HomeMy WebLinkAbout10/2/2013 - STAFF REPORTS - 2.F.Citv Council Staff Report
DATE: October 2, 2013 CONSENT CALENDAR
SUBJECT: AUTHORIZE THE PURCHASE OF NATURAL GAS
FROM: David H. Ready, City Manager
BY: Public Works — Facilities Maintenance
SUMMARY
The City purchases natural gas to fuel the two co -generation plants that produce electricity for
various City facilities. The prices available on the open market vary depending upon numerous
hard -to -foresee factors that affect both the structure and the duration of the pricing agreement.
Due to the volatility of the market, staff is seeking authorization for the City Manager to enter
into an agreement for supply of natural gas at a time and at a price that best serves the City's
interests. Because of the Chevron energy project the Sunrise Plant is scheduled to be taken off
line December 26, 2013. The Muni Plant is scheduled to be taken off line in July 2014, and it is
estimated the new engine will be on line in Mid December 2014.
RECOMMENDATION:
Authorize the City Manager enter into an agreement for the purchase of natural gas for a
term not -to exceed 24 months through November 30, 2015.
Authorize the City Manager to execute all necessary documents.
STAFF ANALYSIS:
The City purchases natural gas to fuel its two (2) co -generation plants. After December 2013 the
natural gas will fuel only one cogeneration plant. Historically, staff has requested Council
authorization several months in advance of the expiration date of the then -current pricing
agreement in order to allow staff the time to track, competitively solicit pricing and to enter into
an agreement at an advantageous time and price.
On November 3, 2010 Council authorized the City Manager to enter into agreements for the
purchase of natural gas for a term not to exceed 30 months from May 31, 2011. The current
natural gas contract and City Manager authorization to enter into agreement expires November
30, 2013. In order to allow for a new bid process and contract, it is necessary to allow for
additional City Manager authority.
Since the federal government quit regulating the wellhead price of natural gas in the mid-1980's
market forces (of supply and demand) now set natural gas prices. Prices often change direction
for no apparent reason, often due to weather changes, the economy, hurricanes (which can
temporarily affect gas production in the Gulf of Mexico), oil prices, and more recently, expected
demand for gas -fired electric generation, which is highly dependent on actual or forecasted
Summer weather.
ITEM NO. �t
City Council Staff Report
October 2, 2013-- Page 2
Purchase of Natural Gas
The City's current contract for natural gas will expire on November 30, 2013. Historical price
trends have shown lower contract prices in the late Fall than in the Spring provided the just
ended hurricane season does not result in damage to gas infrastructure. The current contract
price is $4.20 per decatherm.
Due to the volatile nature of the natural gas market it is impractical, if not impossible, to bring a
specific contract amount to the City Council for approval. Price quotes, when delivered, expire
within minutes as the market responds to daily inputs. As a result, staff is requesting that the
City Manager be authorized to lock in pricing that is favorable to the City as a result of
monitoring the market on a day-to-day basis thru the bidding process. It is further
recommended that City Council extend the authorization to the City Manager by an additional
24 months to November 30, 2015.
FISCAL IMPACT:
The cost of natural gas is budgeted in the Energy Fund at $5 per decatherm through the end of
the current 2013/2014 fiscal year. The current contract price is $4.20. Based on current usage
for each change in unit price of $.10, increase or decrease, the overall contract amount will be
affected in the approximate amount of $20,000 annually.
nv QBaQP
Patrick Sweeney
Facilities Maintenance Manager
David H. Ready/
City Manager
David J. Barakian
Director of Public Works/City Engineer
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