Victorville Municipal Utility Services -
Kern River Interconnection
01/31/2023
Victorville Municipal Utility Services (VMUS)
• In 2001, City Council Resolution No. 01-11 authorized creation and operation of a municipally owned utility for the purpose of providing various utility services to the Southern California Logistics Airport and other areas of the city. The municipal is known as Victorville Municipal Utility Services (VMUS).
• The city paid a nominal fee for the natural gas system at the former George Air Force Base.
Since that time, VMUS has been responsible for the operations and maintenance of the system, as well as investing in the necessary capital upgrades. • VMUS serves industrial and commercial customers only. • The ability to provide low-cost electricity and natural gas to our customers is essential to attract and retain industrial and commercial companies that could bring prosperity and jobs to the community.
• Southwest Gas (SWG) is the local distribution provider for natural gas. VMUS is a wholesale customer of SWG.
2 Southwest Gas Rates
• In 2020, VMUS undertook negotiations with SWG to lower rates for our customers.
Negotiated rates became effective April 1, 2021.
• Effective January 1, 2022, SWG increased the VMUS transportation rate (Total Charges and Adjustments) by 67%.
• Effective January 1, 2023, SWG Total Charges and Adjustments increased again, this time by
27.5%.
• VMUS did not raise rates for customers in 2022.
• VMUS began re-evaluating options for gas supply and transport, searching for lower-cost alternatives.
Utilizing the Kern River Gas Transmission (KRGT) interstate pipeline provided an opportunity for savings to our customers.
• In November 2022, VMUS presented the cost analysis associated with the KRGT option to SWG to give them the opportunity to consider proposing a special contract rate in lieu of Victorville investing in the KRGT option.
• In January 2023, SWG responded to the notice of the KRGT option that they were unable to provide a comparable offer VMUS engaged NewGen Strategies to perform a cost of service and rate design study with to determine how to best address shortfalls.
• In February 2023, VMUS customers will be subject to pass-through charges authorized by section D of our Natural Gas Rate Schedules published on our website to maintain adequate financial reserves. 3 Savings Using the KRGT Pipeline
• SWG is charged transmission rates from an interstate pipeline (Kern River or the equivalent) and intrastate transmission & storage rates for transport through the Southern California Gas Company (SoCalGas) distribution system. SWG assigns 100% of these costs to VMUS and other Southern California ratepayers. This is on top of the overhead and direct costs of operating and maintaining the SWG system.
• Savings for VMUS customers will be achieved by eliminating the costs of SoCalGas and SWG – the middlemen – and contracting directly with the KRGT interstate pipeline. • Annualized transportation costs under rates charged by SWG to Victorville are $5.00/Dth, including costs borne by SWG and passed along to VMUS for SoCalGas’ proposed 2024 rate increases under SoCalGas’ recent Cost Allocation Proceeding filing.
• Under the KRGT option, VMUS estimates an annualized costs of ~$2.01/Dth, comprised primarily of capital cost recovery and operating expenses, KRGT capacity reservation costs and marketer premium and balancing fees. • VMUS’ annual average gas demand is approximately 700 Dth/day, or 255,500 Dth/yr. This equates to a potential savings of over $700,000 annually.
• To capture cost savings for our customers over the long term, VMUS will establish a direct connection to the KRGT system near VMUS’ existing natural gas utility system and procure high- pressure natural gas from one or more marketers that are existing KRGT capacity holders. 4 Kern River Interconnection Project
• KRGT to construct, operate, and maintain a new delivery meter station and associated facilities.
The KRGT interconnection point is located at SCLA, inside the property under lease to the High Desert Power Project (HDPP).
• KRGT will perform the work to separate the gas supply pipeline to the HDPP from the gas supply pipeline to VMUS during the HDPP annual outage.
• The window for construction is scheduled from March 23 – April 13, 2023. • VMUS to construct, operate, and maintain a connection from the KRGT interconnection point to the existing VMUS distribution system. The primary components of the new facilities will include an odorizer skid, above- and below-ground piping, and a metering station. • The existing VMUS distribution system is only 300 feet from the KRGT interconnection point. • The metering station is designed to connect to the existing VMUS distribution system at the current system pressure of 55 psig and will allow for future connections at a higher distribution pressure of approximately 600 psig.
• Total cost of the project is estimated at $2,000,000. • To maintain adequate reserve funds for the gas system while transitioning to the new interconnection, VMUS plans to do an interfund transfer from the Airport, which will be paid back with interest over a 5-year period. 5 Layout of New Interconnect Facilities
6 What to Expect Going Forward
• Feb 7th Council Meeting
• CEQA Exemption
• Interconnection Agreement with KRGT
• Resolution for Additional Appropriation to Fund the KRGT IA • Later Council Meetings
• Middle River Power / HDPP
• Access to COV’s Gas Pipeline Facilities
• Use of a portion of HDPP’s Gas Transportation Capacity Rights in the KRGT High Desert Lateral • Kern River
• KRGT Transportation Services Agreement
• Marketer/Scheduler
• Gas Supply & Asset Management Agreement
• City of Victorville
• Award of Contract for Construction of VMUS-Owned Connection • Loan Agreement with 5-Year Payback to Finance Construction of the Interconnection 7