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Home My WebLink About2000-12-18 City Council (21)City of Palo Alto C ty Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE: TITLE: DECEMBER 18, 2000 CMR:449:00 APPROVAL OF A RESOLUTION AMENDING UTILITIES RULE AND REGULATION 5 TO REVISE GUIDELINES FOR UTILITY CUSTOMER CONTRACTS, AND TO ESTABLISH LARGE COMMERCIAL FIXED-TERM AND CUSTOM COMMODITY RATE SCHEDULES G-11 AND G-12 REPORT IN BRIEF Energy deregulation has led to increased utility customer expectations for new energy commodity pricing products and a need to manage risk for the City as well as for customers. Specifically, customers are interested in energy sales contracts as a method to stabilize energy expenses at their facilities. At the same time, the City is interested in offering energy sales contracts as a means to manage risk by having customers commit to purchase energy from the City for a specified term. This report proposes guidelines to ensure that staff implements energy sales contracts in a consistent and impartial manner. This report also introduces a fixed-term commodity service rate schedule and a custom commodity rate schedule applicable to large commercial and industrial gas customers. CMR:449:00 Page 1 of 9 RECOMMENDATION Staff recommends that Council approve a resolution to: 1.Amend Utilities Rule and Regulation 5 (Contracts), to implement proposed guidelines for oversight, review, approval, pricing, and reporting of customer energy sales contracts and; 2.Adopt Large Commercial Fixed-Term Commodity Gas Service Rate Schedule G-11 and Large Commercial Custom Commodity Gas Service Rate Schedule G-12. BACKGROUND Recognizing an opportunity to retain customers who have a choice of energy supplier through the City’s Direct Access program, Council approved the use of customer energy sales contracts in 1997 (CMR:370:97). Additionally, Council approved a "Standard Form Energy and Energy Services Contract" and adopted Utilities Rule and Regulation 5 (Contracts). This rule gave the City Manager authority to negotiate terms and conditions, including commodity prices, and provided general guidelines for implementing contracts. The City Manager approved two sales contracts in 1997 and in 1999 in accordance with Rule and Regulation 5. The City Council, at its January 11, 1999 meeting, raised a number of concerns regarding Council oversight of electric and gas utilities activities ,relating to risk management and the use of customer energy sales contracts. Specifically, Council expressed concern that the use of sales contracts, without sufficient oversight, could lead to inconsistencies in rate setting and potential increased rates for non-contract customers. Council gave direction to staff on the following six issues related to the use of energy sales contracts. Council also asked the City Attorney to respond to these issues. Submit guidelines for entering into sales contracts to the Utilities Advisory Commission (UAC) and Council for review and approval. Establish a procedure for senior management to provide oversight to ensure that energy sales contract guidelines are being followed. o Provide the UAC and Council with a periodic review of the economics of existing contracts. CMR:449:00 Page 2 of 9 Report on the issues involved in making sales contracts available for examination by the Council. o Recommend changes to the Municipal Code to make clear that the duties of the UAC include advising the Council on both energy sales contracts and risk management activities. Address the apparent inconsistency between entering into energy sales contracts and the City Council’s apparent non-delegable authority to set utility rates. In response to Council direction, staff prepared an informational report in July 1999 (CMR:315:99) which discussed staff’s activities and progress in developing a risk management program for the gas and electric utilities. At that time, staff indicated it would return to the Council with proposed energy sales contract guidelines and pricing policies as part of a comprehensive energy risk management program. In July 2000, staff presented the proposed contract guidelines to the Finance Committee (CMR:324:00) and responded to the first three issues raised by Council. Since this report was discussed by the Finance Committee in July, several issues have been further discussed and are clarified in this report. In particular, this report provides additional details and procedures related to oversight and reporting and clarifies how Council members may access confidential customer contract documents in the City Clerk’s Office. Additionally, Gas Rate Schedule G-8 has been replaced with Gas Rate Schedules G-11 and G-12. Issue number four is addressed by the City Attorney under separate cover. With regard to issue number five, clarification of UAC duties shall be addressed with the next planned revision of the municipal code. Issue number six was addressed on December 13, 1999, when Council adopted a resolution approving a change to Utilities Rule and Regulation 5 to amend the City Manager’s authority related to the pricing of sales contracts (CMR:444:99). The amended rule makes clear that the City Council has the sole authority to approve the pricing terms either by adopting Utilities rate schedules or approving specific prices or price ranges applicable to contracts. In addressing issues raised under number six, Council ratified the two existing energy sales contracts. In addition, Council approved the Commodity Pricing Policy (CMR:387:99) at its February 22, 2000 meeting. The Commodity Pricing Policy establishes principles to guide staff when CMR:449:00 Page 3 of 9 developing commodity rates for both standard tariffs and energy sales contracts. This policy was directly responsive to Council’ s concerns regarding the calculation of rates for contract versus non-contract customers. DISCUSSION Deregulation has led to increased expectations on the part of utility customers for new and innovative energy products and services. In addition, current volatile natural gas prices have triggered an interest among large customers for gas commodity fixed-term rates. Market research of key customers in Palo Alto and the experience of other utilities indicate that in order to be competitive and retain customers, the City should offer a range of commodity pricing products that meet varying customer needs. The use of standardized and custom sales contracts, in conjunction with (xisting standard rates, is an effective means of balancing customers’ needs for low rates and/or rate stability. Customer sales contracts are also an effective tool for managing the City’s risk under conditions where direct access is an option for customers. Since large customers are eligible to choose alternate gas and electric suppliers, the City cannot assume it will be able to retain these customers in the future. Therefore, the City is at risk in obligating itself to purchase future energy supplies for these customers unless such customers make a corresponding commitment to purchase energy from the City. Sales contracts can thus be an important tool to achieve the City’s objectives for revenue stability and management of risk. -- Staff proposes to use two rate schedules to implement pricing under energy sales contracts: (1) a rate schedule for fixed-term commodity rates and (2) a rate schedule to address custom commodity rates or terms. Pricing for both forms of contracts will be set in accordance with the Commodity Pricing Policy adopted by Council. Staff recommends Council adopt the attached Gas Rate Schedule G-11 for Large Commercial Fixed-Term Commodity Gas Service and Gas Rate Schedule G-12 for Large Commercial Custom Commodity Gas Service. At this time, staff does not foresee a similar immediate need to offer fixed-term commodity rates for electric customers. If necessary, staff will return to Council with proposed rate schedules to implement electric commodity fixed-term rates. Fixed-term Commodity Rates Fixed-term rates are standard rates in which the commodity portion of the rate is fixed for a defined period of time. Staff proposes that fixed-term commodity rates be made available for a 12-month period and a 24-month period. The commodity component of the fixed-term rate will be based on the City’s projected commodity cost and will be set by the City Manager within a Council-approved price range following Council delegation of authority to the City CMR:449:00 Page 4 of 9 Manager. The commodity charge will vary depending on the term selected and the date on which service would begin. Fixed-term commodity rates may be updated monthly, and will be offered to customers if the price falls within the Council-approved range. Fixed-term rates are full service rates that include both commodity and distribution-related services. The commodity component of the full service rate is fixed while the distribution component may change. All applicable non-commodity components of fixed-term rates (distribution, transportation, and administrative charges) will change upon Council-approved revisions to such charges contained in the corresponding full service rate schedules. In this manner, a commercial customer will pay the same distribution charge, regardless of the rate schedule selected. Customers requesting service under a fixed-term commodity rate schedule will be required to adhere to the terms and conditions of Utilities Rule and Regulation 5 and the conditions set forth in the applicable rate schedule. Customers purchasing gas under a fixed-term rate option commit to buying all their gas from the City of Palo Alto Utilities (CPAU) for the term. A letter memorializing the customer’s commitment to buy energy will be signed by CPAU and the customer. These letters are deemed confidential because they provide proprietary business information. However, Council members may view them on file in the City Clerks Office. Custom Commodity Rate Contracts Because it is impossible to predict every large customer’s unique needs, custom contracts are deemed necessary to provide customers with sophisticated price options or terms which best reflect their usage requirements, or meet their individual needs for price stability. A standard rate schedule does not take into account the unique energy service needs of some customers, when these needs fall outside the scope of the fixed-term rate schedule. For example, a custom commodity contract can offer terms of up to five years or a floating monthly price with a cap that limits the maximum price to be paid. Customers requesting a custom rate will be required to meet certain eligibility requirements, commit to buying all their gas from CPAU, comply with applicable terms and conditions, and sign an energy services contract with an attached confirmation schedule. The Council shall establish a specific rate schedule applicable to custom commodity contracts that will indicate an approved range of energy prices. The confirmation schedule containing the specific contract price, customer usage profile, term of service, or any pricing options such as caps or collars shall be deemed confidential. A customer usage profile is the customer’s utility consumption history or forecast and is proprietary business information. However, if specific information about a customer is desired, Council members may access and review the CMR:449:00 Page 5 of 9 confirmation schedule located on file in the City Clerk’s Office. An informational report will be provided to the UAC and City Council semi-annually that identifies customer names and terms of contracts executed during the preceding six months in accordance with Council-approved guidelines. This report will include customers who elect service under fixed-term commodity rates and custom commodity rates. After 2002, such reports shall be provided annually. Staff recommends Council approve Utility Gas Rate Schedule G-12 applicable to Large Commercial Custom Commodity Gas Service. Adoption of Rate Schedule G-12 establishes a range of rates applicable to such contracts. Specific customer contract pricing will be set by the City Manager within this range of rates. Guidelines Guidelines for oversight, review, approval, pricing, and reporting of customer contracts and fixed-term commodity rates are necessary to ensure staff is implementing contracts as directed by Council. Staff recommends that Council approve the attached Utility Rule and Regulation 5 (Contracts) to establish the following guidelines. A.Oversight The City Auditor shall perform the oversight function, independent of the Utilities Department, to ensure sales contracts are implemented in accordance with Council-approved policies and guidelines. The Auditor will provide reports to the Council. B0 -Review and Approval The UAC shall review the methodology underlying the calculation of the commodity rate, including the risk premium, and provide recommendations to the Council. The UAC shall review a proposed range of commodity rates applicable to fixed- term rate schedules and custom rate schedules and provide recommendations to Council. 3.Council shall adopt a range of commodity rates applicable to fixed-term and custom commodity service rate schedules. CMR:449:00 Page 6 of 9 The City Manager shall be delegated the authority to designate a price for a customer that is within the Council-approved rate range for a fixed-term contract rate or custom contract rate. The City Manager may delegate such authority to the Director of Utilities.. The City Manager shall be delegated the authority to develop, approve and modify any contract boilerplates, confirmation schedules, and/or forms needed to implement energy sales contracts. The City Manager may delegate such authority to the Director of Utilities. All forms and boilerplates shall be reviewed and approved by the City Attorney. C. Pricing Rates for fixed-term commodity rates and custom commodity contracts will adhere to the principles set forth in the Council approved Commodity Pricing Policy. One exception to this policy relates to the component of the overall rate that is designed to fund or withdraw from the Supply Rate Stabilization Reserve (SRSR). This component may be less or more than is applied to full service rate schedules. Only the commodity portion of the rate will be fixed under custom commodity rates and fixed-term commodity rates. Rate schedule cost components such as electric distribution, gas transportation, administrative fees, public benefits, tax, and other non-bypas.sable charges will be adopted by Council and will be equivalent to corresponding charges in applicable full-service rate schedules. Council may change such charges during the term of the contract. 3.The available rates for fixed-term rate options and custom rate options will be public information, and will be published by the Utilities Department. D. Reporting Staff shall prepare performance reports containing an analysis of cost recovery and revenue impact. The UAC and Council will receive a minimum of two reports per year for 2001 and 2002 and annual reports thereafter. Council shall be notified of fixed term and custom commodity contracts on a semi-annual basis. The confidentiality of specific contract provisions such as price and customer usage profile shall be maintained unless the customer consents to its disclosure to the public. However, such information shall be made available CMR:449:00 Page 7 of 9 for any Council member to review in the City Clerk’s Office. UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS At the February 2, 2000 Utilities Advisory Commission (UAC) meeting, staff presented a draft of the proposed energy sales contract guidelines and fixed-term commodity service rate schedules for electric and gas. The UAC supported staff’s proposal with the following proposed modifications: "The UAC shall review in advance, to the maximum possible extent in confidence, the methodology underlying the selection of particular price numbers in the ranges". Staff agrees. The UAC shall review the cost methodology staff plans to use to derive a customer contract price. For customer confidentiality reasons, the UAC will not have access to the price and usage profile of individual customer contracts. However, Council members and the City Auditor will have access to this information. °"Increase the frequency that the UAC performs a performance review from two times in Year 1 to three times in Year 1". Staff disagrees. Staff believes that conducting a performance review twice a year is adequate given the relatively small number of customers expected .to sign contracts in 2001. "To support the performance review, adopt an accounting system with sufficient precision to reflect the prices, the risk premiums and the special costs attending". Staff agrees and plans to utilize staff workpapers to calculate a breakdown of the cost components that will be available for review by the City Auditor. The Customer Information System (CIS) will record the appropriate revenues under customer contracts. "Limit contracts to two years". Staff recommends to limit fixed-term commodity rate options to one or two years. Custom commodity contracts shall be limited to up to five years. RESOURCE IMPACT Adoption of the proposed sales contract guidelines will enable the Electric and Gas Utilities to better manage the risks inhereht in conducting business, thus mitigating potential negative fiscal impacts. The proposed fixed-term rate schedule is intended to maintain existing revenues. CMR:449:00 Page 8 of 9 POLICY IMPLICATIONS Implementation of the proposed rate schedule and sales contract guidelines is consistent with the Commodity Pricing Policy, Utilities Transfer Policy and existing City policies. T1MELINE January 1, 2001 is the proposed effective date for adoption of the resolution to modify Utilities Rule and Regulation 5, and adoption of Gas Rate Schedules G-11 and G-12. The distribution charges shown on the attached Gas Rate Schedules G-11 and G-12 reflect the current proposal to increase gas rates 25 percent effective January 1, 2001. ENVIRONMENTAL REVIEW Approval of the guidelines does not constitute a project under the California Environmental Quality Act and, therefore, is exempt from the environmental assessment requirement. ATTACHMENTS 1.Resolution 2.Utility Rate Schedules G-11 and G-12. 3.Utility Rule and Regulation 5 (Contracts). PREPARED BY:Monica V. Padilla, Resource Planner Randy Baldschun, Assistant Director of Utilities DEPARTMENT HEAD APPROVAL: of Utilities CITY MANAGER APPROVAL: AUDREY Assistant to the City Manager CMR:449:00 Page 9 of 9 RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING UTILITY RULE AND REGULATION 5 PERTAINING TO CONTRACTS AND ADOPTING NEW UTILITY RATE SCHEDULES G-II AND G-12 OF THE CITY OF PALO ALTO UTILITIES. RATES AND CHARGES PERTAINING TO LARGE COMMERCIAL FIXED-TERM AND CUSTOM COMMODITY GAS SERVICES The Council of the City of Palo Alto hereby RESOLVE as follows: SECTION i. Pursuant to Section 12.20.010 of the Palo Alto Municlpal Code, Rule and Regulation 5 (Contracts) of the Palo Alto Utilities Rules and Regulations is hereby amended to read in accordance with the attached Sheet Nos. 1 through 4. Utility Rate Schedule G-II (Large Commercial Fixed-term Commodity Gas Service) is hereby adopted, to read in accordance with Sheets G-II-I and G-II-2, attached hereto and incorporated herein by reference. Utility Rate Schedule G-12 (Large Commercial Custom Commodity Gas Service) is hereby adopted, to read in accordance with Sheets G- 12-1 and G:12-2, attached hereto and incorporated herein by reference. The foregoing Utility Rate Schedules, as amended and as adopted, shall become effective January 1,2001. 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 Director of Administrative Services 001207 syn 0071951 Director of Utilities LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE APPLICABILITY: UTILITY RATE SCHEDULE G-11 This schedule applies to large commercial one site. TERRITORY: customers who use at least 250,000 therms per year at 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 ................................................................................$0.20-$1.50 2.Administrative Fee .........................................................................................$0.004 3.PG&E Local Transportation ..............................................................’ .............$0.016 Distribution Charge: 1. Palo Alto Local Distribution ........................................................................... $0.237 D. TERM:12 Months or 24 Months E. 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 fumish 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. Customers who choose to be charged under this rate schedule are required to sign a letter with CPAU committing to a price and term and to adhere to rules and regulations set forth in CPAU Rule and Regulation No. 5 (Contracts). The letter shall indicate the estimated gas consumption over the term of the contract rate. This consumption shall be served solely by CPAU. CITY OF PALO ALTO UTILITIES Issued by the City Council CITY OF PALO ALTOUTILITIES Effective 1-1-2001 Original Sheet No. G-11-1 LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE UTILITY RATE SCHEDULE G-11 (Continued) The Commodity Charge shall be fixed for a 12 or 24-month term. The other components of the rate: Administrative Fees, Transportation Charges, and Distribution Charges may be modified periodically with the Council’s approval. The Commodity Charge component of this rate and the term will be set at the time when the customer signs a letter acknowledging the term and price agreed upon with CPAU. The Commodity Charge shall be based upon the customer load shape and size, a risk premium, and market prices. The Commodity Charge will fall within the range set in Section C, Part 1 of this Schedule and will be for gas delivered to PG&E City Gate. 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 PG&E City Gate to the Palo Alto City Gate. Total monthly charge = therms used during the month X (Commodity Charge + Administrative Fee + PG&E Local Transportation Charge + Palo Alto Local Distribution Charge). A customer may request service under this schedule for more than one account or meter if the accounts are located on one site. A site shall be defined as one or more utility accounts serving contiguous parcels of land with no intervening public right-of- ways (e.g. streets) and have a common billing address. A customer may renew service under this rate schedule with a 30-day advance notice. The Commodity Charge for the renewed term of service will be based on the published fixed- term commodity charge at the time service is renewed. Customers electing not to renew service under this rate schedule will be returned to an applicable full-service gas rate schedule of their choice. {End} CITY OF PALO ALTO UTILITIES Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 1-1-2001 Original Sheet No. G-11-2 LARGE COMMERCIAL CUSTOM COMMODITY GAS SERVICE UTILITY RATE SCHEDULE G-12 Uo APPLICABILITY: This schedule applies to large commercial customers who use at least 250,000 therms per year at one site. 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 ................................................................................$0.20-$1.50 2.~ Administrative Fee .........................................................................................$0.004 3.PG&E Local Transportation ................................................................., .........$0.016 Distribution Charge: 1. Palo Alto Local Distribution ........................................................................... $0.237 TERM: Up to 5 years 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. Customers who choose to be charged under this rate schedule are required to sign a contract and confirmation schedule with CPAU and adhere to rules and regulations set forth in CPAU Rule and Regulation No. 5 (Contracts). The Commodity Charge shall be based upon the customer load shape and size, term, and market prices. The other components of the rate: Administrative Fees, Transportation Charges, and Distribution Charges may be modified periodically with the Council’s approval. CITY OF PALO ALTO UTILITIES Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 1-1-2001 Original Sheet No. G-12-1 10. LARGE COMMERCIAL CUSTOM COMMODITY GAS SERVICE UTILITY RATE SCHEDULE G-12 (Continued) The Commodity Charge component of this rate and the term will be set at the time when the customer signs the Contract. Rate options available under Contract may include, but are not limited to, commodity rate caps, collars, forward strips, and trigger rates. Pricing for such products, including any necessary fees, will fall within the Commodity Charge range set forth in Section C, Part 1 of this Schedule. A rate cap is defined as a floating rate with a guaranteed maximum price. A rate collar is defined as a floating rate with maximum and minimum rate levels. Forward strips are defined as a set rate for a set term calculated by taking the average rate over a specified period of time. A rate trigger is a mechanism wherein the customer could set a specific rate level and if the market rate reaches that level, the customer rate is automatically set at that level. 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 PG&E City Gate to the Palo Alto City Gate. Total monthly charge = therms used during the month X (Commodity Charge + Administrative Fee + PG&E Local Transportation Charge + Palo Alto Local Distribution Charge). The customer must remain on this term rate for the term indicated on the Confirmation Schedule, providing the customer continues to receive distribution services from the City. The confirmation Schedule shall indicate the Customer’s approximate gas usage (load) over the term of the contract. This load shall be served solely by CPAU. A customer may request service under this schedule for more than one account or meter if the accounts are located on one site. A site shall be defined as one or more utility accounts serving contiguous parcels of land with no intervening public right-of- ways (e.g. streets) and have a common billing address. A customer may request a renewal of this rate with a 30-day advance written notice. The commodity charge for the renewed period will be based on the market prices and other pricing factors that exist at the time the rate is renewed. Customers electing not to renew the Contract will be returned to an applicable full-service gas rate schedule of their choice. {End} CITY OF PALO ALTO UTILITIES Issued by the City Council OITY OF PALO ALTO UTILITIES Effective 1-1-2001 Original Sheet No. G-12-2 CONTRACTS RULE AND REGULATION 5 TYPES OF SERVICE CONTRACTS For electric, gas, or fiber optic services in large quantities or under special conditions, CPAU may require a suitable written agreement for new or existing customers. Contracts may apply to standard service offerings or custom or special services. The following is an illustrative list of special services that may be the subject(s) of a contract. Additional services may apply at the discretion of the Director of Utilities. 2. 3. 4. 5. 15. 16. Line Extensions. Temporary Service. Special Facilities. CPAU service to special districts and institutions. Special type service requirements. Work performed for other agencies at their expense. Customers purchasing energy from other entities, such as an ESP. Customers purchasing natural gas or power from CPAU under special arrangements. Transmission service Purchase of commodity products and services Special Metering and/or Billing Services. Special Energy Services. Long-term service agreements greater than 3 years. Loans and leases to Customers to finance efficiency improvements or to improve power reliability at a Customers’ site.¯ ~.. Standby Service. Purchase, lease, installation, connection or maintenance of on-site generation (distributed generation) CONTRACT APPLICATION PROCEDURES Large commercial customers will have the ability to negotiate provisions of Energy Services from CPAU. In general, the following application procedures are applicable to service contracts. 1.Completion and signature of applicable form(s) or letter(s) as necessary; CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. 1 dated 12-f4-99 CITY OF PALO ALTO UTILITIES Effective 1-1-2001 Sheet No. 1 CONTRACTS RULE AND REGULATION 5 o Depending on the type of service contract, Customers shall request consideration for a special contractual agreement in writing to the Director of Utilities specifying their objectives, including the desired term of the contract. 3.If applicable, fees or deposits shall be paid. 4.If applicable, compliance with the City’s insurance requirements. CONTRACT PRICING GUIDELINES Contracts between CPAU and its customers shall be based on the following pricing guidelines: The same pricing, terms, and conditions for one customer will be made available to other customers of similar size, service, and load characteristics. Authority to establish the specific terms, excluding the rates of services, will be delegated to the City Manager. Revenues realized from each contract will, at a minimum, recover all applicable Energy Services costs over the term of the contract. Rates arrangements differing from those offered in the current and successor rate schedules will not shift costs to the other customers in the short-or long-term. Only the commodity portion of the rate will be fixed under custom commodity rates and fixed-term commodity rates. Rate schedule cost components such as electric distribution, gas transportation, administrative fees, public benefits, tax, and other non-bypassable charges will be adopted by Council and will be equivalent to the corresponding charges contained on applicable full-service rate schedules. Council may change such charges during the term of the contract o The available rates for fixed-term rate options and custom rate options will be public information, and will be published by the Utilities Department. CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. 1 dated 12-14-99 CITY OF PALO ALTO UTILITIES Effective 1-1-2001 Sheet No.2 CONTRACTS RULE AND REGULATION 5 (Continued) e Rates for fixed-term commodity rates and custom commodity contracts will adhere to the principles set forth in the Council approved Commodity Pricing Policy. One exception to this policy relates to the component Of the overall rate that is designed to fund or withdraw from the Supply Rate Stabilization Reserve (SRSR). This component may be less or more than is applied to full service rate schedules. Rates for t’ixed-term commodity rates and custom commodity contracts will adhere to the principles set forth in the Council approved Commodity Pricing Policy. One exception to this policy relates to the component of the overall rate that is designed to fund or withdraw from the Supply Rate Stabilization Reserve (SRSR). This component may be less or more than is applied to full service rate schedules. OVERSIGHT, REVIEW, AND APPROVAL OF COMMODITY SALES CONTRACTS The City Auditor shall perform the oversight function, independent of the Utilities Department, to ensure sales contracts are implemented in accordance with Council- approved policies and guidelines. Reports will be provided to by the Auditor to the Council. The UAC shall review the methodology underlying the calculation of the commodity rate, including the risk premium, and provide recommendations to the Council. The UAC shall review a proposed range of commodity rates applicable to !fixed term rate schedules and custom rate schedules and provide recommendations to Council. Council shall adopt a range of commodity rates applicable to fixed-term and custom commodity service rate schedules. The City Manager shall be delegated the authority to designate a price for a customer that is within the Council-approved rate range for a fixed-term contract rate or custom contract rate. The City Manager may delegate such authority to the Director of Utilities. 6.The City Manager shall be delegated the authority to develop, approve and modify any CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. 2 dated f2-14-99 CITY OF PALO ALTO UTILITIES Effective 1-1-2001 Sheet No.3 CONTRACTS EQ RULE AND REGULATION 5 (Continued) contract boilerplates, confirmation schedules, and/or forms needed to implement energy sales contracts. The City Manager may delegate such authority to the Director of Utilities. All forms and boilerplates shall be reviewed and approved by the City Attorney. REPORTING OF COMMODITY SALES CONTRACTS The Utilities Department shall prepare performance reports containing an analysis of cost recovery and revenue impact. The UAC and Council will receive a minimum of two reports per year for 2001 and 2002 and annual reports thereafter. Council shall be notified of f’L~ed-term and custom contracts on a semiannual basis. The confidentiality of specific contract provisions such as price and customer usage profile shall be maintained unless the customer consents to its disclosure to the public. However, such information shall be made available for any Council member to review in the City Clerks Office. (END) CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. 2 dated 12-14-99 CITY OF PALO ALTO UTILITIES Effective 1-1-2001 Sheet No.4