Attachment B – Quarterly Gas Issues Update
QUARTERLY GAS ISSUES UPDATE
May 2005
I.
Supply Issues
Wholesale Natural Gas Prices
Skyrocketing crude oil prices have caused a significant increase in wholesale natural gas market
prices. The average projected price at PG&E Citygate over the next twelve months was $8.05 per
MMBtu as of April 5, 2005. Prices have increased approximately 50% since January 2004 and 25%
since January 2005. Figure 1 below provides historical monthly bid week index prices and projected
future natural gas prices at PG&E Citygate.
Natural Gas Wholesale Prices at PG&E Citygate
as of April 5, 2005
$14
- Implied volatility from at-themoney option prices used to
generate ranges
- 1 standard deviation
- Approx a 30% chance that
the actual price will be
outside the high and low
range
$12
$/MMBtu
$10
$8
High
Actual
Projected
$6
Low
$4
$2
$0
08
n-
Ja
7
l-0
Ju
07
n-
Ja
6
l-0
Ju
06
n-
Ja
5
l-0
Ju
05
n-
Ja
4
l-0
Ju
04
n-
Ja
3
l-0
Ju
03
n-
Ja
Figure 1
Supply Acquisition
In June 2000, staff began to implement the “laddered” gas procurement strategy to lock in gas costs
for pool customers (customers not eligible for direct access). The laddering strategy was revised in
January 2004 and presented to the City Council in March 2004 [CMR:167:04].
Approximately 75% of the expected pool load is hedged for the remainder of FY 2004/05 with a
total expected pool cost of $13.7 million. The expected cost for the City’s entire portfolio (pool
customers plus large customers either on the G-3 rate or a contract rate) is $18.4 million.
Approximately 88% of the expected pool load is hedged for FY 2005/06 with an expected cost of
$15.5 million and a cost of $21 million for the entire portfolio. Figure 2 shows the expected pool
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Item 6: Utilities Quarterly Report Update Attachment B: Gas Page 1 of 10
Attachment B – Quarterly Gas Issues Update
load for the next 36 months and the status of the laddering strategy.
Gas Supply Procurement Program for Pool Customers
Monthly Fixed-price Purchase Volumes Compared to Target
as of April 5, 2005
500,000
450,000
400,000
* Shaded area represents
minimum and maximum
purchases under laddering
Expected Pool Customer Load
strategy
** Forecast revised December
2004
Actual Fixed-Price Purchases
MMBtu/Month
350,000
Fixed-price
Purchase Target
300,000
250,000
200,000
150,000
88% Target
100,000
50% Target
85% Actual
60% min - 100% max *
30% Target
50% Actual
40% min - 75% max *
8% Actual
20% min - 50% max*
50,000
8
08
7
ar
-0
M
Ja
n-
ov
-0
N
Ju
l-0
7
Se
p07
07
ay
-
7
M
ar
-0
M
6
07
Ja
n-
ov
-0
N
Ju
l-0
6
Se
p06
06
6
ay
M
06
5
ar
-0
M
Ja
n-
ov
-0
N
Ju
l-0
5
Se
p05
M
ay
-
05
0
Figure 2
Because of the fixed-price purchases, the City’s weighted average cost of gas (WACOG) differs
from the monthly market price. The City’s estimated WACOG for the pool is $5.31 for FY 2004/05,
approximately 17% below the weighted average market price for that same period of approximately
$6.38 per MMBtu. The City’s estimated WACOG for the pool is $5.89 for FY 2005/06, compared
to the current weighted average forward market price of approximately $8.03 per MMBtu, a savings
of approximately 27%. In the months close to the end of the laddering time horizon, the City’s
WACOG is closer to the forward market price since purchases were done more recently and because
a smaller fraction of the total gas needs have been purchased for this period (as shown in Figure 2).
Figure 3 below illustrates the difference between market prices and the City’s estimated WACOG.
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Item 6: Utilities Quarterly Report Update Attachment B: Gas Page 2 of 10
Attachment B – Quarterly Gas Issues Update
Gas Market Prices vs Pool Purchases
(as of 4/5/05)
9.0
Forward Market Price
Natural Gas Price ($/MMBtu)
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
Fixed-Price Pool Purchases
4.5
Expected Pool WACOG
4.0
Fe
08
7
-0
b-
ov
N
07
g-
Au
07
7
-0
b-
6
-0
ay
M
Fe
ov
N
06
g-
Au
06
6
-0
b-
5
-0
ay
M
Fe
ov
N
05
g-
Au
5
-0
ay
M
Figure 3
II.
Regulatory Issues
Gas Supply Order Instituting Rulemaking (OIR)
Key issues in this proceeding include: gas quality, infrastructure and gas supply adequacy for
generators, at-risk ratemaking, direct connection of independent storage, and some SoCal items.
Staff attended a pre-hearing conference (PHC) where parties discussed how best to address the key
issues.
Gas quality issues are pointed primarily to prospective new liquefied natural gas (LNG) facilities to
be located adjoining the SoCal Gas system. Since no LNG facilities have been proposed for
Northern California, the issue is of consequence to Palo Alto only in a global sense.
The issue of gas supply adequacy for generators were generally agreed to be a subset of the wider gas
supply adequacy issues for the Investor Owned Utilities (IOUs). Direct connection for the
independent storage operators was a matter between PG&E and the two Northern California
independent storage operators (Lodi & Wildgoose) and is better left to resolution by the parties by
themselves.
Palo Alto’s focus is the appropriate pipeline capacity reserve levels to be held by the core and noncore on PG&E’s system and costs associated with such and the provisions to provide access to new
supply by PG&E, including LNG. No other issues are of concern for Palo Alto in this proceeding.
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Item 6: Utilities Quarterly Report Update Attachment B: Gas Page 3 of 10
Attachment B – Quarterly Gas Issues Update
PG&E Biennial Cost Allocation Proceeding (BCAP) Application
Palo Alto does not have any outstanding issues in this settlement. Palo Alto will be allocated
$87,000 per year compared to today’s cost of about $74,500 through the Customer Class Charge that
will account for about 9% of Palo Alto’s total transportation payment of $990,000 to PG&E in 2005.
This slight increase reflects PG&E’s cost increase. Staff and Palo Alto’s consultants have checked
PG&E’s cost allocations and it appears that PG&E has properly applied existing CPUC policies to
compute Palo Alto’s rate. The new rates are proposed to be effective July 1, 2005 for a two-year
period.
III.
Operational Measures
The attached graphs provide information on operational measures for FY 04-05 through March 2005:
Gas System O&M – Mainline Leak Repairs
Gas System O&M – Service Installations
Gas Main Leaks By Type of Pipe
Gas Meter Exchange Productivity Measurement
Gas Main Shutdowns & Customers Affected
Unplanned Gas Service Disruptions
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Item 6: Utilities Quarterly Report Update Attachment B: Gas Page 4 of 10
Attachment B – Quarterly Gas Issues Update
Gas System O&M Mainline Leak Repairs
FY 04-05 (through March 2005)
Restoration Time (Hours)
6
5
Target: 95% Restoration in 4 Hours or Less
4
3
2
1
0
1
4
7
10
13
16
19
22
25
28
Break Number
96% of repairs completed
within 4 hours
Item x: Utilities Quarterly Report Update Attachment B: Gas
Total Number of Leaks = 25
Avg. hours to repair = 1.9
Page 5 of 10
Attachment B – Quarterly Gas Issues Update
Gas System O&M Service Installations Number
of Days From Payment to Installation FY 04-05
Target 38 Days or Less
40
Installed
Number of Days
35
30
25
20
to MSC
15
10
5
26
21
16
11
6
1
0
Number of Service Installations through March 2005
Total No. of Installations = 28
100% of services installed within 38 days
Avg. Days to Complete = 19.2
Item x: Utilities Quarterly Report Update Attachment B: Gas
Page 6 of 10
Attachment B – Quarterly Gas Issues Update
Gas Main Leaks by Type of Pipe
Material Failure Only (FY 04-05 as of March 2005)
Number of Breaks
120
ABS
100
Other
80
60
PE
40
Steel
20
Miles of PE: 35.6 (17.7%)
Miles of ABS: 43.5 (21.8%)
Miles of PVC: 45.5 (24.2%)
Item x: Utilities Quarterly Report Update Attachment B: Gas
05
20
04
/
04
20
03
/
03
20
02
/
02
20
01
/
01
20
00
/
00
19
99
/
99
19
98
/
98
19
97
/
97
19
96
/
96
95
/
19
19
94
/
95
0
Miles of BWP: 73.1 (36.4%)
Total miles of Main: 207
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Attachment B – Quarterly Gas Issues Update
Gas Meter Exchange Productivity Measurement
Target vs. Actual Exchange
Number of Exchanges
250
200
150
Target:
120 Exchanges/month
100
50
As of March 2005
20,708 Residential Gas meters in system
Item x: Utilities Quarterly Report Update Attachment B: Gas
Page 8 of 10
Jun-05
May-05
Apr-05
Mar-05
Feb-05
Jan-05
Dec-04
Nov-04
Oct-04
Sep-04
Aug-04
Jul-04
0
Total Exchanges: 1401
Avg. per month: 155
Attachment B – Quarterly Gas Issues Update
Gas Main Shutdowns & Customers Affected FY 0405
150
Number of Shutdowns
5
Planned
125
Unplanned
Customers Affected
4
100
3
75
2
50
1
1
25
0
0
0
0
0
0
0
0
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
0
0
Mar-05
Total Customers Affected: 528
Total Shutdowns: (Planned - 1, Unplanned - 25)
Item x: Utilities Quarterly Report Update Attachment B: Gas
Page 9 of 10
Apr-05
May-05
Jun-05
Customers Affected
Number of Shutdowns, Planned or Unplanned
6
Attachment B – Quarterly Gas Issues Update
Unplanned Gas Service Disruptions by Cause
Main Lines Only
Mat. Failure
3rd Party
City Crews
5
4
3
2
0 0 0
0 0
000
00
Dec-04
1
Nov-04
Number of Breaks
6
0 0 0 0 0
Total Material Defect: 4
Total City Crews: 2
Item x: Utilities Quarterly Report Update Attachment B: Gas
Total 3rd Party: 21
Total Disruptions: 27
Page 10 of 10
Jun-05
May-05
Apr-05
Mar-05
Feb-05
Jan-05
Oct-04
Sep-04
Aug-04
Jul-04
0