POWER RESOURCES RISK MANAGEMENT POLICIES Board of Public Utilities - - PowerPoint PPT Presentation

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POWER RESOURCES RISK MANAGEMENT POLICIES Board of Public Utilities January 18, 2013 INTRODUCTION RPU'S supply portfolio is exposed to several risks Load variability Cost variability Counterparty risk Energy commodity

SLIDE 1

POWER RESOURCES RISK MANAGEMENT POLICIES

Board of Public Utilities January 18, 2013

SLIDE 2

INTRODUCTION

RPU'S supply portfolio is exposed to several risks
Load variability
Cost variability
Counterparty risk
Energy commodity price volatility
Regulatory/legislative risk
RPU is a cost-hedger
Primary object to manage cost of serving its

customers

SLIDE 3

HISTORY

1996 The Electric Utility Industry Restructuring Act (AB 1890) becomes law 1998 RPU Power Resources Financial Risk Management Policy and Procedures approved by City Council 2009 CAISO Market Redesign and Technology Upgrade goes live 2010 City Council approves the revised Power Resources Risk Management Policies (PRRMP) 2013 Proposed revisions to PRRMP to better fit needs and organizational structure of RPU

SLIDE 4

PRRMP COMPONENTS

The PRRMP is made up of three Policies

Energy Risk Management Policy
Wholesale Counterparty Risk

Management Policy

Authorized Transactions Policy

SLIDE 5

ENERGY RISK MANAGEMENT POLICY

Introduction to risk management objectives
Risk governance structure and responsibilities
Delegations of authority
Segregation of duties
Hedging program

SLIDE 6

WHOLESALE COUNTERPARTY RISK MANAGEMENT POLICY

Analytical procedures for
Assessing risk limits
Open lines of counterparty credit
Managing counterparty exposure
Approval authorities
Internal Assessment of Risk Management Controls

For California Wholesale Electric Markets

SLIDE 7

AUTHORIZED TRANSACTIONS POLICY

Defines types of authorized transactions
Sets forth contract terms and conditions
Approval process for new products
Addresses transaction management and speculation

SLIDE 8

SCOPE OF PRRMP

Eighty-five percent of RPU's wholesale power

portfolio is managed through long-term contracts

PRRMP provides oversight for power and natural

gas short-term transactions to

Cover resource outages
Provide additional summer peaking energy needs
Meet regulatory requirements
Represents $15 million in FY 2011-12

SLIDE 9

GOVERNANCE

Risk Management Committee is responsible for approving procedures to ensure compliance Members: Public Utilities General Manager Assistant General Manager/Resources Assistant General Manager/Finance Energy Risk Manager

SLIDE 10

PROPOSED CHANGES to PRRMP

Aligns the delegations of authority under

Front-, Middle-, or Back-Office

Front-Office

 Planning  Market operations and trading  Long-term contracts

Middle-Office

 Risk management  Counterparty credit

Back-Office

 Transaction settlement activities

SLIDE 11

PROPOSED CHANGES to PRRMP

Reformatting of the Wholesale Counterparty Risk

Management Policy

Provides for reporting as directed by the RMC
Updates Authorized Transactions Policy for today’s

markets and regulatory environment

Dodd-Frank Wall Street Reform and Consumer Protection Act
FERC Order 741 Credit Reforms in Organized Wholesale

Electric Markets

California's Greenhouse Gas (GHG) Cap-and-Trade Program

SLIDE 12

PROPOSED CHANGES to PRRMP

Amendments to the Authorized

Transactions Policy

i. Selling Forecasted Surplus System Resource Adequacy Capacity under Forward Power Sales

ii. Green House Gas Allowances
iii. Reclaim Trading Credits
iv. Requirements as may be established under

Emission Credits Purchases/Sales (forward and after-the-fact)

SLIDE 13

PROPOSED CHANGES to PRRMP

Added Delegations of Authority

i. AGM/Resources shall review and has the authority to approve the Transaction strategy ii. RPU Administration has the authority to approve any non- substantive modifications or amendments to the PRRMP

iii. Front-Office may enter into emissions Transactions to meet

regulatory requirements

iv. Middle-Office may have the authority to add new

counterparties to the Approved Counterparty list with a credit limit not to exceed the approval authority as delegated in the PRRMP v. Middle-Office is responsible for reporting the addition of new counterparties under the authority of the Energy Risk Manager and all credit limit changes with justification to the RMC

SLIDE 14

RECOMMENDATION

The Board of Public Utilities recommend that the City Council approve the revised Public Utilities Power Resources Risk Management Policies, which include the Energy Risk Management Policy, the Wholesale Counterparty Risk Management Policy and the Authorized Transactions Policy