HomeMy WebLinkAbout11/3/2010 - STAFF REPORTS - 2.O. *?ALMS
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DATE: November 3, 2010 CONSENT CALENDAR
SUBJECT: AUTHORIZE THE PURCHASE OF NATURAL GAS
FROM: David H. Ready, City Manager
BY: Procurement & Contracting and Public Works & Engineering
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.
RECOMMENDATION:
1. Authorize the City Manager enter into an agreement for the purchase of natural gas for a
term not-to exceed 30 months.
2. Authorize the City Manager to execute all necessary documents.
STAFF ANALYSIS:
The City purchases natural gas to fuel its two (2) co-generation plants. 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 October 22, 2008 Council authorized the City Manager to enter into agreements for the
purchase of natural gas for a term not to exceed 24 months. The current natural gas contract
expires November 30, 2010. There are only 6 months of City Manager authority remaining of
the original 24 months, or until May 31, 2011. In order to allow for a new contract longer than 6
months, 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 N0.!�"O
City Council Staff Report
November 3, 2010-- Page 2
Purchase of Natural Gas
The City's current contract for natural gas will expire on November 30, 2010. Staff has been
monitoring current market trends and believes that it would be advantageous for the City to lock
in a favorable price within the next 30 days before weather factors begin to adversely affect the
market. Historical price trends have shown lower contract prices in the late Fall than in the
Spring provided the just ended hurricane season did not result in damage to gas infrastructure.
The current contract price is $6.20 per decatherm, about $1 below the budgeted amount.
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. It is further recommended that City Council
extend the authorization to the City Manager by an additional 30 months to November 30, 2013.
FISCAL IMPACT:
The cost of natural gas is budgeted in the Energy Fund at $7 per decatherm through the end of
the current 2010/2011 fiscal year. The current contract price is $6.20. 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.
Craig Glad r David J. Bara ian
Procurement & Contracting Manager Director of Public Works/City Engineer
David H. Ready Thomas J. Wil
City Manager Assistant City anager-- Development Services