City Manager Says CA Will Reduce Cost Of Natural Gas From LB Tidelands, Reducing City Hall's Cost For About 1/3 of City's Annual Gas Supply
Taboada Says Savings Will Be Passed On To Consumers As A Credit
Mayor offers rambling defense of City Hall's record on natural gas issue
(February 28, 2001, with add'l info added March 5)
Material in italics provided on March 5 by LB Gas Dept. Director Chris Garner.
City Manager Henry Taboada announced at the February 27 City Council meeting that city staff had completed negotiations Tuesday with State Lands Commission staff on a new agreement that would reduce City Hall's cost for natural gas pumped from LB's tidelands, a move that could cut the cost of roughly 1/3 of the city's gas supply.
Mr. Taboada told the Council the cost reduction would be passed along to consumers as a credit but didn't publicly specify how much that amount would be or when it might be forthcoming.
On February 5, Mayor O'Neill, LB Gas Dept. Director Chris Garner and Deputy City Attorney Carol Shaw travelled to Sacramento to attend a meeting of the State Lands Commision to urge such a change.
The City Manager described major aspects of the new arrangement as follows (caveat: some terms are in gas-speak)
City Hall (and LB consumers, since commodity charges are passed through to consumers) will save a total of roughly $7.4 million (not $2.6 million as originally estimated) from the agreement with the state, reducing charges currently paid by LB for tidelands natural gas to rates charged by So. Cal Gas. The additional savings result from the agreement being retroactive to November, and covering the entire 2001 and 2002 time frame (it will expire Jan. 1, 2003).
The $2.6 million. originally estimated was merely a one-month figure as the State Lands Commission had approved only an interim price, subject to adjustment after negotiations were complete. The $7.4 million is for the months of Nov 00 through February 01 only. The new price is expected to result in lower prices than the current contract price, continuing through January 1, 2003.
The City will pay prices for the tidelands natural gas equal to So. Cal Gas core rates, now retroactive to November 2000; the City will also pay a surcharge to avoid interstate pipeline savings (about $150,000).
The City and the State will share in the City’s savings associated with the avoidance of intrastate pipeline transmission charges. This will be reflected by payment by the City of an additional $0.0145 per therm to the State (about $500,000 annually). This charge will not be included in the cost of gas passed through to the Long Beach customers.)
The state has agreed to cap future costs at 10% above the 5 year high for So. Cal Gas prices. Additionally, the state will pay imbalance penalties for at least one year and failure to have daily flowing supply within 90% of the city's take-off of the So. Cal Gas system will result in significant financial penalties paid by the state.
State Lands staff has agreed to recommend a price cap on future prices payable by the City. This price cap will be based in some manner upon historical So.Cal Gas prices. For a significant portion of the City’s gas supply, this provision will serve as a protection for Long Beach customers against the high prices as seen in today’s market. This is especially critical in light of the uncertainties caused by California’s energy crisis.
Under the proposed agreement, the state would hold the City harmless against potentially substantial imbalance penalties imposed by So. Cal Gas in the event the state fails to deliver its gas supply as agreed. This is important as the state’s gas production can be unexpectedly halted due to electrical brownouts such as those that were experienced in the past few months.
City Hall will also avoid costs of roughly $1.35 million.
Based upon today’s market conditions, the City’s customers could save roughly $1.35 million monthly under the new pricing arrangement.
The understanding with the State Lands staff is subject to approval by the State Lands Commission itself. Staff will recommend these changes to the Commission. The Commission's next meeting is scheduled for mid-April. However, the City has requested that a special meeting be held in as soon as two weeks.
As for consumers, City Manager Taboada said, "As soon as we're able to, those savings will be given back as credit to our customers. And we think that this goes a long way toward taking the edge off of the current prices."
On other fronts, the City Manager indicated:
The city had filed a petition for modification with the Public Utilities Commission asking the Commission to modify a previous (unhelpful) decision that refused to allow So. Cal Gas wholesale customers the option to be included in So. Cal Gas supply-purchase portfolio. A request for an expedited hearing was also filed and, if granted, the matter could be heard in as soon as two weeks.
On February 26, the Mayor, City Attorney and consulting attorney Pat Powers met with the President of the P.U.C. to express the need and urgency for a positive ruling. Assemblyman Alan Lowenthal will ask the full Democrat Assembly caucus to to support the city's position for this modification. Meanwhile, state Senator Betty Karnette, and Assemblymembers Lowenthal and Oropeza have sent a joint letter to the P.U.C. president stating support for the city's position.
"We think that that would actually be the real coup, if we can acquire access to the So. Cal Gas rates as part of their energy purchase," Mr. Taboada said.
The City Manager said his office had forwarded a recommendation on membership of a so-called "Energy Task Force" and as soon as the Council provides input on possible additional members, a meeting would be convened in the near future.
Assemblymembers Oropeza and Lowenthal had introduced AB 5019 which provides that the city may retain and utilize, without cost, all of the natural gas it produces from the tidelands area for the purpose of producing electrical energy, providing natural gas service to residents at a competitive price and improving the tidelands, coastal and wetlands environment. Mr. Taboada said he'd received a letter from the State Lands Commission "supporting our legislative intent," which he called "a major turnaround from previous discussions."
The City Manager said his office is working with LB's Washington lobbyist, Del Smith, in anticipation of meeting with staff of the Federal Energy Regulatory Commission. "We believe we need to bring this issue to the attention of the federal sector as well," Mr. Taboada said.
Mayor O'Neill defends City Hall's record
Immediately following the City manager's presentation, Mayor O'Neill launched into a rambling, sometimes disjointed defense of City Hall's record:
"You know, I, we've talked about the energy and what we can do about it at many meetings. And the thing that has been, that we have been working on are the things that we had control over. And even though we had many programs, level pay plan, the discounted program, they didn't get to the price of the commodity. And the price of the commodity was the thing that had skyrocketed for the people of Long Beach because we were buying it at the same place where we had always purchased it.
And the two groups that had control over that, the State Lands and the Public Utilities Commission, in helping us bring our level down to the same as Southern California Gas. And by going to the State Lands and telling them that they were doing to us with the gas we were selling to them, the same thing that they were accusing other people of doing of the energy costs, they realized that they were, we were at an unfair advantage. We had an unfair advantage.
And they realized that and lowered, as the negotiations as Henry has said, lowered this so that we are closer to the Southern California Gas prices and the same as the rest of California.
The next group we went to was the California Public Utilities, and we had petitioned the same thing with them. Now they haven't met yet, and we actually buy more gas from our regular customer, or our regular border gas, than we do we get from pumping our own that we sell to the state that sells back to us. But we're hoping for an outcome with them the same as we had with the State Lands.
...When we look them in the eye and say we are being treated differently than any other city, the state of California has an energy crisis with electricity but we have a worse problem with our natural gas...
The City of Long Beach and the City of San Diego are paying the same gas prices, so there are two cities that are at real disadvantage in the state of California.
So we are doing everything we can with the two agencies that can make a difference to what we're paying for the commodity. Because this Council has worked very, very hard and actually since before Christmas or since Rob Webb and Ray Grabinski held up their gas bills to us around Christmas time, to find a change that's going to make the difference to our citizens.
And by being there, you put a face on saying look at what you're doing to the citizens of this community. And it is making a difference, I was very pleased with the negotiations that were going on with the State Lands, but we are dealing now with the people that can make a difference to the price of the commodity which is what is costing and causing our bills to go so high, because we're buying from, I hate to use the word bandits, but I mean the people that we bought it from for years, all of a sudden, the prices have skyrocketed, and they're charging us an exorbitant amount for what they call transportation of the, through the pipelines.
So, I hope that I'm not sued over that but, it's very important that you know and understand that we are now working with the organizations, and have been all along, but finally to a point where I think we're going to get some relief. And Henry, thank you for that report..."
As previously reported on LBReport.com, the City Council has the power to authorize consumer rebates of disproportionate amounts paid by LB consumers; this is so regardless of what agencies of the state of CA do. Such city generated rebates would likely require significant adjustments to current LB budgeted spending.