HomeMy WebLinkAboutStaff Report 2404-2844CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, June 10, 2024
Council Chambers & Hybrid
4:00 PM
Agenda Item
9.Adoption of a Resolution Approving Revisions to the City of Palo Alto Energy Risk
Management Policy
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: June 10, 2024
Report #:2404-2844
TITLE
Adoption of a Resolution Approving Revisions to the City of Palo Alto Energy Risk Management
Policy
RECOMMENDATION
Staff recommends the City Council adopt the attached resolution (Attachment A) revising the
City of Palo Alto Energy Risk Management Policy (ERMP) (Attachment B).
EXECUTIVE SUMMARY
The City’s ERMP is the overriding document for the monitoring, measuring, and controlling risks
associated with electric and gas commodity transactions. Proposed changes to this Policy
are:
1. Memorializing the Utility Risk Oversight Coordination Committee’s decision to have the
City Council receive semi-annual updates from the City Manager regarding energy risk
management activities versus quarterly.
BACKGROUND
City of Palo Alto Utilities purchases gas and electricity to serve the energy needs of residents
and businesses in the City. An energy risk management policy is necessary because commodity
markets are dynamic, commodity purchases are large transaction amounts, and authority to
commit the City to these transactions is delegated down to staff.
The ERMP is the overarching document for the management of the City’s risks associated with
purchasing electric and gas commodities. In addition to the ERMP, there are two more detailed
sets of documents that support it: the Energy Risk Management Guidelines (Guidelines) and the
Energy Risk Management Procedures (Procedures). The documents describe key policies and
control structures to minimize risks by, for example, ensuring transparent and appropriate
purchasing procedures, segregating duties, establishing acceptable risk parameters and limits,
and instituting multiple review processes.
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The Guidelines are more detailed than the ERMP and are reviewed and approved by the
Utilities Risk Oversight and Coordinating Committee (UROCC), which consists of the General
Manager of Utilities, Director of Administrative Services, Director of Public Works, and a
representative from the City Manager’s Office. The Procedures, which cover operational
actions, are approved by the General Manager of Utilities and the Administrative Services
Director. The ERMP clearly delineates that all of the City’s utility contract transactions, whether
carried out under Master Agreements or not, must fully comply with the Municipal Code.
Transactions carried out by the Northern California Power Agency, including scheduling, are
covered under a separate Member Services Agreement.
ANALYSIS
Council last approved the ERMP on June 22, 2020 (Staff Report # 9813). The proposed update
reflects minor changes needed to align the document with current City of Palo Alto Utilities
procurement practices.
Proposed changes to this Policy are:
1. Memorializing the Utility Risk Oversight Coordination Committee’s decision to have the
City Council receive semi-annual updates from the City Manager regarding energy risk
management activities versus quarterly.
Prior to June 2020, the City utilized services provided by the Northern California Power Agency
(NCPA) to more effectively manage the electric utility and lower operating costs. In June 2020
1(CMR ID # 11086), Council approved entering into the Amended and Restated Market
Purchase Program (MPP) Agreement to enable the City to utilize NCPA staff and resources for
the City’s medium-term electric portfolio planning and resource management functions,
functions that were carried out in-house. This authorized NCPA to purchase and sell market
power, resource adequacy capacity products, and renewable energy credits on behalf of the
City. Contracting with NCPA for these functions has enabled Palo Alto to achieve operational
efficiencies and freed up additional staff time to devote to other projects and programs and
shifted the risk associated with this to NCPA staff. The purchases and sales made by NCPA on
Palo Alto’s behalf under the MPP Agreement conform to NCPA’s Energy Risk Management
Policy and Regulations, and to the City’s Energy Risk Management Policies.
To put this into context, the Table 1 below has the three-year actual electric commodity
purchases and excess energy sales by megawatt-hour (MWh). Based on the average three-year
MWh, 95.5% of electric commodity purchases are under long-term agreements that are not
1 https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports-
cmrs/year-archive/2020/id-11086-mini-packet-062220.pdf
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part of this proposed semi-annual reporting. These agreements have and are approved by the
City Council as they are enacted and/or renewed. Of the remaining, 2.5% (Spot Market) net
purchases and sales are done by NCPA under their Risk Management Program. Prior to the
NCPA MPP Agreement, City staff did these purchases and sales. City Utility staff coordinates
with NCPA the amount of MWh purchases and sales needed. A City staff sits as a voting
member of their Risk Oversight Committee and attends their Finance Committee to monitor
their activities. Around 1.9% of commodity purchases and sales (Forward Market) are done by
City staff and is the focus on the proposed semi-annual report.
As a result, based on the above especially because around 1.9% of the commodity purchases
and sales are done by City Staff, semi-annual reporting to City Council is recommended. A
“redlined” version of the document is included as Attachment B.
FISCAL/RESOURCE IMPACT
Approval of the recommendation will not have a financial impact.
STAKEHOLDER ENGAGEMENT
Staff works internally with the UROCC and Utility department for the proposed change.
ENVIRONMENTAL REVIEW
This Council informational report is not a project under California Environmental Quality Act
(CEQA) as defined in CEQA Guidelines, section 15378, because it has no potential for resulting
in either a direct or reasonably foreseeable indirect physical change in the environment.
Table 1: Electric Commodity Purchases and Excess Energy Sales - Megawatt-Hour (MWh) by Calendar Year
Resources
Calaveras 46,497 5.7% 63,719 7.5% 232,332 26.9% 114,182 13.5%
COBUG 0.0% 3 0.0% 21 0.0% 8 0.0%
Landfill 104,441 12.7% 96,930 11.4% 101,912 11.8% 101,094 12.0%
Solar 311,975 37.9% 330,752 39.0% 362,488 42.0% 335,072 39.7%
Western 208,961 25.4% 96,383 11.4% 275,030 31.9% 193,458 22.9%
Wind 121,300 14.7% 39,012 4.6% 29,341 3.4% 63,218 7.5%
Sub-Total 793,174 96.4% 626,798 73.9% 1,001,124 116.0% 807,032 95.5%
Forward Market (City Staff)(3,136)(0.4%)64,339 7.6% (12,120)(1.4%)16,361 1.9%
Spot Market (NCPA)32,666 4.0% 157,404 18.6% (125,614)(14.5%)21,486 2.5%
Sub-Total 29,530 3.6% 221,743 26.1% (137,734)(16.0%)37,847 4.5%
Grand Total 822,705 100.0% 848,541 100.0% 863,390 100.0% 844,879 100.0%
Note: negative amounts represent (net) excess energy, typically due to Hydro generation, that are sold.
Three Year Average202320222021
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ATTACHMENTS
Attachment A: Resolution of the Council of the City of Palo Alto Approving Revisions to the City
of Palo Alto Energy Risk Management Policy
Attachment B: Proposed Energy Risk Management Policy with Redline Changes
APPROVED BY:
Lauren Lai, Administrative Services Director
NOT YET APPROVED
ATTACHMENT A
Resolution No. XXXX
Resolution of the Council of the City of Palo Alto Approving Revisions to the City
of Palo Alto Energy Risk Management Policy
RECITALS
A. In 1998, the City of Palo Alto (“City”) adopted a policy governing the
management, monitoring, and hedging of risks associated with electric and
natural gas commodity transactions effected by the Utilities Department.
B. The policy is memorialized in the document entitled “Energy Risk
Management Policy” (“Policy”), which the City most recently updated on June 22,
2020.
C. Staff has identified an opportunity to update the Policy to change the schedule
for reporting to the City Council on energy risk management activities from quarterly to
semi-annually.
NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. The Council hereby approves the City of Palo Alto Energy Risk
Management Policy (Attachment B), as amended.
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
NOT YET APPROVED
ATTACHMENT A
SECTION 2. Adoption of this Resolution is not a project under California
Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because it has
no potential for resulting in either a direct or reasonably foreseeable indirect physical change in
the environment.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
City Attorney City Manager
Director of Administrative Services
General Manager of Utilities
Proposed
With Redline Changes
City of Palo Alto
Energy Risk Management
Policy
May 2024
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
City of Palo Alto Energy Risk Management Policy
Table of Contents
A.OBJECTIVE AND SCOPE.......................................................................................................2
B.APPLICABILITY......................................................................................................................3
C.RISK MANAGEMENT ROLES, RESPONSIBILITES, AND ORGANIZATION..............4
1.City Council ............................................................................................................................4
2.Utilities Advisory Commission..............................................................................................4
3.City Manager..........................................................................................................................4
4.Utilities Risk Oversight and Coordinating Committee (UROCC) ....................................4
5.CPAU/ASD Oversight............................................................................................................4
b.ASD Middle Office – Risk Management Controls and Reporting ...........................................................................5
c.Back Office – Settlement and Recording.....................................................................................................................5
6.NORTHERN CALIFORNIA POWER AGENCY (NCPA)...............................................5
D.TRANSACTIONS......................................................................................................................6
2.Maximum Transaction Term ......................................................................................................................................6
3.Competitive Process......................................................................................................................................................6
E.COUNTERPARTY CREDIT ....................................................................................................6
F.RISK MANAGEMENT REPORTING....................................................................................7
G.AUTHORIZED PRODUCTS ..................................................................................................7
H.TRANSACTING AUTHORITY...............................................................................................8
I.CONFLICT OF INTEREST .....................................................................................................8
J.DODD-FRANK APPLICABILITY AND COMPLIANCE ...................................................8
GLOSSARY OF TERMS................................................................................................................9
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
A.OBJECTIVE AND SCOPE
The City of Palo Alto’s (City) Department of Utilities (CPAU) purchases and sells
electricity and gas to meet the needs of its customers. The City’s Energy Risk Management
Policy (ERM Policy) describes the management organization, authority, and processes to
monitor, measure, and control market risks, which include price risk, credit risk, and
operational risk, to which the City is exposed in the normal course of managing its energy
portfolio to meet the needs of the City’s electric and gas utility customers.
The ERM Policy describes the key policies and control structures for prudent energy risk
management processes, in accordance with the City’s municipal code, financial
requirements set forth by the City Council and the Director of Administrative Services, and
applicable law. The ERM Policy focuses on the following areas:
•Segregation of duties and delegation of authority (Section C)
•Organizational structure for risk management controls to include the front,
middle, and back offices (Section C)
•Transacting (Section D)
•Counterparty credit (Section E)
•Reporting (Section F)
•Permitted transaction and product types (Section G)
•Conflict of interest (Section I)
The ERM Policy sets forth the City’s objectives, policies and control structures for prudent
energy risk management. This Policy is supported by policy/implementation- level and
operations-level documents including: the Energy Risk Management Guidelines (ERM
Guidelines); Energy Risk Management Procedures (ERM Procedures) for the Front,
Middle, and Back Offices; and the Long-Term Electric Acquisition Plan (LEAP), Gas
Utility Long-Term Plan (GULP), and the Utilities Strategic Plan. The ERM Policy does
not address general CPAU business risks such as fire, accident, casualty, worker health and
safety, and general liability. Neither does the Policy cover the water fund, the electric and
gas distribution business units, nor the telecommunications business unit.
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
B.APPLICABILITY
The ERM Policy applies to all City employees within business units engaged in transacting
in the electric and gas markets. All employees participating in the energy procurement
process must have knowledge of the ERM Policy and adhere to it during such participation.
The electric and gas supply business units are part of the electric and natural gas enterprise
funds and employees within these business units are responsible for the acquisition and
potential sale of energy supply resources.
Employees within the relevant business units are required to follow the ERM Policy
regarding these topics: management, organization, authority, processes, tools and systems
to monitor, measure, and control risks to which the City is exposed.
Energy Risk Management Policy, Guidelines, and Procedures Diagram
Energy Risk Management Policy (Highest Level)
Approved by: City Council
Energy Risk Management Guidelines (Guiding Principles)
Approved by: Utilities Risk Oversight Coordinating Council (UROCC)
Energy Risk Management Procedures-(Detailed instructions on how to perform the
procedures.) Front Office (approved by Utilities Director) Middle Office (approved
by Administrative Services Department (ASD) Director, Back Office (approved by
Utilities and ASD Directors)
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
C.RISK MANAGEMENT ROLES, RESPONSIBILITES, AND
ORGANIZATION
This section defines the overall roles and responsibilities for the City’s implementation of
the ERM Policy. Additionally, the ERM Guidelines and Procedures contain more specific
information describing these roles and responsibilities within the energy risk management
program structure at the City.
1.City Council
The City Council reviews and adopts by resolution the ERM Policy as developed and
recommended by the Utilities Risk Oversight and Coordinating Committee (UROCC) and
delegates its implementation to the City Manager. The Council will, at a minimum, review
the Policy every three years. Additionally, the City Council shall receive semi-anualquarterly
updates from the City Manager regarding energy risk management activities.
2.Utilities Advisory Commission
The Utilities Advisory Commission (UAC) is responsible for advising the City Council on
long-range planning and policy matters relating to the electric and gas utilities. While it has
no formal responsibility in energy risk management, the UAC shall receive informational
copies of the semi-annualquarterly reports sent to the Council regarding energy risk
management activities.
3.City Manager
The City Manager has overall responsibility for executing and ensuring compliance with
policy adopted by the City Council. The City Manager reports semi-annuallyquarterly to the
City Council regarding energy risk management activities.
4.Utilities Risk Oversight and Coordinating Committee (UROCC)
The UROCC is an advisory board which governs by the UROCC Roles and Purpose
document. UROCC consists of city management and staff. It is comprised of the Utilities
General Manager (designated as the Chairperson), the Director of Administrative
Services/Chief Financial Officer, the Director of Public Works, and a representative from
the City Manager’s Office. The staff City Attorney assigned to Utilities and the City
Auditor serve as non-voting advisors to the UROCC. The Energy Risk Senior Management
Analyst serves as the Secretary to the UROCC. The UROCC is responsible for monitoring
compliance with the ERM Policy. The UROCC is also responsible for approving and
implementing the ERM Guidelines consistent with the City Council- approved ERM
Policy.
5.CPAU/ASD Oversight
City Staff (CPAU, ASD) implements and oversees ERM Policy, the ERM Guidelines, and
ERM Procedures at the operational level in the City’s Front Office, Middle Office and
Back Office.
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
a.Utilities Resource Management Front Office – Planning and Procurement In
reporting to the Utilities General Manager, the Front Office is primarily responsible for
resource planning and procuring energy supplies and services. The Front Office, by
delegation of the City Manager, has a critical role in risk management through its
transacting operations. Front Office staff has the authority to commit the financial capital
of the City to energy transactions with counterparties up to the limits designated in the
ERM Guidelines.
b.ASD Middle Office – Risk Management Controls and Reporting
The Middle Office consists of the Energy Risk Senior Management Analyst, and he or she
shall institute, supervise, and review all energy risk management activities, including
portfolio exposure, credit exposure, transaction compliance, and ongoing approval of
counterparties and transacting limits. In reporting to the Director of Administrative
Services/Chief Financial Officer, the Middle Office provides the primary independent
oversight of the energy procurement practices.
c.Back Office – Settlement and Recording
The Back Office is primarily responsible for settlement of bills, recording transactions,
bookkeeping and accounting, and contract administration. Functions within the Back
Office are performed by both the Administrative Services Department (ASD) and CPAU
staff and are detailed in the ERM Guidelines.
6.NORTHERN CALIFORNIA POWER AGENCY (NCPA)
NCPA balances the City of Palo Alto’s electric loads and electric supplies on a daily,
hourly, and sub-hourly basis. The City is a member of the Northern California Power
Agency (NCPA), which executes transactions on the City’s behalf. NCPA also undertakes
transactions for durations greater than a month under the terms of the Council approved
Market Purchase Program Agreement (MPP). The NCPA Commission approves its own
energy risk management policies for the acquisition of energy supply resources. The City’s
energy risk management staff, however, is actively involved in NCPA’s Risk Oversight
Committee and meetings to monitor possible risk exposures resulting from the City’s
membership in the NCPA Joint Powers Agency, even where the City is neither a project
nor a program participant, to ensure that NCPA observes best practices in its energy risk
management program as it relates to the City.
All transactions undertaken by NCPA on behalf of Palo Alto under the MPP shall be
governed by NCPA’s Risk Management Policy and Regulations, the City’s Energy Risk
Management Policy and Guidelines, and the Council Resolution (#9896) approving the
MPP Agreement. In the event of a conflict between the City’s and NCPA’s ERM governing
documents, staff will direct NCPA to adhere to the City’s ERM Policy and Guidelines, via
staff’s authorization of individual transactions under the MPP.
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
D.TRANSACTIONS
Transactions under the Electric Master Agreements and the Gas Master Agreements
(collectively, Master Agreements) must be executed as described in this section and in a
manner consistent with the authority granted by the Council to the City Manager and the
Palo Alto Municipal Code (PAMC). Such transactions will be carried out to manage risk
inherent to the electric and gas supply portfolios without exposing the City to unnecessary
risk. There are three key elements:
1.Anti-speculation
Speculative buying and selling of energy products is prohibited. Speculation is defined as
buying energy not needed for meeting forecasted load or selling energy that is not owned.
In no event shall transactions be entered into for the purpose of speculating on market
conditions. The ERM Guidelines shall prescribe volume and sales dollar amount limits for
forward purchases and sales.
2.Maximum Transaction Term
The maximum term of any supply resource transaction (purchase or sale) is five years, as
stated in PAMC Section 2.30.210(k), unless approved by the Council.
3.Competitive Process
The Front Office will endeavor to obtain three or more quotations from eligible electric
and gas supply counterparties and select the best price. The ERM Guidelines outline the
trade capture process.
E.COUNTERPARTY CREDIT
Credit exposure related to wholesale commodity transactions and potentially defaulting
counterparties shall be minimized by:
1.Establishing a credit risk management governance and oversight structure within
the existing ERM program;
2.Providing a framework to enable the City to qualify energy suppliers and transact
with eligible counterparties;
3.Providing counterparty transacting parameters (limits) to control and measure the
City’s exposure to any one supplier;
4.Implementing a mechanism to monitor and report on supply portfolio-related
counterparty credit exposures; and
5.Managing counterparty credit requirements.
PAMC Section 2.30.340 sets forth creditworthiness standards and certain contractual
provisions applicable to contracts for wholesale utility commodities and services. As such,
transactions carried out under the Master Agreements are limited to counterparties with a
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
Standard and Poor’s issuer rating of BBB- or better, or a Moody’s Investor Services issuer
rating of Baa3 or better. Only the Council can approve exemptions to this requirement (See
PAMC Section 2.30.340(d)(2)(c)).
The ERM Guidelines shall set forth specific counterparty credit limits for volume, term,
credit exposure, and counterparty reporting requirements.
F.RISK MANAGEMENT REPORTING
Reporting of critical information to relevant parties is a key component of energy risk
management. Semi-AnnualQuarterly reports will be distributed to the UROCC, the UAC,
and the Council; those reports shall provide details on the City’s forward contract
purchases, market exposure, credit exposure, counterparty credit ratings, transaction
compliance, and other relevant data.
The Front and Middle Offices shall prepare performance reports containing an analysis of
physical and financial positions. The frequency and content of performance reports for each
oversight body shall be prescribed in the ERM Guidelines. Should the risks associated with
the portfolio or a specific transaction within the portfolio fall outside of the risk limits
prescribed in the ERM Guidelines, the Energy Risk Senior Management Analyst will
quantify the risk, identify and recommend a remedy, if any, and report to the UROCC
within one business day via email. The event and remedy, if any, will be reported to the
Council in the next semi-annualquarterly energy risk management report.
G.AUTHORIZED PRODUCTS
The Council shall delegate to the City Manager the authority to transact under Council-
approved Master Agreements. Products transacted under the Master Agreements (listed
below) must be consistent with the needs of CPAU and fall within the authority granted by
the Council to the City Manager. The following products and/or transactions are approved
to be executed under the Master Agreements:
1.Purchase of physical fixed price, index-based price, call options, capped-price or
collar-priced energy, gas, capacity, transportation, basis and transmission products
to meet load requirements;
2.Sale of physical fixed price or index-based price energy, gas, capacity, storage, and
transmission incidental to load;
3.Purchase of electric heat rate products to meet load;
4.Purchase and sale of renewable energy credits (RECs) with or without bundled
energy;
5.Purchase of gas storage;
6.Purchase and sale of electric ancillary services;
7.Purchase of resource adequacy capacity products to meet the City’s resource
adequacy requirement and the sale of resource adequacy capacity products to
reduce cost associated with the City's resource adequacy obligation;
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
8.Fixed price or index-priced purchases and sales to substitute the use of higher
cost resources with lower cost market alternatives;
9.Fixed price or index-priced forward purchases and sales of transmission and
transmission rights to meet contractual obligations or to dispose of surplus
capacity;
10.Purchase of physical call options and physical collars;
11.Purchase and sale of emission allowances from bilateral trades and from the
California Air Resources Board-administered Cap and Trade Program auctions
and reserve auctions to satisfy actual and/or forecasted GHG emissions
compliance obligations;
12.Purchases of carbon offsets to supply voluntary programs and/or to satisfy
GHG emission compliance; and
13.Sales of Low Carbon Fuel Standard (LCFS) credits.
H.TRANSACTING AUTHORITY
In accordance with PAMC section 2.30.210(k), the City Manager has the authority to
purchase and sell wholesale energy commodities for terms of up to five years and for a
price not to exceed $250,000 or more in any one year. PAMC section 2.30.270(b) governs
the City Manager’s delegation of authority. Delegation of authority for and on behalf of the
City Manager shall be established in the ERM Guidelines. The City Clerk maintains the
list of CPAU staff authorized to engage in wholesale utility commodity transactions.
I.CONFLICT OF INTEREST
In accordance with Chapter 2.09 of the PAMC and applicable California law, City
personnel who are involved in transacting and exercising oversight of CPAU’s supply
resource acquisition, contract negotiation, risk management, and back office programs may
not participate in decisions in which they have a conflict of interest.
J.DODD-FRANK APPLICABILITY AND COMPLIANCE
Congress adopted the Dodd-Frank Act1 in 2010, which includes a variety of federal
regulations largely affecting financial institutions. Certain types of “swap” transactions are
subject to disclosure, registration and reporting requirements under Dodd-Frank, depending
on the details of each individual transaction and the characteristics of the transacting
parties. Since Dodd-Frank’s enactment, City utility transactions have fallen below
applicable Dodd-Frank compliance triggers and have meet the Act’s exemptions from the
definition of “swaps”.
1 Pub. L. 111-203, 124 Stat. 1376 (2010).
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
GLOSSARY OF TERMS
Back Office A set of positions in the Utilities and Administrative Services
Departments whose responsibilities include trade confirmation,
accounting, and other processes that support commodity transactions
California Independent
System Operator (CAISO)
A non-profit public benefit corporation that oversees the operation
of California's bulk electric power system, transmission lines,
and market for electricity generated and transmitted by its member
utilities.
Call Options An option that allows the owner the right to purchase energy at the
specified price
Cap Price A structured product that contains a strip of multiple call option
contracts with identical but staggered expirations.
Carbon Offsets A reduction in emissions of greenhouse gases (GHGs) made in order
to compensate for or to offset an emission made elsewhere.
Credit Risk The probable change in the value of a contract due to a counterparty
Defaulting.
Electric Ancillary Services The services (e.g., scheduling and dispatch) necessary to support the
transmission of electric power from seller to purchaser given the
obligations of control areas and transmitting utilities within those
control areas to maintain reliable operations of the interconnected
transmission system. For example, spare generating capacity that can
quickly increase its energy output if the grid needs additional energy
is an ancillary service.
Electric Heat Rate Product A contract based on how efficiently a generator uses heat energy in
fuel (i.e., natural gas) to generate electricity.
Front Office A set of positions in the Utilities Department whose responsibilities
include energy procurement operations. NCPA staff is permitted to
undertake Palo Alto Front Office functions on the City’s behalf, as
needed to conduct transactions authorized under the City’s Market
Purchase Program Agreement with NCPA.
Index-based Price A price that varies based on published index prices.
Low Carbon Fuel Standard
(LCFS) Credit
A product that can be bought or sold under the California Air
Resource Board’s program to reduce the carbon intensity of
transportation fuels.
Market Risk The probable change in value of (or sensitivity to) a contract,
position, or portfolio due to general changes in market conditions
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Reso #9896City’s Energy Risk Management Policy Last Approved by City Council on June 22, 2020
Market Purchase Program Program established by NCPA whereby a member may authorize
NCPA to transact on behalf of the member
Master Agreement A standardized agreement for the purchase and sale of wholesale
energy commodities
Middle Office A set of positions in the Administrative Services Department whose
responsibilities include energy risk management activities
Physical Fixed Price A contract for a fixed price which settles when one counterparty
delivers the commodity to another counterparty and pays a cash
settlement
Resource Adequacy (RA)A regulatory construct developed to ensure that there will be
sufficient resources available to serve electric demand under all but
the most extreme conditions
Resource Adequacy
Qualifying Capacity
Products from a generation unit located in the CAISO control area
that meet RA requirements
Risk Management The set of skills and processes for measuring, controlling, and
hedging risk.
Supply Portfolio The composition and amount of all purchased energy
Transmission Product The sale or purchase of a non-energy asset to transport energy