02-01-2013 BPU RPT 03 - Laserfiche WebLink

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W A T E R E H E B G Y L F E MW& RIVERSIDE PUBLIC UTILITIES Board Memorandum PUBLIC UTILITIES BOARD OF PUBLIC UTILITIES DATE: February 1, 2013 ITEM NO: 3 SUBJECT: PUBLIC UTILITIES POWER RESOURCES RISK MANAGEMENT POLICIES ISSUE: The item for Board of Public Utilities consideration is approval of revised Power Resources Risk Management Policies which include the Energy Risk Management Policy, the Wholesale Counterparty Risk Management Policy and the Authorized Transactions Policy. RECOMMENDATION: That the Board of Public Utilities recommend that the City Council approve the proposed revisions to the Public Utilities Power Resources Risk Management Policies, including the Energy Risk Management Policy, the Wholesale Counterparty Risk Management Policy and the Authorized Transactions Policy. BACKGROUND: Riverside Public Utilities ("RPU") procures the bulk of its power through long-term contracts. In order to predict how much power will be needed to serve customer load, the Power Resources Division prepares long-term forecasts. In general, the long-term procurements are over five years in length, provide a specified amount of annual power to RPU and are a mix of renewable and non-renewable resources. However, RPU procures approximately 10 to 15% of its power, as well as the natural gas to power internal generation, from short-term contracts and individual purchases to cover planned and unplanned resource outages and additional summer peaking energy needs. These transactions are carried out by Power Resources staff, subject to the oversight of the City Council, the Board of Public Utilities and the RPU Risk Management Committee. The oversight is set forth in the Public Utilities Power Resources Risk Management Policies ("RMP"). In 1998, the first RMP document was approved. This policy was developed to give guidance to staff regarding the purchase and sale of energy related products in the newly deregulated energy market. The RMP prescribes delegations of authority, energy transaction parameters, maximum acceptable risk limits and procedures to manage wholesale counterparty credit risk. The policy is important in rating agency discussions and required for RPU's participation in the California wholesale electric markets. Practice and experience necessitates changes in the policy and contribute information to allow possible different decisions to be made in dealing with the risks being faced. The RMP has been reviewed on an annual basis and recommended changes were periodically adopted by the City. In 2010, the RMP was reformatted and revised to (i) streamline the original policy since it was designed as a comprehensive set of policies geared toward an organization with expansive trading and risk management activities, and (ii) reflect market changes as a result of 2009 California Independent System Operator Market Redesign and Technology Upgrade. The components of the RMP include: Energy Risk Management Policy Wholesale Counterparty Risk Management Policy Authorized Transactions Policy