REPORT TO COUNCIL
SUBJECT
Title
Action on a Resolution Delegating Authority to the City Manager to Execute Natural Gas Purchase Contracts and Related Documents for Delivery Through 2034
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The Strategic Plan for the Electric Utility adopted by the City Council calls for the Electric Utility to provide reliable, economic service. In order to supply the natural gas necessary to run the natural gas-fired Donald Von Raesfeld Power Plant (DVR) and Lodi Energy Center (LEC) Power Plants, the City will need to enter into natural gas supply contracts with vendors. It is also contemplated that such contracts would provide for the natural gas requirements of the Cogen and Gianera plants as appropriate.
To enable the City to act quickly in securing natural gas commitments by vendors in response to any Request for Proposal, on December 7, 2010, Council adopted Resolution 10-7807 delegating authority to the City Manager, or designee, to execute on behalf of the City any and all natural gas supply contracts with natural gas suppliers (not to exceed the total of 40,000 MMBtu per day) for delivery during the calendar years 2011 through 2026. The City Manager, or designee, is also authorized to execute all documents related to such transactions including, but not limited to, all credit enhancement documents and agreements, netting and set-off agreements, and confirmation agreements necessary to support and complete such transactions.
DISCUSSION
Eleven years have passed since the adoption of the 2010 gas purchase Resolution described above, while the needs to secure long-term natural gas contracts continue to exist even as more renewable resources are integrated into the utility’s supply. The cost of natural gas, if not managed carefully, could result in a large exposure for the City’s electric customers to substantial natural gas price volatility. Between the execution of the 2010 Resolution and December of 2021, indexed wholesale natural gas prices (Henry Hub natural gas index) have ranged from a low of $1.93 per MMBtu to a high of $23.86 per MMBtu.
Silicon Valley Power (SVP) desires to procure long term natural gas over multiple time periods in length, including beyond 2026, in order to mitigate the price risk to SVP’s electric customers. The window between pricing and securing a contract is very short, usually less than a day. Staff is proposing that Council delegate authority to the City Manager, or designee, to execute natural gas purchase contracts and related documents for delivery during the calendar years 2022 through 2034.
SVP staff are fully mindful of the City’s potential policy consideration to achieve carbon neutrality by 2035. Based on current technology limitations it is assumed that natural gas fired power plants, including those operated by SVP, will still be needed particularly for reliability purposes. However, with the City’s potential policy consideration for 2035, any natural gas procured pursuant to the authority requested herein will be undertaken only as necessary when other non-fossil resources are not reasonably available, or as requested or ordered by authorities with jurisdiction over SVP’s gas fired resources.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(2), continuing administrative activity.
FISCAL IMPACT
The procurement cost of natural gas for the DVR, LEC, Gianera, and CoGen Power Plants will be covered by revenue from the sale of electricity to SVP customers. Adoption of a Resolution delegating authority to the City Manager to execute natural gas purchase contracts and related documents will save the City money because it will be able to promptly accept low prices instead of waiting for Council approval, in which case vendors will add a significant risk premium to the price offered to the City, thus increasing costs to SVP and its ratepayers.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Adopt a Resolution delegating authority to the City Manager, or designee, to execute on behalf of the City any and all natural gas purchase contracts (not to exceed the total of 40,000 MMBtu per day) and related documents for delivery through 2034.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Resolution