TITLE
Recommendation to receive and file communication from the Director of Long Beach Gas and Oil (LBGO) regarding final negotiated terms of International Swap and Derivatives Association (ISDA) Master Agreement with Shell Energy North America (SENA). (Citywide)
DISCUSSION
On February 17, 2008, the City Council authorized the City Manager to enter into an ISDA with one of seven respondents to a Request for Proposal (RFP) to provide LBGO's natural gas customers with protection against significant increases in natural gas commodity prices. This authorization was contingent upon final terms being negotiated that met or exceeded the following parameters: 1) a term of no more than three year; 2) pricing terms indexed at the Southern California border; and 3) a market price ceiling of not greater than $10.50 per MMBtu and/or a fixed price no greater than $8.20 per MMBtu.
On the morning of February 18, 2008, LBGO received pricing offers from six of the RFP respondents based upon market prices on that date. LBGO exercised its option to reject all offerings and requested the three most competitive respondents to resubmit pricing the next morning reflecting lower price parameters. On the morning of February 19, 2008, LBGO reviewed the new submittals and determined that the pricing offer by SENA offered the best overall pricing protection for LBGO's customers. With natural gas prices decreasing along with oil prices since last summer, it is believed that prices are currently at or near the bottom of the long-term market (Attachment A). As such, LBGO considers this an ideal time to lock in favorable pricing. The final accepted pricing terms, all below the City Council preapproved parameters, are shown on Attachment B.
In summary, LBGO locked in fixed (swap) pricing for some of its winter supply purchases and a three-way pricing mechanism for some volumes in LBGO's peak purchasing periods of summer (June - September) and winter (November - February). A three-way prici...
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