TITLE
Recommendation to adopt resolution authorizing City Manager to adjust certain rates for natural gas service to reflect market conditions by implementing Gas Rate Schedules 1 through 5, 7, and 9, plus readopt Exhibits A and B. (Citywide)
DISCUSSION
Long Beach Gas and Oil (LBGO) operates and maintains a pressurized natural gas pipeline system that consists of over 1,900 miles of aging underground pipeline and nearly 150,000 natural gas meters. The pipeline system includes both steel and plastic pipeline, with the bulk of the current pipeline system installed in the 1930s, 1940s, 1950s, and 1960s, with some pipeline from the 1920s still in operation. Detailed historical leakage records of LBGO's pipeline system clearly demonstrate the relationship between the age of the pipeline and the vulnerability to leakage. With an aging pipeline system, it is imperative that LBGO continually reinvest gas ratepayer revenues into the pipeline infrastructure to maintain safe operation.
From that same safety perspective, federal and state regulators nationwide have increased their oversight of how natural gas utility systems are operated and maintained. Under the U.S. Department of Transportation, the Pipeline and Hazardous Materials Safety Administration (PHMSA) has recently established integrity management requirements for the nation's gas distribution systems. New regulations require gas utilities to develop and implement a Gas Distribution Integrity Management Program (DIMP) that address vulnerabilities to its gas pipeline system. The DIMP report includes benchmarked performance measurements such as the number of gas leaks, age of pipe, and replacement program. PHMSA regularly sends auditors to inspect and review LBGO's operations and documentation to verify that LBGO is complying with all federal regulations and performing the actions described in the DIMP necessary to maintain a safe pipeline system.
Compliance with these and other regulatory demands for increased pipeline integrity and environmental programs are financially impacting gas utilities statewide. In recognition of these cost increases, the California Public Utilities Commission (CPUC) authorized a rate increase to the transmission rates charged by Southern California Gas Company (SoCalGas) and San Diego Gas & Electric (SDG&E) to their customers effective January 1, 2014.
The CPUC approved the rate increase as justified to allow SoCalGas and SDG&E to:
· Provide the necessary monies to fund the gas transmission and distribution pipeline integrity programs required by the federal government
· Provide the necessary monies to replace aging gas delivery infrastructure to ensure the safe and reliable delivery of natural gas to its customers
· Provide the necessary monies to comply with state and federal environmental regulations
· Provide the necessary monies to enhance storage inventory
· Operate their natural gas transmission and distribution system safely and reliably at reasonable rates
With like requirements for its own gas utility's operation, LBGO's business costs are similarly impacted. Pursuant to Long Beach City Charter Section 1502, LBGO periodically performs market reviews of its gas utility rates against those charged by other gas utilities in Southern California. Currently, LBGO's gas rates are significantly lower than those rates now charged by SoCalGas and SDG&E to their customers as of January 1, 2014.
As provided for in the City Charter, LBGO is recommending that the City Council approve rate adjustments to levels comparable with those of surrounding gas utilities in Southern California. Rate adjustments are recommended for all LBGO rate classifications including residential, commercial/industrial, compressed natural gas, electric generation, and transportation (see Attachment 1). For the average LBGO residential customer, the recommended rate adjustment would result in an estimated increase of $0.86 per month (an approximate increase of less than 3 percent).
The proposed rate changes are associated with the transmission rates for all customer categories. The commodity charges for all customer classifications will continue to reflect the actual fluctuating monthly market price of natural gas along with any associated costs for receiving that gas. In addition to adjustments in the gas rate schedules, Exhibits A and B (concerning special conditions and incentives) are included under this Resolution to be readopted. There are no changes to Exhibits A and B.
This matter was reviewed by Deputy City Attorney Richard Anthony on January 27, 2014 and by Budget Management Officer Victoria Bell on January 23, 2014.
TIMING CONSIDERATIONS
City Council action is requested on February 18, 2014 in order to implement the gas rate changes effective for service received on or after March 1, 2014. The rate changes are intended to establish Long Beach gas utility service charges and transmission rates comparable with those of other like utilities pursuant to Section 1502 of the City Charter and to generate revenue to meet the increasing operational demands.
FISCAL IMPACT
It is estimated the rate change will generate $790,000 increase in revenues to the Gas Fund (EF 301) in the Department of Long Beach Gas and Oil (GO) for the remainder of FY 14 (estimated to equal a $1.8 million increase annually). The increase to revenue will be included in the FY 15 Proposed Budget. The actual amount of revenues will vary, depending upon the actual demand for natural gas during the year. The resulting revenues will be utilized to assist LBGO in its ongoing investments in pipeline replacement and meeting PHMSA pipeline safety and environmental regulations. There is no impact to local jobs.
SUGGESTED ACTION
Approve recommendation.
BODY
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LONG BEACH APPROVING CHANGES TO THE SCHEDULE OF GAS RATES
Respectfully Submitted,
CHRISTOPHER J. GARNER
DIRECTOR OF LONG BEACH GAS AND OIL
APPROVED:
PATRICK H. WEST
CITY MANAGER