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W A I E R I ENERGY I L I F E RIVERSIDE PUBLIC UTILITIES Board Memorandum P U B L I C U T I L I T I F 5 BOARD OF PUBLIC UTILITIES DATE: March 5, 2010 ITEM NO: 13 SUBJECT: PUBLIC UTILITIES POWER RESOURCES RISK MANAGEMENT POLICIES ISSUE: Approval of the revised Power Resources Risk Management Policies which include the Energy Risk Management Policy, the Wholesale Counterparty Risk Management Policy and the Authorized Transactions Policy. RECOMMENDATIONS: That the Board of Public Utilities recommend that the City Council: 1. Approve 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; and 2. Adopt a resolution establishing limits of authority for entry into electric power transactions. BACKGROUND: In October 1998, the first Riverside Public Utilities ("RPU") Power Resources Financial Risk Management Policy and Procedures ("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 was originally designed as a comprehensive set of policies geared toward an organization with expansive trading and risk management activities. Since 1998, the policy has been reviewed on an annual basis and recommended changes were periodically adopted by the City. The RMP prescribes delegations of authority, energy transaction parameters, maximum acceptable risk limits and procedures to management wholesale counterparty credit risk. In 2002, the California Independent System Operator began introducing a market design, known as Market Redesign and Technology Upgrade ("MRTU") in order to improve the efficiency of California's electricity market by managing congestion and maintaining load-generation balance. MRTU went "live" in April 2009 requiring RPU to trade in new markets and new products. As a result, the RMP has been revised to reflect the market changes, provide clarification of RPU's current energy risk management methods, and fits the needs and structure of RPU in the new CAISO MRTU market paradigm. Structure of the Power Resources Risk Management Policies The revised RMP is a set of policies used to manage risk inherent with serving load. RPU's objective is to minimize the overall cost of generating, transmitting and distributing electricity by developing, optimizing and maintaining the lowest cost supply portfolio that maximizes the value of its physical and financial wholesale power transactions. The RMP has three components: Energy Risk Management Policy Wholesale Counterparty Risk Management Policy Authorized Transactions Policy