HomeMy WebLinkAboutStaff Report 359-09TO: CITY COUNCIL
FROM: CITY MANAGER
DATE: SEPTEMBER 14,2009
REPORT TYPE: CONSENT
DEPARTMENT:ADMINISTRATIVE
SERYICES
CMR: 359:09
SUBJECT: Adoption of a Resolution Approving Revisions to the City of Palo Alto
Energy Risk Management Policy
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend that Council approve the
updated Energy Risk Management Policy and Resolution as attached (Attachments A and C).
EXECUTIVE SUMMARY
The City of Palo Alto's Energy Risk Management Policy serves as the overriding document for
the management, monitoring and hedging of risks associated with commodity transactions by the
Utilities Department. The key changes included in the new version of the Policy include
enhancements to the applicability, roles and responsibilities, types of contracts permitted and
conflict of interest sections. In addition, each type of permitted transaction is more fully
detailed. Products added to the permitted transaction list include purchase of Congestion
Revenue Rights. Staff and the Utilities Advisory Commission recommend approval of the
revised Policy.
BACKGROUND
The City'S Energy Risk Management Policy requires that staff update the Policy rumually. The
Utiliti<eS Risk Oversight and Coordinating Committee (UROCC) has reviewed and approved the
updated Policy. The Utilities Advisory Commission (UAC) voted to approve the Policy at the
August 10, 2009 meeting.
The Energy Risk Management Policy was prepared by staff to take into account new regulatory
requirements, as well as updated risk management best practices. Before consideration by the
UAC, the Risk Management Policies were also reviewed by two outside municipal utilities.
DISCUSSION
Electricity and gas prices are extremely volatile, and purchasing these commodities carries
inherent risks. The Energy Risk Management Policy is the overarching document for the
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management of the City's risks associated with purchasing of electric and gas commodities. In
addition to the Policy, energy risk management activities in the City are managed by two more
detailed sets of documents: the Risk Management Guidelines and Risk Management Proeedures.
The Guidelines detail the roles and responsibilities of the Front, Middle and Back Offices, as
well how to manage and measure risks, and establish credit limits. In addition, the Guidelines
detail transaction control principles involved in the trade capture and risk reporting. The Risk
Management Procedures provide explicit step-by-step instructions for use by cmployees in
performing specific tasks within the risk management framework. The Guidelines are prepared
by staff and approved by the Utilities Risk Oversight and Coordinating Committee (UROCC).
The Risk Management Procedures are approved by the Utilities and Administrative Services
Directors, and provided to the UROCC. The voting members of the UROCC are the Director of
Utilities, Director of Administrative Services, Director of Public Works, and thc Assistant to the
City Manager. The UROCC has two advisory, non-voting members who are the City Auditor
and the Senior Assistant City Attorney.
The City's Energy Risk Management Policy codifies policies designed to minimize risks, define
segregation of duties, provide organi71ltional structure for risk controls, set aceeptable risk
parameters and limits, ensure transparent and appropriate purchasing procedures, and protect the
City from excessive risk exposure.
The updated Policy's scope is restricted to transactions carried out uuder the electric and gas
master agreements. All contract transactions, whether carried out under the master agreements
or not, must be fully in compliance with the Municipal Code. Transactions with the Northern
Califomia Power Agency, iucluding scheduling, are covered uuder a separate Member Services
Agreement.
The updated Policy also reflect changes to the composition of the UROCC. The Policy now
reflects the current composition of the UROCC to include the Director of Public Works as a
voting member and increasing the quorum to three voting members. The City Attorney and the
City Auditor serve as non-voting advisory members. The Policy also notes that the City
Auditor's participation as an advisor to the UROCC does not impair the City Auditor's ability to
audit the Utilities Department.
The updatcd Policy is most clearly differentiated from previous versions with regard to the types
of transactions covered by the policy and the specific authorized transaeting products allowed.
The new Policy lists all approved transaction products in detail, rather than types of products
listed in previous versions. Added to the approved transaction products list are ancillary
serviees, local and system capacity, and transmissions products. These products are required for
the efficient operation of the Utility or for regulatory purposes.
An addition to the approved products list is financial transactions related to the nomination,
purchasing and selling of Congestion Revenue Rights (CRR) through the Califomia Independent
System Operator (CAISO). These products are by CAISO definition "financial products" and it
has been the risk management policy of the City of Palo Alto that financial products are
prohibited without approval by the City Council. This prohibition remains for all transactions
except for the Congestion Revenue Rights which are an integral element in CAISO's
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transmission market (launched on April I, 2009 as the Market Redesign and Technology
Upgrade). Failing to participate in the CRR market would increase the City's risks and costs
associated with transmission congestion, hence the inclusion ofCRR's in the City's Policy.
The updated Policy includes an improved conflict of interest section to correspond to the City's
Municipal Code (Section 2.09.0 I 0) which reflects the conflict of interest section of the Political
Reform Act of 1974, California Government Code Section 81000, et seq.
BOARD/COMMISSION REVIEW AND RECOMMENDATION
The Utilities Advisory Commission (UAC) discussed the proposed Energy Risk Management
Policy at its August 10,2009 meeting. Notes from this meeting are provided in Attachment B.
The UAC focused its discussion on Section IX, the Commodity Pricing Policy section of the
Energy Risk Management Policy. This original section discussed by the UAC is presented in its
entirety below:
IX. COMMODITY PRICING POLICY
Retail prices for eriergy supplies will be fair and equitable to all customers and will recover all
incurred costs. The commodity pricing policy will be used both for the development of
standardized commodity tariffs and for long-term, or customized, customer contract rates. The
City Manager is responsible for implementing this policy and overseeing the process for all
commodity rate development and ensuring that all procedures are followed consistently and that all
calculations are appropriately documented.
The commodity pricing policy is composed of tbe following five principles with the first principle
having priority over the remaining four:
a. Direct Cost Recovery
All direct costs of providing commodity service will be recovered in commodity rates
and/or through the use of Utilities' reserves.
h. Risk Management
To the extent practicable contract terms must protect CPAU from major contingencies. To
the extent that CPAU assumes risk to provide commodity products to customers, the
customer shall pay reasonable compensation for bearing that risk.
c. Indirect Cost Recovery
To the extent practicable, it is an objective to recover all indirect costs of commodity
service from commodity customers.
d. Nondiscrimination
All customers within a customer class shall be treated in a fair and impartial manner and be
entitled to acquire commodities at the same or substantially similar terms and conditions.
e. Nonsubsidization
To tbe extent practicable, costs will be allocated to customers and customer classes
according to how those costs are incurred. Thus, commodity rates will not be established in
a manner that permits one class of customers to be subsidized by another.
The regulations for oversight, review, approval, pricing and reporting of customer contracts and
fixed-term commodity rates are contained within the Council-approved Rules and Regulations of
the City of Palo Alto Utilities.
The UAC expressed concern that the subsections in Section IX could potentially conflict with a
future Rates Policy yet to be developed as they could be interpreted as being contrary to the
encouragement of efficient use of resources. Additionally, the UAC questioned if the
nondiscrimination and subsidization principles could be called in to question for many new
initiatives for efficiency and feed-in tariffs. Some members of the UAC felt that paragraphs (d)
and (e) were not required in the Energy Risk Management Policy, but should be included in a
future Rates Policy that staff is developing.
Following additional discussion the UAC took the following action: Commissioner Waldfogel
moved the staff recommendation to recommend Council approve the updated Energy Risk
Management Policy with the deletion of paragraphs (d) and (e) in Section IX -Commodity
Pricing Policy. The motion was seconded by Commissioner Foster. The motion carried by a
vote of3-1, with Chair Melton voting no.
Following the vote, staff amended the Policy as approved by the UAC. This amended Policy is
attached.
POLICY IMPLICATIONS
This updated Policy represents a change in City Policy. The changes relate to updating the
Policy to reflect industry best practices and the need for business practices to correspond with
new regulatory requirements.
RESOURCE IMPACT
There are no resource impacts of the updated Policy.
ENVIRONMENTAL REVIEW
This policy update does not constitute a project under the California Environmental Quality Act
(CEQA).
ATTACHMENT
A Energy Risk Management Policy as approved by the UAC on August 10, 2009
B Minutes of the Utilities Advisory Commission Meeting on August 10, 2009
C Resolution Approving Revisions to the City of Palo Alto Energy Risk Management Policy
CMR359:09 Page 4 of5
PREPARED BY:
Energy Risk Manag r
DEPARTMENT HEAD APPROVAL:
Dire-"'-" dminis ative Services
CITY MANAGER APPROVAL:
CMR359:09 Page 5 of5
Attachment A.
City of Palo Alto
Energy Risk Management
Policy
August 10,2009
CITY OF PALO ALTO
UTI LlTI ES
City of Palo Alto Energy Risk Management Policy
Table of Contents
I. INTRODUCTION ............................................................................................................................................ 1
II. APPLICABILITY ............................................................................................................................................. 1
III. ENERGY RISK MANAGEMENT PHILOSOPHY ...................................................................................... 2
IV. ENERGY RISK MANAGEMENT OBJECTIVES ....................................................................................... 2
I. RETAIL RATE STABILITy .................................................................................................................................. 2
2. PRESERVE A SUPPLY COST ADVANTAGE ......................................................................................................... 3
3. EFFICIENT AND COST EFFECTIVE BUSINESS PROCESSES .................................................................................. 3
V. OVERSIGHT BODIES ....................... " ........................................................................................................... 3
1. CITY COUNCIL ................................................................................................................................................. 3
2. UTILITIES ADVISORY COMMISSION ................................................................................................................. .3
. 3. CITY MANAGER .............................................................................................................................................. .4
4. UTILITIES RISK OVERSIGHT AND COORDINATING COMMfITEE ....................................................................... ,4
5. MANAGEMENT OVERSIGHT .............................................................................................................................. 4
a. Front Office .. · Planning and Procurement .............................................................................................. 4
b. Middle Offlce -'Risk Management Controls and Reporting ....................................................................... 5
c. Back Offlce -Settlement and Recol'ding ........................................................................... : ........................ 6
VI. SCOPE ............................................................................................................................................................... 6
VII. TRANSACTING POLICY .............................................................................................................................. 6
1. ANTI·SPECULATION ......................................................................................................................................... 7
2. MAXIMUM TRANSACTION TERM ...................................................................................................................... 7
3. PORTFOLIO PERFORMANCE AND VALUE REpORTING ....................................................................................... 7
4. COMPETlTIVEPROCESS .................................................................................................................................... 7
VIII. COUNTERPARTY CREDIT POLICY .......................................................................................................... 7
IX. COMMODITY PRICING POLICY ..................................................................... ,,' ........................................ 8
X. RISK MANAGEMENT REPORTING POLICY .......................................................................................... 9
XI. AUTHORIZED PRODUCTS POLiCy .......................................................................................................... 9
XU. TRANSACTING AUTHORITY POLICY ................................................................................................... 10
XIII. CONFLICT OF INTEREST POLICY ......................................................................................................... 11
XIV. GLOSSARY OF TERMS ............................................................................................................................... 12
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I. INTRODUCTION
It is the policy of the City of Palo Alto Utilities to provide reliable and affordable energy
and energy services to its industrial, commercial and residential customers in an
environmentally sustainable manner. Furthermore, this policy is consistent with the
City's business objectives of making financially sound and timely investments in the
capital infrastructure of the Utilities to ensure tbe reliable delivery of energy and energy
services to its customers.
The City of Palo Alto's Energy Risk Management Policy ("Policy") details the key
contro I structures and policies for prudent risk management processes based on sound
energy risk management principles while ensuring adherence to financial requirements
set forth by City Council and Director of Administrative Services as well as all pertinent
legal requirements. The control structures and policies are focused on the following
issues:
• Clearly defined segregation of duties and delegation of authority
• Organizational structure for risk management controls
• Policies related to setting acceptable risk parameters and risk limits.
• Policies for risk reporting.
• Permitted transaction and product types.
The Energy Risk Management Policy serves as the key policy level document on energy
risk management. This Policy is supported by more detailed operational-level
documents: the Energy Risk Management Guidelines and the Energy Risk Management
Procedures for the Front, Middle and Back Offices.
II. APPLICABIltITy
This Energy Risk Management Policy applies to all City of Palo Alto employees engaged
directly or indirectly in h'ansacting in the energy markets. The first objective of this
Policy is to build risk awareness within the City. Consistent with the City Council's
desire for the City to be an active manager of risk, the organization must maintain
awareness of the risks faced. It is critical that all members of the organization have
awareness that participation in tbe energy business entails a host of risks and that all
members have knowledge of the Energy Risk Management Policy
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III. ENERGY RISK MANAGEMENT PHILOSOPHY
The mission statement of the Utilities Depaltment is to "Provide valued utility services to
customers and dependable returns to the City." The Utilities Strategic Plan, delivered to
the City Council! contains four supporting objectives: I) Provide valued utility services
to customers and dependable returns to the City, 2) employ balanced environmental
solutions, 3) provide fair and reasonable returns to the City and competitive rates to
customers through municipal ownership; and 4) ensure a safe and engaged workforce.
Palo Alto recognizes that certain risks are inherent in the energy business environment.
The City seeks to minimize risks in order to provide rate stability to its customers and a
stable financial return to the City's General Fund. The basic premise underlying the
City's Energy Risk Management Policy is that no activities related to energy purchases
and sales should unduly expose the City to the possibility of financial losses in relation to
the size of the electricity and gas reserve funds.
IV. ENERGY RISK MANAGEMENT OBJECTIVES
The primary objectives of energy risk management activities are to balance the business
goals of: (I) providing stable gas and electric rates to end users, (2) preserving a supply
cost advantage through obtaining the best available price, and (3) managing business
processes to allow the City to work efficiently and cost effectively.
1. Retail Rate Stability
Stable rates are of high value to the citizens and businesses in Palo Alto. However,
energy commodity market prices are extremely volatile. Therefore, a primary objective
is to manage the risks inherent in the energy commodity markets in which CPAU
participates. The rate stability objective is to mitigate market risk, weather risk, volume
risk, and credit risks to avoid frequent rate changes.
Reserye balances maintained by the gas and electric utilities provide financial liquidity
and flexibility for entering into long-term contracts and for purchases of energy in the
spot and forward market as needed to meet the projected load. Reserve funds are
designed to cover short-term price exposure due to market changes or hydro risk, and to
avoid rapidly changing rates to cover those events. Maintaining the adequacy of these
reserve funds in accordance with Council approved reserve policies and guidelines is a
matter of the highest priority for CP AU and the City.
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2. Preserve a Supply Cost Advantage
City staff will endeavor to: (a) reduce exposure to potential adverse energy price
movements; (b) enhance value by taking advantage offlexibHity inherent in CPAU
contracts and resources; and (c) enhance value by offering cost-effective commodity
products that address customer needs.
3. Efficient and Cost Effective Business Processes
City staff will utilize business practices and controls that are sufficient to identify,
evaluate, and manage risks through appropriate recording, analysis and reporting
requirements. The Energy Risk Manager, in collaboration with CPAU, will determine
the sufficiency of control and reporting requirements. Staff will strive to improve the risk
management procedures to enhance productivity, reduce the cost of conducting risk
management activities, and maintain transparency and the value of the risk management
process.
When the above goals are in conflict, the Energy Risk Manager will collaborate with
CPA U and the Utilities Risk Oversight and Coordinating Committee (UROCC) to
resolve the conflict.
V. OVERSIGHT BODIES
1. City Co uncil
The City Council is responsible for making high-level broad policy and strategy
statements as contained in this Policy document and as such approves the Policy. The
Policy shall guide the general vision ofCPAU business practices, articulating the City's
risk philosophy, and establishing risk tolerances. The City COtmcii reviews and adopts
the Energy Risk Management Policy as developed and recommended by the UROCe and
delegates the City Manager to implement it. The City Council will review the Policy
annually or more frequently if the DROCC recommends significant changes.
Additionally, the City Council shall receive reports quarterly from the City Manager
regarding energy risk management activities.
2. Utilities Advisory Commission
The Utilities Advisory Commission (UAG) is responsible for advising the City Council
on long-range planning and policy matters relating to the electricity, gas and water
utilities. While it has no formal responsibility in energy risk management, the UAC does
receive and review regular management reports prepared by the Risk Manager for the
City Council. In addition, the UAC can serve as an importsnt source of advice and
comment to the City Council on risk management.
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3. City Manager
The City Manager has overall responsibility for executing and ensuring compliance with
policy adopted by the City Council. The City Manager reports quarterly to the City
Council regarding energy risk management aetivities.
4. Utilities Risk Oversight and Coordinating Committee
The Utilities Risk Oversight and Coordinating Committee (UROCC) consists of the
Director of Utilities (Chairperson), the Director of Administrative Services, the Director
of Public Works and a delegated representative ofthe City Manager. The Senior
Assistant City Attorney assigned to Utilities and the City Auditor act as non-voting
advisors for the UROCC. In accordance with 2007 Government Auditing Standards, the
City Auditor's participation as an advisor to the UROCC is not considered an audit
service and does not impair the City Auditor's ability to audit the Utilities Department.
The Energy Risk Manager serves as the Secretary to the UROCC. A quorum consists of
at least three voting members of the UROCC.
The UROCC is responsible for overseeing a sound approach to managing risks which is
consistent with the business strategy and risk tolerance of the organization, as defined by
the City Council. The UROCC is the primary body responsible forappl'oving and the
implementation of guidelines consistent with Council-approved energy risk management
policies. As such, the UROCC is critical to overseeing and reviewing the risk
management process and infrastructure and ensuring proper management of the Utilities'
risk exposure.
5. Management Oversight
Risk management oversight at an operational level is accomplished through supervisory
review and approval and appropriate separation of duties. The functions of the Front
Office, Middle Office and Back Office are detailed in the Energy Risk Management
Guidelines. Risk management functions are separated as follows:
a. Front Office -Planning and Procurement-
Reporting to the Director of Utilities, the Front Office is primarily responsible for
resource planning and procuring energy supplies and services. The Front Office, by
delegation of the City Manager, has a critical role in risk management through its
transacting operations. The Front Office has the authority to commit the capital of the
City of Palo Alto to energy transactions with counterparties. As such, the Front Office is
a central clearing point for risk assumption and risk mitigation.
The Front Office roles in risk management include:
• Develop and implement Utility Director-approved, Front Office procedures
consistent with Council approved Policy and UROCC approved Guidelines.
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• Develop and implement energy portfolio management plans, strategies and
guidelines in support of CPAD objectives and in accordance with the City's
Energy Risk Management Policy and legal and regulatory requirements.
• Develop and recommend for annual approval retail rates and financial plans
including gas and electric reserves in support of CPA D objectives.
• Ensure adherence to Energy Risk Management Policy, Guidelines and
Procedures including proper recording of transactions, monitoring and
valuation of risk.
• Report position, valuation and market conditions and energy portfolio risk
and report to the DROCC.
• Ensure proper reporting of contractual commitments to the City financial
reporting system.
Front Office Procedures are developed by staff, approved by the Utilities Director, and
provided to the DROCC for information.
b. Middle Office -Risk Management Controls and Reporting
Reporting to the Director of Administrative Services, the Middle Office provides the
primary independent oversight role. The Middle Office consists of the Risk Manager,
and institutes, supervises, and reviews all risk management activities including
portfolio exposure, credit exposure, transaction compliance and on-going approval of
counterparties and transacting limits. The Middle Office responsibilities include
monitoring CPAD's risk exposures and ensuring compliance with policies, guidelines,
and procedures. Additionally, the Middle Office is responsible for reporting to the
DROCC on risk management issues, and recommending when changes in policy or
operating procedure are required. These recommendations may relate to the temporary
or permanent halting of transactions with one or more counterparties, exceptions to
rules and procedures, other operational exceptions, and any other topic the Risk
Manager believes represents an unacceptable risk exposure.
1ne Middle Office recommends as necessary updates to the Energy Risk Management
Policy, Guidelines and Procedures so that portfolio management functions occur in
compliance with the Council-adopted Energy Risk Management Policy and DROCe -
adopted Energy Risk Management Guidelines.
Middle Office Procedures are developed by staff, approved by the Administrative
Services Director, and provided to the DROCC for information.
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c. Back Office -Settlement and Recording
The Back Office is primarily responsible for settlement ofbiIJs, recording transactions,
bookkeeping and accounting, and contract administration. The Back Office roles in
oversight are ensuring that bills reflect orders, independently monitoring and recording
transactions into a tracking database, and verifying and reporting on compliance with
procedures as reflected in the deal tracking documentation. Functions within the Back
Office are performed by both ASD and CPA U personnel and are detailed in the Risk
Management Guidelines.
Back Office Procedures are collectively developed by staff from Administrative Services
and Utilities, jointly approved by the Administrative Services Director and the Utilities
Director, and providcd to the UROCC for information.
VI. SCOPE
The Energy Risk Management Policy shall apply to the electric and natural gas supply
business units. The clcctric and natural gas supply business units are the part of the
electric and natural gas enterprise funds that deal directly willi the acquisition of energy
supply resources.
The Energy Risk Management Policy prescribes the management, organization,
authority, processes, tools and systems to monit()r, measure, and control risks to which
the City is exposed in its normal course ()f business, including wholesale and retail
()perations, capital pr()jects (related to generati()n, transmission, transp()rtation, and
storage), and participation in joint p()wers authorities.
The Policy does not address general business risks such as fire, accident, casualty, worker
health and safety, and general liability. Neither does the policy cover the water fund, the
electric and natural gas distribution business units, or the telecommunications business
unit.
The Policy does not apply to transactions executed ()n behalf of the City by joint agencies
such and the Northern California Power Agency (NCP A). The NCPA Commission
approves its ()wn energy risk management policies and procedures.
VII. TRANSACTING POLICY
The City of Palo Alt()'s transacting policy is to ensure transactions carried out under the
electric and gas master agreements are done in a manner consistent with the authority
granted by Council to transact under these contracts; the City ofPal() Alto's Municipal
Code; and are carried out to manage risk which is inherent to the energy supply portfolio
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,
and to ensure the City is not exposed to unnecessary risk. The policy is based on four
key elements:
1. Antl'..speculalion
Speculative buying and selling of energy products is prohibited. Speculation is defined
as buying energy not needed for meeting forecasted load or selling energy that is not
owned, In no event shall transactions be entered into in order to speculate on market
conditions. The volume limits for forward purchases are listed in the Energy Risk
Management Guidelines,
2. Maximum Transaction Term
The maximum term of any supply resource transaction (purchase or sale) is ten years,
unless specifically approved by the City Council, to meet long-term portfolio planning
objectives,
3. Portfolio Performance and Value Reporting
Front and Middle Office staff shall prepare performance reports containing an analysis of
physical and financial positions of all electric and gas commodity contracts, The
frequency and content of performance reports for each oversight body shaH be prescribed
in the Energy Risk Management Guidelines, Should the risks associated with the
portfolio, or a specific transaction within the portfolio, fall outside of the risk limits
prescribed in the Energy Risk Management Guidelines, the Risk Manager will report this
fact to the UROCC and the City Council within a reasonable period and evaluate the risk
ofhoJding any of the contracts in the portfolio to delivery,
4. Competitive Process
Whenever possible, CPAU will obtain three or more quotations when making a purchase
or sale transaction and select the best price from a creditworthy bidder.
VIII. COUNTERPARTY CREDIT POLICY
The Counterparty Credit Policy is designed to minimize the potential adverse financial
impacts on the City in the event of a defaulting counterparty, The policy is to minimize
the City's credit exposure and potential adverse financial impacts related to wholesale
commodity transactions by:
• Establishing a credit risk management governance and oversight structure within
the existing energy risk management program;
• Providing a framework to enable the City to qualify energy suppliers and transact
with approved counterparties;
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• Providing counterparty transacting parameters (limits) to control and measure the
City's exposure to any onc supplier; and
• Implementing a mechanism to monitor and report on supply portfolio related
counterparty credit exposures.
All transactions must adhere to Chapter 2.30 of the Palo Alto Municipal Code (Contracts
and Purchasing Procedures) which sets creditworthiness standards and certain contractual
provision required for wholesale commodity transactions. As such, transactions carried
out under the Electric and Gas Master Agreements are limited to counterparties with a
Standard and Poor's Rating ofBBB-or better, or a Moody's Investor Services Rating of
Baa3 or better. Only the City Council can approve exemptions to this requirement.
Counterparty credit limits and controls are set forth in the Energy Risk Management
Guidelines.
IX. COMMODITY PRICING POLICY
Retail prices for energy supplies will be fair and equitable to all customers and will
recover all incurred costs. The commodity pricing policy will be used both for the
development of standardized commodity tariffs and for long-term, or customized,
customer contract rates. The City Manager is responsible for implementing this policy
and overseeing the process for all commodity rate development and ensuring that all
procedures are followed consistently and that all calculations are appropriately
documented.
The commodity pricing policy is composed of the following tbree principles with the first
principle having priority over the remaining two:
a. Direct Cost Recovery
All direct costs of providing commodity service will be recovered in commodity
rates and/or through the use of Utilities' reserves.
b. Risk Management
To the extent practicable contract terms must protect CPAU from major
contingencies. To the extent that CPAU assumes risk to provide commodity
products to customers, the customer shall pay reasonable compensation for
bearing that risk.
e. Indirect Cost Recovery
To the extent practicable, it is an objective to recover all indirect costs of
commodity service from commodity customers.
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The regulations for oversight, review, approval, pricing and reporting of customer
contracts and fixed-term commodity rates are contained within the Council-approved
Rules and Regulations of the City of Palo Alto Utilities.
X. RISK MANAGEMENT REPORTING POLICY
Key to energy risk management is the monitoring of risks and the accurate and timely
information that must be provided to all parties involved in any aspects of energy risk
management to allow them to perform their functions appropriately. Quarterly reports
will be provided for distribution to the DROCC, the UAC, and the City Council which
provide detliils on the City's forward purchases, market exposure, credit exposure,
counterparly credit ratings, transaction compliance and other relevant data.
XI. AUTHORIZED PRODUCTS POLICY
The purpose of the Authorized Product Policy is to ensure proper controls are in place to
minimize risk when transacting under the Electric and Gas Master Agreements.
Transactions not covered by the Master agreements must conform to the Municipal Code
and must be approved by City Council In general the types of pro duets to be purchased
include electricity, capacity, transmission, ancillary services, congestion, renewable
energy, natural gas, transportation, and storage.
The Council is responsible for authorizing all products and commodity types to be
executed under the Electric and Gas Master Agreements. The DROCC is responsible for
understanding and communicating the risks associated with each transaction and making
recommendations to Council for approving products. Further the UROCC ensures that
the necessary processes and controls are in place for proper execution of authorized
products as further detailed in the Energy Risk Management Guidelines. Transactions of
products not allProved by the Council are strictly prollll)ited. All transactions must be
consistent with Energy Risk Management Policies, Guidelines and Procedures. Key
elements of the Authorized Products Policy are as follows:
• Policy applies to transactions executed under the Council-approved Electric and
Gas Mastcr Agreements
• Policy applies to transactions carried out by City of Palo Alto staff
• All transactions must be committed to by an authorized trader.
• All transactions must be with eligible counterpatties with adequate available
credit.
• All transactions must be committed over a recorded phone lines; via electronic
mail; or through a signed confirmation from both parties ..
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• All transactions must be on the Approved Products/Transaction Type List.
Amlroved ProductslTransaction TYPe~List
Approved products are limited to purchases to meet load and/or sales incidental to load
for the following:
A. Purchase of physical fixed price, index-based price, call options, capped-price or
collar-priced energy, natural gas, capacity, transportation, basis and transmission
products
B. Sale of physical fixed price or index-based price energy, natural gas, capacity,
storage, and transmission
C. Electric heat rate pro duets
D. Renewable Energy Credits with or without bundled energy to meet the City's
Renewable Portfolio Standards;
E. Gas storage
F. Eleetric Ancillary Services
G. Local and system capacity to meet the City's Resource Adequaey Program;
H. Fixed price or index-priced purchases and sales to substitute the use of higher cost
resources with lower cost market alternatives.
1. Fixed price or index-priced forward purchases and sales of transmission and
transmission rights to meet contractual obligations or to dispose of surplus capacity.
J. Purchase of physical call options and physical collars.
K. Financial transactions related to the nomination, purchasing and selling of
Congestion Revenue Rights
XII. TRANSACTING AUTHORITY POLICY
The City Manager has the authority to purchase and sell wholesale energy commodities
for terms of up to three years under open purchase contraets. City Manager authorities
may be delegated by the City Manager to the Director of Utilities. Purchases and sales are
subject to signature authority limits as defined in the Municipal Code. Currently, energy
purchases exceeding $250,000 per year and exceeding a three-year term require City
Council approval (Municipal Code Sec 2.30.210 (I)). Authority to enter into transactions
must be based on City Council approved contracts such as master agreements, purchase
agreements, or other contractual forms. In all cases the Municipal Code provides the
final authorization rules and regulations for energy purchases.
10
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c:ny Of' J-II\LO 1>1. YO
UTILITIES
Authorization levels for City staff as delegated are maintained in the Risk Management
Guidelines by the Middle Office. The City Clerk maintains the list of individuals
authorized to make wholesale transactions.
XIII. CONFLICT OF INTEREST POLICY
In accordance with the Municipal Code and California law, personnel involved in
transacting and oversight of the City of Palo Alto Utilities supply resource acquisition,
contract negotiation, risk management, and back office programs may not participate in
decisions in which they have a financial conflict of interest. All personnel are required to
complete, on an annUliI basis, the Form 700 Disclosure forms and submit these forms to
the City Clerk. Each staff member engaged in energy transacting, risk management, or
energy back office operations has the sole responsibility of identifying and reporting any
potential conflict of interest, and ensuring that he or she does not participate in decisions
when a financial conflict of interest exists. If the employee has a reportable interest, it is
their responsibility to disclose the interest and have their supervisor sign-off on the form
so that their supervisor is aware of the potential conflict. Supervisors should ensure
employees are not involved in a decision-making capacity with respect to any of their
reportable interest. An employee who has a potential conflict should contact the Fair
Political Practices Commission at 1-866-ASK-FPPC for advice and notify his or her
supervisor of the potential conflict. If questions remain after talking to the FPPC, contact
the City Attorney's Office and your Department Director for further assistance.
11
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ell'( C~ J>AU)hLTG
UTILITIES
XIV. Glossary of Terrns
• Back Office A set of business functions in Utilities and Administrative Services
Departments including trade confirmation, accounting and other
c-::-;-:_-:-_______ -+-'~r~oc~e~s~se~s~t~h,f!lt support the transaction of commodities.
Call options An option that allows the owner the right to purchase energy at the
,'--:::_---::--_______ +sp~if1ed strike price.
Cap price A structured product that contains a strip of multiple call option
contracts with identical but sta ered ex irations.
Collar A combination of a rice with a maximum and minimum value.
Congestion Revenue Rights A CRR is a hedging tool or a financial instrument that entitles the
holder to a CRR payment when Congestion (a characteristic of the
transmission system produced when constraints on the system
prevent the optimum economic dispatch of generation to meet
demand) is in the direction of the CRR Source (a node or a trading
hub where generation is scheduled into the electric grid) to the CRR
. Sink (a node or a trading hub specified as the point of withdrawal
i for consumption).
Credit risk The probable change in the value of a contract due to a counterparty
, defaulting.
Electric Ancillary Services Those services necessary to support the transmission of electric
power from seller to purchaser given the obligations of control areas
and transmitting utilities within those control areas to maintain
reliable operations of the interconnected transmission system.
Electric heat rate product A contract based on how efficiently a generator uses heat energy in
fuel (ie naturall4as) to l4enerate electricity.
Financial Position The total dollar amount of contracts that setting with counterparties
excllanging cash.
Front Office The sector of energy procurement operations in utilities where
trading occurs.
Hydro risk The risk that altered precipitation pattems result in less than normal
hydro electric generation.
Index-based price
!
A price that varies based onJ)lJ.plished index prices. .. -~
Market risk The probable change in value of (or sensitivity to) a contract,
position or portfolio due to general changes in market conditions.
12
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Crt't Of' PALO AL TO
UTILITIES
: Master Agreement
l-
I Middle Office
Physical fixed price
Physical Position
Portfolio eXllosure
Risk Management
A standardized agreement to which oth
are referred.
The set ofbnsiness functions in Admin
er agreements and purchases:
~-~::--:----:-~~---1 istrative Services that carries
out the risk management activities inc! uding measuring, controlling
other risks. and hedging market, credit, h;,:dro and
I A contract for a fixed price which settl
. deEvers the commodit;,: to another who
es when one counterparty
~11cash settlement
The volumetric sum of all physical tral1 sactions . .. _-_ ..... _--
The monetar;,: sllm of all llositions that
The set of skills and processes for mea
.hedgingrisk·m
are subject to chc:;:a",ll=c,:-, __ -I
suring, controlling and
I Supply Portfolio The composition and amo\1nl of all pur chased power.
[Trans.,mlsslOn roduct • The sale or purchase ora non-energy asset to transpo":rt",e",n,,,e,",r= __ -i
i Volume risk The risk of the volume of a contract or position changing from
i __ + cutrent expectations.-;-----;-_
I Weath .... errisk The risk of weather changing from current expectations and causing
________ --' .... c=:;:h<lJ1ges to expected load or gelleration.
13
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C(lY Of PALO At Tt)
UTILITIES
ATTACHMENT B
UTILITIES ADVISORY COMMISSION
MINUTES OF AUGUST 10, 2009
CALL TO ORDER
Vice Chair Melton called to order at 7:00 p.m. the special meeting of the Utilities Advisory Commission
(UAC).
Present: Commissioners Eglash, Foster, Melton, and Waldfogel, Council Member Yeh
Absent: Commissioner Keller.
ORAL COMMUNICATIONS
APPROVAL OF THE MINUTES
The minutes from the June 3, 2009 UAC meeting were unanimously approved.
AGENDA REVIEW
. No changes were proposed.
REPORT FROM COMMISSION MEETINGSIEVENTS
No report.
UTILITIES DIRECTOR REPORT
Utilities Director Valerie Fong delivered an oral report on the following items:
1. Water Supply Conditions: According to the hydrologic conditions report from the San Francisco
Public Utilities Commission for July, the water year for the regional water system is near or above
average with the total amount of water in storage as of the end of July 2009 at a nine year high for the
end of July. Part of this good news is that customers from all agencies receiving the water have been
effectively conserving water use. We congratulate our customers for helping in this regard.
2. Economic Stimulus Funding Application & Awards:
a. Energy Efficiency Community Block Grant (EECBG): We anticipate this award for $663k to be
made in September. Of the $663,000, the City expects to spend $458,000 on LED street light
project and $205,000 on Home Energy Reports project.
b. People Power: People Power Company, a Palo Alto start up, in partnership with Cities of Palo
Alto, Santa Clara, Alameda, Acterra, and Ennovation Z applied for stimulus grants to help evaluate
the energy savings that could be achieved by customers changing behavior triggered by having in-
home real time energy monitoring devices. We expect to know if we qualify for the award in the
October time frame
Utilities Advisory Commission Minutes Approved on: September 2, 2009 Page 1 of?
c. EV Funding Requests: The City's application with Better Places for EV charging stations was
turned down by DoE. We are still awaiting results on the application through BAAQMD.
3. Street Light Pilot: Test LED street lights and Induction street lights have been installed around City
Hall and along Colorado and Amarillo Avenue. With technical assistance from Pacific Northwest
National Labs (PNL) we have taken lighting measurement and now in the process of analyzing the data
and seeking community input.
4. Smart Grid Evaluation: Following up on the May 11 th joint Council/UAC study session, staff is
developing a Request for Proposals (RFP) to retain a consultant to help develop a long term Smart
Grid Strategic Plan and do a cost-benefit analysis related to smart meter deployment. The RFP will be
issued in early September and a consultant is expected to be on board in late Fall. The timeline for the
evaluation is yet to be determined.
5. Renewable Electric Supplies: On August 3, Council approved two long-term power purchase
agreements for renewable electricity. One is with Ameresco for a landfill gas to energy plant in
Johnson Canyon (in Gonzales, California), which will provide about 1.1 % of the City's electric needs
with rights to any expansion plants built at the landfill. The other was to amend the contract for a
higher price for the Western GeoPower geothermal power and to increase Palo Alto's potential
maximum participation level to provide about 6% of the City's electric needs.
Both contracts are for power at near the Market Price Referent, a benchmark price for renewable
power established by the California Public Utilities Commission. Other proposals received in the City's
RFP for renewable power (besides the Ameresco Johnson Canyon proposal) are also around or above
the Market Price Referent. Discussion at the Council Finance Committee on July 21 when it reviewed
the Ameresco Johnson Canyon contract, and at the Council on August 3 when it approved the Western
GeoPower contract amendment, noted that staff should ensure that energy efficiency programs reflect
the marginal cost of renewable power when determining cost-effectiveness.
6. Biomethane RFP: Palo Alto issued an RFP for pipeline-quality biomethane supplies and expects to
have results back in mid-August. The biomethane is intended to serve gas customers who voluntarily
opt for a non-fossil fuel gas supply.
UNFINISHED BUSINESS
None.
NEW BUSINESS
ITEM 1: ACTION ITEM: Election of Officers
ACTION: Commissioner Eglash nominated Commissioner Melton to be the Chair of the UAC. The motion
was seconded by Commissioner Foster. The motion carried unanimously (4-0).
ACTION: Commissioner Foster nominated Commissioner Waldfogel to be the Vice Chair of the UAC. The
motion was seconded by Commissioner Eglash. The motion carried unanimously (4-0).
Utilities Advisory Commission Minutes Approved on: September 2, 2009 Page 2 of7
ITEM 2: ACTION ITEM: Designate Spokeperson(s) for FY 2010
ACTION: Commissioner Foster nominated Chair Melton to be the UAC's spokesperson for Fiscal Year
2010 and the Vice Chair Waldfogel to be the alternate. The motion was seconded by Commissioner
Eglash. The motion carried unanimously (4-0).
Commissioner Waldfogel commented that designating the Chair and Vice Chair as spokesperson and
alternate, respectively, could be something that would go into the UAC bylaws.
ITEM 3: Intentionally Omitted
ITEM 4: INFORMA nON ITEM: City of Palo Alto's Energy Risk Management Report for the Third Quarter,
Fiscal Year 2009
Energy Risk Manager Karl Van Orsdol provided a presentation on this report to the UAC as there are new
commissioners who are not familiar with the informational report that he provides to the Council and UAC
on a quarterly basis.
In summary, Van Orsdol stated that, for the third quarter of FY 2009:
• All transactions were complete within limits -there were no exceptions to report.
• The 36-month Mark-to-Market value of Electric contracts is negative $1.5 million.
• The 36-month Mark-to-Market value of Gas contracts is negative $10.6 million.
• The prompt 12-month Mark-to-Market value of renewable energy is negative $8.3 million compared to
wholesale "brown" market.
• The prompt 12-month Mark-to-Market value of the Western Base Resource hydro contract is $1.2
million and that for the Calaveras hydroelectric project is negative $5.7 million.
• All counterparties with whom Palo Alto actively trades maintain excellent credit rating.
Van Orsdol described the electric portfolio as consisting of hydroelectric power that is generated primarily in
the spring and summer months with lower production in the winter months. Renewable resources such as
landfill gas generation and geothermal power produce the same generation monthly, but wind generation
also has a seasonal generation profile, producing the most in the summer. Purchases from the market are
used to fill in resources to meet the City's relatively flat load. The gas load, on the other hand, is seasonal
in nature and purchases from the market are layered in according to the City's laddering strategy over the
next 36 months.
Van Orsdol defined Mark-to-Market (MTM) as equal to the market value of an asset or contract less the
cost of the asset or contract so that a positive MTM means that the resource is more valuable than its cost
while a negative MTM indicates that the resource costs more than it's currently worth in the market.
Commissioner Eglash asked how renewable contracts are marked to market -is the value compared to
renewable market prices or market prices for brown power. Van Orsdol explained that in the past, the MTM
for renewable resources were based on the brown market value, but in the future, they will be marked to
the forward curve for renewable power. The proxy for this renewable forward curve is the "Market Price
Referent" that has been estabtished by the Catifornia Public Utilities Commission.
Utilities Advisory Commission Minutes Approved on: September 2,2009 Page 30f7
Van Orsdol noted that MTM valuations figure into credit risk calculations as the City could stand to lose if a
supplier defaulted on a contract that had a positive MTM, Credit risk is calculated by multiplying MTM by
the Expected Default Frequency (EDF), which is a measure of the likelihood that particular supplier will
default within a 12-month time period, Calculation of the EDF for rated entities is done by a proprietary
model from Moody's KMV, EDF is estimated for unrated entities, or private firms, using KMV's RiskCalc
and Risk Analyst algorithms based on confidential financial information.
The counterparties with which the City has negotiated Electric and/or Gas Master Agreements (EMAs and
GMAs), like many other businesses, have had significant declines in credit worthiness over the past 12
months. Even so, the electric suppliers with whom the City is currently transacting are rated no lower than
A-and, due to the currently negative MTM for most contracts, the expected loss (MTM times EDF) is very
low.
Van Orsdol noted that the reserves are evaluated on a quarterly basis to determine if they are sufficient to
cover risks, As of the end of FY 2009, the electric and gas supply rate stabilization reserves were well
funded and above portfolio risks for the next 12 months.
ITEM 5: ACTtON ITEM: Energy Risk Management Policy
Energy Risk Manager Karl Van Orsdol provided a presentation on the updated Energy Risk Management
Policy. He provided an overview of the three sets of documents involved in risk management: 1) Risk
Management Policy -the highest level document is approved by City Council outlines the City's approach
to managing risks associated with the purchasing of electricity and gas commodities; 2) Risk Management
Guidelines approved by the UROCC to provide more detailed information on establishing rate limits,
transacting authority limits, credit limits and overall risk management techniques; and 3) Risk Management
Procedures which provide step by step instructions on carrying out key risk management activities.
Van Orsdol noted that the key changes in the updated policy from the existing policy were:
• Specific listing of all approved products (Page 9-1 0)
• Inclusion of financial instruments in the approved products limited solely to (Page 10):
-nomination, purchasing and selling of Congestion Revenue Rights
• Specifically noting that the UROCC is the body to resolve conflicts related to the managing three
risk management objectives (page 3):
-Retail rate stability
-Supply Cost Advantage
-Efficient and Cost Effective Business Processes
• Strengthens priority of reserve fund adequacy (page 2)
• Greater detail on Front Office roles and responsibilities (Page 4)
• Inclusion of Public Works Director in LlROCC (Page 4)
• Replacement of Risk Oversight Committee (ROC) with Utilities Risk Oversight and Coordinating
Committee (UROCC) to reflect the expanded scope of the committee (Page 4)
• Strengthened applicability wording to include all staff involved directly or indirectly as needing to be
aware of Energy Risk Management Policy (Page 1).
• Revised and Improved Conflict of Interest statement (Page 11, Section XII).
• Role of City Auditor on the UROCC does not impair the Auditor's ability to audit the Utilities
Department. (Page 4, Section 4. Paragraph 2),
Utilities Advisory Commission Minutes Approved on: September 2, Page 4 of7
Commissioner Waldfogel described the policy as a well thought-through document. He asked how the list
of approved products (Section XI -Authorized Products Policy) can be expanded, if needed. Van Orsdol
explained that the Energy Risk Management Guidelines provide a uniform process for developing and
analyzing the benefits and risks of new approved products and presenting that information to the UROCC,
the UAC for recommendation to Council and to Council for approval.
Commissioner Waldfogel also questioned the relevance of some parts of Section IX, the Commodity
Pricing Policy. Van Orsdol explained that the risks covered are not just on the cost side, but also on the
revenue side. Commissioner Waldfogel asked whether all subsections, especially subsections (d) and (e)
should be included in the Risk Management Policy. Section IX states: "The commodity pricing policy is
composed of the following five principles with the first principle having priority over the remaining four:" a)
direct cost recovery; b) risk management; c) indirect cost recovery; d) nondiscrimination; and e)
nonsubsidization.
Subsections (d) and (e) in the draft policy are:
d. Nondiscrimination
All customers within a customer class shall be treated in a fair and impartial manner
and be entitled to acquire commodities at the same or substantially similar terms and
conditions
e. Nonsubsidization
To the extent practicable, costs will be allocated to customers and customer classes
according to how those costs are incurred. Thus, commodity rates will not be
established in a manner that permits one class of customers to be subsidized by
another.
Commissioner Waldfogel expressed concern that these subsections could be out of line with a future Rates
Policy as they could be interpreted as being contrary to the encouragement of efficient use of resources.
Commissioner Foster asked about renewable power pricing, noting that the document was silent on the fact
that there is a policy on purchasing renewable power, but document talks more about low and equitable
rates. Utilities Director Valerie Fong noted that there is not contradiction and that there are other policies,
not just the Energy Risk Management Policy. Foster noted that in Section IV -Energy Risk Management
Objectives, one goal listed is to preserve a supply cost advantage, but this could be in conflict with the
Renewable Portfolio Standard.
Commissioner Foster also wondered if the nondiscrimination and subsidization principles could be called in
to question for many new initiatives for efficiency and feed-in tariffs. Commissioner Eglash asked if an
example could be provided where some initiative could be contrary to those two principles. Foster
responded that one example is if you are encouraging customers to conserve energy and designed a rate
structure to charge higher users more per energy unit consumed, then you may be vulnerable to charges
that higher users are being discriminated against or are subsidizing other others. Eglash suggested that
this situation could be interpreted as being nondiscriminatory since the rate schedule would be available to
all users, but it could be viewed as higher use customers are subsidizing lower use customers by covering
a larger part of the costs of the system so he considers (e) as more of a problem than (d). Assistant
Director Jane Ratchye noted that the intention of nondiscrimination and nonsubsidization sections was so
that one customer class (e.g. residential customers) would not bear the costs of another class (e.g.
Utilities Advisory Commission Minutes Approved on: September 2, 2009 Page 5 of7
commercial customers). However, she noted that the way it is written ("costs will be allocated to customers
and customer classes according to how those costs are incurred") could indeed be construed to mean that
inclining block rates where higher usage amounts were charged at a higher rate would not be appropriate.
Chair Melton recalled an earlier UAC discussion where all fixed costs are not recovered from fixed charges
in rates, but a balance needs to be struck between competing objectives such as cost recovery and
incenting efficient use of resources.
Commissioner Eglash asked if (d) and/or (e) could be modified to ensure that the intention of supporting
efficient use of resources could be clarified so that it would not apply in certain situations. Commissioner
Waldfogel noted that the section did prioritize the first principle (direct cost recovery) over the remaining
four.
Commissioner Waldfogel noted that he wanted to bring this issue up as the UAC will shortly be considering
Rates Policies and would prefer that this is an input into rates design coming up. Eglash said that if the
UAC in the future makes recommendations that may slightly be in conflict with the policy, then we might
wish it had been worded differently or be accused of being inconsistent. He asked if staff had the same
conflicts when developing this policy. Ratchye stated that Council adopted the Commodity Pricing Policy
over 10 years ago and it was simply incorporated into the Energy Risk Management Policy at this time.
Eglash stated that the Utilities Strategic Plan and one of the supporting objectives is to employ balanced
environmental solutions so that it's stated there, but not incorporated into this policy only implicitly.
Commissioner Foster suggested that (e) could be changed to say that it does not mean to relate to pricing
that encourages efficient pricing. Waldfogel suggested that maybe a sixth principle on environmental
protection could be added.
Chair Melton suggested that a change could be made after the development of the rates for FY 2010 or of
a new Rates Policy.
Commissioner Foster would rather modify (e) than delete (d) and (e) since that may be perceived as the
UAC not being supportive of the principles of nondiscrimination and nonsubsidization. Commissioner
Eglash stated that it may not be the best way to try to wordsmith this complex document at this time. For
example, under Section IV we may want to add a new objective related to the acquisition of renewable
resources. However, the document has been prepared carefully and he doesn't want to inadvertently
create a problem. Foster said that we could approve this unchanged and make adjustments in the future.
Eglash asked if the UAC comments will be communicated to Council. Fong ensured that the Commission's
comments would be forwarded to the Council. Ratchye added that deleting (d) and (e) would not be a
problem for staff, especially since the Rates Policy will be coming forward to the UAC for consideration and
they can be added there. Van Orsdol added that these areas are not the focus of this policy, but would
advise that these principles should be incorporated into some policy and Utilities practice.
Commissioner Waldfogel agreed that these principles are important and should be included in some
document, butthat the Energy Risk Management Policy is not the place. Foster added that the principles
could frustrate attempts to encourage efficiency. He asked if the UAC votes to delete these two
subsections, can a comment be added to state that the UAC supports these principles, but that they should
be found in a document that's more relevant to ratemaking than focused only on risk management. Staff
Utilities Advisory Commission Minutes Approved on: September 2, 2009 Page 6 of7
explained that the commission's discussions would be reflected in the minutes and a summary would be
part of the staff report that went to the Council.
Chair Melton said that he saw no reason to make any changes at this time except perhaps to remove the
whole commodity pricing policy section if it was replaced in a future Rates Policy.
Commissioner Foster asked that the notes reflect that the UAC does not reject the objectives of
nondiscrimination and nonsubsidization, but recognizes that they are not appropriate in this Energy Risk
Management Policy. These objectives are more appropriately located in a future Rates Policy, where the
UAC will look for them.
ACTION: Commissioner Waldfogel moved the staff recommendation to recommend Council approve the
updated Energy Risk Management Policy with the deletion of paragraphs (d) and (e) in Section IX -
Commodity Pricing Policy. The motion was seconded by Commissioner Foster. The motion carried by a
vote of 3-1, which Chair Melton voting no.
ITEM 6: DISCUSSION ITEM: Selection of Topic(s) to be Agendized for Discussion at Future UAC
Meetings
The commission discussed various ideas for topics to be discussed at future meetings, but no
recommendation of a specific item was made.
Meeting adjourned at 9:00 p.m.
Respectfully submitted,
Marites Ward
City of Palo Alto Utilities
Utilities Advisory Commission Minutes Approved on: September 2, 2009 Page 7 of 7
NOT YET APPROVED ATIACHMENT C
Resolution No.
Resolution of the Council of the City of Palo Alto Approving
Revisions to the City of Palo Alto Energy Risk Management
Policy
WHEREAS, the City of Palo Alto ("City") has adopted a policy governing the
management, monitoring and hedging of risks associated with electric and natural gas
commodity transactions effected by the Department of Utilities, which policy is
memorialized in the document entitled "Energy Risk Management Policy" and which is
intended to be updated annually;
WHEREAS, as of August 10, 2009, the Energy Risk Management Policy (the
"Policy") has been amended to account for new regulatory requirements as well as reflect
updated risk management best practices, including, but, not limited to, enhancements to
the applicability of the Policy, the roles and responsibilities of City staff drawn from
various departments, the types of energy contracts permitted to be negotiated by the City,
and rules governing staff conflicts of interest;
WHEREAS, the Policy also specifies in detail the types of energy products that
the City may transact in, and contains new information relating to the nomination,
purchase and sale of congestion revenue rights procured through the California
Independent System Operator Corporation;
WHEREAS, on August 10, 2009, the Utilities Advisory Commission
recommended approval of the Policy, as amended, and also recommended the Council's
adoption of the Policy;
NOW, THEREFORE, the Council of the City of Palo Alto hereby
RESOLVES, as follows:
SECTION 1. The Council hereby approves the City of Palo Alto Energy Risk
Management Policy, as amended.
II
II
II
II
II
II
II
090824 jb 0073213 1
NOT YET APPROVED
SECTION 2. The Council finds that the adoption of this resolution does not constitute a
project under the California Environmental Quality Aet and no environmental assessment is
required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENTIONS:
ABSENT:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
090824 jb 0073213 2
APPROVED:
Mayor
City Manager
Director of Utilities
Director of Administrative
Services