HomeMy WebLinkAbout7/6/2005 - STAFF REPORTS (25) V fA
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cgt�FORN�P City Council Staff Report
DATE: July 6, 2005 CONSENT CALENDAR
SUBJECT: Purchase of Natural Gas
FROM: David H. Ready, City Manager
BY: Public Works and Procurement and Contracting
SUMMARY
The City purchases natural gas to fuel the engines at two co-generation plants that
provide electricity and cooling to City facilities. The prices available on the open market
vary depending upon numerous hard-to-foresee factors, and both the structure and the
duration of the pricing agreement. The market prices change daily. 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 C:ity's interests.
RECOMMENDATION:
1. Adopt Minute Order No. authorizing the City Manager enter into an
agreement for the purchase of natural gas.
2. Authorize the City Manager to execute all necessary documents.
STAFF ANALYSIS:
On July 7, 2004, City Council approved a minute order authorizing the City Manager to
lock in a firm fixed price for natural gas. The City secured a price of $5.87 per
decatherm from Occidental Energy for the period beginning September 1, 2004 and
ending August 31, 2005.
In order to insure the City continues to have an uninterruptible supply of gas for its
cogeneration plants, it is necessary to enter into a new pricing contract. The natural gas
market continues to be extremely volatile with daily price fluctuations. The most recent
price range has been between $7.00 and $8.00 per decatherm. This makes it almost
impossible to bring a specific contract amount to City Council for approval. Price
quotes, when delivered, expire by days end. 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
Item No. 2 . N .
City Council Staff Report
July 6, 2005 -- Page 2
Purchase of Natural Gas
monitoring the market on a day-to-day basis. Staff is continually monitoring the market
as we approach the end of our current pricing agreement.
The nation's gas supply is not growing as quickly as demand. Demand is high because
of the high price of crude oil and the fact that gas is increasingly used to produce
electricity instead of alternative fuels. Rising demand has made the gas market
extremely volatile and is likely to keep prices high for several years.
To deal with this volatile situation, the City has traditionally entered into fixed price
contracts for 100% of the gas use for the City's two cogeneration plants. Currently
there are only two firms, Occidental Energy Marketing and Southwest Cooperative
Services, which will supply natural gas for 10% to 20% over or under the City's historical
use baseline with no penalty. Other gas marketers are willing to provide firm fixed
pricing for only 80% of the City's historical baseline. Any additional usage would be at
index pricing which fluctuates wildly depending on supply and demand. Staff is
researching alternative pricing structures to determine which best suits the City's needs.
Due to the uncertain nature of the gas market and to secure a stable price, staff is
requesting authorization for the City Manager to enter into an agreement with any of the
gas marketers authorized to sell on the Southern California Gas System offering a
pricing structure serving the best interests of the City.
FISCAL IMPACT:
The cost of natural gas is budgeted in the Energy Fund at $6.87 per decatherm. For
each change in unit price of $.10, increase or decrease, the overall contract amount will
be affected in the approximate amount of $30,000.
Marcus L. Fuller David H. Ready, City Mapn� r
Assistant Director of Public Works
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Attachment:
Minute Order
MINUTE ORDER NO.
AUTHORIZING THE CITY MANAGER ENTER INTO AN
AGREEMENT FOR THE PURCHASE OF NATURAL GAS.
I, James Thompson, City Clerk of the City of Palm Springs, hereby certify that this
Minute Order authorizing the City Manager enter into an agreement for the purchase of
natural gas, was adopted by the City Council of the City of Palm Springs, California, in a
meeting thereof held on the 6th day of July, 2005.
James Thompson, City Clerk