HomeMy WebLinkAbout2003-12-15 City Council (13)City of Palo Alto
City Manager’s Report
11
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:
SUBJECT:
DECEMBER 15, 2003 CMR:510:03
FINANCE COMMITTEE RECOMMENDATION TO ADOPT AN
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
APPROVING ELECTRIC MASTER AGREEMENTS WITH BP
ENERGY COMPANY, CORAL POWER, LLC; DUKE ENERGY
MARKETING AMERICA LLC; AND SEMPRA ENERGY
TRADING CORPORATION FOR THE PROCUREMENT OF
ELECTRICITY AND AUTHORIZING THE CITY MANAGER TO
TRANSACT UP TO $75 MILLION WITH EACH SUPPLIER
UNDER THESE AGREEMENTS
RECOMMENDATION
Staff recommends that Council approve the following:
Approve and authorize the Mayor to execute Master Agreements with the
following suppliers who have been deemed qualified to do business with the City
with respect to electricity purchases and sales for the period January 2004 through
December 201 !, under the terms discussed in the report:
a. BP Energy Company;
b. Coral Power, LLC;
c. Duke Energy Marketing America, LLC;
d. Sempra Energy Trading Corporation.
o Authorize the City Manager or his designee to manage these Master Agreements,
and to execute one or more electric commodity transactions in accordance with the
terms of the contract. This includes authorizing the City Manager or his designee
to execute multiple transactions under the Master Agreements with one or more of
the above suppliers to procure electric supplies sufficient to meet the City’s
CMR:510:03 Page 1 of 3
forecasted electric load, with the date for delivery of the electricity for each
transaction not to exceed 36 months from the date that the transaction is executed.
In addition, the date for delivery of the electricity for any transaction will not
extend beyond the term of the Master Agreements specified in the attached
ordinance. The maximum aggregate transaction limit under each Master
Agreement shall be $75 million.
COMMITTEE REVIEW AND RECOMMENDATIONS
The Committee was informed that one of the suppliers, Arizona Public Service Company,
was not able to come to agreement with the City and, therefore, the City will not enter
into a contract with it. One item of concern to Committee members was the authorization
to the City Manager of $75 million per contract; this means that the City Manager could
potentially have authority to spend $300 million under the four contracts. Committee
members asked ira lesser cap could be applied to the City Manager’s authorization. Staff
explained that such a cap would be administratively difficult, as suppliers would require
information about transactions entered into under all contracts.
Committee members asked the City Auditor if she was comfortable with the
recommendation, specifically the $75 million per contract authorization. The Auditor
replied that staff has complied with 12 of the 24 recommendations from her July 2002
audit of Utility Risk Management Procedures and were in progress on the remaining 12.
Approval of the Electric Master Agreements would complete the 13th recommendation.
The Auditor indicated that she was comfortable with staff’s recommendation. After
discussion, the Committee voted unanimously to accept staff’s recommendation.
ATTACHMENTS
A: Ordinance of the Council of the City of Palo Alto Authorizing the City Manager to
Purchase a Portion of the City’s Electricity Requirements from Certain
Prequalified Electricity Suppliers Under Specified Terms and Conditions During
Calendar Years 2004 through 2011, Inclusive
B:CMR:465:03 Ordinance of the Council of the City of Palo Alto Approving
Electric Master Agreements with Arizona Public Service Company; BP Energy
Company, Coral Power, LLC; Duke Energy Marketing America LLC; and Sempra
Energy Trading Corporation for the Procurement of Electricity and Authorizing
the City Manager to Transact Up To $75 Million with Each Supplier Under These
Agreements
C:Finance Committee Minutes Excerpt
D:"At Place" Memo From Finance Committee Meeting 12/09/03
CMR:510:03 Page 2 of 3
PREPARED BY:
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
~ON
Assistant City Manager
CMR:510:03 Page 3 of 3
***NOT YET APPROVED***
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING THE CITY MANAGER TO PURCHASE A PORTION
OF THE CITY’S ELECTRICITY REQUIREMENTS FROM
CERTAIN PREQUALIFIED ELECTRICITY SUPPLIERS UNDER
SPECIFIED TERMS AND CONDITIONS DURING CALENDAR
YEARS 2004 THROUGH 2011, INCLUSIVE
The Council of the City of Palo Alto does ORDAIN as
follows:
SECTION i. The City Council finds, as follows:
A.In 1967, the United States entered into a contract
No. 14-06-200-2948A with Pacific Gas and Electric Company
("Integration Agreement"). Under this contract, the Western Area
Power Administration ("Western") provides electric capacity and
energy to the City of Palo Alto ("City") over PG&E’s transmission
system. It will expire in December 2004.
B.In 2000, the city entered into a contract No. 00-
SNR-0033 with Western (~Base Resource Contract"). Under this
contract, the City will receive less electric capacity and energy
than is currently made available under the existing power purchase
agreement. It will begin in January 2005 and will expire in
December 2024.
C.On November 13, 2001, the Council by minute order
approved four primary energy portfolio objectives (~Objectives"),
including the objective to ensure low and stable electric supply
rates for customers, and it also adopted Ordinance No. 4724,
authorizing a five-year purchase of energy and capacity during the
2005-2010 period. The City executed that purchase on August 13,
2002 with Coral Power, L.L.C. (the "2002 Coral Purchase").
D.On October 21, 2002, the Council by minute order
approved seven electric portfolio planning and management
guidelines to guide staff in developing and managing the city’s
long-term electric acquisition plan ("LEAP Guidelines"). One of
the LEAP guidelines is to diversify energy purchases according to
several factors, including, but not limited to, dates and terms of
commitment, suppliers, prices and fuel sources.
E.On August 4, 2003, the Council by minute order
approved the LEAP Implementation Plan and it also adopted
Ordinance No. 4801, authorizing the purchase of energy and
capacity during the 2005-2007 period. One element of the
implementation plan is to gain approval for a set of master
agreements with suppliers with the authority to transact for terms
of up to three years.
031113 cl 0072336 1
***NOT YET APPROVED***
F.In accordance with the City’s LEAP Guidelines and
Implementation Plan, the City must annually purchase and,
incidental to purchases, sell electricity to meet the needs of its
electric customers by entering into one or more contracts with
terms varying from less than one month to five years. The City’s
Energy Risk Management Policies provide that the City will
purchase only as much electricity as is needed to meet its load
requirements established at the time a transaction is executed.
G.A portion of the City’s electricity demands are
supplied by existing contracts, including the Base Resource
Contract, contract for output derived from partial ownership in
the Calaveras Hydroelectric Plant with the Northern California
Power Agency, an energy exchange contract with Seattle City Light,
and a 25 MW purchase of power for five years starting in 2005.
The balance of the City’s electricity needs must be purchased from
suppliers at market-based prices.
H.The balance of electricity the City needs depends on
the output from the Base Resource Contract and the Calaveras
Hydroelectric Plant, which depends on hydrologic conditions. After
2004, the City will be required to purchase about one-third of its
total electricity needs in an average hydrologic year. In a dry
year, the City must purchase about one-half of its annual needs.
In wet years, the City may have a surplus of electricity and could
afford to sell about one-fifth of its projected annual needs.
I.The cost for the City’s market-based electricity
purchases and incidental sales depends on the price offered by
suppliers, the projected annual electricity customer requirements,
and the output from the hydroelectric-based supply resources. The
annual cost could fall within the range of approximately $16
million to $22 million per fiscal year during an average
hydrologic year. Costs during a dry year could fall between $27
million and $37 million per fiscal year. Total aggregate
transactions derived from purchases and incidental sales of
surplus electricity could be between $25 million and $34 million
per fiscal year during a wet year.
J.In June 2003, the City initiated a Request for
Proposals process in order to prequalify a number of electricity
suppliers, based on their financial and legal qualifications and
business experience, who are eligible to sell electricity to and
purchase electricity from the City.
K.BP Energy Company, Coral Power, L.L.C., Duke Energy
Marketing America L.L.C., and Sempra Energy Trading Corporation
each possess the minimum financial and legal qualifications and
business experience in order to be eligible to do business with
the City.
031113 c10072336
***NOT YET APPROVED***
L.The City intends to purchase electricity from one or
more of these pre-qualified suppliers for delivery during calendar
years 2004 through 2011, inclusive, so long as the supplier with
whom the.City negotiates a specific purchase transaction continues
to be qualified and otherwise eligible to transact with the City.
SECTION 2. The Council hereby authorizes the Mayor to sign
the Edison Electric Institute standard form contract, or
equivalent, or in the case of Coral Power, L.L.C., the amended and
restated contract, and it also authorizes the City Manager or his
designated representative, the Director of Utilities, to negotiate
one or more individual transactions thereunder, with BP Energy
Company, Coral Power, L.L.C., Duke Energy Marketing America L.L.C.,
and Sempra Energy Trading Corporation. The authorization shall
extend to individual transactions executed under the referenced
standard form contract, provided that: (a) the maximum expenditure
under any standard form contract and any and all separate
transactions thereunder with any of the named suppliers shall not
exceed $75 million in the aggregate; and (b) the maximum term of
any transaction shall not exceed a term of three (3) years,
commencing on the date the transaction is mutually agreed to by the
parties, or a term of five years, in the case of the 2002 Coral
Purchase, commencing on the date -delivery of the transaction
begins. The City may enter into a transaction greater than three
years, provided that transaction receives the prior approval of the
Council.
SECTION 3. No standard form contract and any transaction
entered into thereunder with any qualified electricity supplier
executed by the City Manager or his designated representative and
approved as to form by the City Attorney under the authority of
this ordinance shall extend beyond December 31, 2011.
SECTION 4. The Council hereby finds that this ordinance is
exempt from the provisions of the California Environmental Quality
Act pursuant to Section 15061(b)(3) of the California Environmental
Quality Act Guidelines, because it can be seen with certainty that
there is no possibility of significant environmental effects
occurring as a result of the adoption of this ordinance.
//
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031113 cl 0072336
***NOT YET APPROVED***
SECTION 5. This ordinance shall be effective on the
thirty-first day after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Administrative
Services
Director of Utilities
031113 cl 0072336
4
TO:HONORABLE CITY COUNCIL
ATTN:FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:
SUBJECT:
DECEMBER 9, 2003 CMR:465:03
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
APPROVING ELECTRIC MASTER AGREEMENTS WITH
ARIZONA PUBLIC SERVICE
COMPANY, CORAL POWER,
MARKETING AMERICA LLC;
TRADING CORPORATION FOR
COMPANY;BP ENERGY
LLC; DUKE ENERGY
AND SEMPRA ENERGY
THE PROCUREMENT OF
ELECTRICITY AND AUTHORIZING THE CITY MANAGER TO
TRANSACT UP TO $75 MILLION WITH EACH SUPPLIER
UNDER THESE AGREEMENTS
REPORT IN BRIEF
The City of Palo Alto will need significant additional supply resources to meet its future
electricity needs since, starting on January 1, 2005, its main supplier will provide
substantially less energy than it currently supplies. The Council has approved the Long-
term Electric Acquisition Plan (LEAP), which sets out how those additional supplies will
be purchased; and the LEAP implementation plan, which directed staff to enter into
Master Agreements with qualified suppliers. In order to implement LEAP, staff needs
the authority to transact under such Master Agreements. Staff requests Council’s
approval to execute Master Agreements with five suppliers that meet all the City’s
rigorous qualification requirements. These suppliers were selected as a result of a
Request For Proposals process that was open to electricity suppliers who sought to do
business with the City. Staff further requests that Council authorize staff to transact
under these Master Agreements so that it can purchase electricity on a competitive basis
under certain limitations set forth in the attached ordinance.
CMR:465:03 Page 1 of 12
RECOMMENDATION
Staff recommends that Council approve the following:
Approve and authorize the Mayor to execute Master Agreements with the
following suppliers who have been deemed qualified to do business with the City
with respect to electricity purchases and sales for the period January 2004 through
December 2011, under the terms discussed in the report:
a. Arizona Public Service Company;
b. BP Energy Company;
c. Coral Power, LLC;
d. Duke Energy Marketing America, LLC;
e. Sempra Energy Trading Corporation.
o Authorize the City Manager or his designee to manage these Master Agreements,
and to execute one or more electric commodity transactions in accordance with the
terms of the contract. This includes authorizing the City Manager or his designee
to execute multiple transactions under the Master Agreements with one or more of
the above suppliers to procure electric supplies sufficient to meet the City’s
forecasted electric load, with the date for delivery of the electricity for each
transaction not to exceed 36 months from the date that the transaction is executed.
In addition, the date for delivery of the electricity for any transaction will not
extend beyond the term of the Master Agreements specified in the attached
ordinance. The maximum aggregate transaction limit under each Master
Agreement shall be $75 million.
BACKGROUND
The City will experience a significant electricity supply resource deficit with the
expiration of its current 40-year Western Area Power Administration contract at the end
of 2004. In October 2000, Council approved the 20-year Western Base Resource
contract, (CMR:378:00) which will replace the existing Western contract.
Due to the changed Western contract, the projected energy shortfall in the year 2005 and
beyond is expected to be about 650 million kilowatt-hours per year or about 55% of the
City’s electricity energy needs during an average hydrologic year. This deficit is highly
variable and dependent on hydro conditions, with the energy deficit as high as 70% in a
very dry hydro year and as low as 20% in a very wet year. This annual production
variability is illustrated in Figure 1.
CMR:465:03 Page 2 of 12
Fig 1" Variability of Existing Generation Portfolio After December 2004
140,000
120,000
100,000-
"~ 80,000
t,-.
1,1,,I 60,000
~40.000
Palo Alto Load
20,000
0
Jan Feb Mar Apt May Jun Jul Aug Sep Oct Nov Dec
More than two years of staff work, Utilities Advisory Commission and public input, and
Council approval of policies, guidelines and plans have all focused toward proactively
responding to this energy deficit and preparing the Long-term Electric Acquisition Plan
(LEAP).
The City Council approved four Primary Portfolio Planning Objectives on November 13,
2001 (CMR:425:01) to guide the development of strategies to fill this energy deficit. The
City Council approved seven LEAP Guidelines on October 21, 2002 (CMR:398:02). On
August 4, 2003, the City Council approved the LEAP Implementation Plan
(CMR:354:03). These approved objectives, guidelines and implementation plan are
provided for reference as Attachment B to this report.
The July 2002 Assessment of Utility Risk Management Procedures by the City Auditor
made recommendations to improve the City of Palo Alto Utilities’ (CPAU) energy
procurement process. The Auditor’s report recommended that all Master Agreements
with suppliers be approved by the Council with clearly defined dollar, volume and
duration limits (Recommendation No. 4); and with clear definition of the types of
transactions staff is authorized to execute under the agreements. The Auditor’s report
also recommended that the process of securing Master Agreements itself be undertaken in
a more open and competitive manner (Recommendation No.6).
CMR:465:03 Page 3 of 12
Electricity Portfolio
The post-2004 electricity supply portfolio consists of the electricity supply sources listed
below:
o
°
o
Western Base Resource Contract - This 20-year contract (2005 through 2024) is
the primary source of supply. The energy source is hydroelectric power; thus, the
output varies each month and each year according to hydrologic conditions. The
contract provides about 35% of the City’s needs in an average hydrologic year.
Calaveras Hydroelectric Project - The City owns a fraction of this project with
other members of the Northern California Power Agency (NCPA). As with the
Western Base Resource, its output is dependent upon hydrologic conditions. The
City’s share of the project provides about 12% of its annual needs in an average
hydrologic year.
Seattle City Light (SCL) Contract - This contract, which expires in 2014, is a
seasonal exchange of energy. The City receives electric energy from SCL in
summer months and returns energy to SCL in winter months.
Coral Contract- On November 13, 2001, the City Council approved the purchase
of 25 MW of energy [CMR:425.01 ] to be delivered around the clock in the months
of January through March and October through December for 5 years (2005
through 2009). Staff executed the purchase from Coral Energy Resources, L.P.
on August 13, 2002. The contract provides about 10% of the City’s needs during
the contract term.
Block Purchases - The City Council approved the purchase of three, 25 MW
blocks of energy for delivery for the 2005 through 2007 period [CMR:354:03].
Staff plans to execute these approved purchases under the proposed Master
Agreements. The blocks will supply about 26% of the City’s needs in 2005, 15%
of the 2006 needs, and about 11% of the needs in 2007.
The City is evaluating other long-term supplies as outlined in the LEAP implementation
plan including a 25 to 50 MW share of a natural gas-fired generation plant, renewable
supplies to meet the LEAP Guideline (new renewables equal to 10% of the portfolio by
2008 and 20% of the portfolio by 2015), locally-sited generation, and implementation of
energy efficiency programs.
The balance of the City’s projected needs will be purchased from the market as needed to
meet demand requirements. Staff plans to execute these market purchase transactions
under the proposed Master Agreements. In addition to the electricity purchased in
advance for its customers, electricity supplies must be purchased or sold as required to
match actual loads to supplies previously purchased. These "operational balancing"
transactions are completed by NCPA to balance load within the month.
CMR:465:03 Page 4 of 12
Assuming that new renewables account for 10% of the total need (the goal for 2008) and
that no other new long-term resources are in place, the deficits in the first three years of
the post-2004 period are shown in the chart Figure 2 below.
Fig. 2: Load/Resource Balance - 2005-2007:
33% deficit in an average hydrologic year
100,000
80,000
60,000
40,000
20,000
0
Jan-05 Jui-05 Jan-06 Jul-06 Jan-07 Jul-07
Since the City has not yet purchased the Council-authorized block purchases, the amount
of energy remaining to be purchased includes the energy associated with those purchases.
Including those block purchases, the amount of the energy deficit depends to a great
extent on the hydrologic year type. In dry years, the deficit increases, while there will be
an energy surplus in wet years in some months. Given projected annual demand of about
1,105,000 Megawatt-hours per year (MWh/yr), the estimated energy deficit in an average
hydrologic year is about 365,000 MWh/yr, or about 33% of expected load. In a dry year,
the deficit increases to about 610,000 MWh/yr (55% of expected load) and a wet year is
expected to yield an energy surplus of about 195,000 MWh/yr (18% of expected load).
DISCUSSION
To prepare for the significant energy deficits in the future, improve opportunities for
competitive pricing, diversify purchases across multiple creditworthy suppliers, and
comply with audit recommendations, a Request for Proposal (RFP) was issued in June
2003 to solicit interest from suppliers to sign Master Agreements with the City to enable
future procurement of electricity supplies required to meet the City’s electric load needs
for up to 10 years. The supplier selection process for the RFP is provided in Attachment
C. The five proposed Master Agreements were negotiated under terms and conditions
CMR:465:03 Page 5 of 12
acceptable to the City. (The Master Agreements are available for review in the office of
the City Clerk.)
Description of a Master Agreement
A Master Agreement is similar but not identical to a blanket purchase order. A Master
Agreement details all of the contractual terms that govern transactions that are completed
under the agreements. The Master Agreement consists of a base contract and special
provisions specified in the cover sheet. Executing a Master Agreement does not commit
the City to any transaction. Each transaction for part of the City’s monthly, annual, or
multi-year electricity requirements is completed through subsequent competitive bidding
and memorialized as an executed transaction, as evidenced by a completed confirmation.
Executing a Master Agreement is not a promise of business by the City or by the
supplier. It serves only to qualify suppliers to bid on individual transactions solicited by
the City.
Each Master Agreement may be terminated at any time by either party according to the
terms of the agreement. Termination of the Master Agreement cancels the supplier’s
ability to bid on further transactions during the term contemplated by the RFP. Any
transaction executed under the Master Agreement prior to termination will remain in
place until the final electricity delivery date, unless an event of default has transpired. In
an event of default by a supplier, the City has the option to terminate the remaining
transactions for electricity yet to be delivered that were executed under the Master
Agreement. The supplier can also terminate any remaining transactions in the event of
default by the City.
The City may suspend solicitation to bid on individual transactions with any supplier due
to counterparty credit limits or transaction limits, a supplier credit downgrade event,
supplier default or suspected default, or where inclusion in the solicitation would not
comply with law or City policies, guidelines, rules or procedures. While the City has
selected five suppliers with whom to sign Master Agreements, it is foreseeable that only a
few suppliers may ultimately provide the most competitive prices, and some may merge
or leave the industry, resulting in most transactions being concentrated among a few
qualified suppliers.
If the number of eligible suppliers dwindles, the City may terminate the Master
Agreements as per contract terms and conditions and concurrently conduct an RFP for
new Master Agreements to cover the period after the effective date of termination of the
Master Agreements then in place.
All transactions under the Master Agreements will be executed by staff in accordance
with the Energy Risk Management Policies, Guidelines, and Procedures. These
procedures are monitored by the Energy Risk Manager, and ensure that risks inherent in
CMR:465:03 Page 6 of 12
the energy industry are managed prudently. The Energy Risk Manager will provide
Council an update of all executed transactions under the Master Agreements on a semi-
annual basis as part of energy risk management reporting.
Projected Costs
Currently, electricity can be purchased for between $25 and $65 per MWh for deliveries
during the next several years, depending on the month and hours of the day. However,
prices could increase dramatically as during the 2001 energy crisis, when prices reached
over $200iMWh for certain months. Since electricity prices are volatile, it is conceivable
that the prices could double from current levels over the terms of the Master Agreements.
The City’s estimated electric purchase costs for the post-2004 energy deficit depends on
the hydrologic year type and the market cost of energy. The table below shows the
estimated total cost of all transactions under the Master Agreements in the case of
average, dry and wet hydrologic year types for energy costs of $45/MWh and $60/MWh.
Estimated Annual Aggregate Cost Scenarios
For the Annual Energy Supply Deficit/Surplus
Average Hydro Year
Dry Hydro Year
Wet Hydro year
Ener~Cos~-$45]MWh ’ Energy Cost=-$60~Wh
$16 million $22 million
$28 million $37 million
$25 million $34 million
The expected cost for electricity in an average hydrologic year over the 2005 through
2011 period in which the Electric Master Agreements would be in use is about $16
million!year, or a total aggregate cost for electricity over the seven years of between $80
and $110 million. However, if electric costs increase by 20% so that costs average $20
million per year over the 7-year period, the aggregate cost could be $140 million. If there
were a dry hydrologic year, the costs could increase even more. For example, if two of
the seven years were dry years, the costs over 7 years could be $130 to $170 million.
In a wet year, it is expected that there would be an overall supply surplus. In addition,
the LEAP Guidelines state that hydrologic risk (the risk of varying output from the
hydroelectric-based resources) should be managed by planning for an average year on a
long-term basis. Thus, in accordance with the LEAP Guidelines, staff would purchase
sufficient supplies in advance to close the average year deficit. If the hydrologic year
turned out to be wet, those purchases as well as the surplus emanating from the increased
output from the Western contract and the Calaveras Hydroelectric Plant would be sold to
balance supplies with customer needs.
CMR:465:03 Page 7 of 12
Limits of Authorization
The proposed limits and parameters for Council’s authorization to the City Manager
include the following:
Authority to be delegated to the City Manager to buy and sell electricity to meet
the City’s retail load requirements within a 3-year period from the date the
transaction is executed ("rolling 36 month forward period").
All transactions must be consistent with Council-approved Energy Risk
Management Policies [CMR:400:02].
o All transactions in excess of $65,000 to be reported on a quarterly basis to Council
as part of regular reporting (per the Energy Risk Management Policies and
Guidelines).
The maximum total dollar amount of aggregated electricity transactions for any
single Master Agreement is $75 million. This limit gives staff the flexibility it
needs in case electricity costs increase above expectations, variations in
hydrologic year types, and if some of the suppliers are unable to continue to do
business with the City or do not offer the best prices.
All transactions that lie outside the authority delegated to the City Manager require
Council approval.
Additional limitations on transactions with the suppliers are imposed under the internal
energy risk management guidelines. These internal guidelines contain counterparty
credit limits that limit transaction term and risk exposure depending upon the
creditworthiness of the suppliers. For example, the guidelines provide transaction limits
in terms of annual volume, annual cost, and transaction term for each supplier. Thus,
staff is constrained by these guidelines regarding transacting with each approved supplier.
These guidelines act as an additional level of control below the higher-level limitations
that staff recommends Council impose under the Master Agreements.
ALTERNATIVES
The aggregate cost of all transactions to be executed under the Master Agreements is
expected to be between $80 million and $110 million. Therefore, the request for City
Manager authority of a maximum of $75 million per Master Agreement may appear
much larger than necessary. Unfortunately, the actual quantities and cost for the
electricity required to meet load is not known at this time. If all five suppliers offer
competitive prices, remain creditworthy and in good standing, electricity costs do not
deviate greatly from expectations, and the hydrologic years over the term of the
CMR:465:03 Page 8 of 12
agreements are neither dry nor wet, the City could transact for an average of less than $30
million with each supplier.
However, the total volume and cost of transactions in a wet year or a dry year will be
significantly higher than in a normal hydrologic year. Market costs for electricity could
also increase significantly. Finally, over the terms of the agreements, one or more of the
suppliers may cease to remain in business, may have their creditworthiness downgraded
such that Palo Alto will not enter into any new transactions, or may consistently not offer
the best prices. In accordance with Risk Management Policies and Guidelines, staff is
responsible for monitoring credit limits with each supplier. Therefore, it is likely that
transactions will not be evenly split between the five suppliers and that Palo Alto will do
more business with two or three suppliers. Thus, the transaction limit of $75 million per
Master Agreement will allow staff the necessary flexibility to secure supplies to meet the
City’s electric needs in an efficient and cost-effective fashion while limiting the City’s
risk.
RESOURCE IMPACT
The transactions executed under the Master Agreements will commit the City to pay for
energy deliveries needed to meet the electricity demand of City electric customers up to
the limits described in the ordinance, budget constraints, and risk limits set according to
the Council-approved Energy Risk Management Policies. These costs are a function of
electric market prices and the City’s forecasted and actual volume of electricity needs.
The expected cost for electricity given current market prices for calendar year 2005
depends on hydrologic year as shown in the table below:
Resource
Western Base Resource
Calaveras hydroelectric project
Coral Purchase (Years 2005-2009)
Purchases under the Master Agreements
Total Estimated Costs
Average Year
$10,000,000
9,500,000
4,000,000
16,500,000
$40,000,000
Dry Year
$10,000,000
9,500,000
4,000,000
27,500,000
$51,000,000
Wet Year
$10,000,000
9,500,000
4,000,000
25,000,000
$48,500,000
The cost for transactions expected under the Master Agreements 8-year term is shown in
the following table. The cost depends on the hydrologic year and on how much energy
would be purchased under these Master Agreements if they were used to enter into
transactions during 2004 through 2006 for energy for delivery through 2011.
CMR:465:03 Page 9 of 12
Expected Cost in an Average Hydrologic Year at Current Market Prices
Year
2004
2005
2006
2007
2008
2009
2010
2011
Total
Annual Cost
$ 6,750,000
16,500,000
16,500,000
16,500,000
11,500,000
6,500,000
6,500,000
1,500,000
$82,250,000
Basis (Note that term of Coral purchase is 2005-2009)
Prior to Base Resource Contract - Purchase small deficits in
some months, sell small surpluses in other months
Expect to purchase entire expected deficit for year
Expect to purchase entire expected deficit for year
Expect to purchase entire expected deficit for year
Purchase energy so that deficit is -10% of load
Purchase energy so that deficit is -20% of load
Purchase energy so that deficit is -30% of load
Purchase energy so that deficit is -40% of load
Note that these cost estimates are for currently expected market prices ($45/MWh) and
average hydrologic conditions. Costs could increase substantially if market prices for
electricity increase and in other hydrologic year types.
When a transaction is executed under the Master Agreements to buy electricity at a fixed
price for delivery at a future date, the electricity is not paid for until the time of delivery.
Staff carefully monitors current year costs against adopted budget and future year costs
against long-term financial plans. Approval of the recommendation will not impact the
current FY 03-04 budget. Transactions with deliveries extending beyond the approved
budget horizon are binding commitments, supported by electric retail revenues with retail
rates determined by Council.
POLICY IMPLICATIONS
Authorizing the City Manager to buy and sell electricity to meet City load under these
Master Agreements conforms to existing Council-approved Energy Risk Management
Policies (CMR:400:02).
The recommendation does not deviate from Utilities’ historic practice of securing
electricity commodity supplies to meet the needs of the City’s electric customers. It
responds to Utilities’ need to purchase energy in the post-2004 period when supply
deficits increase dramatically. The City Auditor’s Assessment of Utility Risk
Management Procedures, issued in July 2002, identified the need to have clarity for the
authority to complete the required transactions. The recommended action is responsive
to the City Auditor’s recommendations.
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
CMR:465:03 Page 10 of 12
manage business process to allow the City of Palo Alto Utilities to work efficiently and
cost-effectively.
Further, the recommendation supports the Council-approved Utilities’ Electric Portfolio
Planning Objectives [CMR:425:01], LEAP Guidelines [CMR:398:02] and LEAP
Implementation Plan [CMR:354:03]. These include the following Objectives, Guidelines
and Implementation Plan elements relevant to Master Agreements:
Objective 1: Ensure low and stable electric supply rates for pool customers
Objective 2: Provide superior financial performance to customers and to the City by
maintaining a supply portfolio cost advantage compared to market cost
and a retail supply rate advantage compared to PG&E.
Guideline 3: Market Risk Management - Manage market risk by adopting a portfolio
strategy for electric supply procurement by:
A. Diversifying energy purchases for the pool across commitment date,
start date, duration, suppliers, pricing terms and fuel sources;
C. Maintaining a prudent exposure to changing market prices by: 1)
procuring resources at fixed price for at most 90% of expected load
for 2 or more years out, assuming average hydro conditions; and 2)
procuring resources at fixed price for at most 75% of expected load
for 5 or more years out, assuming average hydro conditions.; and
D.Avoiding contract-based fixed price energy purchases (except for
contracts for renewable resources for durations greater than 10 years.
Implementation Plan Element for Short- and Medium-Term Portfolio #2: Seek
Council approval of a set of master agreements with suppliers by
summer or fall 2003 with the authority to transact for terms of up to 3
years out. Any transactions outside this limit will be brought to the
UAC and Council for approval.
ENVIRONMENTAL REVIEW
Adoption of the ordinances approving Master Agreements and delegating electric
procurement to the City Manager under certain limitations does not constitute a project
for the purposes of the California Environmental Quality Act.
ATTACHMENTS
A:Ordinance of the Council of the City of Palo Alto Authorizing the City Manager to
Purchase a Portion of the City’s Electricity Requirements from Certain Prequalified
Electricity Suppliers Under Specified Terms and Conditions During Calendar Years
2004 through 2011, Inclusive
B: Council-approved Electric Supply Objectives, LEAP Guidelines and LEAP
Implementation Plan
CMR:465:03 Page 11 of 12
C: Electric Master Agreement RFP Evaluation Process
PREPARED BY:
V. PADILLA
Resource Planner
KARL VAN ORSDOL
Energy Risk Manager
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
JO
of Utilities
HARRISON
Assistant City Manager
CMR:465:03 Page 12 of 12
***NOT YET APPROVED***
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING THE CITY MANAGER TO PURCHASE A PORTION
OF THE CITY’ S ELECTRICITY REQUIREMENTS FROM
CERTAIN PREQUALIFIED ELECTRICITY SUPPLIERS UNDER
SPECIFIED TERMS AND CONDITIONS DURING CALENDAR
YEARS 2004 THROUGH 2011, INCLUSIVE
The Council of the City of Palo Alto does ORDAIN as
follows:
SECTION i. The City Council finds, as follows:
A.In 1967, the United States entered into a contract
No. 14-06-200-2948A with Pacific Gas and Electric Company
(~Integration Agreement"). Under this contract, the Western Area
Power Administration (~Western") provides electric capacity and
energy to the City of Palo Alto ("City") over PG&E’s transmission
system. It will expire in December 2004.
B.In 2000, the city entered into a contract No. 00-
SNR-0033 with Western ("Base Resource Contract"). Under this
contract, the City will receive less electric capacity and energy
than is currently made available under the existing power purchase
agreement. It will begin in January 2005 and will expire in
December 2024.
C.On November 13, 2001, the Council by minute order
approved four primary energy portfolio objectives (~Objectives"),
including the objective to ensure low and stable electric supply
rates for customers, and it also adopted Ordinance No. 4724,
authorizing a five-year purchase of energy and capacity during the
2005-2010 period. The City executed that purchase on August 13,
2002 with Coral Power, L.L.C. (the ~2002 Coral Purchase").
D.On October 21, 2002, the Council by minute order
approved seven electric portfolio planning and management
guidelines to guide staff in developing and managing the city’s
long-term electric acquisition plan (~LEAP Guidelines"). One of
the LEAP guidelines is to diversify energy purchases according to
several factors, including, but not limited to, dates and terms of
commitment, suppliers, prices and fuel sources.
E.On August 4, 2003, the Council by minute order
approved the LEAP Implementation Plan and it also adopted
Ordinance No. 4801, authorizing the purchase of energy and
capacity during the 2005-2007 period. One element of the
implementation plan is to gain approval for a set of master
agreements with suppliers with the authority to transact for terms
of up to three years.
031113 d 0072336 1
***NOT YET APPROVED***
F.In accordance with the City’s LEAP Guidelines and
Implementation Plan, the City must annually purchase and,
incidental to purchases, sell electricity to meet the needs of its
electric customers by entering into one or more contracts with
terms varying from less than one month to five years. The City’s
Energy Risk Management Policies provide that the City will
purchase only as much electricity as is needed to meet its load
requirements established at the time a transaction is executed.
G.A portion of the City’s electricity demands are
supplied by existing contracts, including the Base Resource
Contract, contract for output derived from partial ownership in
the Calaveras Hydroelectric Plant with the Northern California
Power Agency, an energy exchange contract with Seattle City Light,
and a 25 MW purchase of power for five years starting in 2005.
The balance of the City’s electricity needs must be purchased from
suppliers at market-based prices.
H.The balance of electricity the City needs depends on
the output from the Base Resource Contract and the Calaveras
Hydroelectric Plant, which depends on hydro!ogic conditions. After
2004,.the City will be required to purchase about one-third of its
total electricity needs in an average hydrologic year. In a dry
year, the City must purchase about one-half of its annual needs.
In wet years, the City may have a surplus of electricity and could
afford to sell about one-fifth of its projected annual needs.
I.The cost for the City’s market-based electricity
purchases and incidental sales depends on the price offered by
suppliers, the projected annual electricity customer requirements,
and the output from the hydroelectric-based supply resources. The
annual cost could fall within the range of approximately $16
million to $22 million per fiscal year during an average
hydrologic year. Costs during a dry year could fall between $27
million and $37 million per fiscal year. Total aggregate
transactions derived from purchases and incidental sales of
surplus electricity could be between $25 million and $34 million
per fiscal year during a wet year.
J.In June 2003, the City initiated a Request for
Proposals process in order to prequalify a number of electricity
suppliers, based on their financial and legal qualifications and
business experience, who are eligible to sell electricity to and
purchase electricity from the City.
K.Arizona Public Service Company, BP Energy Company,
Coral Power, L.L.C., Duke Energy Marketing America L.L.C., and
Sempra Energy Trading Corporation each possess the minimum
financial and legal qualifications and business experience in
order to be eligible to do business with the City.
031113 d 0072336
***NOT YET APPROVED***
L.The City intends to purchase electricity from one or
more of these pre-qualified suppliers for delivery during calendar
years 2004 through 2011, inclusive, so long as the supplier with
whom the City negotiates a specific purchase transaction continues
to be qualified and otherwise eligible to transact with the City.
SECTION 2. The Council hereby authorizes the Mayor to sign
the Edison Electric Institute standard form contract, or
equivalent, or in the case of Coral Power, L.L.C., the amended and
restated contract, and it also authorizes the City Manager or his
designated representative, the Director of Utilities, to negotiate
one or more individual transactions thereunder, with Arizona Public
Service Company, BP Energy Company, Coral Power, L.L.C., Duke
Energy Marketing America L.L.C., and Sempra Energy Trading
Corporation. The authorization shall extend to individual
transactions executed under the referenced standard form contract,
provided that: (a) the maximum expenditure under any standard form
contract and any and all separate transactions thereunder with any
of the named suppliers shall not exceed $75 million in the
aggregate; and (b) the maximum term of any transaction shall not
¯ exceed a term of three (3) years, commencing on the date the
transaction is mutually agreed to by the parties, or a term of five
years, in the case of the 2002 Coral Purchase, commencing on the
date delivery of the transaction begins. The City may enter into a
transaction greater than three years, provided that transaction
receives the prior approval of the Council.
SECTION 3. No standard form contract and any transaction
entered into thereunder with any qualified electricity supplier
executed by the City Manager or his designated representative and
approved as to form by the City Attorney under the authority of
this ordinance shall extend beyond December 31, 2011.
SECTION 4. The Council hereby finds that this ordinance is
exempt from the provisions of the California Environmental Quality
Act pursuant to Section 15061(b) (3) of the California Environmental
Quality Act Guidelines, because it can be seen with certainty that
there is no possibility of significant environmental effects
occurring as a result of the adoption of this ordinance.
//
//
//
//
//
031113 d 0072336
***NOT YETAPPROVED***
SECTION 5. This ordinance shall be effective on the
thirty-first day after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Administrative
Services
Director of Utilities
031113 d 0072336
Attachment B: Council Approved Electric Supply Objectives and Guidelines
The City_ Council approved four Primary_ Portfolio Planning Obiectives on November 13,
2001 [CMR:425:01].
Objective 1:Ensure low and stable electric supply rates for customers.
Objective 2:Provide superior financial performance to customers and the City by
maintaining a supply portfolio cost advantage compared to market
cost and the retail supply rate advantage compared to PG&E.
Objective 3:Enhance supply reliability to meet City and customer needs by
pursuing opportunities including transmission system upgrades and
local generation.
Objective 4:Balance environment, local reliability, rates and cost impacts when
considering renewable resource and energy efficiency investments.
The City Council approved seven LEAP Guidelines on October 21, 2002 [CMR:398:02].
Guideline 1: Electric Portfolio Dependence on Western
While maintaining the flexibility to adopt favorable ’custom products’ offered by
Western, manage a supply portfolio independent of Western beyond the Base
Resource Contract.
Guideline 2: Hydro Risk Management
Manage hydro production risk by:
A. Planning for an average hydro year on a long-term basis;
B. Diversifying to renewable and/or fossil generation technologies; and
C. Maintaining adequate supply rate stabilization reserve.
Guideline 3: Market Risk Management
Manage market risk by adopting a portfolio strategy for electric supply procurement
by:
A. Diversifying energy purchases across commitment date, start-date, duration,
suppliers, pricing terms and fuel sources;
B. Targeting additional thermal plant ownership/investment commitment at -25 MW
but in no event more than 50 MW;
C. Maintaining a prudent exposure to changing market prices by:
1. Procuring resources at fixed price for at most 90% of expected load for 2 or
more years out, assuming average hydro conditions; and
2.Procuring resources at fixed price for at most 75% of expected load for 5 or
more years out, assuming average hydro conditions; and
Attachment B to CMR:465:03 Page B-1
D.Avoiding contract-based fixed price energy purchases (except for contracts for
renewable resources) for durations greater than 10 years.
Guideline 4: Reliable and Cost Effective Transmission Services
Ensure the reliability of supply at fair and reasonable transmission cost by:
A. Supporting, through political and technical advocacy and/or direct investment, the
upgrading of Bay Area transmission to improve reliability and relieve congestion;
B. Participating in transmission market design to ensure that market design results in
workable competitive markets and equitable cost allocation;
C. Pursuing the option of forming and/or joining a Public Power Transmission
Control Area to increase control over transmission operations and related costs;
and
D.Ensuring PG&E honors the Stanislaus Commitments by providing to us firm-
transmission rights or equivalent.
Guideline 5: Local Generation
Monitor the potential of local generation options to meet customer needs, improve
local reliability, minimize congestion and wheeling charges, and stabilize/reduce
costs.
Guideline 6: Renewable Portfolio Investments
The City shall continue to offer a renewable resource-based retail rate for all
customers who want to voluntarily select an increased content of renewable energy.
In addition to the voluntary program, the City shall invest in new renewable resources
to meet the City’s sustainability goals while ensuring that the retail rate impact does
not exceed 0.5 C/kWh on average. Pursue a target level of new renewable purchases
of 10% of the expected portfolio load by 2008 and move to a 20% target by 2015,
contingent on economic viability. The contracts for investment in renewable
resources are not to exceed 30 years in term.
Guideline 7: Electric Energy Efficiency Investments
Offer quality Public Benefits programs, utilizing funds collected through the 2.85%
Public Benefits charge embedded in electric retail rates, to meet the resource
efficiency needs of customers. Additional funding for cost-effective programs will be
recommended as appropriate. Pursue these investments by:
B. Providing expertise, education and incentives to support cost-effective customer
efficiency improvements;
C. Demonstrating renewable and/or alternative generation technologies and new
efficiency alternatives; and
D. Providing rate assistance and efficiency programs to low-income customers.
Attachment B to CMR:465:03 Page B-2
The Ci_ty Council approved the LEAP Implementation Plan on August 4, 2003
[CMR:354:03]...
Implementation Plan - Long-Term Portfolio
Acquire renewable energy resources to meet LEAP Guideline 6. The first step is
to issue a Request for Proposals (RFP) to potential suppliers. NCPA is
coordinating this activity as many of its members have an interest in acquiring
new renewables for the post-2004 period. The RFP was issued on March 11, 2003
with responses due in mid-April. Depending on the responses to the RFP, staff
will request UAC and Council approval to execute long-term contracts for
renewable supplies.
o Implementation of the Palo Alto Green program, a green pricing product available
on a volunteer basis to customers who wish to purchase a greater fraction of green
resources. This program was reviewed and approved by the UAC at its February
2003 meeting and was approved unanimously by the Council Finance Committee
on March 4, 2003. It is expected to go to the Council for approval on April 21,
2003
o Continue implementation of Public Benefits programs, which is funded by
collecting a fee equal to 2.85% of the electric retail rate. These funds are partially
used to demonstrate renewable resources or alternative technologies and to assist
customers in pursuing efficiency improvements.
o Staff will continue to evaluate additional opportunities for investment in efficiency
improvements. As appropriate, additional funding for cost-effective efficiency
programs will be recommended.
While continuing to monitor opportunities for participation in gas-fired generation
as they arise through staff’s contacts in the market and at NCPA, prepare an RFP
to formally announce to the market Palo Alto’s interest in investing in thermal
generation resources or its "look alike" (i.e. tolling contracts).
o Monitor technology costs and opportunities for smaller renewable technologies,
cogeneration and gas-fired generation that can be located within Palo Alto and/or
at customer sites. A study funded by the California Energy Commission, Palo
Alto, and other municipal utilities is currently underway to identify sites within
Palo Alto that have high value to the electrical distribution system.
Continue to discuss gas tolling options with suppliers. Gas financial instruments
will allow staff to most effectively use tolling contracts, therefore, staff will
investigate using these products and, if attractive, will pursue approval from the
Attachment B to CMR:465:03 Page B-3
4
10.
11.
Council to add these products to the list of approved products in the Energy Risk
Management Policies.
Pursue any low-cost, high value prospects to acquire supply-related resources that
may arise from time to time. Staff monitors on an ongoing basis any opportunities
such as availability of additional below-market hydroelectric production or access
to additional power or transmission due to ownership of existing assets.
Refine the analysis and collect additional market information to evaluate scenarios
when various portfolio elements would have value. Staff will solicit current
market information on specific products such as hydro hedges. Additional
analysis will include sensitivity analysis and stress testing of the portfolios.
Monitor and participate in regulatory and legislative initiatives related to
transmission market design, support Bay Area transmission upgrades, and pursue
alternatives to increase reliability at a reasonable cost
Maintain adequate reserves by recognizing the degree of uncertainty the City faces
in the future. Evaluate modifying the policy or targets to make certain that the
Supply Rate Stabilization Reserve is adequate to ensure stable rates in an
environment of uncertainty and consider potential guidelines such as being able to
maintain stable rates in the event of two dry years in a row.
Implementation Plan - Short- and Medium-Term Portfolio
To reduce short-term cost variability and to ladder the purchase commitments,
while leaving sufficient flexibility to commit to long-term resources, three fixed-
price, 25 MW block purchases are recommended for execution in year 2003:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Block 1 on-pk X X X X X X X
(2005-2007)off-pk X X X X X X X
Block 2 on-pk X X X X
(2005-2006)off-pk
Block 3 on-pk X X X X X X X X X X X X
(2005)off-pk !
At current market prices, the expected cost of the first two blocks of power is as
follows:
a. about $16.4 million for Block 1 (4.3 C/kWh);
b. about $4.5 million for Block 2 (5.57 C/kWh); and
c. about $6.3 million for Block 3 (5.1 C/kWh).
Attachment B to CMR:465:03 Page B-4
Seek Council approval of a set of master agreements with suppliers by summer or
fall 2003 with the authority to transact for terms of up to 3 years out. Any
transactions outside this limit will be brought to the UAC and Council for
approval.
o Develop short-term hedging strategies and operations plans with the objective of."
a. Clearly identifying and capturing supply needs and supply portfolio risks;
b. Whenever possible, utilizing simple tools to manage risks and utilizing NCPA
resources and expertise; and
c. Managing the electric portfolio to achieve the portfolio objectives with
streamlined operations to minimize overhead costs and to act expeditiously,
while maintaining the appropriate level of oversight and control.
Evaluate, design, and pilot a customer demand-response program. If such a
program makes sense, develop and implement a customer demand-response
program to protect against high congestion costs and to be part of new capacity
reserve requirements that are likely to be imposed.
Attachment B to CMR:465:03 Page B-5
ATTACHMENT C: Electric Master Agreement RFP Selection Process Summary
The City of Palo Alto issued RFP #150884 on June 13, 2003 to solicit and execute
Master Agreements with multiple suppliers to enable future procurement of electric
commodity and related services required to meet the City’s electric load needs. Bid
packages were mailed to 25 potential suppliers. An evaluation team comprising staff
from the Utilities and Administrative Services Departments and the City Attorney’s
Office was established to evaluate proposals. Ten suppliers responded to the RFP.
The first level of evaluation was to screen out suppliers not meeting the City’s
creditworthiness criteria. The City requires that the supplier, if publicly rated, or its
parent have an investment grade or better credit rating as defined by a rating of BBB- and
above by S&P or Baa3 by Moody’s. Two proposals were rejected as a result of the
screening criteria. Table 1 is a summary of the screening process.
Table 1: Electric Master Agreement Credit Rating Screening
.......Coral Power, LLC
BP Energy Company
Sempra Energy Trading
Occidental Power Services
Duke Energy Trading
Arizona Public Service
UBS AG
Constellation Power
Avista Ener~’
Calpine Energy Services
Supplier
rated
no
no
no
no
yes
yes
yes
no
no
no
Parent
Rated
yes
yes
yes
yes
N/A
N/A
N/A
yes
yes
yes
S&P
Rating
A-
AA+
A-
BBB+
BBB-
BBB
AA+
A-
BB+
none
Moody’s
Rating
A1
Aal
Baal
Baa2
Baal
Baa2
Aa2
Baal
Bal
Caal
Pass
Screen
yes
yes
yes
yes
yes
yes
yes
yes
no
no
The remaining eight proposals were evaluated and ranked based on the following criteria:
1. Acceptance of all Required Contract Provisions
a. Credit assurances in the event of a supplier credit downgrade
b. Provision for setoffs with affiliates
c. Provision for netting of payments
d. Annual submission of audited financial statements
e. State of California as governing law
f. Venue of dispute resolution in Santa Clara County
g. Provision for one-way termination payment
h. Revocation by the Federal Energy and Regulatory Commission of the
supplier’s trading license is an event of default.
2. Acceptance of Preferred Contract Provisions
a. Cross default limit to be set at $20,000,000
Attachment C to CMR:465:03 Page C-1
b. Credit assurance from City is not applicable.
c. Collateral threshold for the City is not applicable.
d. City downgrade event is applicable if the City’s utility revenue bond falls
below investment grade or if the City Council no longer has legal authority
to set rates.
e. Counterparty Credit Assurance is applicable.
f. Counterparty Collateral Threshold is applicable.
g. Unlimited parent guaranty, if guaranty is required.
3. Financial Strength
Clarity of financial statements, net worth and financial outlook.
4. Credit
Quality, nature, and extent of credit support, ability to meet/exceed City’s credit
guidelines, rating agencies credit ratings, credit contractual provisions, risk limits
based on proposed terms, and magnitude of credit risk.
5. Past Performance and Experience
Experience in California, past performance with Palo Alto and the Northern
California Power Agency.
No proposals were rejected as a result of the ranking, which served to only to rank the
proposals. However, suppliers not accepting all required contract provisions in their
proposals were contacted for clarification regarding the City’s requirement that the
provisions must be accepted in order for the City tosign a Master Agreement. As a result
of such discussions, staff decided not to continue negotiations with UBS AG,
Constellation Power Source, and Occidental Power Services, Inc. as those three suppliers
indicated they would not accept certain required provisions.
The evaluation team was able to negotiate final agreements acceptable to the City with
the remaining five suppliers:
1.BP Energy Company
2.Arizona Public Service Company
3.Duke Energy Marketing America, LLC1
4.Sempra Energy Trading Corporation; and
5.Coral Power, LLC.
~ As a result of reorganization at Duke Capital Corporation, the original suppher submitting a proposal, Duke
Energy Trading & Marketing LLC was replaced with Duke Energy Marketing America, LLC with a parent guaranty
from Duke Capital Corporation. Duke Capital Corporation is rated BBB by S&P.
Attachment C to CMR:465:03 Page C-2
12/09/03
Finance Committee Draft Minutes
Item 4: ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
APPROVING ELECTRIC MASTER AGREEMENTS WITH ARIZONA PUBLIC
SERVICE COMPANY; BP ENERGY COMPANY, CORAL POWER, LLC; DUKE
ENERGY MARKETING AMERICA LLC; AND SEMPRA ENERGY TRADING
CORPORATION FOR THE PROCUREMENT OF ELECTRICITY AND
AUTHORIZING THE CITY MANAGER TO TRANSACT UP TO $75 MILLION
WITH EACH SUPPLIER UNDER THESE AGREEMENTS
Ulrich: I will kick off the presentation. I think you will find the report we’re going to
give you is a team effort. This is a very significant level of contracts. We’re asking you
to approve. A copy of the presentation is being passed out to you at this point. I have a
couple of opening comments. There is a very strong connection between the financial
condition of the City and these contracts and there’s a lot of synergy between what we
just discussed and what we have here. First my compliments to Carl and his staff and all
the people who put together the financial comprehensive report that you have in your
packet. In the time you have available, you might look at note 16 which is on page 94
which gives an excellent outlook for the future on your utilities, electric, gas, water and
contingency liabilities and all of those things. This is a case where the notes are actually
interesting in these documents. What we’re doing this evening is one of the most
important aspects of the future outlook and that is the transition between the contracts
we’ve enjoyed for the 40 years with the Western Area Power Administration which
become due in 2004 and revert in the next 20 years to a hydro-electric only contract.
That is a significant change and one that is part of our LEAP program to make that
transition with reliable and cost-effective energy, these four contracts that we’re talking
about tonight, you received an updated memo at your table that shows that one of the
contracts agreement with Arizona... they decided they did not want to enter into the
contracts with us and so we’re down to four rather than the five that’s in the report that
came with your packet. It doesn’t change the outcome of our request to you or change
any of the financial areas.
I call your attention to the first slide. Graphically on the left shows the current through
2004 and lists the Western contract. You can see where there is significant component of
our supply needs have come from that contract. But as we move to the new era, you can
see that the deficit as the Western contract changes becomes rather dramatic at 46%.
This evening the component that will be used to fill that deficit is the forward contracts
that are listed as one of the main components to fill the deficit. One is the renewables,
the energy efficiency program and then looking at ownership participation in a thermal
plant. We have a lot of diversity with a lot of emphasis on energy efficiency and
renewable. Tonight we are asking your approval for the majority of the forward contracts
that we need for our energy supply after 2005. I’m going to turn the rest of the
presentation over to Girish Balachandran, the Assistant Director of Supply Resources and
to Karl Van Orsdol, our Energy Risk Manager. You’ll see the team approach in putting
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
these contracts together,. I’d also like to emphasize what you’re going to see tonight a
state of the art in contract negotiations that have attempted very well, I believe, to
minimize the risk, spread that remaining risk around and have a diversified portfolio. I
hope at the end of this you’ll agree and approve the contracts. Girish.
Balachandran: Good evening Finance Committee members. I’m Girish Balachandran
and leaping into the slides, basically this is an overview slide of some of the policies and
strategies that guide the utilities initiatives. Right from the comprehensive plan for
policy, we’ve listed a bunch of different high level policies in the yellow
oval. Then in the blue we talk about the Utilities Strategic plan that was approved by the
Council. And then a number of different resource plans on each commodity are driven
by these. Today we’re talking about one aspect of the electric plan; the long term electric
acquisition plan. Council approved both the objectives for managing the electric
portfolio which is in the purple oval right in the center and also the seven guidelines to
manage our portfolio. Today what we are talking about relates to two of these guidelines.
Initiatives related to in other guidelines have been approved by you in the LEAP
implementation plan and will be brought to you in succeeding months as specific projects
are developed. Essentially what we are looking for today is approval of these master
agreements that are needed to do the following things. I have six different items listed on
the slides right from a basic need of having these master agreements in order to buy
power to meet the City’s load. We have an obligation to meet that load and our deficit is
pretty large and we need to have those contracts in place. Council, back in August,
approved three block transactions. We need these contracts to actually execute those
transactions. You’ve actually approved those but we can’t execute until we have these
contracts. This overview tells that all contracts that the Utilities department enters into
above $65,000 are Council-approved contracts. On the right hand side, the green boxes,
talk about some of the agreements that we have in place already. All of these agreements
are Council-approved contracts from the Western based resource which is going to be the
contract that governs the Western resource from 2005 to the Corral 25 MWh purchase
which was one of the contracts you approved as a five year six month per year contract.
Today we are talking about the electric master agreements and we have four counter-
parties we are talking about as listed in the chart. All transactions that we would be doing
during the next seven-eight years or so would be done under one or more of these electric
master agreements.
On the top of the chart is a list of some of the characteristics of some of these enabling
agreements. They are repeated on some of the slides and on the CMR. This chart on
~ seven is a 15 year took at our load and resource balance. As you see, at the bottom
of the chart we have the Calaveras hydro-electric plant and at 2005 we have some of that
plant returned to us. The Western resource from 2004 to 2005 you can see quite a bit of
difference. Above that you have the renewable resources which are growing to we
expect by 2008 we’ll have 10% of our load filled by renewable resources and by 2015
we’ll have 20%. The 25 megawatt purchase is a Corral purchase and the electric master
agreements you have in front of you envision to be the vessel to buy the area we have in
red here.
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
Van Orsdol: we have Utilities, ASD as well as Legal. In doing this
evaluation we were able to arrive at a set of stringent criteria for counterparties and were
able to get proposals from very credit-worthy counterparties as well. Through the use of
these energy master agreements we were able to mitigate our market risk through the
purchases of competitive prices with multiple suppliers and diminish credit risk for any
one supplier. Part of the contracts that are particularly important is that we have the
ability to halt any further transactions at any time during the course of this. So if we hear
rumors or if we receive information about counterparties we are able to stop further
transactions long before any credit rating agencies can take action. There is other risk
mitigation terms that we have been able to include in these agreements. One is a one-
way termination payment provision where the defaulting party does not owe money.
Two is governing law of California. Three is the venue dispute in Santa Clara County.
This provides us a strong basis for any legal issues which may arise from these contracts.
Frankly, in talking with other Risk Managers in California, we’ve been able to arrive at
terms and conditions which are stronger than many other municipal utilities have been
able to. We’ve also been able to arrive at contracts with very strongly credit rated
agencies. I also believe, as Risk Manager, this process has allowed us to have a set of
contracts which have favorable terms and conditions for us and provide a basis for
managing our risks and providing an appropriate level of oversight. And particularly our
contracts allow us to manage our transactions.
Freeman: Can you real briefly, describe what a venue of dispute resolution in Santa
Clara County is?
Van Orsdol:I think I’d like to refer that question to Grant Kolling of the legal
department.
Freeman: Thanks.
Kolling: Venue is basically a place where litigation will be handled. In this case we’ve
stipulated Santa Clara County which is essentially San Jose. There is a cost consideration
of why we chose that, that’s correct.
Van Orsdol: In conclusion, we do have the appropriate controls and reporting
mechanism in with regards to transaction limits, counterparty risks, and the reporting
mechanism related to transactions carried out under these master agreements.
Balachandran: Before I get to the request, I wanted to acknowledge the team effort in
coming to these contracts. The Risk Oversight Committee obviously set the overall
guidelines and policies for us. We hade the Legal department, Grant and Alicia led up
that effort. ASD had their Treasury division and Purchasing, and of course, Karl Van
Orsdol worked side-by-side with us. In the Utilities department you have the folks over
here who contributed to various aspects of the project. I want to introduce Monica
Padilla, she did an outstanding job in leading the negotiating team, the evaluation team
the overall project to get it to where it is right now. I move to the next slide which is our
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
request that Council adopt an ordinance approving the master agreements with four
qualified counterparties and to delegate to the City Manager certain authorities which will
allow him to execute multiple transactions.
Missing dialog
Ulrich: I’m not sure I can give you an answer that would satisfy this interest in not
having the City Manager sign what sounds like a large amount of contract. I need to
point out is one; the City Manager would not be authorized to sign for something that did
not have the approval from City Council to do. These are master agreements that set the
terms and conditions for purchase and then the individual purchase contract would be
approved by City Council because they would all exceed $65,000.
Freeman: Maybe you could say that again for me because I totally misunderstand it then.
Ulrich: It doesn’t change the current level of authority that Council has given to the City
Manager, that any contract that exceeds what the City Manager can approve which is
greater than three years, would come to the Council for approval. The other part of this is
that we do not purchase electricity until we’re ready to use it and we do not able to buy
electricity that is greater than our load. So we have an obligation to serve our customers
so it is easy to follow the transactions and of course we would report all those
transactions and the status to the Council on a periodic basis.
Yeats: There are two limiting factors to the City Manager authority. One is the budget
that is adopted and two is the threshold that he cannot sign any agreement that is greater
than $65,000. And so, the budget has to be approved by the City Council overall, so even
though we’re talking about a sum of money that is out over time, in one given year they
cannot actually spend any more that is in their budget for commodity purchases. So
we’re really making future commitments but there is no authority to spend in any more
than one year.
Beecham: Along with that, the second item in the recommendations on page two, starts
off ’authorize the City Manager to manage these master agreements and to execute one or
more transactions in accordance with the terms of the contract.’ So this, in fact, is the
authorization to execute those contracts in accordance with the terms and conditions here.
And it indicates on another page that transactions in excess of $65,000 will be reported to
us on a quarterly basis. So this does authorize the City Manger to make those executions
and they won’t come back on an individual basis.
Yeats: Right, based upon executing the master agreements, that’s what’s giving him the
authority to execute the agreements within that range above $65,000. So we’re getting
you to approve all of those agreements at one time so we can go out and based upon the
portfolio, buy from the supplier that offers the best price.
DRAFT EXCERPT- FINANCE COMMHTEE 12/9/03
Freeman:’ So the second question is: we have $300,000,000 allocated over the eight
years, or whatever it is, in our budget?
Yeats: You approve the budget in two year increments and the only year that’s really an
authorization to spend is the first year of the budget. The second year is appropriated in
concept only. So all the agreements are limited by that authority, I would assume.
Correct Grant?
Kolling: Right.
Yeats: If you do not appropriate the money we can’t not spend it without the authority.
But then we would also not have power if we did not buy it. So it’s limited in those
increments by year also.
Beecham: How does that correlate with, for example on gas. We bought gas out
increasing amounts for future years. Is that under the current year’s budget?
Yeats: No.
Balachandran: This is very similar to the discussion we had under the master gas
agreement. I think it is essentially the same question over here. We make commitments
right now for three years out but we don’t pay for the gas until we consume it. We are
always consuming the gas in the budget year and that budget is approved by Council.
We do make financial commitments that go out beyond the budget period with actual
money that gets appropriated and paid for happens within the budget year.
Ulrich: I recall we had the same discussion with gas the same situation as here except the
difference was $50 million and this is $75 million with the electric because of the
amount of electricity we plan to purchase.
Balachandran: If I could address your question Councilmember Freeman. The CMR
goes through a step by step process of how we reached the $75 million. We used certain
assumptions and so the $30 million expected cost per supplier, given that just today one
supplier has backed out, that’s going to go up. We did some back of the envelope
calculations and we expect between $42 to $47 million is what we’ll spend for each
supplier. I want to strongly emphasize expected because the different things we are not
looking at when we talk about expected are market prices and how they can swing, hydro
conditions. Our portfolio is going to change dramatically. These transaction limits apply
to both purchases and sales.
Beecham: As you go forward with those, the Council sets the policy, the Council sets the
laddering for example, we’ve talked about. The Council says okay we’ve approved
blocks of X-megawatts for these periods. The Council does set the policy in reasonable
detail for these things to be executed under those policies. In terms of the City Manager
having authority, these are the master agreements and then we set the policy under which
he executes them. I’d also say on the master agreements that from what I’ve seen at
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
NCPA and talked with other folks and watching other issues, these agreements have
changed dramatically over the past couple of years. In the past there were just a couple
of industry standard agreements that everybody had to sign. Based on the turmoil in the
industry and companies going out of business and so on, Palo Alto and NCPA has taken
it into our own hands to basically rewrite these agreements. And I’m, as I see some of
these for the first time tonight, really please at some of the conditions you’ve got the
energy companies to agree to. I mean it’s striking on some of them.
Ulrich: I think you’re looking at this from the standpoint of, I guess I’ll say the worst
case, that you’d add all these up and believe the City Manager could have approval
authority for the entire amount. The reality is that this gives us the options of picking and
choosing which of the master agreements will give us the best price or terms that we are
looking for, conditions at the time we need to purchase. You want to have flexibility to
the staff and the City Manager to get the best price possible but you want to have locked
in, as we’re recommending, all the terms and conditions so the risks of us going off and
purchasing from someone who wasn’t credit worthy or some other problem is minimized
because your approval is just for those terms and conditions. So I think it is an extremely
beneficial contract to give the flexibility and the accountability to you on an on-going
basis because none of can see what the prices will be or some of the other issues going
out eight years. This is the border we have to stay within.
Yeats: I’ll try it one more time. I think I have a better explanation that will make you
more comfortable. They’re proposing to execute these master agreements with Sempra,
BP, Coral and Duke. So there is a threshold or limit for each one of those that could
potentially be our load that we would need for that year. However because of the limit in
the budget where the appropriation you have given them, where the commodity purchase
electric, they can only go to that limit in total for all these suppliers. They cannot go
beyond that limit in any given budget year. Did that help?
Freeman: Yes, and I think that was very clear. My issue was the signature authority of
the City Manager and I think Girish explained that very well. I would like to ask the City
Auditor for her opinion on the comfort level we should feel with this type of transaction.
Another question is did you evaluate this agreement at all?
Erickson: This is Sharon Erickson, City Auditor. Let me start out by saying, you’ll
recall that back, was it a year and a half ago, we issued a report on Utilities Risk
Management. I just reported to you a couple of months ago that they’d implemented
fully half of those recommendation already, the rest of them are in process. Actually, by
adopting this item, it implements the 13th recommendation out of the 24. Which was we
did recommend that this be established, what we called base contracts, that would
operate this way. The reason we came up with that solution is that we wanted to ensure
that competitive, these contracts for competitively purchased under the direction of the
City Council but at the same time preserve flexibility, my favorite word, flexibility on
behalf of the Utilities department that they could go out and purchase energy on a day-to-
day or month-to-month basis. The reason the amounts are so large is, quite simply, they
are a three year rolling contract so they go on for a long time because you want these
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
contracts to be in place. You don’t want staff to have to do this every year and then the
contracts go on for 36 months potentially. So the amounts of money involved gets really
large. In the report we did on Utilities Risk Management there were a whole variety of
recommendations. One of them was hiring an Energy Risk Manager and you are seeing
the fi-uits of some of that here as well. So that at the City there are a number of credit
risks in place, there are load requirements that are more strictly clarified now than they
were before, in my opinion. The point is the City staff would never be able to buy more
than projected load. There are methods in place to monitor that. Staff is tightening up on
the modeling to make sure we stay within load. There is a variety of controls we’ve put
in place, that Utilities has put in place over the last year and a half.
Kishimoto: Let me see if I’m understanding this right. So the cap per company over the
seven years is $75 million, right?
Balachandran: Eight years.
Kishimoto: And the longest you’re committing to go to is three years.
Balachandran: Correct.
Kishimoto: And you said you spend no more than like $20 million at the most a year
anyways?
Balachandran: That’s our estimate right now. Actually it varies between 16 and 27
million. The table that is on page 9 gives a broader picture, it summarizes page 7 too. If
you look at the table it shows how much we’ve spent under the top three contracts,
Western, Calaveras and Coral. And then the purchases under the master agreements
under the different year type. This is an expected case per year.
Kishimoto: I was trying to figure out what the maximum exposure might be to any one
company, it wouldn’t be any more than three years times 27.
Balachandran: That actually depends also. It’s a dynamic kind of limit. It depends on
what their credit rating is. We wouldn’t necessarily go to the max with all these
suppliers. If their credit rating drops. I should let Karl add to it. The number of
guidelines and elements in the contract that would force them to post collateral and also
limit us in terms of volume of how much transactions we can do.
Van Orsdol: Our exposure will be determined by the value of contracts by which we
contract the mark to market value and that, of course, will be determined as forward
prices come in. The other issues related to credit, for example, these companies we
monitor on a very regular basis and when they get to a certain credit limit, we will not do
any further transactions on them. So our actual exposure will be significantly less than
the $27 million.
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
Balachandran: I would like to add one more thing. The ordinance requests that the City
Manager have the authority to transact on a rolling 3-year forward basis from any instant
of time in three years. It also says we can do transactions up to five years but any 5-year
transactions will be brought to the City Council for approval under these master
agreements. So, it’s essentially three years out, the City Manager has authority to do it,
but five years, we will do it under these agreements, but we will come to you for specific
authority on that, very similar to what we did with the Coral contract for the 2005-2009
contract and we came to you for authority for that.
Kishimoto: Can you remind me, did we have that laddering strategy for the gas, is it the
same with electricity or is it more on a ....
Balachandran: In a broad sense, we do have one. One of the guidelines that was
approved to mitigate market risk said don’t buy more than 90% of your load two years
out, not more than 75% of your load five years out. Electricity is much more complicated
than gas because there are capacity requirements, there are operational requirements in a
number of different products including ancillary services. So what we’re doing is we’ve
taken those Council-approved guidelines, we’ve now broken them down into what we
plan to do over three years and that’s very similar to... Essentially you have a laddering
strategy you’ve set for the guidelines but now we’ve broken it down into by month, what
kind of product and capacity and energy and transmission and the ROC will essentially
oversee implementation of that strategy. Implementation of that strategy will be reported
by Karl in his quarterly report as to what kind of transactions we’ve entered into.
Kishimoto: So of the $16-$27 million per year, do you have an idea how much of it is
spot purchases versus one year, two years, three years out kind of thing? Or it depends.
Balachandran: After last __., we do not want to go into the month short. So,
essentially, if anything, we’ll go into the month, we’ll have a little excess because the
risks are asymmetric. On the high side, there’s no limit really to prices. On the low side,
it doesn’t go below $20 million or something like that. Our plan right now is to have a
bunch of 1- and 2-year and 3-year purchases, and depending on hydro conditions. That’s
very different from the gas side. On the gas side, we don’t have supply variability. Over
here we go into a hydro year, we’re going to plan for an average year. But then if there’s
a lot of water that comes in, and sometimes you have a lot of rain in April and May, and
you have a lot of surplus, we may end up selling on the spot market. We could be on the
spot market for a portion of our needs, for sales, on the whole for purchases. We don’t
plan to be short going into the month. And that seems to be a generic. Most public
power utilities follow that kind of
Kishimoto: Maybe I’ll just try to close on that first question that Hillary started out with,
which was kind of the overall exposure, is there a cap we could put on which is smaller
than the $300 million which would be reasonable to the Council. I don’t know if it would
termed as overall exposure or overall contract amount. I don’t know the right structuring
would be, but I don’t know if you know what I’m trying to get at, if there’s some smaller
cap the Council could structure.
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
Balachandran: We know in reality that there’s no way we’re going to spend $300
million. So, actually, I’ll take you to this chart which was created when we thought we
were going to have five suppliers. One of them could go out of business six months from
now or they could decide, "You know what, our risk management policies have changed
from a supplier perspective and we’re not going to provide Palo Alto prices." One
supplier may be providing us very good prices, competitive prices, and based on having
five suppliers, just pick the case, okay could end up with $50 million. So with four
suppliers, right away knock that up another 20-25%, we’re talking about maybe $60
million. So out of the four suppliers, what if one doesn’t show up, so to Speak?
Kishimoto: I think we understand that, but the question is can we add a clause that says
the aggregate of all the contracts applied together will not exceed X.
Balachandran: I can tell you what it will do for us in terms of additional tracking that we
will have to do and also from a supplier perspective, when they look at our ordinance and
see those controls, there are some controls we have in the ordinance which talks about
say the $75 million limit with each supplier. See, the suppliers also want to know exactly
what authorities we have to transact. So they see the $75 million limit, they can track
exactly how they’re doing against that. Look at a $200 million aggregate limit, sales start
to get into the business of how much are we spending with other suppliers too. Are you
guys basically meeting that requirement in your ordinance? So, to answer your question,
it can be done. It’ll be additional work for us. It’ll be providing information to suppliers
that we’ve never provided before. So, it’s an added level of information that we’ll be
providing and, personally, I’ll just toss it out, I think for now we don’t mitigate risk
with...
Beecham: Are there any other questions?
Freeman: ...the full explanation. Now the explanation is on the record, and when people
in the community need to understand - what do you mean the signatory authority, it’s
there. So, even though it takes a little more time, and I might forget in between the gas
and electric and the water, I think it’s good for the public as well as good for us to revisit
that and feel comfortable, as comfortable as we can get with that dollar amount that we’re
making the right decision. So I appreciate that time.
Ulrich: Well, we’ll try to become better at making that explanation because you did ask
that on the gas and we thought we had conveyed that. Thank you for the oppommity to
do it again. We take this very seriously, and, as you can tell, this business has risks to it.
When you look at the furore risks that we have, this is only one of them and that’s why
we’re trying to keep our eyes on the ball and look for those way out ahead. We have
transmission issues, we have relationships with other suppliers and other ways of getting
energy here. But our areas to try to move that risk in such a way that we’re not putting
our eggs into one basket, and that’s why we’ll be back talking to you about energy
resources that are closer to Palo Alto and looking out a far range in addition to the
renewables that we want to bring in. So we appreciate your pushing back on us but I
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
would like you to feel comfortable that we know what we’re doing and we’re going to
do the best job to get energy here. But remember that we’re only going to purchasing
energy based on the expected needs of our customers, not go out and buy more than we
need
and we will live within the budget that we have, so you’ll know that information early on
and based on the approval authority of these contracts, we’ll be back for further approval.
Freeman: There is no question of your ability or knowledge, at least from my
perspective. I appreciate that 100%. It’s just simply a matter of clearly understanding.
We definitely get a Utilities 101 every time we do this to further understand it and I
appreciate that. So, you have my confidence at any rate. It’s just that it does need to be
explained, I think, not only for us but for the public.
Ulrich: Well, that’s the whole point of having a utility owned by the residents of Palo
Alto. You get communication and you should understand and feel comfortable that we’re
giving an explanation everybody can understand. So, feel comfortable and keep pushing
back at us. But it gives us a forum to continue to continue to say to you that this is an
important business to Palo Alto, it has risks in it, and I appreciate all the support from
auditor, risk management, and the policies we have to keep track of where we’re going.
Beecham: Yoriko.
Kishimoto: I just thought of two more quick questions and then I’ll be happy to make the
motion. I guess one is (inaudible) when we start seeing the quarterly report (inaudible),
do you know when should we expect to see the first one?
Beecham: Do you want to (inaudible), Karl?
Van Orsdol: Next week.
Beecham: Can you speed that up any?
Kishimoto: I don’t know if I’m reading this table wrong, page 9 of the CMR, the average
dry and wet year. Shouldn’t the average year be between the dry year and wet year?
Balachandran: We should probably say total transactions under the master agreements.
The thing is, under the wet year, normally I’ll be buying then selling. I think the role
label should be gross transactions.
Kishimoto: All right, with that I’ll be happy to move staff recommendation
Beecham: And I presume (inaudible) on page two did include Arizona Public Service
Company. We did have a note that saying they pulled back from this, so I presume the
motion is not including that one. I presume we all are in agreement so here unanimously
here among us participating with Jack Morrison abstaining due to conflict of interest. Is
it your wish for this to go on consent calendar since it’s unanimous?
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
? Yes.
Beecham: Okay, very good.
Ulrich: Thank you. We’ll put it on the consent calendar as soon as we can get the
minutes together and get it scheduled. It’s scheduled right now for next Monday.
Beecham: Very good. Thank you. And I believe we have finished the agenda and so
with that we can close the door and go home.
DRAFT EXCERPT- FINANCE COMMITTEE 12/9/03
CITY OF PALO ALTO
Memorandum
December 9, 2003
TO:CITY COUNCIL FINANCE COMMITTEE MEMBERS
SUBJECT:AGENDA ITEM NO. 4 : ORDINANCE OF THE COUNCIL OF
THE CITY OF PALO ALTO APPROVING ELECTRIC MASTER
AGREEMENTS WITH ARIZONA PUBLIC SERVICE COMPANY;
BP ENERGY COMPANY, CORAL POWER, LLC; DUKE ENERGY
MARKETING AMERICA LLC; AND SEMPRA ENERGY
TRADING CORPORATION FOR THE PROCUREMENT OF
ELECTRICITY AND AUTHORIZING THE CITY MANAGER TO
TRANSACT UP TO $75 MILLION WITH EACH SUPPLIER
UNDER THESE AGREEMENTS
Arizona Public Service Company has withdrawn their proposal to execute an Electric
Master Agreement with the City of Palo Alto. As a result, staff is modifying its
recommendation in CMR:465:03 (approval item number one in the document) to request
that the Council approve the following:
1.Approve and authorize the Mayor to execute Master Agreements with the
following suppliers who have been deemed qualified to do businesses with the
City with respect to electricity purchases and sales for the period January 2004
through December 2011, under the terms discussed in the report:
a. BP Energy Company;
b. Coral Power, LLC;
c. Duke Energy Marking America, LLC;
d. Sempra Energy Trading Corporation.
The related ordinance will be modified to reflect the deletion of Arizona Public Service
Company.~;.~ ,/~~ ’?/~///
JOH t~itCyHo fb~alUo ~Alto Utilities EMILY HARRISON
Assistant City Manager