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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: August 10, 2026
Report #:2602-6016
TITLE
Adoption of a Resolution Approving a NAESB Base Contract for Sale and Purchase of Natural Gas with JPMorgan Chase Bank, N.A. and Authorizing the City Manager or Their Designee to Transact Under the Contract for a Portion of the City’s Natural Gas Requirements; CEQA Status: Not a Project, CEQA Guidelines 15378(b)(5)
RECOMMENDATION
Staff recommends that the City Council adopt a resolution (Attachment A):
1. Approving the NAESB Base Contract for Sale and Purchase of Natural Gas combined with the Special Provisions and Credit Support Addendum (“Master Agreement”) (Attachment B) with JPMorgan Chase Bank, N.A. (“JPMorgan”); and
2. Authorizing the City Manager, or their designee, to transact under the Master Agreement for a portion of the City’s natural gas requirements under specified terms and conditions during calendar years 2026 through 2035, inclusive, subject to the following limitations:
a. The date for natural gas delivery for each transaction shall not exceed 36 months from the date the transaction is executed;
b. The delivery date for any transaction shall not extend beyond December 2035; c. The maximum aggregate of all transactions executed under this Master Agreement shall be $150 million;
d. All transactions shall be subject to the Palo Alto Municipal Code; and e. All transactions shall be subject to the City’s Energy Risk Management Policy, Guidelines, and Procedures.
EXECUTIVE SUMMARY
Approval of the recommended Master Agreement with JPMorgan provides the City with an additional natural gas supplier with which to transact in a timely and competitive manner ensuring that the City’s objectives are met efficiently. An active set of creditworthy
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counterparties is essential to ensure that the City of Palo Alto (“City”) meets its obligations to meet customers’ natural gas demands. Executing the Master Agreement does not commit the City to any transactions with JPMorgan, but it allows for transactions to be executed efficiently in the future. The recommended Master Agreement was negotiated under terms and conditions acceptable to the City and has been reviewed and approved by the City Attorney’s Office.
BACKGROUND
Palo Alto Municipal Code Section 2.30.340 (Contracts for Wholesale Utility Commodities) allows for the use of master agreements to buy and/or sell electricity, gas and related services through various preapproved (“enabled”) suppliers. Contracts or transactions executed under Council- approved master agreements must be done in accordance with the City’s Energy Risk Management Policy, Guidelines and Procedures.
In August 2016, Council approved Ordinance No 5387 1 modifying the Municipal Code to streamline the purchase and sale of wholesale utility commodities and services and to allow for a Council-approved standard form master agreement. The ordinance modified Municipal Code Section 2.30.140 clarifying the process to enable suppliers by specifically allowing the use of a standard form master agreement that contains the City’s minimum contract terms and conditions. Execution of standard form master agreements and delegation of authority to transact under the standard form master agreements with specific suppliers is subject to Council approval. This process is used when contracting for the City’s natural gas requirements.
In October 2016, Council adopted Resolution 96282 approving the natural gas standard form master agreement that is now available to all financially strong natural gas suppliers for execution with non-substantive changes. The Master Agreement with JPMorgan (Attachment B) is the standard form master agreement with non-substantive negotiated changes. The attached proposed resolution (Attachment A) authorizes the City Manager, or their designee, to transact natural gas under the Master Agreement with JPMorgan within maximum expenditure and transaction term limits. The Master Agreement will enable potential future natural gas transactions between the City and JPMorgan.
ANALYSIS
The current set of active Council-approved natural gas counterparties includes:
1. BP Energy Company;
2. ConocoPhillips Company;
3. EDF Trading North America, L.L.C.;
4. Powerex Corp; and
5. Shell Energy North America (US), L.P.
1 Ordinance 5387: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=47269&dbid=0&repo=PaloAlto 2 Resolution 9628: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=54434&dbid=0&repo=PaloAlto 9 4
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With the approval of Resolution 100745 in October 2022, Council delegated authority to the City Manager or their designee to transact under the Master Agreements subject to certain conditions and restrictions including a $150 million expenditure limit applied to all transactions in aggregate under each Master Agreement. The cost of natural gas purchased under the Master Agreements is a function of market prices and the City’s actual natural gas use. Most of the city’s natural gas needs are purchased based on a monthly index price; retail natural gas commodity rates are based on that same monthly market price index. The City’s expected natural gas commodity cost is $11 million to $12 million annually; however, natural gas prices are volatile and unpredictable and actual costs incurred and passed through to ratepayers could be different.
Utilities staff has worked with JPMorgan staff and attorneys and the City Attorney’s Office to negotiate the Master Agreement language. The resulting Master Agreement (Attachment B) meets the City’s “must-have” contract provisions6 and has been approved as to form by the City Attorney’s Office. JPMorgan recently had its investment-grade issuer credit ratings affirmed by both Standard & Poor’s (AA-) and Moody’s Investors Services (Aa2), which meet the City’s minimum credit rating requirements.
Also, consistent with the City’s other current natural gas master agreements, staff recommends that transactions executed under the Master Agreement with JPMorgan be subject to the following limitations:
a. The date for natural gas delivery for each transaction shall not exceed 36 months from the date the transaction is executed;
b. The maximum aggregate of all transactions executed under this Master Agreement shall be $150 million;
c. All transactions shall be subject to the Palo Alto Municipal Code; and d. All transactions shall be subject to the City’s Energy Risk Management Policies, Guidelines, and Procedures.
Because JPMorgan was not included in Resolution 10074’s list of prequalified suppliers, staff is requesting, via this Council action, that JPMorgan be approved as one of the prequalified suppliers the City can transact with for natural gas supplies. In addition, because the transaction term authorized by Resolution 10074 only extends through the end of 2028, staff plans to return next year with another resolution replacing Resolution 10074 that will update the aggregate transaction volume limits and duration of transactions for all approved counterparties. 5 Resolution 10074:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=887680&dbid=0&repo=PaloAlto 6 PAMC Section 2.30.340(c) requires that utilities contracts incorporate the following contract terms and conditions: (1) governing law shall be the laws of the State of California; (2) choice of venue shall be the County of Santa Clara; and (3) a counterparty shall obtain and maintain during the term of the contract the minimum credit rating established as of the date of award of contract of not less than a BBB- credit rating established by Standard & Poor’s and a Baa3 credit rating established by Moody’s Investors Services. 9 4
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FISCAL/RESOURCE IMPACT
Approval of this Master Agreement with JPMorgan will help ensure that the City continues to have an active set of suppliers in the future so that it can continue to competitively and efficiently meet its natural gas requirements. Further, approval of this Master Agreement does not commit the City to any transactions with JPMorgan; therefore, this action will not result in any direct fiscal impact to the City. Costs and revenues associated with future transactions under the recommended Master Agreement (up to the aggregate transaction limit of $150 million) will be accounted for in the annual Gas Utility Fund budget.
STAKEHOLDER ENGAGEMENT
Utilities staff has coordinated with key staff from departments involved in the negotiation and/or implementation of natural gas master agreements, including the City Attorney’s Office and the Energy Risk Manager (Administrative Services Department). If the proposed resolution is adopted by Council, Staff will submit the Master Agreement with JPMorgan to the City Manager for execution.
ENVIRONMENTAL REVIEW
Council’s adoption of the attached resolution approving the Master Agreement with JPMorgan and authorizing the City Manager to purchase natural gas under the Master Agreement is not subject to California Environmental Quality Act (CEQA) review as it is an administrative governmental activity that will not result in any direct or indirect physical change to the environment (CEQA Guidelines 15378(b)(5)).
ATTACHMENTS
Attachment A: Resolution
Attachment B: Master Agreement, Special Provisions and Credit Support Addendum APPROVED BY:
Alan Kurotori, Director of Utilities