HomeMy WebLinkAbout0476.093Sepcte:hex .16, 19 9 3
Honorable City Council
Palo Alto., California
Natural Gas Broke ring Arrangements
Members of the council:
Report in Brief
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This report is a brief summ~ry of activity that has taken place
6ince Auqust 18, 1993, regarding Gas Pipeline Capacity Broke~ing.
This report is informational and no counci1 action is required at
this time.
DisCUji§Wn
Capacity Brokering is a program designed to qive gas customers,
such as Palo Alto., access to Pacific Gas and Electric Company
(PG&E) firm capacity on ii'lterstate pipelines. An interim Gas
utility Inteqrated Resource Plan indicates i\ variety of supply
options, both short and long term. The purpose of the final Plan
viII be to determine which is best for Palo Alto.
On Allguet 1.8, staff l:'eceived notification from PG&E that an
a.ccelerated schedule. for capacity brokering has pee.n initiated~
Palo Alto and: otheL" gas customers will have to z:aake a decision on
brokered firm capacity rights by september 22, 1993. Prior to this
notice, qas custoaers, Palo Alto included, were tola that the
capacity brokerinq program would begin in March 19944
In light of the accelerated tilae schedule, staff reviewed Palo
~to's current qas supply options and determined to:
1. Send a letter to the california Public utilities commission
(copy attached) expressing concern ~eqardinq the accelerated
time table,
2~ Reject PG&E's offer at full price of a pre-arranged assi~ent
of capacity, 50/50 between El Paso and Pacific Gas Transmission
CIG..471.n
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(PCT), and
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3. Bid for gas tr4nsport~tion on PeT through the capacity
brok~ring progra.~
On September 1, ~993, staff discussea the accelerated nat~ral gas
capacity brokerl~ situation with the Utility Advisory Commission
(OAeJ. The UAC unanilll,ously approved the motion: -To support tile
staff recCI'IIlD$ndation to reject the prellrranged deal vith p(aE~·
The UAC also supported staffls plan by unanimously approving the
motion: "That starf bid for a one and a half year term for Pacific
Gas Trans.ission capac! ty as recommended in the Gas Inteqrated
Resource Plan E::.cecutive summary." The Executive S~ary is
attached.
Staff is in the process of executing these recommendations.
Respect~ully sub=itted,
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TOM Hl\BASHI KarJ!(;;z;r Planninq
E~·J. KRIZEK
Interia oirector of Utilities
~i\t~
_ARD H. STROJNY
Assistant city Manager
Att"cluoent: Letter to CPUC
Executive Summary from the Interim Gas tJtility
Inteqrated Resource Plan
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Adminlsf.r..uiYP5I!m:::es
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~l'Ionni>g
August 27, 1993
Hon. Daniel Wm. Fes,slcr
President
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California Pub.lic Utilities Commission
50S Van Ness Avenue
San Francisco, CA 94102
Subject Capacity Broke,ing 00 PGT
Dear-Presicent Fessler:
CitvofPaloAlto ------Utiliti.."S De]:arirrrerJ
The City of Palo Alto Owt'..5 and operates a municipal natural gas utility that
.serves over 25,000 customers within the territory of Palo AJtl}. The City's
annual ~as requirement is presenlly about 37 million therms, approumately 90
·percent oC which i. classified as ·core:· Since August I, the Ciry has been the
largest who;esale CUstomer un the P.acific Gas and Ele,tric Company system.
Given the importance of pipeline aC\:ess to its gas procurement activities. Palo
Alto bas been an active participant througbout the Commissiou's capacity
brokering proceeding (R.88-OlH118). This proceeding is DOW rapidly moving to
completion pursuant 10 you, August 4 ruling directing PG&E to accomplish
full implementation of capacity brokering on its system by releasing its excess
capaciry rigbts 00 PGT by November I, 1993.
The Ciry appreciales the Commission's desire 10 comp) ele capacily bro~:etiDg
by PG&E witbin a reasonable time period. The Ciry is -"!xcremely concerned,
bowever, by the accelerated timeUlbie required to implement capadry
btokering on PGT by Novembe, I. Unde, Ihe very rapid schedule proposed
by PG&E 10 meet this target. final award, of POT c:1pacity will no! be made
until only a few days before the start of the traditional winter heating season.
As a wholesale custom~r with a high percentage of cure loads, such an
oulcome would be particularly disruptive and burderL<;.ome for Palo Alto.
P_O.Bm:102.':iJ
Palo AJIu, CA 9oL3W
.:;is 329, 2Zi'3
415.329. C651 Fax
Hon. Daniel W. Fessler, Pre .... ident
Augus, 27. 1993
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In view of the many compli,-'nteJ issues im'oJved in PGTs c.npaci!y reje~e
plan, Palo Alto sp.Jred the widely-hdd e .... pec.atioll that the Federal Energy
Rt;"g'.!farory CO,M,Irussion would not issue a f1nat mder approving capacity
releasing on PGT until the spdng of 1994 at the earliest. On this basis,
Palo Aito only recentl), concluded a firm gas SUpiJry agreement wirh an out
of-state producer for the upcoming winter season anJ heyomL TIllS
agreement was intended tu meet the Ci!y's winter gJS requirements and
serve as a "bridge-until full capacity brokrring was implemented by PG&E
next year. U the Commission proceeds with a fast-track brokering of PGT
capacity a[ this time, the City would b~ required to wmpletcly overhaul its
current gas supply arr.angcments. To 3ccomplish this un the e'lie of the
wi.nter season when gas prices are traditj()nally ri:.ing cl'}wJd expo~ our
ratepayers to subst:.:.ntially higher gas costs. The extremely shurt leati tim'!:
provided by PG&E will al50 make it very difficult for the City to complete
the deliberative process re<.fuiretJ for City OlpprU"~'al uf major undertakings
of this kind.
The regulato!), uncertainLY presenLly slJrruunding Canadian gas sales to
Northern California is an additional factor arguing 3Bainsc the -:Jccelera,ed
hmkeri:lg of P'uT capacity at this time. As you are aware. Can.adl.an
regulatory authorities have prohibited tile issiJance of any flew export
orders and removal permits for Canadian gas sales to Northern California.
until PG&E's gas purchase arrangements with AJberta and Southern
producers bave been restructured. AJlhuugh negotiations have been
unde['\l{ay for some time now, the terms of a commercial restructuring
agreement have not yet been ra.;fjed. Until the res.tructuring is completed
and the Canadian e .... port res{jjctions are lifted, parties bidding for PGT
capacity will have no assurml~e th:u they will b-e able 10 use any capacity
awarded them to actually receive gas from a Canadian supplier. It is
further un.certain whether the winnin,g. bidders will be free (0 purchase ga..;
from any Dutadian suppJiers Of only meh~~!" -{ the A&S supply pool.
These uncertainties make it e:\:uemely diffic..lil.~· the Cit)' to prepare a bill
for PGT cap.adry and, equally important, initiate discussions with Canadian
gas suppliers over the terrru of ,gas purchase contract.
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• Hon. Daniel W. Fe~rer, PresiJent
August 27. 1993
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To Avoid these uncertainlies. Ihe City respectfully urges the CunuJli!lsiori to
balt PG&E's currently open se:LSon and pos!pone tbe sturt of a ne ..... open
season until all the regulatory prerequisites fo! (> •. :11 t:apacity brokering on
PGT have been met. This includes (he completion of an A&S
restructUring agreement, the lifting of the Canadian export restrictions and
the issuance of a final Federal Ener~ Regulatm), Commission oruer
approving PGTs capac-ity release plan. At that time. pardes wHl t>e ~ble to
prepare their capacity bids based on fun information concel nlog their gas
supply options.
Sjncerely. ./
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Interim Director of Ulilities
cc; Patricia M. Eckert, Commissioner
Noonan D. Shumway. Commissioner
P. Gregory Conlon, Commissio neT
Kenneth Henderson. CACD
Paul Oanon, CACD
Kevin P. Coughlan. CACD
AIl active parties in R.BS-08-0 IS
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EXECUTIVE SmL1\fARY
The Gas fnlegrared Resocrce Pianning process was iniliated to create 3 .short-term action plan
and a long-term sIr-uegic plan in response to the massive regula:~ry changes that bave been
sweepivg the ir..dusuy :)ince 1986.
When we began the IRP process, the Iinmedi<ue qucstiol".5 that the shon:-tenn action plan
intexu1ed to address were ~should Palo Aha make a 15 ~.'e-ar commitmeru to Mojave pipeline?"
and if n(Jt, ~Sbould Palo Alto accept a pre-arranged dea: from PG&E for pipeline capacity an
PGT and EI Paso sy!:tems ? ~. The timmg: to pro v ide answers (0 lhese questions was e;c;pecl.ec
to be December of 1993 rnd March (If 1994 respectively. However, in Li.e past two weeks,
several regulatory changes have taken place felting an an . ..'iwer to tbe pre-arranged deal with
PG&E by &ptember 2! of 1993.
The IRP process had identified five options to p-urch:!se gas. tr3rupcr..1lion. These vptilJDS were
the PG&E pr~-arranged deal, :..~ Mojave pipeline commitment. biddiIlg for PGT capacity on the
open market, bidding for t.'1e EI Paso capacity on me open market and relying entirely 00 PG&E
for supply and rransponation. D...t: process also identified Mo ",ays to supplement a portion of
gas supply and transpon.1tion purchases. ~...arne!y a ciry 5}:"onsored g.as drilling program and
demand side management.
The results of t.1)e [Rf )..;ow chat biddin£ for PGT capacity on ~he open mane: and the :\,Iojave
altett.:.tives are equally attractive long·[errn plans. It also sho',!'s mat while tile gas drilling
program and DSM are attractive supplements to supply purchases, !herr appeal is highly
dependent on the assumption of tt'Jeir availabiliry and. C('St. Fil"'..a.l!;: rile IRP cor.c~udes that toul
reliance on PG&E for gas supply and transponation to be the moS! e:\pensi"'e, and merefore the
least attractive option,
In conciusion. staff re~ommends &.3t the City reject the pre-arranged deal with PG&E and in
the mteri.rrl, bitj for a t', ... ·o-ye:l! re:-m fer PGT c:!:pa-:i!~i ~Jn the open market. 'iegotiatians ""'ill
con[iIrue with PG&E and with ~JojavZ" to dettrmine whether we should COIT"!J.-:J.it to me :\-fc:ja .... e
plpelin~ or-biu again for PGT capacity on the open mark.e: ·~'h.:le relymg on PG&E for imr.3srare
transportation. There a .... e tv.'o basic reasons for mis re::omme:::ldauol1: / n An o\er-suppJy of
pipeline capacity exists 1...1"1 California. therefore Palo Alto should rIOt rake on full-priced capaciry,
arul (2) Accepting the pre-arranged deal will eliminate furure alternatives tor me City.
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