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Home My WebLink About0252.092- \ May 14, 1992 THE HONORABLE CIT:i COlmeri, Palo Alto, California Attention: Finance Committee proposed Gas Rate Increase Members of the Council~ Report in Brief ji.-94 This report recommends Council approval of the attached Resolution to increase retail natural gas revenue approxi~ately 9 percent or $1 1 560,000 on an annual basis effective July 1, 1992. Background The revenue requirement of the Palo Alto G3S utility consists of a number of components including the cost to purchase and transport natural gas, operate and maintain a reliable system, finance an appropriate portion of the capital improvements from current operating revenues, fund prudent reserve levels l and produce a reasonable transfer to the General Fund. A significant change in any of these factors as well as a change in sales level or in the contribution from reserves can trigger a rate adjustment from one year to the next. Palo Alto's ~atemaking philosophy is "~O price our utilities at the lowest possible rates, consistent .ith sound financial planning, whil~ promoting efficient resource utilization and customer satisfaction.-In accordance with this philosophy, the City attempts to plan electric and gas rate increases 50 they do not occur simultaneo~slY in one year. By staggering annual rate increases between the two largest utilities, the bill impact upon our customers will be less severe than might otherwise be the case. sometime-a a utility may forego a rate increase longer than t'Wo C>IlI'252 , U L f ~ , I yea:t':i j while other utilities, such as the Water Fund, may require rate increases more frequently due to unusual conditions. The Gas Utility has not had a rate adjustment since a 9 percent increase on July 1. 1989. The next Electric Fund rate increasE is planned for FY 93-94. For FY 9~-93, staff recc~mends a $1.56 million or 9 percent gas rate increase. A review of the Gas Fur.d financiaJ. operations for FY 92-93 indicates that current rate levels are inadequate to allow the utility to meet all its financial obligations. WhilE! the Utility's largest operating cost, purchased gas expen5e, is expected to rise only minimallYt a very large increase is planned in F~ 92-93 for this Fund's Capit~l Improvement Program. The $1.46 million rise in this eX"Penditure is largEly related to the council approved Infrastructure Project whicn will replace leaking, inadequately sized and structurally deficient existing gas mains and services. Thus, of the $1.56 proposed rate increase, $1.46 million or 94 percent of the increase is l'lec~ssary to finance capital impro~ements and the Infrastructure Project. ACRl ic:ation of the Proposed Re'.r~_nue Inc~~ase Staff evaluated a number of alternative methodologies to spread the $1.56 revenue increase a~ong the customer classes. Met~ods evaluated included an equal cents per therm increase "across the board", an equal percentage increase "across the board", and varying increa$es applieQ among the customer classes to achieve cost based rates. Some of the primary obj~ctives are to improve cost of service and customer equity. meet the revenue requirement, minimize the bill impact on any given customer ~lass, and encourage the etfil.;ient use of a valuable and finite resource. In addition, for lIIinter:cuptihle" customers with alternate fuel standby fecilities. the Key rate~aking objective is to maintain competitive rates to lessen the risk of these custome~s buying ga& from other sources. Given these objectives, the app~oach taken by staff is to spread the increase in ~ manner vhich ~ill improve the cost of service relationships between the customer classes and minimize the impact on customer I s bills. Cost of service studies indicate that the residential class is paying less than their fully allocated costs of service~ while non-residential customers are payinq more than their proportionate share. (Industry studies sho~ that this rate rel~tionship bet~een the customer classes exists for most Utilities, public and private.) To address t.his situation and. improve equity among the customer classes, staff has proposed a higher percentage increase for residential rates compared to non residential rates. 1n this instance, residential rates have been CHR:2S2"Z L .,'-. I c-'~~~ ".~~~ .-;<-" raised 12.3 percent, while non-reside~tj~l rates ~ere raised a,B percent. Although application of the rate increase in this manner 'Will not achieve cost of service, it will impro~Je cost of service "hieh would not occur with any of the eo.q-ual cents or percentage methodologies, Staft recommends a gradual appro3ch ever several rate adjuEt~ant5 ~o act.ieve the cost of service objective, in order to minimize the impact on residential users. EAt9maXip9 cQDsiderationsJ;nique to Interruptible cust9~ The current five interruptible Gustomers are a He-.'lett-Pacl<ard f4cility, syntex, Veterans Hospital, Eastman Kodak, and tbe Palo Alto Landfill Gas Project. Such customers have the ability to switch to an alternate fuel, such as fuel oil, and are also prime candidates to bypass the Palo Alto Municipal Gas Utility and secur.e natural gas ~upplies independently, if Palo Alto prices natur~l gas significantly l'ligher tr.an can be secured in the open market. Gas marketers have maae contact with our interruptible customers in at-tempts to sell them gas. There is a groving interest by our intercuptible customers to partiCipate in this ne'Wly developinq spot market for natural gas. These customers are referred to as ~interruptible", because the utility Would curtail natural gas service to these custo~ers tirst in the event of a natural gas shortage or transmission capacity curtai]~ent since they ~ave alternatives available to theM. In this sense, they repres~nt large loads which are an important load aanagement tool; and they can be served at a lo~er cost since they do not require firm trans~ission or firm supply. This fact enables the Palo Alto Gas Utility to p~rticipate in the ·spot market W and acquire lower p~iced gas which henefits all ratepayers. In the Gas I~du5try, custo~ers ~ho option t~ risk gas curtailment are compensated bi~ ge!"lerally having lower rates. Ho .... ever, their rates ~re driven 190re by gas and oil prices. in the ",ar"e.t place and conseque:ratly, such customers paid the highest ra.tes of any customer c1.a&.s in the 1970·5 and early 1980'S before oil and gas prices beqan their decline. For the G-50 "interruptible customers·, the increase is limited to 2.7 percent in order to keep these rates near market levels. Also, the t~~ Winterruptible" gas Rate S~hedules G-50 and G-6 have been simplified and combined onto one G-50 Rate Schedule. The previous G-50 rate structure containing a demand. commodity, customer, and minimum charge had evolved fr·)m the pre-1988 period, when Palo Alto tracked Pacific Gas' Electric Cf'G&E) ra·tes~ To eliminate this cumbersome rate structure, staff placed all the charqes into a sing-Ie commodity rate similar to the rate structure applicable to Palo Alto's otner n¢n-residential customers. Finally, the G-6 Rate ClOl:25:Z:9:Z --' .. . J f· I , - --~~-- r Schedule applicable to th2 Palo Alto Landfill Gas Project i:\imilarly evolved by comparing it to PG&E ta~iffs related to curtailment priorities. In combining the G-50 and G-6 schedules, the G-6 rate i;rill necessarily experience a decrease of 10.6 percent since it was alrea.dy higher than the G-50 rate. Again, the principal rateroakinq objective here is to price int~rruptible rates close to the market but high enough to recover the minimum costs of service. This rate proposal accomplishes this objective. If such rates become uncompetitive with alternative sources of supply, these customers will cease buying frum th~ Palo Alto Gas utility. Since they would no lonq~r contribute to the utility's fixed costs, the r~maining residential and non-residential ratepayers would carry that burden~ This impact should be avoided~ For a comparison of PG&E customer bills with Palo Alto customer bills, Figure 1 has been attached to this report. This compari30n based on PG'E current rates and Palo Alto's proposed rates indicates that the City's gas rates are approximately 23 percent and 8 percent below surrounding areas for-residential and non residential customers respectively. Thus, despite this rate increase, Palo Alto .i11 continue to maintain the lOifest gas rates in California. The only exception might be tor California interruptible customers, who are able to secure gas supplies on the spot market and arranqe for delivery at a price lower than our interruptible rate. Rate comparisons in these instances are di.fficult, because a specific customer's procur.elllent and transmission costs are generall)" not published; and there are degrees of service level options making it more difficult to compare evenly~ Still, staff believes that our interruptible rates are lo~ and competitive. The following table indicate~ the i~pact of this rate proposal on a typical bill for the various customer classes: CUSTOMER ResidjWinter ResidjWinter Resid/Summer Resid/Su.mmer Commercial Industrial Interruptible- THERM ~ 100 150 2. 45 SOD 4000 G-50 100,000 G-6 7,000 CXR:252 :92 L PRESENT ~ $36.92 70.07 11.12 23.72 255.00 2,040.00 J7,OOO.00 2,975.00 PROPOSED $ CHANGE t l!I.!.& 11L_~.llJ,. QIiAHGfj $41.48 $4.56 12.) 78.73 8.65 12.3 12.49 1. 37 12~J 26.64 2.92 12.3 277.50 22.5C 8.8 2220.00 laO~OO 8.8 3S.0DO~OO 1.000.00 2.7 2,650.00 (1l5.00) (10.6) --, . +-:-~-'·1- -.~- , ~ . I ·c· ,C' ,.,~; -'-?,~ .... ;.- summary stat! reco11U!!ends council Approval of the attached Resolution increasing gas revenue approximat~ly 9 percent effective July 1, 1992. - Respectfully submitted, Ii. RANJ)'l BALOSCIillN Manager, Rates and customer Services ~ , , "(/ , :~ ;7,·j/'-.uV ClOI L. 'lOON irecFor of ~~ies I IN ',I' /. /ff ~I~~h~ FLEMING ~ istant City na er Attachments: CIOU252: '2 Fiqure 1: Rate Comparison Reliolution Rate schedules G-l and G-SQ - 'f , • Monthly 8m :20 5C eo 20 Q Figure (1) GAS RATE COMPARISON RESIDENTIAL 100.9(,1 Commercial & Industrial Classes • "ont"ly 8111 2tJ(;iJ 2.366 . ' L '., :4.-." •• " F.ESOrVTrON N04 RESOWTION' OF THE COUNCIL OF ~ITY OF PALO ALTO AMENDING SCHEDULES G-l AND G-SC OF THE CITY OF PALO ALTO t~ILITrES RATES AND CHARGES PERTAINlNG TO GENERAL AND INTERlmnIBLE NATURAL GAS SERVICE The council of the City of Palo Alto does hereby RESOLVE as follo'Ws: ~~-14 PuLsuant to Section 12.20.010 of the Falo Alto Municipal Code. schedule G-l (G€neral Natural Gas Service) and G-50 (Interruptible Natural Gas Service) of the Palo Alto Utilities Rates and Charges are hereby amended to read as shown on sheets G-l-l and G-50-1 attached h~reto and in~orporated herein. SECTION ". This Council finds that the revenue derived troa the odjustme!"lts of said rates shall bs used o:11y for the purposes set forth in the Palo Alto City Charter, Article VII~ Section .2, entitled lIII.Pt;blic utili ties Reyenue~ ill The adoption of t'his r-esolution is, therefore, specifically exempted under the Public Resources Code Section 210S0{b) (a) from the requiraments of CEQ .... SECTION 3. The foregoing chanqes shall becoree effective July 1, 1992~ INTRODUCED AND PASSED: "'YES: NOES: "'BSENT: ABSTENTIONS: ... nEST: APPROVED: _ ...... _ .. _---- City Clerk Mayor ... PPROVED AS TO FORM: City Manager City Attorney Director of-Finance Director of Utilities .:t' . , - -'-', . GENERAL NATIJRAl GAS SERVICE J,LTILI1Y RATE SCHE'DUt..LG:1 A. APPUCABIUTY: This schedule applies to al! firm natt. ... ral gas service B. TERRITORY: Wrtl1in the service area of lI'.s City of Palo AHa end on land owned or leased by the City. C. RATES: 1 G1-8 eommod"tty Charge: (For indr.ridvally metered residenti31 customers.) (A) Summer Rate (May 1 to October 31): Per Meter p~r Month 0-20 therms per therm .......... , ' , , .. , ' , , , ' , . ' . , , ,. 40.1 Over 20 therms per thenT. . .. , .. ,.".,." .. ".",", 74,5 (9) Winter Rate (Nov, 1 to Apr~ 30): 0-96 therms per therm . , , . , ' .. ' . , , , . ' .. , .. , ' , . , . , , " 40,1 Over 96 tharms per therm ' .. , .... ,' .. , ... ",.,., ....... ,. 74,5 2. G1:C Commodrtv Charge: FOf all other customers, iflCi!.Jding comwercial customers Year-round rate for aii ~as usage: 0-25,000 !herms per !herm , ' ........... , ..... ' , , .. , , .. , , . , . ,. 55,5 Over 25,000 !herms per therm '."' .. , ... ,'." ..... ,,",,"," 48.7 D. SPECIAL NOTES: 1. Seasonal rale changes: The app"cable residential rate strJcture will be prorated in the May and November billing periodS based on the rates of the nu mber of days prior to May 1 and subsequent to October 31, respectively, to the total number Of days in the billing period, CITYOF PALO ALTO UTIUTIES Issued by the City Council Supersedes Sheet No, G-1-1 dated 7,189 L'"'--" Effective 7 +92 Sheet No. G-1-1 . ' , . \ .. ;-, \ I '-- INTERRUPTIBLE NATURAL GAS SERVICE UTILITY RATE f,CHEDULEG..o~ A. APPUCABILITY: This schedule applies to interrup!;ble ser/ice ~or custCr:lers ','thO have altemate fuel standby facHities. The alternate fuel may be non-gaseous such as f1..:cl aiT Q( gase-Qus fuei s~ch as propane Of methane. B. TERRITORY: Wrthin the service area of the City of Palo Alia and on land owned or leased by the City. C. RATES: 1. Commodity Charge Per Tr,erm D. SPECIAL CONDITIONS: Per Meter Per Month 1. Service under this schedu!e is subj~ct to discontinuance In whole or in part in case of actual Of anticipated shortage of natural gas resurt'lng from an insufficient supply, inadequate transmission or del,very capacity of faciri!~es, or sth..""If'tage requirements. However. the City wlli attempt to minimize disruption by providing adequate notice prior to curta~menL The City will not be nable for damages occasioned by intecruption or disoontinuance of service suppl:ed under this schedule. 2. No customer shall be entitled to service hereunder unless adequate standby equipment and fuel are provided and are ready at a;1 times for immed:ate operation in the event that the supply of gas hereunder shall be discontin'Jed in whole or in part Customer sha~ be able to demor.strate the abiiity to convert to an alternate fuel upon City request to continue efigibilitj under t'1is ratB SChedule (G-50). CITY OF PALO ALTO UTILITIES Issued by the City Counc" Supersede~ Sheet No. G-SO-l daled 7-1-89 Effective 7 ·1-92 Sheet No. G·50-1