HomeMy WebLinkAboutStaff Report 128-06TO:HONORABLE CITY COUNCIL 3
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
FEBRUARY 6, 2006 CMR: 128:06
ENERGY RISK MANAGEMENT POLICY AND
RESOLUTION APPROVING THE REVISED
MANGEMENT POLICY
ADOPTION OF A
ENERGY RISK
RECOMMENDATION
Staff recommends that the City Council approvethe revised City of Palo Alto Energy Risk
Management Policy.
BACKGROUND
The City Council has previously adopted (CMR:148:05) a policy of providing valued utility
services to customers and dependable returns to the City in an environmentally sustainable
manner. A key element of providing dependable financial returns is the management of risk.
Council approved the first Energy Risk Management Policy on March 19, 2001 (CMR:103 :01)
and a revised policy on October 1, 2002 (CMR:400:02). The Energy Risk Management Policy
details the key control structures and policies for a prudent risk management program. It is
based on sound utility risk management principles, while adhering to financial requirements set
forth by City Council and Director of Administrative Services as well as all pertinent legal
requirements.
The Energy Risk Management Policy (Attachment A) describes the City of Palo Alto’s overall
perspective and tolerance for electric and gas commodity risk; its risk management line structure,
including the roles and responsibilities of the Front Office (energy transaction), Middle Office
(risk management), and Back Office (settlement); and the roles and responsibilities of risk
oversight bodies, including the Risk Oversight Committee (ROC), the Utilities Advisory
Commission (UAC) and the City Council.
DISCUSSION
Since Council’s last approval of the Risk Management Policy in 2002, significant changes have
been implemented to enhance risk management practices. These include the hiring of a full-time
Energy Risk Manager and the quarterly reporting of electricity and gas risks to the Council and
the Utilities Advisory Commission. Staff has jointly implemented 24 process and procedural
changes to satisfy all but two recommendations of the City Auditor’s report on Risk
Management Practices. The process and procedural changes include: full implementation of
CMR:128:06 Page 1 of 3
recorded phone lines for all transactions; development of a secured transaction database to
manage transactions and risk exposure; and refined analytical methodologies for determining
credit exposure and the financial health of counterparties. Finally, staff has implemented new
energy risk management guidelines and procedures that provide greater detail and stronger
controls on commodity purchases, organizational risk, counterparty risk, volume and market risk,
and credit risk. The implementation of the guidelines and procedures, combined with actions to
increase separation of the Front and Back Office responsibilities, are aimed at fully complying
with the final two auditor recommendations.
The proposed policy was reviewed by the Risk Oversight Committee and the Attorney’s Office.
In addition, the policy was presented to the Utilities Advisory Commission (which approved the
policy and reco~rmaended forwarding to the Council). The policy represents leading practices in
the utility industry and is applied in a maturer appropriate to the risk profile of the City.
The key changes in the new version of the policy are:
Conflict of Interest Provision. Provides tl~at all staff involved in evaluating contract
proposals as well as entering into transactions report financial holdings on the Form 700.
Responsibilities in Middle Office to halt or limit transactions. The new policy provides
for the Middle Office Risk Manager, with approval of the Director of ASD, to halt
transactions with any counterparty or modify transaction limits in an expedited mmmer.
This allows the City to manage its exposure to any counterparty in what has become a
complex and volatile energy market.
Separation of duties between Front and Back Offices. Provides for a clearer separation of
responsibilities between the Front and Back Offices and their reporting structure. This
ensures that, in accordance with industry leading practices, staff entering into transactions
are not involved in billing and settlement and that the reporting structures are also
separated.
Roles of OversiRht Bodies. The key roles of oversight bodies such as the UAC and Risk
Oversight Committee have been focused on the key areas of risk.
Role of Risk Oversight Committee. The role of the Risk Oversight Committee is
extended to the City’s telecommunications program.
Technical Language. Staff has simplified the document and removed much of the
previous technical language. The revision should be more readable and provide useful
information for the public.
BOARD/COMMISSION REVIEW AND RECOMMENDATIONS
The UAC discussed the proposed Energy Risk Management Policy at its September 7, 2005
meeting and the Corrunission unanimously recommended adoption of the proposed Energy Risk
Management Policies.
CMR: 128:06 Page 2 of 3
POLICY IMPLICATIONS
The revised Energy Risk Management Policies are consistent with the Deloitte & Touche risk
management report, the overall recolmnendations of the City Auditor, the Utilities Strategic
Plan, and prior Council input mad direction. The policy is consistent with best risk managemem
practices through separation of duties, enhanced process controls, improved risk management
techniques, enhanced training of staf~ and increased data security. The policies support the
Utilities Strategic Plan:
Strategy 2: Preserve a supply cost advantage (through the proper management of energy
commodity price risk).
Strategy 3: Streamline business processes (through enhanced trade capture processes and
improved risk management techniques).
Strategy 6: Maximize the General Fund transfers and maintain financial strength
(through improved risk management, credit management of counterparties, and reporting
of financial risks to oversight bodies).
RESOURCE IMPACT
The financial resources required to implement the policies are contained within the current
budget.
ENVIRONMENTAL REVIEW
There are no direct environmental impacts of this policy.
PREPARED BY:
KARL VAN ORSDOL
Energy Risk Manager
DEPARTMENT HEAD APPROVAL:
CARL
Directpr,
CITY MANAGER APPROVAL: ......~ ( ~)t
Services
Assistant City Manager
ATTACHMENTS
A) City of Palo Alto Energy Risk Management Policy
B) Resolution
CMR: 128:06 Page 3 of 3
ATTACHMENT A
City of Palo Alto
Energy Risk M
Policy
nage ent
February 6, 2006
CITY OF PALO ALTO
UTILITIES
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City of Palo Alto Energy Risk Management Policies
Table of Contents
III.
IV.
ENERGY RISK MANAGEMENT OBJECTIVES ...................................................................................2
VI.
I.I~ETAIL P_ATE STABILITY. ................................................................................................................................2
2.PRESERVE A SUPPLY COST ADVANTAGE .........................................................................................................2
3,EFFICIENT AND COST EFFECTIVE BUSINESS PROCESSES ..................................................................................2
SCOPE...........................................................................................................................................................2
GENERAL TRANSACTING POLICY ...........................................................................................................3
1,ANTI-SPECULATION ....................................................ii ...................................................................................3
-~.MA,XEv{UM TR,aNSACTION TER2vl .....................................................................................................................~
3.PORTFOLIO PEP~cOP, a’vLa\CE .aND V.4AUE REPORTING .......................................................................................3
4.COMPETITIVE PROCESS ....................................................................................................................................3
2.
3.
4.
5.
VII.
VIII.
IX.
OVERSIGHT BODIES ................................................................................................................." ...............4
CiTY COUNCIL .................................................................................................................................................4
UTILITIES ADVISORY COMMISSION .................................................................................................................4
C1TY M.~NAGER ...............................................................................................................................................4
RISK OVERSIGHT COMMITTEE .........................................................................................................................
M_a~NAGEMENT OVERSIGHT .............................................................................................................................5
Front Of~Tce -Planning and Procurement .................................................................................................5
Middle O~¢ce - Conwo[s and Reporting ....................................................................................................5
Back O~ce- Setdement and Recording ....................................................................................................6
CUSTOMER CONTRACT POLICY .........................................................................................................6
COMMODITY PRICING POLICY ...........................................................................................................6
COUNTERPARTY CREDIT POLICY ......................................................................................................7
1.OBJECTPv’ES .....................................................................................................................................................7
2.ORG.~NIZATIONAL ROLES .aND RESPONSIBILITIES ...........................................................................................8
.3.GUIDELINES TO QU.a~LIFY SUPPLIERS ...............................................................................................................8
4.ASSIGNMENT OF TP,,~NSACTION L>IITS AND CREDIT EXPOSURE LEv!ITS TO COU.~TERPARTIES .......................8
5.MONITORING ,~ND REPORTING ON THE COL ,.~TERP.aRTY CREDIT EXPOSURES .................................................8
X.POLICY REVIEW .aND REPORTLNG ON TRANSACTING ....................................................................8
XI.AUTHORIZED TRANSACTING PRODUCTS ........................................................................................8
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XII.TRANSACTING AUTHORITY .................................................................................................................9
XIII.CONFLICT OF INTEREST ........................................................................................................................9
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I.INTRODUCTION
It is the policy of the City of Palo Alto, to provide reliability 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 the
reliable delivery of energy and energy services to its customers.
The Energy Risk Management Policy details the key control structures and policies %r prudent
risk management processes based on sound utility, 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 contro! structures and policies are
focused on the following issues:
Clearly defined se~’egation of duties and delegation of authority
Organizational structure for risk management controls
Policies rela~ed to setting acceptable risk parameters and risk limits.
Policies for risk reporting
Permitted transaction and product ty, pes.
II.ENERGY RISK MANAGEMENT PHILOSOPHY
The mission statement of the Utilities Department is "To build value for our citizen owners, to
provide dependable returns to the City and citizens of Palo Alto, and to be the preferred full
service utiliD, provider while sustaining the environment." The Utilities Strategic Plan, adopted
by the Council on November 13, 2000~ contains four supporting objectives: 1) Enhance
customer satisfaction by delivering valued products and services; 2) Invest in utility
infrastructure to deliver reliable serv’ice; 3) Provide superior financial performance to the City
and competitive rates to customers; and 4) To identify..- and maintain the unique advantages of
municipal ownership.
Palo Alto recognizes that certain risks are inherent in the deregulated 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 attitude is that no activities related to energy purchases and sales
should expose the City to the possibility, of large financial losses in relation to the size of the
electricity and gas reserve funds.
~ Council approved the L’-tilities S7ategic Plan on Nov. 13, 2000 (CMR:418:00) and the Utilities Strategic
Implementation Plan on May 21, 2001 (CMR:223:01).
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III.ENERGY RISK MANAGEMENT OBJECTIVES
The primary objectives of energy risk management activities are to balance the business goals of
(1) 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
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 cormnodity markets in which CPAU participates. The rate stability-
objective will be to mitigate market risk and credit risk.
Reserve 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. Maintaining the safety of these reserve
funds is a matter of high priori) for CPAU and the City.
2. Preserve a Supply Cost Advantage
City staff will endeavor to: (a) reduce exposure to potential adverse energy price movements; (b)
enhance revenue by taking advantage of flexibiliD- inherent in CPAU contracts and resources;
and (c) enhance revenue by offering commodity products that address customer needs and
adequately cover costs.
3. Efficient and Cost Effective Business Processes
Ci)" staff will utilize business practices and controls that are sufficient to identi~, evaluate, and
manage risks through appropriate recording, analysis and reporting requirements. Staff v,411
strive to improve the risk management procedures to enhance productivity, reduce the cost of
conducting risk management activities, and maintain transparency and value of the risk
management process.
IV. SCOPE
The Energy Risk Management Policy shall apply to the electric and natural gas supply business
units as well as telecommunications business units. The electric and natural gas units are the part
of the electric and natural gas enterprise funds that deal directly with the acquisition of energy
supply resources.
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The Energy Risk Management Policy prescribes the management, organization,
authority, processes, tools and systems to monitor, measure, and control market risks to
which the City is exposed in its normal course of business, including wholesale and retail
operations, capital projects (related to generation, transmission, transportation, and
storage), and participation in joint powers 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 or
the electric and natural gas distribution business units.
GENERAL TRANSACTING POLICY
1.Anti-speculation
Speculative buying and selling of energy products is prohibited. Speculation is defined as
buying energy not needed for meeting forecasted lo~d or se!ling energy that is not owned. In no
event shall transactions be entered into to speculate on market conditions.
2._~aximum Transaction Term
The maximum term of any supply resource transaction (purchase or sale) should be ten years,
unless specifically approved by the CiD, Council, to meet long-term portfolio planning
objectives.
3.Portfolio Petformance and Value Reporting
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 shal! be prescribed in the Energy Risk Management Guidelines. Should
the ratio of the market value of the portfolio to the cost of the portfolio fail outside of the risk
limits prescribed in the Energy Risk Management Guidelines, the City Manager will report this
fact to the Ci~ Council within a reasonable period and evaluate whether there is any risk of
holding any of the contracts in the portfolio to delivery.
4. Competitive Process
\\~enever possible, CPAU will obtain three or more quotations when making a purchase or sale
transaction and select the best price from a responsible bidder.
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VI.OVERSIGHT BODIES
City Council
The Cib~ Council isresponsible for rnaking high-level broad policy and strategy staternents as
contained in this Policy document. The Policy shall guide the general vision of CPAU business
practices, articulating the City’s risk philosophy, and establishing risk tolerances. The City
Council adopts the Energy Risk Management Policy as developed and recommended by the Risk
Oversight Committee and delegates the City Manager to execute it. The City Council will
review the Policy every year. Additionally, the City Council shall receive reports quarterly from
the City Manager regarding energy risk management activities. These reports will be provided
to the Council as soon as possible after the end of each quarter and no later than eight weeks
following the end of the quarter.
2. Utilities AdvisoJT Commission
The Utilities Advisory Commission (-UAC) 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 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 important source of advice and corn_ment to the City. Council on risk
management.
3. City Manager
The City Manager has overall responsibility for executing and ensuring cornpiiance with policy
adopted by ~he City Council. The City Manager reports quarterly to the Ci~ Council regarding
energy risk management activities.
4.Risk Oversight Committee
The Risk Oversight Commi~ee (ROC) consists oft he Director of Utilities (Chairperson), the
Director of Administrative Services, and the Assistant City Manager. The Senior Assistant City
Attorney assigned to Utilities and the CiD- Auditor act as non-voting advisors to the ROC. The
Energy Risk Manager serves as the Secretary to the Committee.
The R0C is the primary body responsible for creating and implementing a sound approach to
managing risk consistent with the business strategy and risk tolerance of the organization as
defined by the City Council. As such, the ROC is critical to overseeing and reviewing the risk
management process and infrastructure and managing the Utilities’ risk exposure.
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5.Management Oversight
Risk management oversight at an operationa! level is accomplished through supervisory review
and approval and appropriate separation of duties. 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 oversight role is
accomplished ttv’ough supervisory review and approval.
b.Middle Office - Controls and Reporting
Reporting to the Director of Administrative Services, the Middle Office provides the primary
independent management oversight role. The Middle Office institutes, supervises, and reviews
all risk management activities including portfolio exposure, credit exposure, transaction
compliance and on-going approval of counterparties and transacting precuts. The Middle
Office responsibilities include monitoring CPAU’s risk exposures and ensuring compliance
with policies, guidelines, and procedures. Additionally, the Middle Office is responsible for
reporting to the ROC on Risk Management issues, and recormnending to the ROC 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 counter-parties, exceptions
to rules and procedures, other operational exceptions, and any other topic the Risk Manager
believes represents an unacceptable risk exposure.
The Middle Office adopts and updates as necessary the Energy Risk Management Policies,
Guidelines and Procedures so that portfolio management functions occur in compliance with
the Council-adopted Energy Risk Management Policies and ROC-adopted Energy Risk
Management Guidelines. The functions of the Middle Office can be broadly defined as
Quantitative Analysis, Compliance Review, Credit Administration, and Management
Reporting.
O_uanritative .4nalysis
The Middle Office performs rigorous risk analysis to evaluate the risk exposure on both a
transaction and portfolio basis.
Compliance Review
The Middle Office monitors all transactions to ensure compliance of transactions with the
Risk Management Policies, Guidelines and Procedures.
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O’edit A dmiMs~’ation
The Middle Office monitors counterparty credi~Torthiness. The Middle Office objectively
measures and monitors credit limits and credit histories, and m%; temporarily or
pen~anently hak trading, upon recorm~endation of the ROC, with an approved counterparty
because of credit exposure or credit condition.
Management Reporting
The Middle Officeprepares reports to the ROC related to risk management, and
performance in aIigTn~ent with the Energy Risk Management Policies and Guidelines and
the requests of the ROC.
c. Back Office - Settlement and Recording
The Back Office is primarily responsible for settlement of bills, 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 tracing database, and veri~ing and reporting on compliance with procedures as reflected in
the deal tracking documentation. Functions within the Back Office are performed by both
ASD and CPAU personnel and are detailed in the Risk Management Procedures.
VII. CUSTOMER CONTRACT POLICY
Guidelines for oversight, review, approval, pricing, and reporting of customer contracts and
fixed-term commodity.. rates are necessary to ensure staff is implementing contracts as directed
by Council and contained within the CPAU Rules and Regulations of the CiD~ of Palo Alto
Utilities #5, Section D.
VIII. COMMODITY PRICING POLICY
_Policy Statement
Retail prices for energy supplies will be fair and equitable to all customers and wilt recover all
incurred costs. The commodiD~ 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 by overseeing the process of all
commodity rate development and ensuring that all procedures are followed consistently and that
all calculations are appropriately documented.
The commodib~ pricing policy is composed of the following five principles with the first
principle having priority over the remaining four:
a. Direct Cost Recove~
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All direct costs of providing cormnodity selwice will be recovered in commodity rates.
Risk Management
To the extent practicable, aIt risks must be insured, and 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 Recove~T
To the extent practicable, it is an objective to recover all indirect costs of commodity
sea-vice from commodib~ customers.
do 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 a11ocated to customers and customer classes
according to how those costs are incurred. Thus, colmnodi)- rates will not be established
in a manner that permits one class of customers to be subsidized by another.
IX.COU~’TERPARTY CREDIT POLICY
1. Objectives
The objective of the Coumerparty Credit Policy is 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 by:
Establishing a credit risk management governance and oversight structure within the
existing energy risk management program;
Providing a framework to enable the CiD; to qualify, energy suppliers and transact with
approved counterparties;
Providing counterparty transacting parameters (limits) to control and measure the City’s
exposure to any one supplier; and
Implementing a mechanism to monitor and report on supply portfolio related
counterparty credit exposures.
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This policy applies to market-based commodity transactions as well as to physical asset-based
transactions related to generation, transmission, gas wells: pipeline capacity, natural gas storage,
etc.
2.Organizational Roles and Responsibilities
The Middle Office has the responsibility to ensure that energy procurement transacting activities
and supply portfolio management conform to the Counterparty Credit Policy.
3. Guidelines to Qualify Suppliers
Counterparty credit risk management involves selecting reputable companies to supply the City
and allocating purchases amongst multiple suppliers. The guidelines set out qualification
criteria for potential counterparties of the City. The Risk Manager maintains a list of approved
counterparties.
4. Assignment of Transaction Limits and Credit Exposure Limits to Counterparties
The ROC approves the Counterparty Credit Limits proposed by the Risk Manager and ensures
that such limits diversi~ the credit exposure of the City as it relates to energy supply
procurement activities. Transaction and Credit Exposure Limits are established by evaluating a
counterparty’s credit worthiness, net worth of assets held by the counterparty, quality of
guarantees, market intelligence, and credit enhancement tools provided by counterparty, as set
forth in the Energy Risk Management Guidelines.
5.Monitorhtg and Reporting on the Counterparty Credit Exposures
Counterparty credit exposures and transactions volumes relative to the established limits are to
be monitored on an ongoing basis and reported to the ROC on a monthty basis by the Risk
Manager.
X.POLICY REVIEW AND REPORTING ON TRANSACTING
Key to energy risk management is the monitoring of risks. Accurate and timely information
must be provided to all parties involved in any aspects of energy risk management to allow them
to perfo~zn their functions appropriately. Quarterly reports will be provided for distribution to
the ROC, the UAC, and the City Council which provide details on the City’s fo~vard purchases,
market exposure, credit exposure, transaction compliance and other relevant data.
XI.AUTHORIZED TIL4~NSACTING PRODUCTS
Products allowed for electric transactions include energy, capacity.-, transmission, and ancillary
se~ices. Products allowed for natural gas transactions include energy, transportation, and
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storage. The Risk Oversight Cormnittee is responsible for authorizing all products and
commodity types as further detailed in the Energy Risk Management Guidelines. At this time,
only physical transacting products are approved. Financial products are explicitly prohibited.
Transactions of products not approved bv the Risk Oversight Committee are strictl:,~ prohibited.
All transactions must follow cel-tain requirements as described throughout this Policy. Key
elements of CPAU’s transaction policy are as follows:
All transactions must be committed to by authorized transacting personnel.
All transactions must be with approved counterparties with executed and Council
approved contracts.
All transactions must be with counterparfies with adequate a-,:ailable credit.
A!I transactions must be committed over recorded phone lines or via electronic mai!.
A!l transactions must be Approved Transaction Types.
All transactions must be consistent with Risk Management Policy as described in this
document, as welt as Risk Management Guidelines and Procedures.
Failure to obsera:e the above minimum requirements when executing energy transaction is a
violation of Policy and is subject to disciplina~, action.
XII. TRANSACTING AUTHORITY
The City Manager has the authori~; to purchase and se!t wholesale energy commodities for terms
of up to three yeazs under open purchase contracts. The Director of Utilities is ~anted the
authority to negotiate for the purchase and sale energy commodities. Put’chases 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 Ci~, Council
approval (Municipal Code Sec 2.30.210 (l)). 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.
City Manager authorities may be delegated by the CiD" Manager. Authorization levels for City
staff as delegated are maintained in the Risk Management Procedures manual by the Middle
Office. The City Clerk maintains the list of individuals authorized to make wholesale
transactions.
XIII. CONFLICT OF INTEREST
In accordance with the Municipal Code and Califomia law, personnel in-volved in transacting and
oversight of the Utilities supply resource acquisition programs may not engage in financial
conflicts of interest, unless the City is duly informed and it elects to waive such conflicts. The
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Energy Risk Management Guidelines contain detailed requirements for staff conflict of interest
disclosure and prohibitions as to acquiring or maintaining financial interest in energy trading
counterparties. All personnel in procuring or selecting counterparties for contracting or
transacting are required to complete, on an annual basis, the Font, 700 Disclosure forms and
submit these forms tO the City Clerk. Utilities Department senior management are responsible
for routinely reviewing the Fo:~n 700 of each staff member engaged in the supply resource
decision-making process for the purpose of identi~-ing potential financial conflicts of interest.
The City Attorney’s Office will assist U~ilities Department senior management in reviewing
these forms and providing legal advice in connection with such reviews.
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ATTACHMENT B
***NOT YET APPROVED***
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF PALO ALTO APPROVING
THE REVISED ENERGY RISK MANAGEMENT POLICY AND
DELEGATING TO THE CITY MANAGER THE AUTHORITY TO
ESTABLISH AND IMPLEMENT RULES AND REGULATIONS
THAT EXECUTE THE ENERGY RISK MANAGEMENT POLICY
~EREAS the City of Palo Alto ("City") provides
electricity and natura! gas services (>’energy services") to
residential, commercial and industrial customers located within
its jurisdictional boundaries; and
WHEREAS the City seeks to minimize the inherent risks
in the volatile wholesale energy services markets and maintain
the stability of rates and charges assessed to its energy
customers; and
WHEREAS the City desires to minimize the exposure to
financial risks that the City’s utilities (electric and natural
gas) enterprise funds could experience in the volatile wholesale
energy services markets; and
WHEREAS the City endeavors to minimize the risks
associated with variations in the availability of energy
generated by hydroelectric facilities in the Western United
States; and
~EREAS since September 2003, the City is in the
process of implementing the recommendations of the Report from
the City Auditor, entitled "Assessment of Utility Risk
Management Procedures," dated July, 2002; and
WHEREAS the City has implemented a number of energy
risk management-related recommendations, including the filing of
periodic reports on various energy risk management transactions
with the Counci! and the hiring of an energy risk manager; and
k~EREAS pursuant to the adoption of the Energy Risk
Management Policy, which now is being amended and restated, the
City has adopted its Utilities Energy Risk Management Guidelines
and its Energy Risk Management Procedures; and
WHEREAS the City Manager, the City Manager-appointed
Risk Oversight Committee, and the Utilities Advisory Commission
have unanimously recommended the approval of the Energy Risk
Management Policy;
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***NOT YET APPROVED***
NOW, THEREFORE, the Counci! of the City of Palo Alto
does hereby RESOLVE as follows:
SECTION i.The Council hereby approves of the
Energy Risk Management Policy, as amended and restated, and
attached hereto and incorporated herein by reference as "Exhibit
SECTION 2.The City Manager is authorized to
continue to establish and implement utilities energy risk
management-related rules and regulations, consistent with the
Energy Risk Management Policy, as amended and restated.
SECTION 3. The Council finds that the adoption of
this resolution does not constitute a project under the
California Environmenta! Quality Act,and therefore no
environmental assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
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