2003 AGN APR 15 I02 - Laserfiche WebLink

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Item #2 CITY OF COLTON CITY COUNCIL AGENDA REPORT For Council Meeting of April 15, 2003 TO: Honorable Mayor and City Council Members FROM: Thomas K. Clarke, Utility Director APPROVAL: Daryl J. Parrish, City Manager SUBJECT: Modification of City Code Section 2.18.010 Permitting Natural Gas Purchases and Sales by the Electric Utility Director Ordinance. DATE: April 7, 2003 Section 2.18.010 of the Colton Municipal Code permits the Electric Utility Director to negotiate and execute contracts for capacity and energy from suppliers in the Western United States. These transactions are exempt from the adopted Purchasing Ordinance to facilitate acquisition of the required electricity to meet the City's hour -to -hour needs. The pre-operation and commercial operation of the Aqua Mansa Power Plant wll require that natural gas be purchased with the same latitude as electricity. DISCUSSION I ANALYSIS The Ague Mansa Power Plant will use natural gas as the fuel for generating power. This component will be the largest single expense associated with the operation of the facility. Depending on market conditions for gas and electricity, the annual cost of gas could go anywhere from $1 million to $15 million per year. Because of the volatility of gas and electricity markets, the prices can change significantly on an hourly basis. To react to changes, purchase/sell decisions may be required several times, even on a daily schedule, to capture savings on both gas and electricity. One of the advantages of having owned generation is to enhance the City's ability to exercise options as the markets shift. The Colton Municipal Code empowers the Electric Utility Director, on a limited scope, to negotiate and execute power contracts without City Council approval or going through a formal bidding process. This allows the Department to buy and sell electricity when it is economically feasible to do so. Since the Agua Mansa Power Plant will be a critical element in the optimization of the City's power supply mix, it would be advantageous to have the same buy/sell authority for the natural gas to run the plant. The attached ordinance provides the mechanism to accomplish this. ALTERNATIVES Gas purchases and sales could be subject to City Manager or Council approval or they could be subject to the adopted Purchasing Ordinance. FINANCIAL IMPACTS There are no financial impacts as a result of the change in the Municipal Code. The costs of gas will already be part of the electric Department's budget.