HomeMy WebLinkAboutStaff Report 2552 City of Palo Alto (ID # 2552)
City Council Staff Report
Report Type: Action ItemsMeeting Date: 3/19/2012
March 19, 2012 Page 1 of 4
(ID # 2552)
Summary Title: Gas Utility Long-term Plan Revisions
Title: Finance Committee Recommendation to Adopt a Resolution Amending the
Gas Utility Long-term Plan Objectives, Strategies and Implementation Plan
From: City Manager
Lead Department: Utilities
Recommendation
Staff, the Utilities Advisory Commission (UAC), and the Finance Committee recommend that the
City Council approve the attached resolution adopting revisions to the Gas Utility Long -term
Plan (GULP) Objectives, Strategies and Implementation Plan.
Executive Summary
The proposed changes to the Gas Utility Long-term Plan (GULP) Objectives, Strategies and
Implementation Plan will align GULP to the Council direction to discontinue the gas laddered
purchasing strategy for pool customers and implement gas supply rates that change every
month based on the market price of gas. Both the UAC and the Finance Committee
unanimously support the proposed changes to GULP.
Background
At its November 1, 2011 meeting, the Council directed staff to develop market p rice-based,
monthly-adjusted gas supply rates (Staff Report #2106). In that report, staff identified the need
to revise some sections in the GULP Objectives, Strategies and Implementation Plan that were
adopted by Resolution #9151 (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
March 19, 2012 Page 2 of 4
(ID # 2552)
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) irrelevant. Therefore, the proposed changes remove the references to gas storage in
Strategy 2 and eliminate 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
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. No change
c. No change
March 19, 2012 Page 3 of 4
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GULP Current Proposed
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. The
complete set of GULP Objectives, Strategies and Implementation Plan with the proposed
changes is provided as Attachment B.
Commission Review and Recommendations
On December 7, 2011, 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 minutes of the UAC’s December 7, 2011 meeting are included in Attachment C.
On February 7, 2012, the Finance Committee approved (2-1) a motion to recommend that the
City Council approve the proposed revisions to the GULP Objectives, Strategies and
Implementation Plan (Staff Report #2440). Council Member Burt voted against the motion, and
Council Member Price was absent. The excerpted draft minutes of the Finance Committee’s
February 7, 2012 meeting are provided as Attachment D.
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 from prior policy to provide stable gas rates to customers. Staff will propose changes, if
appropriate, to the Gas Supply Rate Stabilization Reserve Guidelines when it presents the Fiscal
Year 2013 gas budget and rates.
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
(CEQA). Thus, no environmental review is required.
March 19, 2012 Page 4 of 4
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Attachments:
Attachment A: Resolution Approving Amendments to GULP (PDF)
Attachment B: Proposed GULP Strategies and Objectives (PDF)
Attachment C: Minutes from Dec 7 UAC meeting (PDF)
Attachment D: Draft Excerpt Minutes of Finance Meeting of 2 -7-12 (PDF)
Prepared By: Karla Dailey, Sr. Resource Planner
Department Head: Valerie Fong, Director
City Manager Approval: ____________________________________
James Keene, City Manager
*NOT YET APPROVED*
120305 dm 6051680
Resolution No.
Resolution of the Council of the City of Palo Alto Amending
the Gas Utility Long-term Plan Objectives,
Strategies and Implementation Plan
A. On March 7, 2011, the Council adopted Resolution No. 9151, which
approved the Gas Utility Long-term Plan Objectives, Strategies and Implementation Plan (the
“Plan”).
B. The Utilities Advisory Commission and the Council Finance Committee
have recommended the Council’s approval of certain amendments to the Plan, which are
attached and incorporated by reference. Those amendments pertain to the discontinuation of the
gas laddering purchase strategy and the implementation of gas supply rates that change monthly
according to market prices.
C. Resolution No. 9151 is intended to be amended to reflect the current
version of the Plan.
NOW, THEREFORE,the Council of the City of Palo Alto does hereby
RESOLVE as follows:
SECTION 1. The Council hereby approves the amendments to the Gas Utility
Long-term Plan Objectives, Strategies and Implementation Plan (GULP), attached to this
Resolution as Attachment B.
SECTION 2. Resolution No. 9151 is hereby amended in so far as the Plan, as
amended, is hereby approved.
SECTION 3. The Council finds that the adoption of this resolution does not
constitute a project under the California Environmental Quality Act and the CEQA Guidelines
//
//
//
//
ATTACHMENT A
*NOT YET APPROVED*
120305 dm 6051680
and, therefore, no environment assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST: APPROVED:
_____________________________ ______________________________
City Clerk Mayor
APPROVED AS TO FORM: ______________________________
City Manager
______________________________
Senior Asst. City Attorney ______________________________
Director of Administrative Services
______________________________
Director of Utilities
ATTACHMENT B
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;
a. Negotiating with PG&E for fair access to transportation and storage; and
b. Exploring potential joint action with other public agencies.
ATTACHMENT B
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.
ATTACHMENT C
Excerpted
Utilities Advisor 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).
FINANCE COMMITTEE
DRAFT EXCERPT
Meeting
February 7, 2012
Proposed Revisions to the Gas Utility Long-Term Plan Objectives, Strategies,
and Implementation Plan.
Utility Director, Val Fong said this item was in regards to Administrative
updates on the Gas Utility Long-Term Plan (GULP) to reflect the Council’s
direction on the gas implementation plan.
City Manager, James Keene said the Council had taken action on the item
and Staff had to identify the language changes that needed to be made in
the policy.
Chair Shepherd asked if the Commission wanted to speak to the item.
The Commission stated there was no discussion.
MOTION: Council Member Scharff moved, seconded by Chair
Shepherd, 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.
MOTION PASSED:2-1, Burt no, Price absent
ADJOURNMENT: Meeting adjourned at 8:54 pm.
1 FIN 02-07-12
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ATTACHMENT D