HomeMy WebLinkAbout03.d. Authorize pre-purchase of natural gas for 2017Central Contra Costa Sanitary District 3G�
' BOARD OF DIRECTORS
POSITION PAPER
Board Meeting Date: April 2, 2015
Subject. AUTHORIZE THE GENERAL MANAGER TO PRE - PURCHASE NATURAL
GAS THROUGH A SERVICE AGREEMENT WITH SHELL ENERGY
NORTH AMERICA, LP, FOR THE PERIOD OF JANUARY 1, 2017,
THROUGH DECEMBER 31, 2017, AT A PRICE NOT TO EXCEED $6.00
PER DECATHERM
Submitted By. Initiating Dept /Div.:
Clint T. Shima, P.E. Operations Department / Plant
Provisional Senior Engineer Maintenance / Maintenance Engineering
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
A. Sasaki, Deputy General Manager
N. Meyer, Plant Maintenance Division Manager
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R. Bailey
General Manager
ISSUE: Board authorization is requested for the General Manager to pre - purchase
natural gas (NG).
RECOMMENDATION: Authorize the General Manager to pre - purchase NG through a
service agreement with Shell Energy North America, LP (Shell Energy) for the period of
January 1, 2017, through December 31, 2017, at a price not to exceed $6.00 per
decatherm (dth).
FINANCIAL IMPACTS: Purchasing NG each month at market price risks market price
volatility and excessive District expenditures. Based on past experience, pre - purchasing
NG can result in significant cost savings. The budget for fiscal year 2014 -2015 is
$2,365,000.
ALTERNATIVES /CONSIDERATIONS: The District could purchase all NG at market
price each month or other frequency.
BACKGROUND: The District uses approximately 430,000 dths of NG annually (or
roughly 1,200 dth per day) for the Treatment Plant's cogeneration system and as backup
fuel to landfill gas in the multiple -hearth furnaces and auxiliary steam boilers. The
Cogeneration Plant uses approximately 80 percent of the District's NG purchased. The
District's cogenerate system is operated to stay below the 25,000 metric tons CO2
equivalent greenhouse gas limit and avoid mandatory offsets. This is done by
monitoring fuel use and adjusting the input of PG &E imported electrical power. If NG
prices stay below $10.00 /dth, then continuing to generate power for the Treatment Plant
is a cost benefit to the District.
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Prepurchase 04- 02- 15.doc Page 1 of 2
POSITION PAPER
Board Meeting Date: April 2, 2015
subject: AUTHORIZE THE GENERAL MANAGER TO PRE - PURCHASE NATURAL
GAS THROUGH A SERVICE AGREEMENT WITH SHELL ENERGY
NORTH AMERICA, LP, FOR THE PERIOD OF JANUARY 1, 2017,
THROUGH DECEMBER 31, 2017, AT A PRICE NOT TO EXCEED $6.00
PER DECATHERM
Typically, the District pre- purchases approximately 1,000 dth per day of NG. For 2015,
staff has purchased 1,000 dth per day at an average Citygate price of $4.84 /dth. The
remaining 200 dth per day will be purchased at the end of the month at market price.
Last year, the Board authorized the General Manager to pre - purchase NG through
December 31, 2016. In the last year, NG prices have remained in the $3.00 to $5.00 /dth
range. Market prices are favorable for purchasing due to abundant NG supplies
resulting from mild winter weather on the west coast. This winter saw the market price
drop to 10 -year lows. However, the recent low prices are not expected to last for a
prolonged period. If the price of NG remains at or near $4.00 /dth, the District's average
burner tip price for NG for fiscal year 2014 -2015 will be approximately $5.10 /dth for a
total expenditure, including the added cost of transportation ($0.80 per dth) of
$2,275,000. The fiscal year 2014 -2015 budget for NG is $2,365,000.
Prices for future years are not as greatly affected by the short -term price changes.
Current pricing for one -year strips of NG for 2016 is approximately $3.70 /dth. For
calendar year 2016, the District has pre - purchased two thirds of the normal
pre - purchase amount at an average Citygate price of $4.06 /dth. It is expected that after
winter, NG prices typically trend down. Assuming prices remain low or fall further, staff
will continue to monitor the NG markets to make a purchase for the remaining portion of
2016.
Pre - purchasing allows staff the flexibility to respond to market changes. Locking in a
fixed price for NG can insure the District against an upside cost. There is a market risk if
prices go down, but staff believes the down side benefit is less than the upside risk.
Accordingly, staff recommends Board authorization to allow the General Manager to
pre - purchase NG for the period of January 1, 2017, through December 31, 2017. By
authorizing NG purchases through 2017, the District would be able to take advantage of
future favorable pricing changes, thus stabilizing the energy cost for the next three
years. The General Manager will keep the Board apprised of NG purchases.
RECOMMENDED BOARD ACTION: Authorize the General Manager to pre - purchase
NG through a service agreement with Shell Energy, for the period of January 1, 2017,
through December 31, 2017, at a price not to exceed $6.00 per dth.
C:\ Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \Natural Gas
Prepurchase 04- 02- 15.doc