HomeMy WebLinkAbout13 District Code Title 3 Agenda Item # 13
W7,
Public Utility District
WORKSHOP
To: Board of Directors
From: Stephen Hollabaugh
Date: May 07, 2008
Subject: District Code, Title 3, Finance and Accounting
1. WHY THIS MATTER IS BEFORE THE BOARD
The District Code should periodically be reviewed and updated to conform to District
Board policies and new applicable laws and regulations.
2. HISTORY
Chapter 3.06 of the District Code was last revised in 2003. This section was written
with the Constellation Power Source contract in mind. The Constellation contract
accounted for more than 95% of the District's supply up until the end of 2007. Since
that time, the District has joined the UAMPS Pool Project and entered into a number
of electric supply contracts to make up a diverse electric supply portfolio.
3. NEW INFORMATION
Chapter 3.06 has been revised taking into consideration the District's Renewable
Portfolio Standard (RPS). Attached are the existing Chapter 3.06 and the proposed
new Chapter 3.06. This Chapter has been completely re-written from start to finish
and a new name of "Electric Supply Procurement is proposed.
This section addresses risk management as it relates to Electric Supply
Procurement. There are two thoughts on how to limit risk. One is to have long term
fixed rate contracts while the other involves diversifying your supply portfolio. The
District is coming off a long term fixed contract that served the District well. However
the future supply will be more diversified and this section is focused on that risk
management strategy.
Given the volatile nature of electric supply, risk management and rate reserves need
to be addressed and goals set.
FINANCIAL GOALS:
Electric Supply Procurement is a large part of the District's overall expense. The
District's Financial Goals and reserves must be addressed in order to manage the
District in an effective, efficient and fiscally responsible manner as stated in the
District's Mission Statement.
The existing goal for rate stabilization fund is found in District Code section 3.01.
•Electric rate stabilization fund should maintain a balance of $1,000,000, which
equates to just more than 1 month of costs for electric supply.
Other Utilities have reserves that range from six-months to one-month. A three-
month rate reserve is a good average that the District can use as a goal.
Staff recommends the Electric rate stabilization fund maintain a balance of
$3,000,000, which represents just under three months of purchased power costs.
This will raise the current goal from about 8% to 24% of the current electric supply
annual costs. The District could continue funding the rate stabilization fund as it's
current level to eventually achieve this goal.
4. FISCAL IMPACT
Increasing the rate reserve (rate stabilization fund) goal from $19000,000 to
$3,000,000 could be achieved by continuing to fund rate reserves as is currently
budgeted for. Over time, the goal may be achieved.
5. RECOMMENDATION
Review this report and provide comments.
S phen Hollabaugh, A istant General Michael D. Holley, General Manager
Manager
CHAPTER 3.06
PURCHASED POWER OLD VERSION
Sections:
3.06.010 Contracts Regarding the Purchase of Wholesale Power
3.06.010 The District has entered into a contract with Constellation Power Source, Inc.
that includes a monthly shaped block purchase designed to meet the Districts average
projected load for each month and for a put/call portion. The monthly shaped block
purchase is at a fixed price, while the put/call option is based an an index. The purchase
of power and energy on an index places a price risk on the District which can be
managed by purchasing financial instruments and or physical instruments.
3.06.010.1 The Power Supply Engineer of the District, in consultation with staff of
Northern California Power Agency and with the approval of thy: District General
Manager, is authorized to execute financial and or physical contracts which manage the
price risk of the power and energy purchased from the market subject to the following
terms and conditions.
3.06.010.1(A) A minimum of two telephone quotes shall be secured from the market. .
Such quotes shall be recorded on the transaction memorandum which shall be prepared
to document the actions leading up to purchase of the contract.
3.06.010.1(B) The Power.Supply Engineer shall consult with the appropriate staff of the
Northern California Power Agency regarding the desirability to seek quotes and shall
again so consult.:,`after receipt of the two quotes. These consultations shall be
documented in the transaction memorandum.
3.06.010.1(C In no event shall any single contract entered into under authority of this
policy extend for a period of greater than three months.
3.06.€110.1(D) Prior to executing: the contract, the Power Supply Engineer shall submit
his recommendation to the General Manager of the District. After securing approval
from the `General Manager, the Power Supply Engineer is authorized to execute the
contract.
(Reso 9720,0317)
Title 3 Page 1
- - -DRAFT- - -
CHAPTER 3.06
ELECTRIC SUPPLY PROCUREMENT
Sections:
3.06 GENERAL - It is the objective of the District to:
1. Provide an adequate, reliable and high quality electric supply and
distribution system to meet current and future needs.
2. Assure that no activities related to energy supply purchase and sales will
expose the District to possibility of large financial losses in relation to the
size of the electric supply reserve funds.
3. Maintain and implement a long-term energy and load forecast.
4. Maintain and implement an Electric System Master Plan, including the
required facilities to meet the current and future demand and reliable
supply.
5. Procure and contract for low cost electric power supplies to reliably meet
current and future loads.
6. Seek power supply from a resource mix that satisfies District Renewable
Portfolio Standard (RPS), Code Section 7.83.
3.06(A) RPS Supply Objectives:
1. Maintain reliable overall energy supply portfolio
2. Minimize adverse impact of acquiring new energy resources on
customer electric rates.
3. Renewable resources are defined as non-fossil fueled electric
generating resources, including hydroelectric pursuant to Section
398.4(h) (1) of the California SB 1305.
3.06(B) RPS Supply Target:
1. Strive to include qualifying resources to meet projected demand.
2. Assure resource portfolio will have a minimum 21% of renewable
resources by the end of 2010.
3.06(C) RPS Supply Strategies:
1. Utilize Public Benefit funds to implement projects and to
supplement appropriate capital expense projects.
2. Allocate District Western Area Power Administration (WAPA) as a
non-fossil fuel resource included in the RPS supply.
3. Strive to acquire small hydro and geothermal electric supply from
WAPA, NCPA, or UAMPS that are located within or can be
transmitted to the Sierra Pacific control area.
4. Consider contracting for geothermal generation and wind
generation backed by natural gas.
5. Find and support solar and other renewable generation
opportunities within District service area.
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3.06.1 PROCUREMENT OBJECTIVES
1. Balance the need to purchase sufficient, reliable electric energy within
District RPS target and the tolerance for risk established by the Board
of Directors.
2. Provide stable electric rates to customers.
3. Preserve a supply cost advantage.
4. Provide procurement control procedures that are sufficient to
indentify, evaluate and manage risk.
3.06.2 COMMODITY PRICING POLICY
1. The General Manager is responsible for implementing the Electric
Supply Procurement policy by overseeing the process of all rate
schedule development and ensuring that all procedures are followed
consistently and that all transactions and calculations are
appropriately documented.
2. Commodity Pricing is composed of two principles with the first
principle (A) having priority over the remaining principle:
3.06.2(A) Direct Cost Recovery
All direct costs of providing service will be recovered in rates.
3.06.2(B) Risk Management
To the extent practicable, all risks must be insured and contract
terms must protect the District from major negative contingencies.
3.06.3 COUNTERPARTY CREDIT POLICY
The objective of the Counterparty Credit Policy is to minimize the potential
adverse financial impacts on the District in the event of a defaulting counterparty.
The District will strive to use Joint Power Agencies (NCPA or UAMPS) to check
Counterparty Credit and meet the objective of this policy.
The policy is to minimize the District's credit exposure and potential adverse
financial impacts by:
1. Establishing credit risk management governance and oversight.
2. Providing counterparty transaction parameters (limits) to control and
measure the District's exposure to any one supplier, and
3. Implementing a mechanism to monitor and report on supply portfolio
related counterparty credit exposure.
This policy applies to market-based commodity transactions as well as to
physical asset-based transactions, such as transmission capacity and generation
ownership.
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3.06.4 TRANSACTING POLICY
3.06.4(A) 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 to speculate on market conditions.
3.06.4(B) Maximum Transaction Term
The maximum term of any supply transaction, either purchase or sale,
shall be ten years, unless specifically approved by District Board, to meet
long-term portfolio planning objectives.
3.06.4(C) Portfolio Performance and Value Reporting
Electric Utility Manager shall prepare performance reports containing
analysis of physical and financial positions of all electric contracts. If the
ratio of the market value of a contract falls outside the risk limits
prescribed by the District Directors, then the General Manager shall
inform the Board of this fact and recommend actions.
3.06.4(D) Competitive Process
Whenever possible, Electric Utility Manager shall obtain three or more
quotations when making a purchase or sale transaction and select the
best price from a responsible qualified bidder.
3.06.4(E) Oversight
The Electric Utility Manager shall provide an oversight role along with the
Administrative Services Manager reporting to the General Manager:
1. The Electric Utility Manager shall perform review of portfolio
exposure, credit exposure, transaction compliance and
monitor risk limit compliance.
2. The Electric Utility Manager shall make recommendations to
the General Manager to temporarily or permanently halt
transactions with one or more counterparties; exceptions to
rules and procedures, or other operational exceptions that
represent unacceptable risk exposure.
3. The Administrative Service Manager shall audit, and review all
transactions, exceptions, and settlement payment accuracy.
Report audit and other findings to the General Manager.
3.06.5 AUTHORIZED TRANSACTING PRODUCTS
Products allowed for electric transactions include energy, capacity,
transmission and ancillary service. Only physical transacting products
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are approved by the Board. Financial products are explicitly prohibited.
Only the Power Supply Engineer, with General Manager counter
signature, is authorized to perform a District energy transaction:
1. All transactions must be committed by authorized transaction
personnel.
2. All transactions must be with approved counterparties with
executed and Board approved contracts.
3. All transactions must be with counterparties with adequate
available credit.
4. All transactions must be committed over recorded phone lines
or via electronic mail.
5. All transactions must be for allowed transaction products.
6. All transactions must be consistent with Electric Supply
Procurement policy.
Failure to observe and comply with this Policy when executing energy
transactions is a violation of District Code and is subject to disciplinary
action.
3.06.6 TRANSACTING AUTHORITY
The General Manager has the authority to purchase and sell energy
products for terms of up to three years under open purchase contracts.
Authority to enter into transactions must be based on District Board
approved contracts such as master agreements, purchase agreements or
other contractual forms. In all cases the District Code provides the final
authorization rules and regulations for energy purchases.
3.06.7 CONFLICT OF INTEREST
Personnel involved in transacting and oversight of the District energy
supply resource acquisition products may not engage in financial conflicts
of interest, unless the District Directors are duly informed and it elects to
waive such conflicts. All personnel in procuring or selecting
counterparties for contracting or transacting are required to complete, on
an annual basis, the Form 700 Disclosure forms and submit these forms
to the District Clerk. The General Manager is responsible for routinely
reviewing the Form 700 of each personnel engaged in the supply
resource decision-making process for the purpose of identifying potential
conflicts of interest. District Counsel will assist the General Manager in
reviewing these forms and providing legal advice in connection with such
reviews.
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