HomeMy WebLinkAboutAgenda Report - November 21, 2007 K-01AGENDA ITEM Amol
*at CITY OF LODI
COUNCIL COMMUNICATION
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AGENDA TITLE: Adopt Resolution Authorizing the City Manager and Electric Utility Director
to Procure upto $10 Million Per Year of Energy and Capacity for FY09
Through FY11 (EUD)
MEETING DATE: November 21,2007
PREPARED B Y Electric Utility Director
RECOMMENDED ACTION: Adopt a resolution authorizing the City Manager and/or Electric Utility
Director to procure electricity and/or natural gas to reduce Electric
Utility Department's open position (energy and capacity not fully
procured on an advanced basis) for fiscal years 2008-09 (FY09) through 2010-11 (FYI 1) in accordance
with the City of Lodi Energy Risk Management Policies at a total cost not to exceed $10 million for each
year.
BACKGROUND INFORMATION: Lodi's Electric Utility Department (EUD) must procure wholesale
energy to meet its customer load obligations for FY09 and beyond. In
FY09, EUD's projected "open position" is approximately 112 gigawatt -
hours (GWh) or about 23% of EUDs total customer load obligation.
To the extent EUD has a net open position, it is exposed to price risk associated with market volatility
since prices regularly rise and fall in the wholesale energy markets, particularly in day -ahead, hour
ahead, and real-time markets. To reduce exposure to this price risk to an acceptable level, EUD's open
position can be reduced through strategic market purchases. I n FY08, for instance, a series of energy
and natural gas purchases were consummated which reduced EUD's open position from over 65 percent
to approximately 6 percent so far.
Attachment 1 is the load and resource balance statement for EUD for FY09. It details (i) EUD's projected
load serving obligations, (ii) the sources of energy supply available to EUD from its own resource
entitlements and (iii) the remaining energy balances that must be procured from the market in order to
serve EUDs customers. This attachment shows a FY09 load obligation of 489 GWh, a contribution of
377 GWh from EUD's resource entitlements and a net open position of about 112 GWh. Attachment 1
also shows that the estimated cost of procuring energy and capacityto close EUD's FY09 open position
is $9.2 million based on recent energy market conditions and load and generation projections.
Generation forecasts are subject to uncertainties of hydrology and plant availability. Pricing can also
change substantially. The actual MWh and cost can vary widely from these early estimates.
EUD intends to narrow its FY09 open position substantially by making a number of energy and/or natural
gas purchases over the next 8 months, although additional purchases may be made throughout FY09
when prudent to reduce risk and manage energy costs. As outlined in the Energy Risk Management
Policy (ERMP) adopted by City Council on January 18,2006, the City's Risk Oversight Committee (ROC)
will review proposed transactions and purchasing strategies. In this regard, the ROC is charged with
ensuring that proposed transactions conform with the accepted types of transactions detailed in the
APPROVED: /- --)
�-B7air King, City Manager
Adopt Resolution Authorizing the Clty Manager and Electric Utility Director to Procure up to $10 Million Per Year of
Energy and Capacity for FY09 Through FY1 1 (EUD)
November 21,2007
Page 2 of 2
ERMP. ROC has the responsibility to ensure that business is conducted in accordancewith the ERMP
and will consider transactional risk limits.
The estimate of open positionfor FYI is comparableto FY09. The present projected open positionfor
FYI is larger (70%) given the expiration of EUD's 25 MW purchasefrom ConocoPhillips on June 30,
2010. The laddering concept discussed with the Council on July 10,2007, explains the need for purchase
authorization for lateryears. Note that the laddering concept providesfor an open position of not more
than 10% in the next fiscal year, 25% in the second fiscal year, and 50% in the third fiscal year.
This requested authorization includes the possible purchase cf natural gas. As a result of the varying
relationship between electric and natural gas prices, at times it is economical to purchase natural gas on
a forward basis for consumption by Lodi's share of the NCPA Steam -Injected Gas Turbine (STIG) Plant
(located near Lodi at the White Slough Pollution Control Facility). To the extent NCPA purchasesgas for
the STIG, it would hedge the need for electricity purchases and reduce authorization under this request.
The energy and natural gas purchaseswill be madewith the advice and assistance of the Northern
California PowerAgency (NCPA).
FISCAL IMPACT: The total cost of procurement underthe authorization requested is estimated at
$9.2 million for FY09 based on recent market price curves and load and generation
forecasts and would be under $10 million for each of the next three fiscal years.
FUNDING: Costs associated with procurement under this authorization will not be incurred
until energy is delivered in FY09 through FYI 1. The City has not adopted a budget
for FY09 through F Y I I and as a result, funding has not yet been established.
Fundingfor this authorization will be supported by retail electricity Sales revenue,
once each fiscal year budget is established and approved by the City Council.
Electric Utility Director
GFMIKAWIist
Attachment
Load & Resource Balance, Energy & Capacity, FY 09
Load & Resource Balance, Energy & Capacity, FY 10
JULY 2008
AUG
SEPT
OCT
NOV
DEC
JAN 09
FEB
MAR
APR
MAY
JUNE 2009
TOTALS
LOAD MWH Total
54,000
50,100
43,400
38,900
36,100
38,100
37,400
34,600
37,000
36,700
39,500
43,600
489,400
44,500
499,200
0
NCPA MWh Subtotal
21,000
17,100
19,500
15,000
2,500
1,300
2,700
3,900
5,900
13,300
17,000
22,300
141,500
Geothermal
Hydro
Exchange Contract
8,400
3,800
8,800
8,400
3,100
5,600
8,100
2,800
8,600
8,300
2,400
4,300
8,100
1,800
-7,400
8,300
2,800
-9,800
8,300
3,700
-9,300
7,500
4,800
-8,400
7,900
7,300
-9,300
6,900
8,300
-1,900
7,700
9,300
0
7,900
5,800
8,600
95,800
55,900
-10,200
WESTERN MWh
2,600
2,000
1,300
800
500
700
800
1,000
1,000
1,400
2,200
2,200
16,500
1,000
1,400
2,200
2,200
16,500
TERM PURC. MWh
18,600
18,600
18,000
18,600
18,000
18,600
18,600
16,800
18,600
18,000
18,600
18,000
219,000
18,600
16,800
18,600
18,000
18,600
18,000
219,000
RESOURCES MWh Total
42,200
37,700
38,800
34,400
21,000
20,600
22,100
21,700
25,500
32,700
37,800
42,500
377,000
20,700
20,300
21,800
21,400
25,200
32,400
37,500
42,200
373,400
BALANCE MWH Total
11,800
12,400
4,600
4,500
15,100
17,500
15,300
12,900
11,500
4,000
1,700
1,100
112,400
5,800
5,600
16,100
18,600
16,300
13,900
12,500
5,000
2,800
2,300
125,800
Est Spot Energy ($)
$940,000
$1,000,000
$350,000
$320,000
$1,140,000
$1,330,000
$1,140,000
$970,000
$870,000
$320,000
$140,000
$80,000
$8,600,000
Local Capacity Reserve ($)
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$600,000
TOTAL COST ESTIMATE
$ 990,000 $
1,050,000 $
400,000 $
370,000 $
1,190,000 $
1,380,000 $
1,190,000 $
1,020,000 $
920,000 $
370,000 $
190,000
$ 130,000 $
9,200,000
Load & Resource Balance, Energy & Capacity, FY 10
JULY 2009
AUG
SEPT
OCT
NOV
DEC
JAN 09
FEB
MAR
APR
MAY
JUNE 2010
TOTALS
LOAD
MWH Total
55,100
51,100
44,300
39,700
36,800
38,900
38,100
35,300
37,700
37,400
40,300
44,500
499,200
0
NCPA
MWh Subtotal
20,700
16,800
19,200
14,700
2,200
1,000
2,400
3,600
5,600
13,000
16,700
22,000
137,900
Geothermal
Hydro
Exchange Contract
8,100
3,800
8,800
8,100
3,100
5,600
7,800
2,800
8,600
8,000
2,400
4,300
7,800
1,800
-7,400
8,000
2,800
-9,800
8,000
3,700
-9,300
7,200
4,800
-8,400
7,600
7,300
-9,300
6,600
8,300
-1,900
7,400
9,300
0
7,600
5,800
8,600
92,200
55,900
-10,200
WESTERN
MWh
2,600
2,000
1,300
800
500
700
800
1,000
1,000
1,400
2,200
2,200
16,500
TERM PURC.
MWh
18,600
18,600
18,000
18,600
18,000
18,600
18,600
16,800
18,600
18,000
18,600
18,000
219,000
RESOURCES
MWh Total
41,900
37,400
38,500
34,100
20,700
20,300
21,800
21,400
25,200
32,400
37,500
42,200
373,400
BALANCE
MWH Total
13,200
13,700
5,800
5,600
16,100
18,600
16,300
13,900
12,500
5,000
2,800
2,300
125,800
Est Spot Energy ($)
$1,080,000
$1,140,000
$450,000
$410,000
$1,250,000
$1,460,000
$1,250,000
$1,080,000
$970,000
$410,000
$240,000
$170,000
$9,910,000
LOAD MWH Total
56,200
52,100
45,200
40,500
37,500
39,700
38,900
36,000
38,500
38,100
41,100
45,400
509,200
Local Capacity Reserve ($)
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
$720,000
NCPA MWh Subtotal
20,400
16,500
18,900
14,400
1,900
700
2,100
3,300
5,300
12,700
16,400
21,700
134,300
TOTAL COST ESTIMATE
$ 1,140,000 $
1,200,000 $
510,000 $
470,000
$ 1,310,000 $
1,520,000 $
1,310,000 $
1,140,000 $
1,030,000 $
470,000 $
300,000 $
230,000 $
10,630,000
Load & Resource Balance, Energy & Capacity, FY 11
JULY 2010
AUG
SEPT
OCT
NOV
DEC
JAN 09
FEB
MAR
APR
MAY
JUNE 2011
TOTALS
LOAD MWH Total
56,200
52,100
45,200
40,500
37,500
39,700
38,900
36,000
38,500
38,100
41,100
45,400
509,200
0
NCPA MWh Subtotal
20,400
16,500
18,900
14,400
1,900
700
2,100
3,300
5,300
12,700
16,400
21,700
134,300
Geothermal
Hydro
Exchange Contract
7,800
3,800
8,800
7,800
3,100
5,600
7,500
2,800
8,600
7,700
2,400
4,300
7,500
1,800
-7,400
7,700
2,800
-9,800
7,700
3,700
-9,300
6,900
4,800
-8,400
7,300
7,300
-9,300
6,300
8,300
-1,900
7,100
9,300
0
7,300
5,800
8,600
88,600
55,900
-10,200
WESTERN MWh
2,600
2,000
1,300
800
500
700
800
1,000
1,000
1,400
2,200
2,200
16,500
TERM PURC. MWh
0
0
0
0
0
0
0
0
0
0
0
0
0
RESOURCES MWh Total
23,000
18,500
20,200
15,200
2,400
1,400
2,900
4,300
6,300
14,100
18,600
23,900
150,800
BALANCE MWH Total
33,200
33,600
25,000
25,300
35,100
38,300
36,000
31,700
32,200
24,000
22,500
21,500
358,400
Est Spot Energy ($)
$2,800,000
$2,880,000
$2,000,000
$1,910,000
$2,810,000
$3,100,000
$2,840,000
$2,540,000
$2,570,000
$2,030,000
$1,990,000
$1,640,000
$29,080,000
Local Capacity Reserve ($)
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$70,000
$840,000
TOTAL COST ESTIMATE
$ 2,870,000 $
2,950,000 $
2,070,000 $
1,980,000 $
2,880,000 $
3,170,000 $
2,910,000 $
2,610,000 $
2,640,000 $
2,100,000 $
2,060,000
$ 1,710,000 $
29,950,000
RESOLUTION NO. 2007-� A
-1
A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING
THE CITY MANAGER AND ELECTRIC UTILITY DIRECTOR TO
PROCURE ENERGYAND CAPACITY FOR FISCALYEAR
2008-09THROUGH FISCALYEAR 2010-11 AT A COST
NOT TO EXCEED $10 MILLION PER YEAR
WHEREAS, the City of Lodi must procure energy and capacity to economically meet its
load serving obligations to its customers for fiscal year 2008-09 with the projected amount of
energy remaining to be procured equaling approximately 23% of Lodi's total load serving
obligation; and
WHEREAS, the City of Lodi must procure energy and capacity to economically meet its
load serving obligations to its customers in the fiscal years 2009-10 and 2010-11; and
WHEREAS, to begin reducing Lodi's exposure to this market volatility, staff recommends
procurement of electricity and/or natural gas to reduce or eliminate Lodi's net open position for
fiscal year 2008-09 and the two subsequent years; and
WHEREAS, it is expected that Lodi's purchases under this Resolution could occur in
various amounts and timeframes; and
WHEREAS, Lodi's purchases under this Resolution will conform to the accepted
transaction types and other provisions of the City of Lodi Energy Risk Management Policies,
adopted January 18, 2006, by City Council Resolution No. 2006-19.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby
authorize the City Manager or his designee to enter into contractual arrangements to procure
additional electricity and/or natural gas to reduce Lodi Electric Utility's open position to meet
load -serving obligations for fiscal year 2008-09 and the two subsequent fiscal years in
accordance with the City of Lodi Energy Risk Management Policies at a total cost not to exceed
$10 million per year, with this amount for each year reduced by Northern California Power
Agency purchasesof electricity or natural gas fuel for Lodi's benefitfor such year.
Dated: November21,2007
hereby certify that Resolution No. 2007-� was passed and adopted by the Lodi City
Council in a regular meeting held November 21, 2007, by the following vote:
AYES: COUNCIL MEMBERS -
NOES: COUNCIL MEMBERS -
ABSENT: COUNCIL MEMBERS -
ABSTAIN: COUNCIL MEMBERS-
RANDI JOHL
City Clerk
2007-
RESOLUTION NO. 2007-234
A RESOLUTION OF THE LODI CITY COUNCILAUTHORIZING
THE CITY MANAGER AND ELECTRIC UTILITY DIRECTOR TO
PROCURE ENERGYAND CAPACITY FOR FISCALYEAR
2008-09 THROUGH FISCAL YEAR 2010-11 ATA COST
NOT TO EXCEED $10 MILLION PER YEAR
WHEREAS, the City of Lodi must procure energy and capacity to economically meet its
load serving obligations to its customers for fiscal year 2008-09 with the projected amount of
energy remaining to be procured equaling approximately 23% of Lodi's total load serving
obligation; and
WHEREAS, the City of Lodi must procure energy and capacity to economically meet its
load serving obligations to its customers in the fiscal years 2009-10 and 2010-11; and
WHEREAS, to begin reducing Lodi's exposureto this market volatility, staff recommends
procurement of electricity and/or natural gas to reduce or eliminate Lodi's net open position for
fiscal year 2008-09 and the two subsequent years; and
WHEREAS, it is expected that Lodi's purchases under this Resolution could occur in
various amounts and timeframes; and
WHEREAS, Lodi's purchases under this Resolution will conform to the accepted
transaction types and other provisions of the City of Lodi Energy Risk Management Policies,
adopted January 18, 2006, by City Council Resolution No. 2006-19.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby
authorize the City Manager or his designee to enter into contractual arrangements to procure
additional electricity and/or natural gas to reduce Lodi Electric Utility's open position to meet
load -serving obligations for fiscal year 2008-09 and the two subsequent fiscal years in
accordance with the City of Lodi Energy Risk Management Policies at a total cost not to exceed
$10 million per year, with this amount for each year reduced by Northern California Power
Agency purchases of electricity or natural gas fuel for Lodi's benefit for such year.
Dated: November 21,2007
-----------------------__-------------------------___—___--_--------------
------------------------------------------------------------------------
hereby certify that Resolution No. 2007-234 was passed and adopted by the Lodi City
Council in a regular meeting held November 21, 2007, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAI N
COUNCIL MEMBERS— Hansen, Hitchcock, Katzakian, Mounce, and
MayorJohnson
COUNCIL MEMBERS— None
COUNCIL MEMBERS — None
COUNCIL MEMBERS — None
2007-234
aO
City Clerk
Electric Utility Department
Procure Energy & Capacity
FY09 - FY1 1
City Council Meeting
November 21, 2007
n �Q
'9<�FOverv'iew
00 ,
Lodi's annual open position is about 2/3 of its
load.
Since mid FY06, Lodi has implemented a
strategy of hedging its future energy " open
position"
Hedging (i.e. purchasing energy in the longer
term markets) reduces price risk due to energy
market volatility
In FY08 for instance, strategic electricity and
natural gas purchases have reduced open
position for the year from about 65% to 6%.
2
Ladderming Guideline
Timeframe
Open Position
Current Fiscal Year
5%
Next Fiscal Year
10%
2nd Fiscal Year
25%
3rd Fiscal Year
50%
K
G��-4� 4
Open Position
Fiscal
Year
2008
6
2009
23
2010
25
2011
1 70
4
G��-4� 4
Open Position
Fiscal
Year
Open %
Laddering
Guideline (/o)
2008
6
5
2009
23
10
2010
25
25
2011
70
50
6i
G��-4� 4
Open Position
Fiscal
Year
Open
%
GWH
$
2009
23
112
$9.2M
2010
25
125
$10.6M
2011 *
70
102
$8.6M
*Amount to close from 70% to 50%
1.1
OF
0
Recommendation
• EUD's strategy of hedging power supply
risk should continue
• Consistent with the Laddering Guidelines,
EUD should make strategic energy
purchases for FY09-FY1 1 period.
• City Council authorization to purchase up
to $1 0M per year for FY09-FY1 1
7