HomeMy WebLinkAboutStaff Report 2606-6452CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, August 17, 2026
Council Chambers & Hybrid
5:30 PM
Agenda Item
3.Adoption of a Resolution Authorizing the City Manager or Their Designee to Transact for
Electric Supplies to Meet the City’s Electrical Needs under Electric Master Agreements;
CEQA Status: Not a project, CEQA Guidelines 15378(b)(5)
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: August 17, 2026
Report #:2606-6452
TITLE
Adoption of a Resolution Authorizing the City Manager or Their Designee to Transact for
Electric Supplies to Meet the City’s Electrical Needs under Electric Master Agreements; CEQA
Status: Not a project, CEQA Guidelines 15378(b)(5)
RECOMMENDATION
Staff recommends that Council adopt a Resolution (Attachment A):
Authorizing the City Manager or their designee to execute one or more transactions under
Electric Master Agreements with one or more pre-approved suppliers to purchase and/or sell
electricity supplies and related services to meet the City’s forecasted electricity load and
regulatory requirements, subject to the following conditions:
1. The date for delivery of the electricity supplies for each transaction shall not exceed 36
months from the date the transaction is executed;
2. The delivery date of any transaction shall not extend beyond December 2040;
3. The maximum aggregate transaction limit under each Master Agreement shall be $125
million;
4. All transactions shall be subject to the Palo Alto Municipal Code; and
5. All transactions shall be subject to the Energy Risk Management Policy (Attachment B).
6. The transactions shall be undertaken with suppliers that have executed Master
Agreements with the City; to date those suppliers are:
a. Avangrid Renewables, LLC;
b. BP Energy Company;
c. Cargill Power Markets, LLC;
d. Constellation Energy Generation, LLC;
e. DRW Energy Trading LLC;
f. Dynasty Power Inc.;
g. NextEra Energy Marketing, LLC;
h. NRG Business Marketing LLC;
i. PacifiCorp;
j. Powerex Corp;
k. Shell Energy North America (US), L.P.;
l. Silicon Valley Clean Energy Authority (SVCE); and
m. Turlock Irrigation District.
EXECUTIVE SUMMARY
Transacting with an active set of creditworthy counterparties is essential to ensure that the City
meets its electric supply portfolio planning objectives, internal risk management controls, and
external operational and regulatory requirements in a cost-effective and time-efficient manner.
Authorizing the City Manager or their designee to execute transactions under the City’s electric
Master Agreements with pre-approved suppliers will enable the purchase and/or sale of
electricity supplies and related services to meet the City’s forecasted electricity load.
In December 2024 City Council approved a similar resolution authorizing the City Manager or
their designee to transact with specified suppliers for the calendar years 2025 through 2039
period, with an aggregate transaction limit of $75 million (Resolution 102041). The authorization
being sought now is to shift this 15-year authorization period by one year, to calendar years 2026
through 2040 (with any given transaction term not to exceed 36 months from the date the
transaction is executed), and to increase the aggregate transaction limit to $125 million.
BACKGROUND & ANALYSIS
The City procures long-term renewable electricity supplies from solar, wind, landfill gas,
geothermal, and hydroelectric resources, for contract terms that span up to 35 years. In addition,
City staff utilize electric Master Agreements with pre-approved suppliers to balance electric loads
and supplies in the short- and medium-term, from one month to 36 months out. These
transactions are carried out in compliance with the City’s Energy Risk Management Policy, which
was last modified in June 2024 (Resolution 101662).
The City’s Municipal Code also governs these procurements, permitting the City to award
contracts for wholesale utility commodities and services to counterparties which have executed
a Council-approved master agreement and are otherwise eligible to bid, and allowing Council to
authorize the City Manager to award and sign contracts with eligible counterparties under certain
specified limits3. City Council periodically approves new Master Agreements with suppliers to
maintain a diverse set of suppliers for the City to competitively procure electricity supplies.4
1 Resolution 10204:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62085&dbid=0&repo=PaloAlto&cr=1.
2 Resolution 10166: https://portal.laserfiche.com/Portal/DocView.aspx?id=73765&repo=r-
704298fc&searchid=8dd38e5a-e018-4318-9027-4a24829093de
3 Palo Alto Municipal Code sections 2.30.340(a) and (b).
4 In December 2016 Council approved a standard form electric master agreement (Resolution 9652), based on the
year 2000 version of the Edison Electric Institute (EEI) Master Power Purchase and Sale Agreement. This standard
form agreement has been made available to any wholesale utility supplier on the City’s website since that time;
Currently the City has 13 suppliers, including three new suppliers approved by Council in March
2026 (Staff Report: 2508-51179). In October 2019 City Council also approved a standard form
resource adequacy (RA) confirmation letter to the Western States Power Pool (WSPP) master
agreement, and authorized staff to utilize that agreement for carrying out RA transactions
(Resolution 986010).11
In March 2013 City Council approved a resolution authorizing the City Manager or their designee
to transact under electric Master Agreements with nine specified suppliers for the calendar years
2013 through 2027 period, with an aggregate transaction limit of $50 million per agreement
(Resolution 932412). Since that March 2013 Council authorization, staff have undertaken over 220
transactions during the subsequent 13 years, totaling $171.4 million, as outlined in Table 1 below.
Table 1: Transaction Volumes under Approved Electric Master Agreements
As shown above, over the past 13 years, the transaction volumes with two of these suppliers
have exceeded $50 million and are approaching the $75 million aggregate authority limit
established by Resolution 10204. Staff anticipates the volume of transactions in the next 10 to
15 years could be higher due to higher volumes and prices (particularly for resource adequacy
(RA) capacity and renewable energy credits (RECs), both of which have experienced large price
spikes during the past few years). To address these price escalators, staff recommends the
transaction caps applicable to each Master Agreement be increased from $75 million to $125
million.
9 Staff Report 2508-5117:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86830&dbid=0&repo=PaloAlto
10 Resolution 9860: https://www.paloalto.gov/files/assets/public/v/1/city-clerk/resolutions/reso-
9860.pdf?t=52748.06
however, execution of and delegation of authority to transact under standard form master agreements with
specific suppliers remains subject to Council approval before any transactions may be completed.
https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9652.pdf
12 Resolution 9324: https://www.paloalto.gov/files/assets/public/v/1/city-clerk/resolutions/reso-9324.pdf
Supplier Purchases ($) Sales ($)Total Transactions ($)
BP Energy Company 2,020,420 600,300 2,620,720
Powerex 11,489,765 792,328 12,282,093
Shell Energy North America 35,788,992 21,721,729 57,510,721
Avangrid Renewables LLC 56,455 50 56,505
Turlock Irrigation District 709,344 1,628,250 2,337,594
NextEra Energy Marketing, LLC 48,472,511 21,103,693 69,576,204
Cargill Power Markets, LLC 6,329,143 - 6,329,143
Constellation Energy Generation, LLC 13,895,651 6,783,935 20,679,586
Pacificorp Energy - - -
Silicon Valley Clean Energy Authority - 10,000 10,000
TOTAL 118,762,281 52,640,284 171,402,565
As an additional risk mitigation measure, as part of the Utilities Risk Oversight and Coordinating
Committee (UROCC)16, staff will be required to notify and obtain UROCC approval prior to any
given supplier exceeding the existing ($75 million) authorized transaction limit. The UROCC will
be enabled to advise staff on whether to authorize the additional headroom for that supplier,
ensure current analysis such as credit worthiness are reviewed, and manage inherent risk
associate with any over reliance on concentrated providers.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY: Alan Kurotori, Director of Utilities
16 The UROCC, which consists of the Directors of Utilities, Public Works, and Administrative Services, as well as a
representative from the City Manager’s Office, ensures proper risk management controls are in place with respect
to the City’s energy procurement, and ensures compliance with the Council-approved Energy Risk Management
Policy.
NOT YET APPROVED Attachment A
1
6059777
1
1
9
8
5
Resolution No. _____
Resolution of the Council of the City of Palo Alto Authorizing the City
Manager or Their Designee to Transact for Electric Supplies to Meet the
City’s Electrical Loads under Electric Master Agreements, under
Specified Terms and Conditions During Calendar Years 2026 through
2040, Inclusive
R E C I T A L S
A. By Resolution 10204 adopted in 2024, the City Council authorized the City
Manager or their designee to transact electric supplies to meet the City’s electrical loads under
electric Master Agreements with suppliers during a 15-year delivery period, between calendar
years 2025 through 2039, under the following conditions:
I. The maximum term of any transaction shall not exceed three years,
commencing on the date of execution of the transaction;
II. No transaction entered into shall extend beyond December 31, 2039;
III. The maximum expenditure under any Master Agreement shall not
exceed $75 million in the aggregate.
B. The Resolution also noted Council’s approval of an Energy Risk
Management Policy, via Resolution 92721, which provided for the oversight and controls
necessary to manage risks inherent in transacting electric supply under the Master Agreements;
the Risk Management Policy has since been updated, most recently in June 2024 via Resolution
101662.
C. Since the authorization provided in 2024 via Resolution 102043, staff has
undertaken over 20 transactions totaling $59.7 million, of which $33.1 million is outstanding,
meaning that delivery will occur during or after August 2026;
D. In December 2016, via Resolution 96524, Council approved a standard
form electric master agreement based on the year 2000 version of the Edison Electric Institute
(EEI) Master Power Purchase and Sale Agreement. This standard form agreement has been
made available to any wholesale utility supplier on the City’s website since that time; however,
execution of, and delegation of authority to transact under, standard form master agreements
with specific suppliers remains subject to Council approval before any transactions may be
completed.
The Council of the City of Palo Alto does RESOLVE as follows:
1 Resolution 9272: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=53542&dbid=0&repo=PaloAlto
2 Resolution 10166: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62033&dbid=0&repo=PaloAlto
3 Resolution 10204: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62085&dbid=0&repo=PaloAlto
4 Resolution 9652: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=54485&dbid=0&repo=PaloAlto
2
6059777
1
1
9
8
5
SECTION 1. The Council authorizes the City Manager or their designee to execute
transactions under Council-approved Master Agreements with pre-approved suppliers to
purchase and/or sell electricity supplies and related services to meet the City’s forecasted
electricity load and regulatory requirements, subject to the following conditions:
(a) The date for delivery of the electricity supplies for each transaction shall not
exceed 36 months from the date the transaction is executed;
(b) The delivery date of any transaction shall not extend beyond December 2040;
(c) The maximum aggregate transaction limit under each Master Agreement shall be
$125 million. However, as an additional risk mitigation measure, Utilities staff
will notify the City’s Utilities Risk Oversight and Coordinating Committee9
(UROCC) whenever a given supplier approaches the $75 million transaction limit
authorized by Resolution 10204, to permit the UROCC to advise staff on whether
to authorize additional transactions up to the $125 million authorized herein for
that supplier;
(d) All transactions shall be subject to the Palo Alto Municipal Code;
(e) All transactions shall be subject to the City’s Energy Risk Management Policy; and
(f) The $33.1 million worth of outstanding transactions (to be delivered during or
after August 2026) shall be applied against the $125 million maximum
expenditure limit per Master Agreement established herein.
SECTION 2. The suppliers that have Master Agreements with the City and are
authorized to transact are listed below; this list may be expanded with City Council approval.
a. Avangrid Renewables, LLC;
b. BP Energy Company;
c. Cargill Power Markets, LLC;
d. Constellation Energy Generation, LLC;
e. DRW Energy Trading LLC;
f. Dynasty Power Inc.;
g. NextEra Energy Marketing, LLC;
h. NRG Business Marketing LLC;
i. PacifiCorp;
j. Powerex Corp;
k. Shell Energy North America (US), L.P.;
l. Silicon Valley Clean Energy Authority (SVCE); and
m. Turlock Irrigation District.
9 The UROCC, which consists of the Directors of Utilities, Public Works, and Administrative Services, as well as a
representative from the City Manager’s Office, ensures proper risk management controls are in place with respect
to the City’s energy procurement, and ensures compliance with the Council-approved Energy Risk Management
Policy.
3
6059777
1
1
9
8
5
SECTION 3. The Council hereby finds that authorizing the City Manager or their
designee to transact for electric supplies to meet the City’s electrical loads under electric Master
Agreements will not result in any direct or indirect physical change in the environment, and
therefore does not constitute a project requiring environmental assessment for the purposes of
the California Environmental Quality Act, pursuant to CEQA Guidelines section 15378(b)(5).
City of Palo Alto
Energy Risk Management
Policy
City Council Approved: June 10, 2024
Report # 2404-2844
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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.
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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.
Ener Ris Mana ement Polic , Guidelines, and Procedures Dia ram
Energy Risk Management Policy (Highest Level)
Approved by: City Council
Ener Ris Mana ement Guidelines (Guidin 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
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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-anual 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-annual 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-annually 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.
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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.
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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-Annual 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-annual 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;
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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).
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
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 owne the right to purchase energy at the
specified price
Cap Price A structure 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 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 ase on how efficiently generato 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-ase Price A price that varies base on publishe 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
City’s Energy Risk Management Policy Last Approved by City Council on June 10, 2024
Market Purchase Program Program establishe y NCPA whereby a membe may authorize
NCPA to transact on behalf of the member
Master Agreement A standardize agreement fo the purchase an 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 an amount of all purchase energy
Transmission Product The sale o purchase of a non-energy asset to transport energy