TITLE
Recommendation to authorize City Manager to execute a North American Energy Standards Board contract between the City of Long Beach and the City of Vernon for the purchase and sale of natural gas. (Citywide)
DISCUSSION
The Long Beach Gas and Oil Department (LBGO) operates a City-owned natural gas utility, serving approximately 150,000 customers primarily in the cities of Long Beach and Signal Hill. In 2007, the Long Beach Bond Finance Authority issued Natural Gas Purchase Revenue Bonds to acquire a long-term supply of natural gas for customers of LBGO at a fixed discount to a monthly market index price over a 30-year period. The City of Vernon (Vernon) executed a similar prepaid natural gas supply agreement to benefit their customers. Natural gas supplied under both agreements must be utilized for a qualifying use, essentially consumed by retail gas or electricity generating customers of a municipal utility, to maintain the tax-exempt status of the bonds issued pursuant to Internal Revenue Service (I.R.S.) regulations.
From time to time, either the City of Vernon or LBGO may have the need to sell excess prepaid gas that cannot be utilized or stored. A NAESB contract with Vernon will provide LBGO the opportunity to purchase excess natural gas from Vernon at a discount to market price, or offer excess natural gas to Vernon at a similar discount, while meeting I.R.S. qualified use requirements. Under the NAESB contract, it is expected that LBGO will be a net buyer of excess natural gas from Vernon due to LBGO’s current demand for prepaid natural gas. Any savings realized from this agreement will depend on the discounts to market price offered by Vernon and the net volumes purchased by LBGO.
This matter was reviewed by Deputy City Attorney Richard F. Anthony on May 25, 2016 and by Revenue Management Officer Julissa José-Murray on June 2, 2016.
TIMING CONSIDERATIONS
City Council action is requested on June 21, 2016, to expand the options available...
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