Loading...
HomeMy WebLinkAbout2003-02-04 City Council (2)C ty C ty Manager’s.Report TO:HONORABLE CITY COUNCIL ATTENTION: FROM: DATE: SUBJECT: FINANCE COMMITTEE CITY MANAGER FEBRUARY 4, 2003 DEPARTMENT: UTILITIES CMR:135:03 ADOPTION OF A RESOLUTION RESTATING THE AUTHORITY OF THE NORTHERN CALIFORNIA POWER AGENCY TO EXECUTE POWER TRANSACTIONS ON BEHALF OF PALO ALTO RECOMMENDATION Staff recommends that Council adopt the attached resolution which clarifies and establishes the following authority: For energy and capacity transactions undertaken within the month, which shall include hourly, daily and one-month or less term transactions, in accordance with the Northern California Power Agency (NCPA) Pooling Agreement and the NCPA’s risk management policies and procedures, NCPA shall have full authority to execute such transactions on behalf of the City and pass through costs to the City. For energy and capacity transactions greater than one month in term and not exceeding three years, undertaken to achieve the Pooling Agreement’s objectives and the City’s objectives, the City Manager or his/her desi~o-nee shall be authorized to execute such transactions subject to a transaction dollar limit not to exceed $20 million per fiscal year. All term transactions with other pool members and external suppliers must adhere to the terms and conditions of the Pooling Agreement and controls established by NCPA’s risk management policies and procedures. CMR:135:03 Page 1 of 6 BACKGROUND The City Auditor’s report to Council Management Procedures recommended: in July 2002, Assessment of Utility Risk The City Council should delegate authority and clarify City of Palo Alto’s purchasing and sales authority under pooling agreements with NCPA and other agents. o In lieu of allowing City of Palo Alto’s Department of Utilities unspecified dollar authority, the City Council should award base contracts that: (a) specify not-to- exceed dollar amounts, duration and volumes for electric and gas commodity transactions; and b) clarify what types of business Utilities staff is allowed to transact under authority each contract. DISCUSSION The City is a founding member of NCPA, which was established in 1968 by municipal electric utilities to finance and construct electric generating and transmission facilities, and to provide balancing and optimization services for the benefit of its electric utility members. On September 16, 1993, the City Council authorized Council member Mike Cobb, the NCPA Commissioner representing Palo Alto at the time, to sign the NCPA Facilities and Pooling Agreements (CMR:477:93). The Facilities Agreement defines ownership rights and obligations for participation and operation of NCPA Proj ects, which include generation/transmission facilities, power contracts, demand-side management, fuel supply facilities, and other activities. The Pooling Agreement defines rights and obligations for planning and operation of NCPA pool resources, which include system capability and responsibility, capacity and energy transactions, allocations of costs and savings, pool accounting and billing, and performance measurement. The Pooling Agreement specifies operational objectives which must be met before a transaction can be executed. The objectives are to supply the capacity and energy requirements of the combined parties at the lowest practicable cost in a reliable and safe manner. At the time the Pooling Agreement was signed, the services were anticipated to be on a cost pass-through basis and no dollar limits were placed on the transactions NCPA could execute on its members’ behalf. NCPA had the authority to execute transactions of up to one year on the City’s behalf. Further, NCPA through its Commission, which is made up of representatives from each member’s governing board, established a Risk Oversight CMR:135:03 Page 2 of 6 Committee to oversee the implementation of the Pooling Agreements and to establish the proper controls and limits on NCPA staff. In order to reliably meet members’ energy load requirements at the lowest practicable cost, NCPA undertakes a number of energy transactions in the energy market place. The duration of these transactions can vary from hourly to multi-year transactions. Within the montt~ transactions: City staff is not involved in the daily/hourly operations and scheduling of its energy and transmission assets to optimally meet City’s electric loads. This 24-hour and seven days per week operation is exclusively within NCPA’s authority and control. Prior to the start of each month, City and NCPA staff agree to general scheduling principles, which NCPA attempts to implement on behalf of the City. The City then relinquishes control of its electric assets for the month to NCPA. This has been clearly communicated to NCPA and is recognized within the City’s operational procedures. Balancing and optimization is undertaken by NCPA for the power pool member cities collectively to maximize pooling benefits. Such balancing is done in real time and is tracked for the entire pool. Individual members’ buy/sale transactions are not determined until after consumption and are subject to load and conditions set forth in various supply contracts and the Pooling Agreement. NCPA requires full authority to transact and pass on costs incurred within the month in order to effectively carry out the Pooling Agreement’s scheduling and balancing objectives. Within the month transactions must meet specific criteria. They must be for the current month, be equal to or less than one month in term, and be needed to balance the pool’s resources and loads or to achieve economic benefits for the pool members. Controls related to pool transactions are subject to NCPA’s own internal risk management policies and procedures and overseen by the NCPA Commission and its risk oversight committee. Transactions for durations greater than a month (term transactions): Transactions for greater than one month are also necessary to optimally balance the City’s and/or the pool’s loads and resources. Such transactions may include selling or buying energy, capacity, and related ancillary services on a forward basis for individual or combined members whose net energy or capacity position is either surplus or deficit and to optimize member energy assets. Through the Pooling Agreement, NCPA has the authority to buy and sell on a forward basis energy and capacity with non-members, provided that: (1) the transactions meet the Pooling Agreement objectives and (2) the transactions are limited to one year in term. CMR:135:03 Page 3 of 6 For transactions exceeding one year, members must explicitly provide approval and demonstrate authority to transact. Term transactions are necessary for the City to meet its portfolio objectives of low cost and stable rates. Utilizing NCPA as an agent to execute term transactions reduces the City’s overall cost through economies of scale and scope, which NCPA gains with its operational expertise and when the City’s needs are combined with those of other members. NCPA executes these transactions on its members’ behalf, utilizing base contracts NCPA has with suppliers. NCPA will select suppliers and manage contracts according to NCPA’s own risk management policies and procedures for dealing with counterparties. All term transactions executed through NCPA will adhere to the City’s risk management policies and procedures for reporting. Expected expenditures or revenues from sales associated with term deals to be executed through NCPA will vary with wholesale market prices, hydro conditions and the City’s electric load. Term transactions executed through NCPA on behalf of the City were approximately $9 million per year in fiscal years 2000-01 and 2001-02. In the future staff anticipates the volume of transactions to increase substantially with the increased supply uncertainty associated with the post -2004 Western Area Power Administration (WAPA) contract. For the purpose of establishing a dollar limit, staff anticipates not transacting for more than $20 million in any fiscal year through NCPA. This dollar amount represents a high wholesale market price and a year with low hydro conditions. For example, buying and!or selling 200,000-300,000 megawatt hours (MWh) within a year, which represents approximately 20 to 30 percent of the City’s electric load (depending on hydro conditions) at market prices ranging from $30-60/MWh would result in annual transactions in a range of $6 to $18 million. In the future, should staff feel the limit to be insufficient to meet its operating expenses due to different market conditions, staff will return to Council to recommend adjustments to the $20 million limit. The $20 million authority to the City Manager only applies to supply-related transactions executed under the City Manager’s authority being sought and does not include other NCPA-budgeted expenses for balancing and scheduling services, settlements, consulting, or legislative and regulatory advocacy. Costs for these non-commodity services are authorized annually by the NCPA Commission. Expenses related to all services obtained through NCPA are paid annually within spending limits approved by the Council during City’s annual budgeting process. CMR: 135:03 Page 4 of 6 In addition to utilizing NCPA to undertake market transactions with suppliers to optimally balance the City’s electric load, staff is in the process of establishing base contracts directly with suppliers to facilitate term transactions independent of NCPA. Transactions greater than three years in duration, or which do not exhibit economies of scale or operational efficiencies if undertaken collectively with other NCPA pool members, are expected to be undertaken by the City under its base contracts with suppliers. In the near future, staff will seek Council approval of these base contracts with private sector suppliers allowing staff to transact up to 3 years out within specified annual dollar limits. Staff will seek the Risk Oversight Committee’s approval of a new procedure dealing specifically with the process for determining whether a term transaction should be executed through NCPA or through one of the City’s own base contracts with suppliers. RESOURCE IMPACT Approval of the recommendation will not result in an impact to the Utilities Department budget or impact existing resources. POLICY IMPLICATIONS All term transactions executed through NCPA management policies. conform to existing energy risk This recommendation is consistent with the Council approved Utilities Strategic Plan to 1) preserve a supply cost advantage compared to the market price; and 2) streamline and manage business process to allow the City of Palo Alto Utilities to work efficiently and cost-effectively. ENVIRONMENTAL REVIEW Adoption of the resolution for authorization to NCPA and the City Manager to procure energy and capacity under the NCPA Pooling Agreement does not constitute a project for the purposes of the California Environmental Quality Act. ATTACHMENT A: Resolution Of The Council of The City of Palo Alto Restating The Authority of The Northern California Power Agency To Execute Power Transactions on Behalf of Palo Alto For Both Terms of One Month or Less and Terms of One Month Or More Up To And Including Three Years With A $20 Million Per Fiscal Year Transaction Limit With the Express Approval of Palo Alto CMR:135:03 Page 5 of 6 PREPARED BY: DEPARTMENT HEAD: CITY MANAGER APPROVAL: MONICA V. PADILLA Resource Planner Director of Utilities EMILt~HXI~-sbN Assistant City Manager CMR: 135:03 Page 6 of 6 RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO RESTATING THE AUTHORITY OF THE NORTHERN CALIFORNIA POWER AGENCY TO EXECUTE POWER T~hNSACTIONS ON BEHALF OF PALO ALTO FOR BOTH TERMS OF ONE MONTH OR LESS ~ND TERMS OF ONE MONTH OR MORE UP TO AND INCLUDING THREE YEARS WITH A $20 MILLION PER FISCAL YEAR TRANSACTION LIMIT WITH THE EXPRESS APPROVAL OF PALO ALTO WHEREAS, the City of Palo Alto ("City") is a member of the Northern California Power Agency ("NCPA") ; WHEREAS, in 1993, ten NCPA members, including the City, signed the Northern California Power Agency Pooling Agreement ("Pooling Agreement"), by which the NCPA is authorized to manage the collective and individua! energy and capacity needs of the NCPA Power Pool members according to power pool operating procedures in a safe and reliable manner and otherwise maximize the economic benefits of pooling the me~ers’ facilities; WHEREAS, the members have authorized NCPA to execute energy and capacity transactions with non-members for terms of one-hour, one-day and up to and including one year without regard to dollar limits on a cost pass-through basis; and WHEREAS, it is consistent with the Pooling Agreement’s objectives that the NCPA could be authorized on behalf of the City to execute transactions for terms in excess of one year up to and including three-year terms, provided, however, that the aggregate of all such transactions shall not exceed $20 million per fisca! year; NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The Counci! hereby reaffirms the authority of the NCPA to act on behalf of the City in executing energy and capacity "within-the-month" transactions [terms of one month, or less], which shall include transactions for terms of one hour, one day and one-month, or less, in accordance with the terms and conditions of the Pooling Agreement and the risk management policies and procedures ~f the NCPA. SECTION 2. The Council hereby authorizes the NCPA on behalf of the City to negotiate and execute energy and capacity 030 ! 29 syn 0072238 "term" transactions [terms of one month, or more], which shall include transactions for terms of one month, or more, up to and including three years, in accordance with the terms and conditions of the Pooling Agreement and the risk management policies and procedures of the NCPA, provided that (i) the City’s authorized representative expressly authorizes the NCPA to engage in each "term" transaction, (2) the term of any "term" transaction does not exceed three years, (3) the aggregate expenditure for al! "term" transactions during any fisca! year does not exceed $20 million, and (4) the NCPA negotiates "term" transactions in accordance with its energy risk management policies and procedures. SECTION 3. The Council hereby authorizes the City Manager to al!ow the NCPA to execute "term" transactions in accordance with the provisions of Section 2 above. SECTION 4. The Counci! finds that the adoption of this resolution does not constitute a project under the California Environmenta! Quality Act, and therefore no environmenta! assessment is required. INTRODUCED _AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Director of Administrative Services Director of Utilities 030129 syn 0072238 2