HomeMy WebLinkAboutStaff Report 15047 (2)City of Palo Alto (ID # 15047)
City Council Staff Report
Meeting Date: 12/19/2022 Report Type: Consent Calendar
City of Palo Alto Page 1
Title: Adoption of a Resolution Increasing the Gas Monthly Market-Based
Commodity Rate Cap From $2.00 Per Therm to $4.00 Per Therm by Amending
Utility Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master-
Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service),
and G 10 (Compressed Natural Gas Service)
From: City Manager
Lead Department: Utilities
Recommendation
Staff recommends that the City Council adopt a Resolution (Attachment A) amending utility rate
schedules G-1, G-2, G-3, and G-10 to raise the upper limit on the monthly market-based
commodity component from $2.00 per therm to $4.00 per therm effective January 1, 2023.
Background/Discussion
In recent weeks, natural gas commodity prices have risen dramatically across the western
United States due to a confluence of factors, including: (a) the historically cold weather this
region has seen in December, (b) unusually low gas storage levels across the region, (c)
constraints on the availability of natural gas supplies flowing into California, and (d) an
increased reliance on natural gas in the electric power sector as a result of the ongoing
drought’s impact on hydroelectric supplies. This combination of factors has led to a surge in
natural gas prices for this winter to levels not seen in many years, as illustrated in Figure 1
below.
Figure 1: Natural Gas Commodity Prices, Actual and Projected ($/therm)
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City of Palo Alto Page 2
On April 19, 2012, Council amended the City’s Gas Utility Long-Term Plan to pass through gas
commodity costs directly to gas customers (Staff Report 2552) through a variable monthly rate
component. This is relatively common in the natural gas industry; Pacific Gas and Electric also
passes through monthly gas cost changes to customers. The rate schedules adopted by Council
cap the monthly gas commodity cost at $2.00 per therm. Based on an internal staff review of
forward gas prices on the Intercontinental Exchange on December 12, 2022, forward prices for
natural gas at PG&E Citygate1 for January and February 2023 are roughly $3.50 per therm and
$2.00 per therm, respectively.
If the City does not raise the cap and is unable to pass through market purchase cost increases
this winter, staff expects that dramatically higher gas rate increases will be required in 2023 to
cover the gas utility’s operational costs. To illustrate, keeping the commodity cap at $2/00 per
therm is expected to require an estimated $5.7 million draw-down of the Gas utility’s
Operations Reserve2 by the end of FY 2023. This would result in the Operations Reserve ending
the fiscal year approximately $2.5 million below the $7.8 million minimum guideline level, even
before other revenues and expenses are taken into account.3
Staff proposes that the City Council raise the cap on the Commodity component of all Gas utility
retail rates from $2.00 per therm to $4.00 per therm, effective January 1, 2023. This action, if
1 PG&E Citygate is a trading point used in the gas markets for any gas delivered from the gas transmission system
in California to PG&E for transport across PG&E’s system to an independent gas consumer/provider like the City.
2 The Gas Utility Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. See the Council-adopted Gas Utility Reserve Management Practices adopted June 13, 2022 (Staff
Report 13661).
3 According to internal preliminary year-end financial results, the Gas Utility Operations Reserve balance as of July
1, 2022 was roughly $11 million, which is $3.2 million above the $7.8 million minimum guideline level established
in the FY 2023 Gas Utility Financial Plan.
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City of Palo Alto Page 3
approved, would maintain the financial health of the gas utility by enabling full supply cost
recovery. Should gas prices fall or not reach, $4.00 per therm, staff will only pass through the
direct cost incurred for the commodity.
Stakeholder Engagement
As gas prices began to rise this winter the City began extensive outreach to inform residents
about these higher gas prices and providing tips for energy efficiency measures to keep utility
bills down. Should gas prices rise to record levels in January, as current futures prices indicate,
staff will do an additional round of heavy outreach to alert residents.
Outreach channels include: Website, Utilities e-newsletter, Uplift Local e-newsletter, Business
Connect e-newsletter, Social media, Nextdoor, MyCPAU portal, Customer Service Call Center
phone tree recording/messaging, Customer Service representative talking points, Key account
manager direct outreach, Palo Alto Neighborhoods distribution list, Midtown Neighbors and
Friends distribution list, Questline newsletter, Utility bill insert, Utilities Director report to the
Utilities Advisory Commission, City Manager comments to Council
Resource Impact
Adoption of this resolution will allow staff to pass through the full market price of gas to
customers even if it exceeds $2 per therm. Without this change, at current price projections,
the City would be unable to pass through commodity costs incurred up to $5.7 million to
consumers. This cost would instead be borne by the gas utility reserves and would need to be
collected from customers in future rates, requiring steeper rate increases than currently
projected in order to replenish reserves.
Environmental Impact
The Council finds that changing gas rates to meet operating expenses, purchase supplies and
meet financial reserve needs necessary to maintain service is not subject to the California
Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec.
21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the
staff report and all attachments presented to Council, the Council incorporates these
documents herein and finds that sufficient evidence has been presented setting forth with
specificity the basis for this claim of CEQA exemption.
Attachments:
x Attachmenta: Attachment A: Resolution Amending Utility Rate Schedules G-1, G-2, G-3,
and G-10
x Attachmentb: Attachment B: Rate Schedule G-1, G-2, G-3, G-10
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Attachment A
6056695
*NOT YET APPROVED *
Resolution No.__________
Resolution of the Council of the City of Palo Alto Increasing the Gas Monthly
Market-Based Commodity Rate Cap by Amending Rate Schedule G-1
(Residential Gas Service), G-2 (Residential Master-Metered and Commercial
Gas Service), G-3 (Large Commercial Gas Service), and G-10 (Compressed
Natural Gas Service)
R E C I T A L S
A. The City of Palo Alto (“City”) purchases natural gas at market prices based on the
monthly and daily index prices at the PG&E Citygate hub. Since 2012, according to Council-
approved policy (Staff Report 2552, April 19, 2012), the City has passed-through these supply
costs to customers by charging monthly gas supply rates that reflect market prices.
B. Since April 19, 2012, the City’s gas rate schedules also include a gas commodity supply
charge upper cap of $2.00 per therm, which means the City cannot recover supply costs that
exceed this cap from customers. This means that any supply cost increases above the cap
would need to be recovered from reserves, though the cap has never been exceeded to-date.
C. Based on recent extreme gas market volatility, staff anticipates that the gas index prices
for the City’s gas supply purchases will exceed the current cap in the upcoming months. To
ensure financial stability for the gas reserves, and to maintain compliance with the Council-
adopted Gas Utility Reserve Management Practices adopted June 13, 2022 (Staff Report
13661), Staff is proposing to raise the gas commodity supply charge cap.
D. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City
of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and
charges.
The Council of the City of Palo Alto does hereby RESOLVE, as follows:
SECTION 1. The Council approves an increase to the Commodity (Monthly Market
Base) cap from $2.00 per therm to $4.00 per therm, for the G-1 (Residential Gas Service),
G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large Commercial
Gas Service), and G10 (Compressed Natural Gas Service) rate schedules, effective January
1, 2023.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule G-1 (Residential Gas Service) is amended to read as attached and
incorporated. Utility Rate Schedule G-1, as amended, effective January 1, 2023.
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Attachment A
6056695
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule G-2 (Residential Master-Metered and Commercial Gas Service) is
amended to read as attached and incorporated. Utility Rate Schedule G-2, as amended,
effective January 1, 2023.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule G-3 (Large Commercial Gas Service) is amended to read as attached
and incorporated. Utility Rate Schedule G-3, as amended, effective January 1, 2023.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule G-10 (Compressed Natural Gas Service Service) is amended to read
as attached and incorporated. Utility Rate Schedule G-10, as amended, effective January 1,
2023.
SECTION 6. The City Council finds as follows:
a. Revenues derived from the gas rates approved by this resolution
do not exceed the funds required to provide gas service.
b. Revenues derived from the gas rates approved by this resolution
shall not be used for any purpose other than providing gas
service, and the purposes set forth in Article VII, Section 2, of the
Charter of the City of Palo Alto.
SECTION 7. The Council finds that the fees and charges adopted by this resolution
are charges imposed for a specific government service or product provided directly to the
payor that are not provided to those not charged, and do not exceed the reasonable costs
to the City of providing the service or product.
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Attachment A
6056695
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SECTION 8. The Council finds that changing gas rates to meet operating expenses,
purchase supplies and meet financial reserve needs necessary to maintain service is not
subject to the California Environmental Quality Act (CEQA), pursuant to California Public
Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a). After reviewing the staff report and all attachments presented to Council, the
Council incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
________________________________ ________________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
________________________________ ________________________________
Assistant City Attorney City Manager
________________________________
Director of Utilities
________________________________
Director of Administrative Services
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RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-1 Sheet No G-1-1
dated 7-1-2022 Effective 1-1-2023
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from City of Palo Alto
Utilities:
1. Separately-metered single-family residential Customers;.
2. Separately-metered multi-family residential Customers in multi-family residential
facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:Per Service
Monthly Service Charge: ........................................................................................................$11.54
Tier 1 Rates: Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-
$2.00$4.00
2. Cap and Trade Compliance Charge ............................................ $0.00-$0.25
3. Transportation Charge ................................................................. $0.00-$0.25
4. Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge:....................................................................................... $0.5607
Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-
$2.00$4.00
2. Cap and Trade Compliance Charge ............................................. $0.00-$0.25
3. Transportation Charge ................................................................. $0.00-$0.25
4. Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge:............................................................................................. $1.4338
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RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-2 Sheet No G-1-2
dated 7-1-2022 Effective 1-1-2023
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.
The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance
with the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required.
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse
gases produced in the burning of natural gas. The Carbon Offset Charge will change in
response to changing market conditions, changing sales volumes and the quantity of
offsets purchased within the Council-approved per therm cap.
The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges
will fall within the minimum/maximum ranges set forth in Section C. Current and historic
per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and
Transportation Charges are posted on the City Utilities website.1
2. Seasonal Rate Changes:
The Summer period is effective April 1 to October 31 and the Winter period is effective
from November 1 to March 31. When the billing period includes use in both the Summer
and the Winter periods, the usage will be prorated based on the number of days in each
1 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.cityofpaloalto.org/files/assets/public/utilities/rates-schedules-for-utilities/monthly-gas-commodity-rates.pdf
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RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-3 Sheet No G-1-3
dated 7-1-2022 Effective 1-1-2023
seasonal period, and the charges based on the applicable rates for each period. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
3. Calculation of Usage Tiers
Tier 1 natural gas usage shall be calculated and billed based upon a level of 0.667 therms
per day during the Summer period and 2.0 therms per day during the Winter period,
rounded to the nearest whole therm, based on meter reading days of service. As an
example, for a 30 day bill, the Tier 1 level would be 20 therms during the Summer period
and 60 therms during the Winter period months. For further discussion of bill calculation
and proration, refer to Rule and Regulation 11.
{End}
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RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-1 Effective 1-1-2023
dated 7-1-2022 Sheet No G-2-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto
Utilities:
1. Commercial Customers who use less than 250,000 therms per year at one site;.
2. Master-metered residential Customers in multi-family residential facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:Per Service
Monthly Service Charge: ......................................................................................................$106.90
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-
$2.00$4.00
2. Cap and Trade Compliance Charges ........................................... $0.00-0.25
3. Transportation Charge ................................................................. $0.00-$0.25
4. Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge: .................................................................................................. $0.7365
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.
The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance
with the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and
Trade Compliance Charge will change in response to changing market conditions, retail sales
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RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-2 Effective 1-1-2023
dated 7-1-2022 Sheet No G-2-2
volumes and the quantity of allowances required.
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases
produced in the burning of natural gas. The Carbon Offset Charge will change in response to
changing market conditions, changing sales volumes and the quantity of offsets purchased
within the Council-approved per therm cap.
The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges
will fall within the minimum/maximum ranges set forth in Section C. Current and historic
per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and
Transportation Charges are posted on the City Utilities website.1
{End}
1 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.cityofpaloalto.org/files/assets/public/utilities/rates-schedules-for-utilities/monthly-gas-commodity-rates.pdf
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LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-1 Effective 1-1-2023
dated 7-1-2022 Sheet No G-3-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto
Utilities:
1. Commercial Customers who use at least 250,000 therms per year at one site;.
2. Customers at City-owned generation facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:Per Service
Monthly Service Charge: $489.12
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) ........................................... $0.10-$2.00$4.00
2. Cap and Trade Compliance Charges ...................................................... $0.00-0.25
3. Transportation Charge .......................................................................... $0.00-$0.25
4. Carbon Offset Charge ........................................................................... $0.00-$0.10
Distribution Charge: .............................................................................................................$0.7292
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as calculated
under Section C.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.
The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance
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LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-2 Effective 1-1-2023
dated 7-1-2022 Sheet No G-3-2
with the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required.
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases
produced in the burning of natural gas. The Carbon Offset Charge will change in response
to changing market conditions, changing sales volumes and the quantity of offsets
purchased within the Council-approved per therm cap.
The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges
will fall within the minimum/maximum ranges set forth in Section C. Current and historic
per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and
Transportation Charges are posted on the City Utilities website.1
2. Request for Service
A qualifying Customer may request service under this schedule for more than one account
or meter if the accounts are located on one site. A site consists of one or more contiguous
parcels of land with no intervening public right-of- ways (e.g. streets).
3. Changing Rate Schedules
Customers may request a rate schedule change at any time to any applicable City of Palo
Alto full-service rate schedule.
{End}
1 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.cityofpaloalto.org/files/assets/public/utilities/rates-schedules-for-utilities/monthly-gas-commodity-rates.pdf
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COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-1 Effective 1-1-2023
dated 7-1-2022 Sheet No. G-10-1
A. APPLICABILITY:
This schedule applies to the sale of natural gas to the City-owned compressed natural gas (CNG) fueling
station at the Municipal Service Center in Palo Alto.
B. TERRITORY:
Applies to the City’s CNG fueling station located at the Municipal Service Center in City of Palo Alto.
C. UNBUNDLED RATES:Per Service
Monthly Service Charge: ........................................................................................................$72.30
Per Therm
Supply Charges:
Commodity (Monthly Market Based) ....................................................... $0.10-$2.00$4.00
Cap and Trade Compliance Charges .............................................................. $0.00 to $0.25
Transportation Charge ....................................................................................... $0.00-$0.25
Carbon Offset Charge ........................................................................................ $0.00-$0.10
Distribution Charge ...............................................................................................................$0.0120
D. SPECIAL CONDITIONS
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and adjusted
for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill
amount may be broken down into appropriate components as calculated under Section C.
The Commodity charge is based on the monthly natural gas Bidweek Price Index for delivery at
PG&E Citygate, accounting for delivery losses to the Customer’s Meter.
The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the
state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to
cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will
change in response to changing market conditions, retail sales volumes and the quantity of
allowances required.
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COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-2 Effective 1-1-2023
dated 7-1-2022 Sheet No. G-10-2
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced
in the burning of natural gas. The Carbon Offset Charge will change in response to changing market
conditions, changing sales volumes and the quantity of offsets purchased within the Council-
approved per therm cap.
The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto, accounting for
delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall
within the minimum/maximum range set forth in Section C. Current and historic per therm rates
for the Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are
posted on the City Utilities website.1
{End}
1 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.cityofpaloalto.org/files/assets/public/utilities/rates-schedules-for-utilities/monthly-gas-commodity-rates.pdf
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