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Home My WebLink About0175.095... " .. (6) @CUYOfPalOAItO , City Manager's Report ------------ TO: HONORABLE CITY COUNCIL FROM, CITY MANAGER DEP."-RIME!Io"T: UTILITIES AGENDA DA l"E: CMR:17S:95 SllBJECT: TermiDatioa or the TransportlDoD Senice Agreemeat witll Mojave Pipi,6.e OporatiJlg Company .I!,EOUEST This repen regarding terminating 1M Transportation Service Agreement (Agreement; between 1M City d Palo Aho and Mojave pipon •• Operating Company (Mojav.) is for information only. This information was provided 10 1M U"1ities Advisory Commission (UAC) at !heir March I, 1m me<ting. RECOMMENDATIONS The Cit)' Manage< signed a letter of contract termination fel>ruary 22, 1995. This report is for information only_ POLICY IMPLICATIONS The contract termination does not represent any change 10 existing pollcies. . EXECUTIVE S!JMMAJ!.Y In ""'" 1994, Palo A1tc executed .. , Agreern<nt with Mojave 10 provide Palo Aho ,.ith natural gas transportation service from 1he California border f.o a,.e C;ty .. ia • proposed Mojave pipeEne instead of PG&E'. <Kisting pIpeline system. III October 1994., Council approved amenDmg the Agreement in order kJ provide the City with the right 10 terminate the Agreemenl for any reason by April I, 1'l95. III the pas1 few monthc;.,. severa! deve:loprm::lts have Jed staff to-.conclude that terminating Ihe Agreemcot is the best course of action. 'Inc: City Manager slgned • letter t.errcinatic.g tile .'. -" _ ~ OIl February 22, I99S, The termination ,..as ~.sed OD gas supply o>cooooUcs, p<oject liming. 80S Iron5po<1a6oo .... .ooomks, and back-up serlke issues discussed in the attached report II> the UAC. -The City am reopen discussions .. ith Mojave in the futun: if economics w&rrant .sur], action. FIsCAL IM!'ACf When orismany !naly>ed, the estimJlted .,.,ing' due 10 Mojave was S7 nullion over the tif".eca year Ii!. ofthc Agr<ement However, the calculated savings from Mojave bave diminished with the emergence of the above infomJJ>Uon. &WRONMENIAL AW'''<iMENT 1'berc is 00 mvirorunenta1 assessment required by terminati..,g this 4'-greemeot. ATTACHMf"'TS I, !.'lforntOti<ln ~ 10 the VAC; ""d 2. Lecter from Palo Alto-to Mojave exercising the right 10 :c.rminate. PREPARED BY, Tom Habash~ Assistant Direcloc of Rc=urce Management Blake Heitzman, Scnior Resourte Planner Karla DaIley, Resc=e Planner DEPARlMENT HEAD APPROVAL, CITY MANAGER APPROVAL: CMR.: .'5:95 FROM: AGENDA DA 11:: SUBn:Cr: MEMORANDUM UTILITIES ADVlSORY COMMlSSlON DEP ARTME11/T OF VTILlTIES ~1.199S T ..... iaadoll or tlte T ...... pcrtatloa. Service ~ .... t wido Mojave PIpeline OpeMllUnI COIDPUY RECOMMENDATIONS This lDEiOOIaudum RpniiDg 1<:m!iJIating !he Transpo<tation Service Agi'eeme!>I (Agreemeat:) bctwoea Ihe City of PaJo Aito and Mojo"" Pipeline OpezatiDg Company (Moja~) is "'" iDforma6oo only. The ClI) Attorney has ad-o.ised staff 1hat City Couocil """"val is no( required. BACKGROL'NP lD June, 1994. hIo Aito u~ 1be origIDal Agteement with Mojave. The Agrecmeot prOvided Palo. Alto with nalmal gas lransportaIion ..me., !rom !be California border 10 !he City· via a poposOd Mojave pipclfuc insIeod of PG&E', existing pipeline sysfmL ID October, 1994. CoEcil approved 10 amend !he Agt=nent in order 10 provide !he City with !be riglJt to ImninBIc Ihe Agnoement for any f08SOII by April I, 1995. roycy IMPUCATIONS The propooed c:oo!ract Ir.m!inatiOD does 00( ropresenl any chMge to .,osting pclicies. DISCUSSION ID Ihe pas: few months, sevml developments bave led staff 10 conclude that terminating Ihe .i.gIeemtIll is Ihe best co",," of action. If desired at some future time, Ihe City may roopea discussioos with Mojave. This conclusiou was based on the following: 1. Transportatioa Ee9aolllks PG.tE bas proposed 10 lower Palo Alto', rate from approximately $0.58 10 $O.39/MMBTIr • • savings of.rout $?OO,ooo per year. Whik thls rate bas nO( been approved by Ihe Co.!iforni. Public Utlliti .. Commission (cpuc).. staff is confident that the approved rate ,.,.;n 00( he signifi<:antly cIifferenI from the proposed rate. On the other band, Moj ... •• rate will he $0.42 to $O.~7-MMBTU depending on the outcome of. Federal Energy Regulat"'1 Commission (fERC) proceeding. For Palo Altn, tIoi. translates into $250,000 to S4OO,ooo more than !'G&E', proposed rate. While M<ljav,'s nile has • capped escalation and 8, c. o I'O&E'. does -. SIltif b<lieves the rW: is ",latively low tball'O&E's new rak will esWate My Caster than inIlaUon. 1. Supply Eo>.olllla Through a solicitation for offen, scaff .... able 10 determine lha! Canadian gas has • slight cost odV'anlaie ovcr Southwest U.s. ... supplies. This c!iffcmltiaI makes the ecooomics of Mojave CVOI!. less favonblc since Mojave pr<'vides ...,..,.. only 10 the Southwest 3. rrajed DeIoy Moj .... his ""'" IhroogI> OIl arduous process III the FERC. Ahr waiting over one yeat for • ~ to bui1d the pipeIiot. the FERC order came with some lmfavorab!. provisioM. Mojav. Iw IIppIied f<lr ~ aDd has sWcd tbaI the pr<'je<l ",ill be ~lIed if the ;....,. are ~ IeSOIved. The pipoliDe's schcduled ~ c!ste has aIreody ""'" delayed from January t, 1996 10 m;.! 1996. Because Palo AM has the opporIwlity 10 oI>taiD low..,.,.. gas supplies as • rdUh of. ,...,.;eDI solicitBtiou f<lr off~ sIaff (eels it is DC<es&Dy at Ibis lime 10 me"" for-,oar.i will! the City', gas supply p!aming andor the ossumpIio!Ilbat \be MDja"" pro}eot will rot be built "f'i!hin • two-,car p!onning acOOn poriod. 4. Baek-Up Service Since Moj .. e is • single pipoliDe, as opposed to PGAl:E's in~ pipofme IIOtwodt, staff COD&idcred subocribing 10 & back.up sc:rvi« from PGkE 10 be used during a disruption ell Mojave. PG&E has ootliDod • jOoposcd back-up seMce, and if !be C"1ty used Ibis sc:rvi« in an emergCDCy during very cold -.... the ntra 0051 oouId effectively iocn:ase It .. ;;:;i!y's cos( of gas by 10% "",,!laDy. Mile the raIe is only popooed at Chi. time. it is similBr 10 • !lie strucIII1'e =tIy appro""" by \be CPUC for SoC&lGas. Since Mojave's tnmsporIaIion rate no longer offen; • cost AVings for Palo AlIa, !be .xrra cOSl for back-up service is unjustitiable. ALl'ERNA1D'ES The other o!t=ative is 10 remain under contra<l for lranSportatioo service frOCl Mojave for lh. IS-year term. FISCAL JMPAC"f \\!ben ongin2l!y anal}ud, the estimaIed ssvings due 10 Mc.i"''' was 1 millioo doll.,. over the l5-year life of 1bc Agr..-mcnL However. the calculated savings from Mojave baY< dimjnished v.it!i the emergence of the information abo ... e. ~ONMENTAL ASSFSSMENI There is "" euviroomental assessment required b~ IOtminating Chis At!'<"lDent. NEXT STEPS --_. ---.~-. .. < Staff will CO!I6npe '" mcmtcr the progress of the Mojave pipdine proje<:t. If the project oppeors be:oefJcla! for Palo All.:> in the fIn'ure. staff will ..... a1oate the allemative. AUACHMEN"IJ The aaached cIocumeDI is. IeItet from Palo Ar", 10 Moj .. ,e exm:isins the righllo 1C!miDate. BIaIo:. Heit2maD, Senior RtsoW'Ce P!a!mer Karla Dailey. bscurce Planner DepoI1mem Head Approval: Februory 22, 1995 Mr" lay CerennoIe Moj""" l'ipdine 0persIiDg Company - Post Office Box 10269 Bal:ersfield, California 93389-0269 Dear Mr. c.termole.: CiW-®PaloAlto ()jJiatflhtay~ Pursuant 10 ~tioQ I U of (be Natural Gas T ransportatior> Service ~ (Agreement) b<tweeB Mojave Pipeline Operating Company !In<! \he City of Palo AlIo as om<IIded by Atnendmtm«)1/0. I, ... t ..... by tcnnmate Ih< Agreen>:nI effi:ctiv: 30 days from \he &!Ie of !his -" po. !lox W25C PaIoAlIO,CA, 94.l:B ~~,l5t.3 m 328.JfiJl FoP: