TITLE
Recommendation to adopt resolution authorizing the issuance of gas utility commercial paper in an amount not to exceed $35 million; and authorize City Manager to execute all necessary documents. (Citywide)
DISCUSSION
The Long Beach Energy Department (LBE) has thoroughly updated its Natural Gas Utility's
long-term infrastructure improvement plan. The natural gas infrastructure consists of over 1,800
miles of underground pipelines and nearly 150,000 meters. This pipeline system is, and must
continue to be, maintained in compliance with U.S. Department of Transportation (DOT)
guidelines and standards. The DOT standards require regular maintenance and replacement.
Industry practices suggest gas infrastructure replacement is required every 50 to 70 years to
maintain system integrity, ensure its safe operation and minimize capital costs. An increasingly
large segment of LBE's Gas Utility pipeline is approaching this replacement threshold as the
majority of the pipeline was installed during Long Beach's peak growth period during the 1940~~
50s and 60s.
Age alone is not the deciding factor relative to replacement. Pipeline replacement also takes
other factors into consideration such as the results of annual leakage and corrosion control
surveys. LBE coordinates planned pipeline upgrades with roadwork planned by other City
departments to the greatest extent possible.
Over the past 15 years, investments in the system have been sufficient to maintain a safe
system, including approximately $8.5 million from Gas Utility revenues on critical capital
improvements between 2002 and 2004. However, the investment strategy for the Gas Utility's
infrastructure needs must change to implement a long-term plan for upgrading the gas
infrastructure for the upcoming decade and beyond.
LBE expects to spend approximately $56 million on capital improvements to the Gas Utility
Enterprise between 2005 and 201 1. These improvements consist primarily of selective removal
of aging pipeline; removal or replacement of 300 gate valves; upgrade from six pressure
districts to one uniform pressure district; upgrade or removal of approximately 40 district
regulating stations; upgrades to the cathodic protection system; and, significant improvements
to the geographic information system (GIs). Upgrading the overall System will increase safety
and lower operating costs. Improvement costs are proposed to 'be financed utilizing the shortterm
commercial paper program requested through this Council action, which will subsequently
be refinanced with a long-term bond. LBE ongoing revenues will pay for the annual debt.
The Department believes this updated infrastructure improvement plan is critical to ensuring that
LBE accomplishes its Strategic Plan goal to provide safe, reliable and cost effective energy to
the citizens and businesses of Long Beach. It is common industry practice to use short-term
commercial paper, followed by longer term financing, to fund utility infrastructure programs.
This item was reviewed by Chief Assistant City Attorney Heather A. Mahood and Budget
Management Officer David Wodynski on June 27,2005.
TIMING CONSIDERATIONS
City Council action on this item is requested on July 12, 2005, so funding can be in place in the
next few weeks. Construction progress on various capital improvement projects may be
delayed until this funding is in place.
FISCAL IMPACT
There is no General Fund impact as the capital improvement projects relate to the Gas Fund
(EF301) and will be paid from the commercial paper program proceeds that will be secured by a
pledge of the Gas Utility Enterprise.
SUGGESTED ACTION
Approve recommendation.
BODY
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF LONG BEACH AUTHORIZING THE ISSUANCE
AND SALE, FROM TIME TO TIME, OF CITY OF LONG
BEACH, CALIFORNIA SUBORDINATE GAS UTILITY
REVENUE COMMERCIAL PAPER NOTES, SERIES A AND
SERIES B (TAXABLE) IN AN AGGREGATE PRINCIPAL
AMOUNT NOT TO EXCEED $35,000,000; APPROVING A
MASTER SUBORDINATE TRUST INDENTURE; A FIRST
SUPPLEMENTAL SUBORDINATE TRUST INDENTURE,
AN ISSUING AND PAYING AGENT AGREEMENT, A
REIMBURSEMENT AGREEMENT, A BANK NOTE, A
COMMERCIAL PAPER DEALER AGREEMENT, AN
OFFERING MEMORANDUM AND RELATED
DOCUMENTS, AUTHORIZING AND DIRECTING
EXECUTION THEREOF AND AUTHORIZING ACTIONS
RELATED THERETO.
Respectfully Submitted,
[Respectfully Submitted,]