HomeMy WebLinkAbout7/7/2004 - STAFF REPORTS (12) DATE: July 7, 2004
TO: City Council
FROM: Director of Procurement and Contracting and
Director of Public Works/City Engineer
AUTHORIZE CITY MANAGER TO ENTER INTO PRICING AGREEMENT FOR PURCHASE OF
NATURAL GAS
RECOMMENDATION:
It is recommended that City Council authorize the City Manager to execute a purchase order for
purchase of natural gas, term not to exceed 12 months, beginning September 1, 2004.
SUMMARY:
On July 2, 2003, 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 $5.35 per decatherm with Southwest
Cooperative Services for the period beginning September 1, 2003 and ending August 31, 2004.
In order to insure the City continues to have an uninterruptible supply of gas at a price for its
cogeneration plants, it is necessary to enter into a new pricing contract. Unfortunately, the natural
gas market continues to be extremely volatile with pricing fluctuating between $6.00 and $7.00 per
decatherm. This makes it almost impossible to bring a specific contract amount to City Council for
approval. 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. Staff has
continually monitored the market during the past year hoping to equal or better last year's price.
That opportunity does not occur within the current fiscal year.
BACKGROUND
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 volaille and is likely to keep
prices high for several years. In fact, many experts believe that gas prices are not expected to
come down until new major gas pipelines are built connecting new gas fields in Alaska and the
Northwest Territories. That is at least 6 years away.
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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 congeneration plants. Currently there are only two firms,
Occidental Energy Marketing and Southwest Cooperative Services, that 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.
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. Staff is also recommending that the term of the agreement be for a
period of 12 months.
The cost of natural gas is budgeted in the Energy Fund at $5.35 per decatherm. For each change
in unit price of $.10, increase or decrease, the overall contract amount will be effected in the
approximate amount of$30,000.
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HAROLD E. GOOD DAVID BARAKIAN
Director of Procurement & Contracting Director of Public Works/City Engineer
APPROVED:
City Manager
REVIEWED BY DEPI OF FINANCE
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MINUTE ORDER NO. 75//
AUTHORIZING THE CITY MANAGER TO
EXECUTE A PURCHASE ORDER FOR
PURCHASE OF NATURAL GAS, TERM NOT TO
EXCEED 12 MONTHS, BEGINNING SEPTEMBER
1, 2004.
I HEREBY CERTIFY that this Minute Order authorizing City Manager to execute a
purchase order for purchase of natural gas, term not to exceed 12 months,
beginning September 1, 2004, was adopted by the City Council of the City of Palm
Springs, California in a meeting thereof held on July 7, 2004.
PATRICIA A. SANDERS
City Clerk
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