached hereto and incorporated herein. The foregoing
Utility Rate Schedule, as amended, shall becomeeffective
January i, 2005.
SECTION 3. Pursuant to Section 12.20.010 ofthe Palo.
Alto Municipal Code, Utility Rate Schedule G-6 (Municipal Gas
Service) is hereby amended to read in accordance with sheets G-
6-1 and G-6-2, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become
effective January i, 2005.
SECTION 4. The Council finds that the revenue derived
from the authorized adoption enumerated herein shall be used
only for the purpose set forth in Article VII, Section 2, of the
Charter of the City of Palo Alto.
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041206 c10072465 ,1
***NOT YET APPROVED***
SECTION 5. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore,
no environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
041206 c10072465 2
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
Bo
Co
APPLICABILITY:
This schedule applies to natural gas service to individually metered single family.premises,
-including those separately metered in a multi-family complex.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
RATES:Per Meter
Per Month
(A)Summer Rates (May 1 to October 31):
0-20 therms per therm ........................................................................$0.862
Over 20 therms per therm ........................................, ...............................$1.321
(B)Winter Rates (Nov. 1 to April 30):
0-96 therms per therm
Over 96 therms per therm
........................................................................$0.862
........................................................................$1.321
SPECIAL NOTES:
Seasonal rate changes: The summer period is effective May 1 to October 31 and the winter
period is effective from November 1 to April 30. When the billing period is partly in the
summer period and partly in the winter period, the billing will be computed by prorating the
total therm usage and the applicable rates thereto between the two seasonal periods,
according to the ratio of the number of days in each seasonal period to the total number of
days in the billing period.
Service under this schedule is subject to. discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption 0fservice, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
[End]
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-1-1 dated 7-1-2004 CITY OF PALO ALTO
UTILITIES
Effective 1-1-2005
Sheet No. G-l-1
COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
A. APPLICABILITY:
This schedule applies to non-residential customers who use less than 250,000 therms per year at a
single address. This schedule may include service to master-metered multi-family facilities.
B. TERRITORY:
Co
Within the service area of the City of Palo Alto and on land owned or leased by the City.
RATES:
Do
All year-round delivered commodity:Per Meter
Per Month
Per Therm .........................................................................................................................$1.028
SPECIAL CONDITIONS:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.G-2-1 dated 7-1-2004 CITY OF PALO ALTO
UTILITIES
Effective 1-1-2005
Sheet No. G-2-1
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
Co
APPLICABILITY:
This schedule applies to service buildings and facilities owned and/or operated by the City of Palo
Alto and not currently served under G-11 or G-12.
TERRITORY:
Within the Service area of the City of Palo Alto and on land owned or leased by the City.
RATES:Per Therm
Supply Charges:
1.Commodity Charge ........................................................................................$0.603
2.Administrative Fee .........................................................................................$0.018
3.PG&E Local Transportation ..........................................................................$0.021
Total Supply Charges .....................................................................................$0..642
Distribution Charge:
1. Palo Alto Local Distribution ..................................... i ...................... i ............. $0.237
SPECIAL CONDITION:
o Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
The Administrative fee is equal to the allocable administrative and overhead costs incurred
by the City in providing the gas service.
o PG&E Local transportation charge is equal to the cost of transporting gas from the PG&E’s
City Gate to the Palo Alto City Gate.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-6-1 dated 7-1-2004 CITY OF PALO ALTO
UTILITIES
Effective 1-01-2005
Sheet No. G-6-1
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
(Continued)
o The total monthly charge = therms used during the month X (commodity ~harge +
administrative fee + PG&E local transportation charge + Palo Alto loca! distribution charge).
Customers served under this rate schedule are not eligible for gas direct access and cannot
request a rate schedule change to any full-service rate applicable to customers who are
eligible for gas direct access (i.e. G-3, G-11, or G-12).
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 3-1-2002
Original Sheet No. G-6-2
TO:
FROM:
ATTENTION:
HONORABLE CITY COUNCIL
CITY MANAGER
FINANCE COMMITTEE
DEPARTMENT:UTILITIES
DATE:
SUBJECT:
NOVEMBER 16, 2004 CMR:478:04
APPROVAL OF A RESOLUTION AND APPROVAL OF A BUDGET
AMENDMENT ORDINANCE ADOPTING A GAS RATE INCREASE
AND CHANGES TO THE G-l, G-2 AND G-6 RATE SCHEDULES
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend that the City Council adopt the
attached resolution approving a 20 percent gas supply rate increase to be effective January 1, 2005,
representing a 14 to 19 percent average retail rate increase on customer bills, and a projected $2
million increase in revenues.
UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS
On November 3, 2004, the UAC considered the proposal from staff to increase gas supply rates by
30% effective January 1, 2005. The presentation included rate alternatives, each of which had
different future effects on the Gas Utility’s revenue streams and Supply Rate Stabilization Reserve
balances.
The UAC unanimously (with Commissioner Rosenbaum absent) recommended Council adoption of
an alternative to staff’s proposal: a 20% gas supply increase (rather than 30%), to be effective
January 1, 2005. The UAC-recommended rate increase will recoup the FY 2004-05 increased cost of
natural gas, but will not add revenues to the Supply Rate Stabilization Reserve sufficient to achieve
the target guideline without another supply rate increase in the future.
The UAC felt that this rate increase allowed a reasonable reserve level (although close to the
guideline minimum), and decreased the possibility of "rate shock" when combined with the 8.5
percent Electric Rate increase already scheduled for January 1, 2005.
CMR:478:04 Page 1 of 3
ALTERNATIVES
Staff evaluated several rate increase options and discussed the impacts with the UAC.
A rate increase lower than the recommendation will not leave the Gas Supply Rate Stabilization
Reserve with adequate financial resources to shield the gas utility from further market volatility.
Without a rate increase, the Gas SRSR balance is projected to be $1.1 million below the FY 2004-05
minimum guideline of $6.3 million by June 30, 2005, and $4.2 million below the FY2004-05 target
guideline by June 30, 2005.
To increase rates to cover the cost of gas and to bring the Gas SRSR balance to the target guideline
during FY 2006-07 would require an increase in the gas supply rate of 30 percent. This rate increase
would increase the average residential bill by approximately $10.40 rather than the proposed $9.29
(a 21% increase in the average residential gas bill).
To increase rates to cover the cost of gas and to bring the Gas SRSR balance to the target guideline
during FY 2004-05 would require an increase in the gas supply rate of 42 percent; This rate increase
would increase the average, residential bill by approximately $14.95 or 30 percent rather than the
proposed $9.29 (a 30% increase in the average residential gas bill). Such an increase would still
maintain Palo Alto rate levels below those of the surrounding PG&E communities. It would also
position the Palo Alto to be able to reduce rates to match projected future reductions in PG&E rates
as gas prices reduce in future years. However, such a large rate increase in mid-winter may result in
an economic shock to customers, especially when combined with the Council-approved 8.5 percent
Electric rate increase also scheduled for January 1, 2005.
RESOURCE IMPACT
Approval of this natural gas rate adjustment will result in an increase of 18.6 percent (depending
upon customer usage) for the average residential gas bill (Rate Schedule G-.l) effective January 1,
2005. It would also increase Rate Schedule G-6 (Municipal Gas Service) by 44.8 percent to recover
the cost of gas (currently below cost of acquisition).
The rate increase requires ’amending the 2004-05 adjusted budget to reflect a rise in Gas Fund
revenues of $3.7 million ($2 million from residential and COlmnercial "pool" customers and $1,7
million from "market-based" revenue "pass-through") and an additional appropriation of $3.4
million for gas commodity purchases beyond the amount appropriated in the 2004-05 adopted
budget.
Moreover, the rate increase is expected to add to the Gas Supply Rate Stabilization Reserve by $0.3
million, resulting in a reserve balance of $7.2 million as shown in Attachlnent C. This is above the
$6.3 million Minimum Guideline for the Gas Supply Rate Stabilization Reserve approved by
Council.. However, it will be $1.8 million below the Target balance of $9.4 million.
POLICY IMPLICATIONS
These recommendations do not represent a change in current City policies.
CMR:478:04
The proposed rate
Page 2 of 3
increase is consistent with the Utilities Strategic Plan approved by the Council "to provide superior
financial performance to the City and competitive rates to customers".
TIMELINE
The effective date of the proposed rates is effective January 1, 2005.
ENVIRONMENTAL REVIEW
The adoption of the resolution does not constitute a project under the California Environmental
Quality Act, therefore, no environmental assessment is required.
ATTACHMENTS
A.Resolution
B.Budget Amendment Ordinance
C.BAO Impact Spreadsheet
D.Gas Rate Schedules G-l, G-2, and G-6
E.November 3, 2004 Report to the UAC Proposed Gas Rate Increase
F.Draft excerpt of Minutes from November 5, 2004 UAC meeting
PREPARED BY:
Rates Manager
REVIEWED BY:
DEPARTMENT HEAD:
CITY
Girish Balachandran
Assistant Director, ReSource Management
Tom Auzenne
Assistant Director, Utilities Customer Support Services
/
:tor of Utilities
Assistant City Manager
CMR:478:04 Page 3 of 3
***NOT YET APPROVED***
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO AMENDING UTILITY RATE SCHEDULES G-l,G-2,
AND G-6 OF THE CITY OF PALO ALTO UTILITIES RATES
AND CHARGES PERTAINING TO GAS RATES
The Council of the City of Palo Alto does RESOLVE as
follows:
SECTION i. Pursuant to Section 12.20.010 of the Palo
Alto Municipal Code, Utility Rate Schedule G-I (Residential Gas
Service) is hereby amended to read in accordance with sheet G-l-
i, attached hereto and incorporated herein. The foregoing
Utility Rate Schedule, as amended, shall becomeeffective
January i, 2005.
SECTION 2. Pursuant to Section 12.20.010 of the Palo
Alto Municipal Code, Utility Rate Schedule G-2 (Commercial Gas
Service) is hereby amended to read in accordance with sheet G-2-
i, attached hereto and incorporated herein. The foregoing
Utility Rate Schedule, as amended, shall becomeeffective
January i, 2005.
SECTION 3. Pursuant to Section 12.20.010 of the Palo
Alto Municipal Code, Utility Rate Schedule G-6 (Municipal Gas
Service) is~hereby amended to read in accordance with sheets G-
6-1 and G-6-2, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become
effective January i, 2005.
SECTION 4. The Council finds that the revenue derived
from the authorized adoption enumerated herein shall be used
only for the purpose set forth in Article VII, Section 2, of the
Charter of the City of Palo Alto.
//
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041108 cl 0072465 1
***NOT YET APPROVED***
SECTION 5. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore,
no environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
041108 cl 0072465 2
ORDINANCE NO. XXXX
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR THE FISCAL YEAR 2004-05TO
PROVIDE AN ADDITIONAL APPROPRIATION OF $3,360,000 FORGAS
FUND COMMODITY PURCHASE COSTS
The Council of the City of Palo Al[o does ORDAINas
follows:
SECTION I. The Council of the City of Palo Alto findsand
determines as follows:
A. Pursuant to the provisions of Section 12 of Article III of
the Charter of the City of Palo Alto, the Council on June 28, 2004
did adopt a budget for fiscal year 2004-05; and
B. The Gas utility’s adopted budget for fiscal year 2004-05 is
based on prevailing forward market prices existing at the time the
budget was adopted; and
C. Gas commodity prices have risen steadily since the time the
budget was adopted due to severa! external factors and an overall
constriction of supply; and
D. An estimated additional $3,360,000 beyond the amount
appropriated in the budget is required for gas commodity purchases;
and
E. An 18.6 percent gas rate increase for pooled customers,
effective January i, 2005, is expected to generate an additional
$2,000,000 in gas sales revenue for the remainder of fiscal year
2004-05, partially offsetting the rise of gas commodity costs for
pooled customers by $1,652,000 as well as adding to the Gas Supply
Rate Stabilization ~Reserve by $348,000; and
F. For non-pooled customers, market-based rate increases, which
fluctuate with gas commodity cost increases, will generate an
estimated additional $1,708,000 in gas sales revenue to offset gas
commodity costs attributable to non-pooled customers; and
G. City Council authorization is needed to amend the 2004-05
budget to make an additional appropriation of $3,360,000 for gas
commodity purchases as hereinafter set forth.
SECTION 2. The sum of Three Million Three Hundred Sixty
Thousand Dollars ($3,360,000) is hereby appropriated to commodity
purchases expense in the Supply Resource Management Functional Area
in the Gas Fund.
SECTION 3. Gas Fund revenues are hereby increased by Three
Million Seven Hundred Eight Thousand Dollars ($3,708,000) to reflect
the increased revenues expected from the rate increase to pooled
customers and the market-based rate increase to non-pooled
customers.
SECTION 4. The revenue and expenditure transactions related to
the rate increase are expected to increase the Gas Supply Rate
Stabilization Reserve by $348,000-from $6,822,000 to $7,170,000.
SECTION 5. As specified in Section 2.28.080(a) of the Palo
Alto Municipal~ Code, a two-thirds vote of the City Council is
required to adopt this ordinance.
SECTION 6. The Council of the City of Palo Alto hereby finds
that this is not a project under the California Environmental
Quality Act and, therefore, no environmental impact assessment is
necessary.
SECTION 7. As provided in Section 2.04.330(b) of the Palo Alto
Municipal Code, this ordinance shall become effective upon adoption.//
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/!
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:APPROVED:
City Clerk Mayor
City Manager
APPROVED AS TO FORM:
Director of
Services
Administrative.
City Attorney Director of Utilities
City of Palo Alto
ATTACHMENT C
Budget Amendment Ordinances Impacting Utilities Rate Stabilization Reserves Approved To Date in 2004-05
11/10/04
Gas Fund
Estimated Gas Distribution Rate Stabilization Reserve (RSR)
Balance $6,703,000
gotal BAOs
RsR Balance After BAO°s
Gas Fund
Estimated Gas Supply Rate Stabilization Reserve (RSR)
Balance
$0 $0 $0 $0
$6,703,000
BAO to increase gas rates effective 1/1/2005
$6,822,000
$348,000
Jtal BAOs
RSR Balance After BAO’s
Estimated Net Gas Fund RSR Balance
$0 $0 $0 $348,000 $0
$7,170,000
$13,873,000
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
AQ APPLICABILITY:
This schedule applies to natural gas sex-vice to individually metered single family premises,
including those separately metered in a multi-family complex.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
RATES:Per Meter
Per Month
(A)
(B)
Summer Rates (May 1 to October 31):
0-20 therms per therm ........................................................................$0.862
Over 20 thenns per therm ........................................................................$1.321
Winter Rates (Nov. 1 to April 30):
0-96 thenns per therm
Over 96 therms per therm
........................................................................$0.862
.........................................................................$1.321
Do SPECIAL NOTES:
Seasonal rate changes: The sunm-~er period is effective May 1 to October 31 and the winter
period is effective from November 1 to April 30. When the billing period is partly in the
summer period and partly in the winter period, the billing will be computed by prorating the
total therm usage and the applicable rates thereto between the two seasonal periods,
according to the ratio of the number of days in each seasonal period to file total number of
days in the billing period.
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by inten-uption of service, if the
intelTuption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-1-1 dated 7-1-2004 CITY OF PALO ALTO
UTiLiTIES
Effective 1-1-2005
Sheet No. G-l-1
COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
APPLICABILITY:
This schedule applies to non-residential customers who use less than 250,000 therms per year at a
single address. This schedule may include service to master-metered multi-family facilities.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
Co RATES:
All year-round delivered COlaalaaodity:Per Meter
Per Month
Per Therm ........................................................................................................................$1.028
Do SPECIAL CONDITIONS:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.G-2-1 dated 7-1-2004 CITY OF PALO ALTO
UTILITIES
Effective 1-1-2005
Sheet No. G-2-1
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
A. APPLICABILITY:
This schedule applies to selwice buildings and facilities owned and/or operated by the City of Palo
Alto and not cun’ently served under G-11 or G-12.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C.RATES:Per Therm
Supply Charges:
1.Commodity Charge .............: ..........................................................................$0.603
2.Administrative Fee ..................................~ ......................................................$0.018
3.PG&E Local Transportation ..........................................................................$0.021
Total Supply Charges .....................................................................................$0..642
Distribution Charge:
1. Palo Alto Local Distribution .......................................................................... $0.237
D.SPECIAL CONDITION:
Service under this schedule is subject to discontilmance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by inten-uption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
The Administrative fee is equal to the allocable administrative and overhead costs incurred
by the City in providing the gas service.
PG&E Local transportation charge is equal to the cost of transporting gas from the PG&E’s
City Gate to the Palo Alto City Gate.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-6-1 dated 7-1-2004 CITY OF PALO ALTO
UTILITIES
Effective 1-01-2005
Sheet No. G-6-1
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
(Continued)
The total monthly charge = therms used during the month X (commodity charge +
administrative fee + PG&E local transportation charge + Palo Alto local distribution charge).
Customers served under this rate schedule are not eligible for gas direct access and cannot
request a rate schedule change to any full-service rate applicable to customers who are
eligible for gas direct access (i.e. G-3, G-11, or G-12).
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 3-1-2002
Original Sheet No, G-6-2
TO:
MEMORANDUM
UTILITIES ADVISORY COMMISSION
4
FROM:UTIITIES DEPARTMENT
DATE:
SUBJECT:
NOVEMBER 3, 2004
PROPOSED GAS RATE INCREASE
RECOMMENDATION
This report requests that the Utilities Advisory Cormnission (UAC) recon~nend that the City
Council approve natural gas rate increases of between 17 and 22 percent (based on customer
usage), equivalent to a projected $2.5 million increase for the period between January 1 and
June 30, 2005. This rate increase will offset cun’ent andprojected increases in higher natural
gas supply costs in FY 2004-05 and beyond, and lnaintain a prudent Gas Supply Rate
Stabilization Reserve (SRSR). This proposed rate increase will not apply to gas distribution
costs.
BACKGROUND
In June 2004, the City Council approved a FY 2004-05 budget with gas supply costs based
on prevailing forward market prices at the time the budget was developed.
However, since December 2003, natural gas prices have been steadily rising. The increase
has been attributed to several factors including hurricane Ivan that damaged some production
facilities in the Gulf of Mexico, an almost doubling of crude oil prices, and an overall gas
supply squeeze. While the gas "laddering" strategy has mitigated some of this risk, it also
exposed a portion of the City,s load to market risk at the time of, and subsequent to, budget
approval ..........
Residential and commercial customers comprise the gas "pool", whereby the Gas Utility
purchases and manages gas supply for them, ratl~er than merely "pass thru" market costs.
Industrial customers can select between Gas Schedule G-3 (a floating rate tied to a market
index) or a fixed-term, fixed price contract. Gas commodity for the City’s pool customers is
purchased according to a gas laddering strategy (original CMR:196:01; revised in
CMR: 167:04). The laddering strategy is to continuously procure 60% to 100% of the load
purchased at fixed prices for thenearest 18-month period, 40% to 75% of the load purchased
at fixed prices for 19 to 27 months from now, and 20% to 50% of the load purchased at fixed
UAC 11-03-04 Item 4: Proposed Gas Rate Increase Page I of 5
prices for 28 to 36 months frO1Tl now.
On December 15, 2003, the Council adopted the Finance Committee recommendation for
adoption of two Resolutions to revise Utility Rate Stabilization Reserve (RSR) Guidelines
and to terminate Gas Rate Schedule G-7 (CMR:483:03). The affected Reserves included
Electric Supply, Electric Distribution, Gas Supply, Gas Distribution, and Water and
Wastewater Collection. The new Guidelines served to establish a financial minimum ($6.3
million) and maximum ($12.6 million), and a midrange Target ($9,4 million) for the Gas
Supply RSR. The FY 2004-05 starting balance (unaudited) for the Gas SRSR was $6.8
million.
DISCUSSION
Due to the highly volatile wholesale gas market, resulting in continuing increases in the
forward price curves for gas purchases, target purchasing levels were changed to 100% of
expected pool needs for winter 04/05 to decrease the gas supply cost uncertainty for the
reminder ofFY2004-05. Therefore, in accordance with adopted risk management guidelines,
CPAU has locked in our gas supply costs for the remainder of FY 2004-05. Current retail
rates are insufficient to recover the projected wholesale cost of gas for FY 04-05, and to
maintain prudent reserves. During the current fiscal year, according to the laddering strategy,
the majority ofPalo Alto’s wholesale gas cost has been fixed, and will vary only if the load
differs from the forecast.
Because purchases under the laddering strategy are made over a period of time, the
continuing increases in the forward price curves for wholesale gas continues to increase the
cost of gas supply for the pool. Consequently, pool gas supply costs are projected to be
higher than budgeted for FY 2004-05 by approximately $1.1 million and higher by $3.5
million in FY 2005-06. Without a rate increase, the Gas Supply Rate Stabilization Reserve
balance for June 30, 2005 is projected to be $5.2 million, well below the $9.4 million
Reserve Target Guideline, and below the $6.3 million Minimum Reserve Guideline.
This proposed rate increase to the gas supply portion of the Customer gas bill wilI increase
the average residential customer bill, who uses 100 Therms in the winter and 30 Therms in
the summer, by $10.40 per month (from $49.95 to $60.35 per month). The impact on
residential bills will be an increase between 17 to 22 percent depending on customer usage.
The average commercial customer (Gas Rate Schedule G-2; G-2 @ 1000 Therms/Month)
will see an average increase of 18.1 percent, or $160 per month.
Based on November, 2004 PG&E rates, this proposed gas supply rate increase results in Palo
Alto’s residential gas customers continuing to have overall gas bills (supply plus distribution)
that are 19.6 percent below PG&E.
The following table shows the impact.of this rate proposal on a typical monthly bill for the
various customer classes.
UAC 11-03-04 Item 4: Proposed Gas Rate htcrease Page 2 of 5
TABLE 1
Impact of Proposed Rate Increases on Customer Natural Gas Bills
Customer / Season
Residential/Winter
Residential/Winter
Residential/Summer
Residential/Summer
Commercial G-2
Industrial G-2
Usage
Therms
100
150
3o
4O
5OO
1000
Current
Monthly
Bill
$73.74
132.64
26.16
37.94"
442.50
8,850.00
Proposed
Monthly
Bill
$89.74
156.64
30.96
44.34
522.50
10,450.00
Amount of
Increase
$16.00
241OO
4,80
6.4O
80.00
1,600.00
Proposed
Percent
Increase
21,7%
18,1
18.3
16.9
18.1
18,1
Projected
Percent CPAU
(Below) or
Above PG&E
(based on 11/04published PG&E
rates)
(22:1°/o)¯
(13.2)
(11.5)
(7,7)
(2,7)
6,8
City departments are being charged under Gas Rate Schedule G-6. The gas supply
component of this rate schedule is cun’ently below the Utilities wholesale cost of gas. In
order to recover the increased supply costs, the G-6 gas supply rate will increase by 58
percent to match the cost of gas. The net impact is projected as a $60,000 cost increase
between January and June 2005. Non-pool customers charged under Gas Rate Schedule G-3
are not included in this rate increase since they are charged market rates.
Staff recommends the approval of a Commission recommendation to Council for natural gas
rate increases of between 17 and 22 percent (based on customer class and usage), which are
reflective of an overall 30 percent gas supply rate increase, to be effective January 1, 2005.
If the City Council approves this rate increase, staff projects the Gas SRSR to end the FY
2004-05 with a balance of $8.6 million, $2.3 million above the $6.3 Minimum Guideline, but
below the Target Guideline by $ 890 thousand. Combined with the current projected gas
costs for FY 2005-06, this rate increase is also projected to reach the Gas Supply Rate
Stabilization Reserve Target Guideline for FY 2006-07 of $11.9 million by mid-year of
FY2006-07.
ALTERNATIVES
Staff evaluated the following rate options:
Option A) To forgo any rate increase, the Gas SRSR balance is projected to be $1.1 million
below the FY2004-05 Minimum Guideline of $6.3 million by June 30, 2005, and $ 4.2
UA C 11-03-04 Item 4: Proposed Gas Rate Increase Page 3 of 5
million below the FY2004-05 Target Guideline by June 30, 2005.
Option B) Im order to recoup the increased cost of gas and to bring the Gas SRSR to the FY
2004-05 Minimum Guideline, an increase of 20 percent in gas supply rates would be needed,
rather than the proposed 30 percent increase. This rate increase would increase the average
residential bill by approximately $9.29 or 18.6 percent rather than the proposed $10.40.
However, it will not bring the balance of the SRSR to the Target Guideline without another
supply rate increase in the fi.~ture.
Option C) To increase rates to cover the cost of gas and to bring the Gas SRSR balance to the
Target Guideline during FY2004-05, would require an increase in the gas supply rate of 42
percent. This rate increase would .increase the average residential bill by approximately
$14.95 or 30 percent rather than the proposed $10.40. Such a large rate increase in mid-
winter may result in an economic shock to customers, especially when combined with the
Council-approved 8.5 percent Electric rate increase also scheduled for January 1, 2005.
RESOURCE IMPACT
Approval of natural gas rate increases of between 17 and 22 percent (based on customer class
and usage), which are reflective of an overall 30 percent gas supply rate increase, to be
effective January 1, 2005, would increase the projected Gas Fund supply sales revenues by
approximately $2.5 million from January 2005 through June 2005.
POLICY IMPLICATIONS
These recommendations do not represent a change in current City policies. The proposed
rate increase is consistent with the Utilities Strategic Plan approved by the Council "to
provide superior financial perfola-nance to the City and competitive rates to customers".
TIMELINE
The effective date of the proposed rates is effective January 1, 2005.
ENVIRONMENTAL REVIEW
The adoption of the resolution does not constitute a project under the
Environmental Quality Act, therefore, no environmental assessment is required.
California
UAC 11-03-04 Item 4: Proposed Gas Rate htcrease Page 4 of 5
ATTACHMENTS
A: Gas Rate Schedules G-1, G-2, and G-6.
PREPARED BY:
Lucie Hirmina, Rates Manager
REVIEWED BY:Girish Balachandran
Assistant Director, Resource Management
Tom Auzenne
Assistant Director, Utilities Customer Support Services
DEPARTMENT HEAD:
JOHN ULRICH
Director of Utilities
UAC 11-03-04 Item 4: Proposed Gas Rate lncrease Page 5 of 5
CMR:478:04 ATTACHMENT F
NO.4: PROPOSED GAS RATE INCREASE - Action
Lucie Hinnina handed out materials while Ulrich began the presentation. Ulrich explained that a
month ago staff did not think a gas rate increase would be needed. Staff now believes it is
appropriate to have a rate increase at an average of 20% beginning January 1, 2004.. ,
Ulrich gave a brief summary of the report including a graph which details the differences in
estimated annual purchase costs of gas. The graphic illustrates the future purchase costs of gas;
June 2004 it will be about $i7 million, June 2005 close to $20 million, and June 2007, the
purchase cost will be at $22 million. Staff have been looking at how are we going to collect that
kind of revenue. Currently we are collecting with about $7 million left in the reserves. With the
current rate, the reserves will become negative beginning 2007. Palo Alto is virtually at the
minimum now. Staff’s recommendation is to have a 20% rate increase (to the customer) that
will allow us to pay for the gas and get closer to the reserve target by June 2007.
Other alterna[ives staff looked at would be a 30% increase (supply cost). Ulrich pointed out that
the Commission can see the need for the rate increase based on staff’s recommendation. Budget
projections in January 2004 - by October 25th there is a nmch higher forward price curve. A gas
rate increase is needed to pay for future purchases of gas that the City needs with the goal being
to maintain a reserve as close to the reserve target as possible.
The net effect is the reserve rate will still be about 20% below PG&E rates in the surrounding
communities. We’ve updated our monthly utility bill projections to see what the impact will be
on the customer. $10.40 increase per month for gas for a 20% overall increase to the customer to
get the 30% increase in supply cost. The next impact overall to the customers will be about
$15.30.
Dawes stated that at the time the budget was put together a certain percentage of gas had been
purchased and since then have purchased more. He asked what percentage had been committed
at the time the budget, was put together and are these figures the balance of the unheeded
portfolio?
Auzenne replied that it was about at approximately 75%. The laddering strategy calls for an un-
hedged balance of about 40%.
Ulrich asked the Commission to direct their attention to the Quarterly Report, Page 2 of 10,
Attachment B as Karla Dailey describes our laddering strategy and what we are trying to buy.
Daily said we are not in terrible shape at the end of 04/05 but because we plan for more than one
year at a time, if we don’t do something about our rates now, in the next three year time frame
the City will be in bad shape.
Dawes asked about the magnitude of the price increase. Daily reiterated we are talking about
three years out, our current fiscal year and the next fiscal year as well. Dawes asked about the
distribution RSR and lack of plans to add to that reserve.
Ulrich said we always have the ability to ask to move from one area to another. The
Commission should understand that when Karla is buying gas, she is buying out 1, 2, and 3 years
going forward. We are in the real-world prices that we don’t have any control over. The City
has the advantage by laddering to analyze and look forward and tell what is going to happen if
we don’t raise the rate reserves.
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CMR:478:04 ATTACHMENT F
Dawes asked about the recommendation: 17-22% increase based on customer cost use and
distribution. The 58% increase for the City.
Ulrich and Auzenne explained that rate G-6 rate will apply to service buildings and facilities
owned and/or operated by the City of Palo Alto is going forward - since they were being
dramatically undercharged.
Melton said we are all aware of the petroleum market. He thinks what we see is that it has been
fluxuating broadly in the past couple of months. Since a lot is driven by factors of supply and
demand, his concern is that we may be over-reacting to what is a very volatile spot in the market.
Melton stated we need to recognize the market may go down in the future and he doesn’t want to
go overboard on this. The market moves a lot faster than the rate-setting mechanism moves.
Auzelme agreed the market is volatile, which is why there is a purchasing strategy and a
purchased strategy in place. We have no risk going forward for the remainder of the year but we
bought at a high price. We are doing cost recovery plus building the reserves. We are already
committed to $1.7 million. This is a lower price than the forward market is.
Ulrich said our cost of gas is less than the current spot market but a couple of years ago we drove
down our reserves in order not to shock the customers with a rate increase. Our strategy with
laddering is to purchase relatively small amounts to not shock our customers each month with
the change. Risk is current spot market will be more than cost of buying gas.
Dahlen expressed concern about the electric rates going up in January, could we post-pone
another six months?
Ulrich shared that staff gave this much thought, He reminded the Commission that staff
recommendation was to have the electric increase earlier. He pointed out that we know that’s
where the price is going to go and all of our replacement electric energy is at a higher price. We
know we’re going to have to have another rate increase. It’s in~portant to be as upfront with our
customer as we can. We can help the customer but we have to pass on the higher price of the
conmaodity. It’s better to pass this increase on now rather than have a higher increase later on.
Bechtel said part of the reason of having reserves is to weather a stoma. Looking at a 2007
purchase (projection), we’ve already deferred some purchases hoping prices would go down and
next year we’re not fully exposed to the market. Given that we have a rate stabilization reserve
to weather these things, perhaps we should look at this in June and not today. We don’t know
what this winter will be, a severe winter would drive the prices up. We could use our
stabilization reserve and let it fall to $5 million, if we did nothing it would fall to $2 million by
June 2006, which would be a disaster but it would still be a $2 million reserve.
Ulrich called attention to how we developed the RSR-Stabilization reserve guidelines. These
were put together based on a number of estimated cost contingencies.
Bechtel read from the report CMR 483:03, December 2003 on Reserve Guidelines (distributed
earlier at places by Lucie Hirrnina and asked for clarification.
Ulrich said it’s a matter of whether you agree with what we’ve been following or do you want to
go back and change the methodology for determining the RSR. The City is at the minimum right
now and the only direction to go is down. If the Commission decides you don’t want the
increase now, we’ll have to go back and collect the money later or you’ll have to direct us to go
DRAFT EXCERPT - UAC MINUTES - NOVEMBER 3, 2004 Page 2 of 5
CM-R:478:04 ATTACHMENT F
to Council and ask them to lower our reserves which would be putting the customers at the
market price.
PG&E changes their rates every month. ’Hopefully we change annually unless an emergency.
The purpose of a reserve is to weather two years. If prices drop in six months or one year, our
reserves will fall well below where it is today because we’ve already committed that money.
Most likely We will have to increase our rates again. If we defer this six months we’ve always
allowed our reserves to cushion our bounces. We don’t want them to fall below the minimum.
Dawes talked about .prior years of getting behind the curve. Once you get in that position, you
are in serious trouble. We must not let this get out of hand. He feels it is too risky a strategy to
not raise rates.
MOTION: Dawes called for a motion. Seeing none, Dawes motioned that the UAC recommend
to the Council to accept the staff recommendation starting January 1, 2005 with an additional
adjustment for the City price increase.
SECOND: Bechtel seconded the motion.
Karla explained that what the PG&E customers pay is mostly a market cost. They will be paying
$7-9 per MMBTU. Even with the proposed rate increase, Palo Alto customers will be paying
less than PG&E customers. If you miss this opportunity, the City will be in a bad position.
Karla continued by saying there is a very strong feeling in the market that this is not a spike but a
fundamental change in the price and it is here to stay for several years. The mean has gone up
and supply is so tight there will be additional rises. The prices we see today are our best guess
for prices for the City. They are not wild estimates. The reality is our reserves are not in the
condition to handle what we think it needs to be in the next three years.
Melton wanted to talk about the overall impact of gas and electric. Might want to think about,
given the condition of the gas reserves, did we consider deferring the electric rate increase. Since
this is not on the agenda, we can’t consider tonight. But Melton asked if the Commission can
direct John to bring this to us next month on the agenda. Other point is total utility bill impact,
remind the next Council meeting there will be consideration of a ballot for increased storm drain
fees that is not reflected on this sheet and that increase is supposed to happen in the February-
March timeframe. That is yet another factor that City Council will be considering with both the
utility rate increases and the decision from that election. This will be another hit to the Utility
bill that is not reflected in the handout here.
Dahlen noted that the projected utility bills looks quite high. If we go with Dexter’s thoughts to
be prudent here to prevent being negative on the reserve, could we do so in a gentler way with a
reduction in the anaount of the rate increase. She asked about an anaendment to the motion, what
percentage would keep us at the minimum?
Dawes asked to look at the numbers again. Auzenne stated that the numbers on the quarterly
report were done before this current analysis. We were doing this analysis up to yesterday.
Hirmina said the $5.2 million projection is too low because it would be below minimum.
Dawes said if we do implement a 20% price increase, the ending reserve will stay at $5.2
million. He questioned the consistency of the two charts.
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CMR:478:04 ATTACHMENT F
Ulrich and Auzenne clarified the chart lines. What we have on this chart is the increase to the
supply, not the rate increase. It is a 30% increase in supply.
Discussion and clarification were held regarding the chart. The red line is 30% supply cost
increase. Reserve is after a 20% reserve increase. The Commission asked if they estimate a
10% increase would result in the blue line. Hinnina said that would be 20% rate (blue line).
Ulrich outlined the three options (A, B, C) on page 4 of 5 in the Proposed Gas Rate report.
Option B is an increase of 20% in gas supply rate rather than 30%, average residential bill of
$9.20 which is 18.6%. There is a $1.10 difference to the customer. We are melding the winter
and the summer, together to get the $10.40 rate increase.
MOTION: Dahlen motioned to go with Option B.
SECOND: Melton seconded.
Ulrich says while this looks like only a $1 difference we’d have to come back with another
recommendation for another rate increase in June or July. Staff decided to tell the UAC what we
think is the appropriate amount and then showed these options to show you we also looked at
other options.
Dawes said the discussion seems to revolve around the idea of a lesser rate increase resulting in a
plateau of our RSR rather than an expansion of our RSR is the way the Commission is thinking.
Ulrich said the other main part of this is we’ve set aside money for one-time cost contingencies
that are in the RSR and you should be aware of that. The other reminder is the reason we went to
the laddering strategy is to keep staff from trying to speculate on buying gas, to avoid opinions of
where the market is going to go.
Melton said if we go with Option B now, we could always do another rate increase next spring
when we review all rate increases. That is acceptable. Melton said he would rather have it then
than a larger one in January. If the market forces it, then we could consider it next summer.
Hirmina said staff will be proposing both a water rate increase and a waste water rate increase in
the summer.
Daily said it will have a larger impact on our revenue to have a rate increase in January. If you
postpone a rate increase in the summer, the volume of sales is so low that the revenue will not be
sufficient,
Dawes called for. a vote on the earlier motion He reviewed the earlier motion:
REVIEW OF MOTION: The UAC recommends Option B for proposed rate increase gas
utility, and to approve the new G-6 rate for the City.
MOTION PASSED UNANIMOUSLY.
Melton asked if there was any interest in asking John to bring a review of the electric rate
increase for January 1st to the December UAC meeting. Bechtel said that would take an
emergency action of the Council which would be hard to pull off. Dawes and Dahlen were both
against asking for a justification for the electric rate increase in January. No motion.
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CM:R:478:04 ATTACHMENT F
Ulrich told the group the December meeting will include the axmual public benefits plan update
and a revisit of the strategic plan and measurements. He asked for any concerns about the
meeting schedule of December 1, 2004. No problems expressed..
MOTION: Motion made to adjourn by Dawes.
SECOND: Dahlen
MOTION PASSED UNANIMOUSLY.
ADJOURNMENT
Meeting adjourned at 9:54 p.m.
Respectfully submitted,
Dee Zichowic
DRAFT EXCERPT - UAC MINUTES -NOVEMBER 3, 2004 Page 5 of 5