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HomeMy WebLinkAbout2003-05-15 City Council (2)TO:HONOILABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES ATTENTION:FINANCE COMMITTEE DATE:MAY 15, 2003 CMR: 268:03 SUBJECT:ADOPTION OF A RESOLUTION AMENDING VARIOUS GAS [LATE SCHEDULES TO EFFECT A GAS [LATE DECREASE RECOMMENDATION Staff and the Utilities A dvisory Commission (UAC) recommend that the City C ouncil adopt the attached resolution to lower natural gas rates approximately $4.5 million, to be effective July 1 _00~. DISCUSSION The Council approved a 26.7 percent retail gas rate decrease effective July 1, 2002. During the budget process, staff informed the Council that if wholesale gas prices continue to be stable, a second rate decrease may be proposed. This is the second retail gas rate decrease. As a result of stabilized wholesale gas prices and the "laddering" strategy staff have been using to purchase gas, reserves have been replenished. Therefore, staff is proposing a 15 percent rate decrease to be effective July 1, 2003. On an annual b asis this represents a revenue d ecrease o f $ 4.5 million. T he d ecrease w ill primarily benefit residential and small commercial retail customers. BOARD/COMMISSION REVIEW AND RECOMMENDATIONS The UAC reviewed this recornmendation at the May 7, 2003 meeting. At this meeting, staff modified the proposal to exclude application of the rate decrease to Rate Schedule G-7. Although there are cm-rently no customers served under the G-7 rate, the modification will reduce the Utility’s financial exposure in the future if large commercia! customers elect to change to Rate Schedule G-7. With this modification, the UAC voted unanimously in favor of the rate proposal, Commissioner Carlson absent. CMR:268:03 Page 1 of 2 RESOURCE IMPACT Approval of this proposed rate decrease will reduce the Gas Fund sales revenues by approximately $4.5 million for FY 03-04. POLICY IMPLICATIONS This proposed rate decrease would satisfy the Strategic Plan objective of providing superior financial performance to the City and competitive rates to customers. These recommendations do not represent a change in current City policies. 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: Gas Rate Schedules G-l, G-2, and G-6 B.UAC Report "Adoption of a Resolution Amending Various Gas Rate Schedules to Effect a Gas Rate Decrease" PREPARED BY: DEPARTMENT HEAD: CITY MANAGER APPROVAL: Lucie Hirmina Utilities Rates Manager JDiOrectorHAN Uo~ uRIt~ [.~,,, EMILY HARRISON Assistant City Manager CMR:268:03 Page 2 of 2 RESIDENTIAL GAS SERVICE UTILITY P_ATE SCHEDULE O-1 A. APPLICABILITY: This schedule applies to natural gas ser~,ice to individually metered single family premises, including those separately metered in a multi-family complex. B.TERRITORY: Co Within the service area of the City of Palo Alto and on land owned or leased by the City. I~&TES:Per Meter Per Month (A)Summer Rates (May 1 to October 3 !): 0-20 therms per therm ........................................................................,$0.654 Over 20 therms per therm ........................................................................$1.072 (B)Winter Rates (Nov. 1 to April 30): 0-96 therms per therm Over 96 therms per therm ........................................................................ $0.654 ........................................................................ $1.072 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 sun~mer 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 whote 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 intenvption of sen, ice, if the interruption of sen, ice 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 7-1-02 CITY OF PALO ALTO UTILITIES Effective 7-1-2003 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. No 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 commodity:Per Meter Per Month Per Thenn ........................................................................................................................ $0.805 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. CITY OF PALO ALTO UTILITIES Issued by, the City’ Council Supersedes Sheet No.G-2-1 dated 7-1-02 CITY OF- PALO ALTO UTILITIES Effective 7-1-2003 Sheet No. G-2-1 MUNICIPAL GAS SERVICE UTILITY R_ATE SCHEDULE G-6 A.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. B.TER1~TORY: Co \Vithin the service area of the City of Palo Alto and on land owned or leased by the City,. I~kTES:Per Therm Supply Charges: 1.Comrnodity Charge $0.33 ! 2.Administrative Fee ........’$0.018 3.PG&E Local Transportation ..........................................................................$0.021 Total Supply Charges .....................................................................................$0.370 Distribution Charge: 1. Palo Alto Local Distribution ............................................. $0.~7 D.SPECIAL CONDITION: 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 incuned by the City in providing the gas service. PG&E Local transportation charge is equal to the cost of transporting gas fl-om 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 7-1-02 CiTY OF PAL© ALTO UTILITIES Effective 7-0 ! -2003 Sheet No. G-6-1 3C MEMORANDUM TO:UTILITIES ADVISORY COMMISSION FROM:UTIIT1ES DEPARTMENT DATE:MAY 7, 2003 SUBJECT:PROPOSED GAS RATE DECREASE RECOMMENDATION This report requests that the Utilities Advisory Commission (UAC) recommends the City Council approve a $4.5 million retail gas revenue decrease effective July 1, 2003. The proposed decrease represents approximately 15 percent of the total system sales revenues. In addition, staff is recommending a transfer of $2 million from the Supply Rate Stabilization Reserve to the Distribution Rate Stabilization Reserve for FY 2003/04 and another $1 million transfer between reserves for FY 2004/05. BACKGROUND In June 2002, the City Council approved a 26.7 percent rate decrease..At that time, staff informed the Council that if gas prices remained flat, then another rate decrease may be recommended for FY 2003/04. Natural gas prices which, were uncharacteristically rising since May 2000, have been declining somewhat steadily and have been relatively stable ttvough FY 2002/03. Accordingly, the wholesale price of gas to the City has declined substantially. During the past two years, staff has used a "laddering" strategy to purchase gas. This has resulted in stable and lower wholesale gas costs for the City. These gas cost savings h ave been passed on to consumers in 2002 and staff proposes to pass through additional savings in 2003. The favorable impact of the laddering strategy is evident by a rate comparison with PG&E. During the current fiscal year, Palo Alto’s natural gas rates have averaged 4 percent below PG&E’s rates. With the proposed decrease, the rate differential should continue to improve. DISCUSSION This revenue decrease has been spread to the residential and small commercial .retail rate schedules based an equal percentage decrease. Large commercial customers, who have elected to be seiwed under either fixed-ter~n contracts or the Market-based Rate Schedule G- 3, will not experience a bill decrease. Such customers have locked into previously agreed Page 1 of 3 upon price contracts or choose to pay the monthly market price. Therefore the 18.4 percent customer specific decrease is higher than the system average of 15 percent since the decrease is not applied to all customer classes. The following table shows the impact of this rate proposal on a b@cal monthly bill for the various customer classes. TABLE 1 Impact of Rate Decrease on Customer Bills Customer Residential/W~nter Residential/Winter Residential/Summer Residential/Summer Commercial G-2 Industrial G-2 Contract Customers - Dist. Usage Therms Monthly Bill Amount of Percent 100 150 26 4O 50O 0,000 60,000 $ 67.07 120.67 19.51 34.52 402.50 8,050.00 14,220.00 Decrease Decrease Percent PA Below or Above PG&E as of 4101 ($15.os) (27.1s) (4.40) (7.78) (90.50) (1 ,SlO.O0) 0.00 (18.4) (18.4) (18.4) (18.4) (18.4) (18.4) 0 (22.6%) (12.o %) (12.7%) (5.3%) 0.7% ~ 3.0% Finally, the Distribution Rate Stabilization Reserve (DRSR) will fall below its minimum guidelines approved by the Council at the end of FY 2004/05. In order to maintain the DRSR balance at a reasonable level, staff recommends a transfer from the SRSR to the DRSR of $2 million during FY 2003/04 and another $1 million for FY 2004/05. ALTERNATIVES Staff evaluated other rate decrease options. However, any rate decrease higher than the proposed may have a negative impact on the financial position of the gas utility if gas prices start to climb again. Presently, there is some uncertainty regarding the cost of gas for approximately 35 percent of FY 2003/04 load requirement. Therefore, staff reconm~ends that gas rates be decreased by 15 percent. If new and relevant information becomes evident before Council approval, staff may revise this rate proposal upward or downward. RESOURCE IMPACT ADDroval of this proposed rate decrease will reduce the Gas Fund sales revenues by approximately $4.5 million for FY _00~/04. Page 2 of 3 POLICY IMPLICATIONS These recommendations do not represent a change in current City policies. The proposed rate decrease 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 July 1, 2003. ENVIRONMENTAL REVIEW The adoption of the resolution does not constitute a project under the Environmental Quality Act, therefore, no environmental assessment is required. California ATTACHMENTS Gas Rate Schedules G-l, G-2, G-6, and G-7 PREPARED BY: I£ucie l~lirmina, Pricing Manager REVIEWED BY: DEPARTMENT HEAD: Oirish Balachandran2~ Assistant Director, Resource Management Randy Baldschm~ Assistant Director, Utilities Customer Support Sen, ices JO ~H~ULRI~I ~ DiVot of Utilities Page 3 of 3