HomeMy WebLinkAboutResolutions - No. 2018-176RESOLUTTON NO. 2018-176
A RESOLUTION OF THE LODI CITY COUNCIL RESCINDING ATTACHMENT A
OF THE CITY OF LODI RISK MANAGEMENT AND COMPLIANCE PROGRAM
AND APPROVING THE CITY OF LODI ENERGY RISK MANAGEMENT POLICY
WHEREAS, the City of Lodi Risk Management and Compliance Program (RMCP)
addresses energy risk management policies and internal compliance program requirements
associated with regulatory reliability standards; and
WHEREAS, the RMCP is overseen by the Risk Oversight Committee (ROC) and has
undergone various revisions, the last of which were approved and implemented in 2016; and
WHEREAS, a recent review of the RMCP revealed a need to update various sections of
Attachment A of the RMCP which focuses solely on energy risk management activities; and
WHEREAS, the energy risk management activity updates address both changes in the
energy market with respect to available products and services, as well as reporting content and
frequency to the ROC and City Council; and
WHEREAS, Lodi Electric Utility (LEU) staff determined that energy risk management
activities would be best addressed through a separate policy rather than combined with internal
compliance program requirements focused on utility operations; and
WHEREAS, LEU staff removed Attachment A of the RMCP, leaving the internal
compliance program in place for future revisions and created a new City of Lodi Energy Risk
Management Policy; and
WHEREAS, ensuring that risks associated with the City's energy procurement activities
are properly identified, measured, and overseen supports the LEU Strategic Plan goal of
operating in a manner that ensures financial stability and customer value; and
WHEREAS, on September 6, 2018, the ROC received a report and recommended
rescinding Attachment A of the RMCP and approving the City of Lodi Energy Risk Management
Policy.
NOW, THEREFORE, BE lT RESOLVED that the Lodi City Council does hereby rescind
Attachment A of the City of Lodi Risk Management and Compliance Program and approve the
City of Lodi Energy Risk Management Policy, attached hereto as Exhibit A.
3:1"=1==:"ji3Tlill3:3:1:=================================================
I hereby certify that Resolution No. 2018-176 was passed and adopted by the City
Council of the City of Lodi in a regular meeting held September 19, 2018, by the following vote:
AYES: COUNCIL MEMBERS - Chandler, Johnson, Kuehne, Mounce, and
N.ES: couNcrl MEMBERS - H:t
Nakanishi
ABSENT: COUNCIL MEMBERS - None
ABSTAIN: COUNCIL MEMBERS - None
NI
2018-176
Clerk
oLo
EXHIBIT A
City qf Lodi
Energy Risk Management Policy
Revised September 2018
Amended September L9, 2OL8
City of Lodi ERMP
Table of Contents
1 StatementsofCommitment..............3
3
3
4
5
Purpose ....3
Objectives. .....""""" 4
6 Risk lnventory.. ...."" 4
7
I
9
10
11
L2
4
4
5
5
8
8
I
9
9
6.1 Price Risk.
6.2 Volume Risk
6.3 CreditRisk...........
6.4 Operational Risk.........
6.5 ContingentLiabilities ...5
Organizational Structure ................6
Protection for Whistleblowers
Resources
Transact¡on Limits and Controls
12.1 Regulatory ComPliance....
12.2 lndirect Purchases (NCPA)
12.3 Direct Purchases ...............9
L2.4 AllPurchases. .................10
12.5 Prohibited and Authorized Transaction Types .................... 10
13 Reporting..
L2.5.L ProhibitedTransactionTypes
L2.5.2 Authorized Transaction Types
13.2 City Council Reports
10
10
11
Ll,
.......... 11
Page 2 of L2
City of Lodi ERMP
1 Statements of Commitment
The City is committed to a superior and effective Energy Risk Management Policy (ERMP)
to manage risk and compliance which implements best electric utility practices and
encourages a culture of compliance and controithroughout the Lodi Electric Utility (LEU).
The City implements all opportunities to build compliance and controls into every business
practice and to continuously improve its program to be robust, rigorous, and transparent.
The City is committed to complying with all applicable laws and regulations. ln addition,
the City is committed to prudent risk management and compliance awareness and
continuous improvement of processes and procedures. This commitment allows the City to
develop and maintain an organizational culture that supports staff in meeting these
concerns through education/training, ethical conduct, decision making, and a culture of
transparency.
2 Goal
The goal of the ERMP is to create a culture of compliance and control that is characterized
by clear communication, consistent documentation, and implementation of policies and
procedures that limit to the maximum extent possible the risks related to power
procurement activities.
3 Purpose
The purpose of the ERMP is to ensure that risks associated with the City's bulk power
procurement are properly identified, measured, and controlled by fostering a culture of
compliance and oversight for the LEU. '/
The City intends that risk management will support advancement of its Strategic Plan and
will properly manage its business and financial risks through prudent oversight, adequate
mitigation of rísks consistent with the City's risk tolerance, and sufficient internal controls
and procedures.
4 Scope
The ERMP is applied to all aspects of the City's wholesale procurement and sales activities,
long-term contracting associated with energy supplies including, but not limited to,
generator fuel, capital projects, and associated financing related to fuel and energy
transactions, energy production, and wholesale/retail market participation which includes
energy, ancillary services, and capacity products. Regulatory instruments and
environmental financial products are covered by the ERMP as well.
The ERMP does not address the following types of general business risk, which are treated
separately in other official policies, ordinances, and regulations of the City, such as fire,
accident and casualty, health, safety, workers compensation, and other types of insurable
perils.
Page 3 of 12
City of Lodi ERMP
This ERMP outlines the City's internal control foundation, providing discipline and structure
to guide compliance with regulations, laws, and the City's agreements, procedures, and
policies. lt includes a cross-section of knowledgeable and skilled employees who are
responsible to oversee, communicate, track, document, and monitor compliance and risk
management and share the results with management and the City Council.
The ERMP applies to allthe City employees, contractors, and vendor personnel responsible
for complying with regulations and the City's policies and procedures. lt is made readily
available to all employees and the public by a posting on the City's website.
5 Objectives
LEU is committed to providing competitively-priced reliable power to ¡ts customers by:
I. Maintaining risk within desired tolerances by addressing risks that could impact
rates and security of the City's bulk power procurement program.
2. Mitigating the effect of price volatility to customers by identifying, measuring, and
controlling risks that could have an adverse effect on retail rate stability.
3. Maintaining stable cash flows by adopting business practices that encourage and
maintain appropriate levels of operating reserves.
4. Enhancing the value of City assets/resources.
5. Minimizing costs to maintain control of the City's electric utility rates.
6. Developing a risk management culture that assigns risk management responsibilities
to appropriately qualified personnel.
6 Risk lnventory
LEU must address the following categories of risk as a component of the monitoring and
reporting under the ERMP:
6.1 Price Risk
o The risk associated with the change of power costs can be segmented as
follows:
. Wholesale prices may increase while positions are still open.
' Wholesale prices may decrease after positions are closed.
6.2 Volume Risk
o The risk that demand for power will either fall below or exceed the existing
'contracted power supplies.
o The risk of the imbalance between gas supply and gas demand from a gas
generating unit's economic dispatch.
Page 4 of L2
City of Lodi ERMP
6.3 Cred¡t R¡sk
. o The risk associated with entering into any type of transaction with a
'" " :'"':;;:i:ilïi:il ::::il:ï:ff :,,-#äv s. d,.
them.
: :::::.::,::l:: :Hi: .-",'":T::,iil, *ii" a prem um f.r
credit risks.
Counterparty transactions are too concentrated among a limited
number of suppliers.
lnability to finance capital projects or meet financial obligations
incurred in the course of wholesale operations.
6.4 OperationalRisk
o The risk to effectively plan, execute, or control business activities, including
t^":*:;t:1j::;"
orsanizationar inrrastructure, i.e., the tack or surricient
authority to make and execute decisions, inadequate supervision,
absence of internal checks and balances, incomplete and untimely
planning, incomplete and untimely reporting, failure to separate
incompatible functions, etc.
: T"*"ii:,lî:ffi]:i :::i#::i::,,, and,.. s such as
computers, software, communications links, and data services.
Exposure to litigation, fines, or sanctions as a result of violating laws
and regulations, changes in regulatory or legislative mandates, not
meeting contractua I obligations, environ menta I com plia nce
violations, failure to address legal issues and/or receive competent
legal advice, not drafting contracts effectively, etc'
Errors or omissions in the conduct of business, including failure to
execute transactions, violations of guidelines and directives, etc.
6.5 Contingentliabilities
o Contingent liabilities consist of liabilities that the City could incur in the
event of the failure of other parties to discharge their obligations. At
t-:"t;:Ï:::îff:"p
up provisions in the enabring agreements ror
any Joint Powers Authority (JPA) of which the City is a member.
Project closure, decommissioning, environmental remediation, and
Page 5 of L2
City of Lodi ERMP
I
other obligations which result from the City's own activities as well
as JPA projects and activities.
Provisions for take or pay, termination payments, and/or margin
calls in the City's long-term electric power supply agreements'
7 OrganizationalStructure
The ERMp is overseen by the Risk Oversight Committee (ROC) which is comprised of the
City Council member who serves as a Northern California Power Agency (NCPA)
Commissioner or alternate, the City Manager, Deputy City Manager, City Attorney, and the
Electric utility Director. ln the event of absence or unavailability of the NCPA Commissioner
or alternate, the City Manager, Deputy City Manager, or City Attorney, the following
alternates, in the order listed below based on availability, shall serve in their absence:
1. Business DeveloPment Manager
2. DePutY CitY AttorneY
3. City Clerk
ln the event of absence or unavailability of the Electric Utility Director, the Rates &
Resources Manager or other designee, may serve in his/her absence. The Electric Utitity
Director shall serve as chair of the ROC. Additional non-voting members may be invited to
partic¡pate on the ROC based on supporting expertise required by the ROC.
Due to the confidential nature of the agenda items presented to the ROC, all ROC members
and designees are required to sign and adhere to the terms of the NCPA Non-disclosure
Agreement in addition to any other disclosures as required and related to business
conducted by the ROC.
The ROC shall meet at least quarterly, or as otherwise called to order by the City Council or
a ROC member. The ROC shall keep minutes of all meetings and business transacted in
accordance with the City's Records Management Program, the responsibility for which
shall be assigned to staff within LEU. A quorum for the RoC to do business shall consist of
all members, or their designees or alternates. The ROC shall request attendance at its
meetings by, and/or reports from, other persons as appropriate'
8 Role and Responsibilities
City Council
The City Council is responsible for making high-level, broad policy decisions as contained in
the ERMp. The City Council sets the policy as developed and recommended by the ROC and
delegates execution of said policy to the City Manager. The ROC will review the ERMP and
the City Council will review and approve any updates proposed by the ROC. The City
Council will also provide direction and additional support, as needed.
Page 6 of 12
City of Lodi ERMP
Risk Oversight Comm ittee
The ROC shall have the responsibility to ensure business is conducted in accordance with
the ERMP. The ROC shall adopt and bring current risk management business practices,
defining in detail the internal controls, strategies, and processes for managing risks
associated with the adoption of those business practíces, including but not limited to a
Laddering Strategy. As used herein, the term Laddering Strategy shall mean an objective
and graduated program to secure varying percentages ofthe City's projected future energy
needs at any given point in time. Determination of regulatory non-compliance and
direction to self-report such non-compliant activities shall be made by the ROC.
City Manager
The City Manager has overall responsibility for executing and ensuring compliance with the
ERMP adopted by the City Council. The City Manager or designee(s) shall make reports to
the City Council at least quarterly regarding business transacted by the ROC and upon such
occasions as the City Council shall direct. Quarterly reporting shall take place as part of the
Quarterly Utility Financial Reports to City Council.
Deputy City Manager
The Deputy City Manager has overall responsibility for providing financial advice and
representation to the ROC by ensuring that LEU maintains a sound financial status with
minimized market risk exposure.
City Attorney
The City Attorney has overall responsibility for providing legal advice and representation,
and ensuring that business is carried out in compliance with all applicable laws,
regulations, executive orders, and court orders.
Electric Utility Director
The Electric Utility Director shall serve as Chair of the ROC. The Electric Utility Director has
access to the City Council through the City Manager. The Electric Utility Director has overall
responsibility for preparing all agendas and supporting documentation and reports to the
ROC for business transactions covered under the ERMP. The Electric Utility Director shall
provide LEU load coverage and energy portfol¡o position information and coordinate the
receipt and dissemination of relevant market and transactional information undertaken on
the City's behalf through NCPA.
9 Compliance
Compliance except¡ons are actions, which violate the authority limits, requirements, or
directives set forth in the ERMP. All exceptions shall be reported to the ROC.
PageT of t2
City of Lodi ERMP
Any lessons learned from audits, violations, other similar entity violations are shared with
the ROC and all staff responsible for energy-related activities, including employee training
programs. This includes lessons learned provided by regulatory authorities, other industry
members, and discovered within the City's business practices.
Willful violations of the ERMP will be subject to review and may be cause for discipline or
dismissal. Such disciplinary action may include written notices to the individual involved
that a violation has been determined, demotion, or re-assignment of the individual
involved, suspension with or without pay or benefits, or dismissal. Violations may also
constitute violations of law and may result in criminal penalties and civil liabilities for the
offending covered party and the City.
10 Protection for Whistleblowers
The City staff is encouraged to come forward with evidence to their manager that the City
may be violating a law or regulation. Communication of potential violations plays a pivotal
role in the detection, investigation, and prevention of violations. No employee will be
subject to any type of retribution for speaking out on complíance issues of any type.
The City staff, contractors, and the public are encouraged to report evidence of possible
compliance violations, unethical business conduct, questionable operations, problems with
compliance controls, reporting or auditing concerns, and violations of laws or regulations.
The City will promptly investigate all complaints and attempt to maintain the
whistleblower's anonymity. City employees have various means to report business conduct
issues including potential violations of regulatory requirements. Complaints may be made
through the suggestion box, to the employee's supervisor, manager, or director.
Ll Resources
The City is dedicated to making the best use of all appropriate resources from all applicable
entities as part of the ERMP. The City is committed to addressing all areas of high risk
through the use of its own resources to improve its robust, rigorous, and transparent
policies.
The City Council has approved sufficient funding for the administration of the ERMPI The
requirements of the ERMP are budgeted and inasmuch as possible fullystaffed on a year-
round basis.
L2 Transaction Limits and Controls
The LEU utilizes transaction limits and controls to mitigate or prevent exposure to
identified risks.
Page 8 of 12
City of Lodi ERMP
12.1 Regulatory Compliance
Regulatory compliance controls includes both soft and hard controls. Soft controls include
self-audits, policies, and procedures. Hard controls include automated due date calendar
reminders, forms with mandatory fields for collecting evidence, and self-assessments.
12.2 lndirect Purchases (NCPA)
The City is a member of NCPA, which can execute transactions on the City's behalf. The City
Manager and the Electric Utility Director are severally authorized to enter into contracts
for the purchase, through NCPA, of energy, capacity, generator fuel, transmission,
transportation, storage, Renewable Energy Credits (RECs), Greenhouse Gas (GHG)
allowances, ancillary services, and other products/services as authorized through City
Council approved NCPA contracts/programs to meet the City's service obligations in
amounts and for such quantities as are: 1) necessary to meet the minimum amounts called
for in ROC's Laddering Strategy; 2) necessary to meet regulatory requirements; 3)
consistent with this ERMP; and 4) approved by the ROC. Purchases outside the authority
granted above or purchases/contracts with terms exceeding five years may be authorized
by specific City Council resolutíon. The resolution may specify the limits of the authority
delegated, including the maximum dollar amount of the authority and the duration of the
contracts and/or transactions that may be executed.
Purchases through NCPA shall be made in accordance with this ERMP and NCPA's Energy
Risk Management Policy and Energy Risk Management Regulations
12.3 Direct Purchases
The City Manager and the Electric Utility Director are severally authorized to enter into
contracts for the direct purchase of energy, capacity, generator fuel, transmission,
transportation, storage, RECs, GHG allowances, ancillary services, and other
products/services to meet the City's service obligations in amounts and for such quantities
as are: 1) necessary to meet the minimum amounts called for in ROC's Laddering Strategy;
2) necessary to meet regulatory requirements; 3) consistent with this ERMP; and 4)
approved by the ROC. Purchases outside the authority granted above or
purchases/contracts with terms exceeding five years may be authorized by specific City
Council resolution. The resolution may specify the limits of the authority delegated,
including the maximum dollar amount of the authority and the duration of the contracts
and/or transactions that may be executed.
For contracts executed directly by the City, the City uses standardized form contracts for
such procurement including, but not limited to form contracts created and copyrighted by
the Edison Electric lnstitute, the Western States Power Pool, the California Department of
General Services, and the North American Energy Standards Board, unless waived by
resolution of the City Council. Counterparties shall obtain and maintain during the terms of
the contract, minimum credit ratings established as of the date of award of the contract of
not less than a BBB- investment grade credit rating or its equivalent as established by the
Page 9 of 12
City of Lodi ERMP
rating agencies, such as Standard and Poor's, Moody's lnvestors Services, and/or Fitch,
unless waived by resolution of the City Council.
L2.4 AalPurchases
Any City Council resolution or ROC recommendation authorizing the City Manager or
Electric utility Director to contract for energy-related products consistent with those
authorized under this ERMP shall specify generally according to the terms and conditions
set forth in the corresponding program authorization information including, but not limited
to, 1)a fixed orformula price;2)a quantityand description of the product(s)and/or
service(s); 3) term, specifying a not-to-exceed period of time; 4) period of delivery denoted
in years or months; and 5) the point of delivery.
12.5 Prohibited and Authorized Transaction Types
t2.5.1 Prohibited Transaction Types
Speculative buying and selling of energy products is prohibited. Speculation is defined as
buying energy products that are not needed for meeting forecasted obligations, selling
energy products that are not owned, and/or selling energy products that are not surplus
without simultaneously replacing that energy product at a lower cost, or selling energy
products which could expose the City to additional costs without sufficiently mitigating
that exposure. ln no event shall transactions be entered into that speculate on the
changes in market prices and/or conditions.
L2.5.2 Authorized Tra nsaction Types
1. Purchase of energy, capacity, transmission, transportation, storage, RECs, GHG
allowances, ancillary services, and/or other related products/services necessary to
meet the City's obligations.
2. Sell existing energy, capacity, transmission, transportation, storage, RECs, GHG
allowances, ancillary services, and/or other related products/services expected to
be in excess of the City's obligations.
3. Purchase generator fuel required to run the City's share of generating facilities,
including sufficíent fuel to supply a generating unit's economic run at the
advantage ofthe market heat rate.
4. Sell surplus generator fuel if more economic energy is available for purchase,
becomes surplus due to load being lower than previously forecasted, or due to
increased energy due to hydrological or other conditions.
5. Execute financial derivatives or transactions to set pr¡ce caps and floors, or hedge
against load/price volatility.
6. Purchase or sell instruments or products deemed necessary to comply with
regu¡atory obligations/requirements for the City's share of generating facilities.
Page 10 of 12
City of Lodi ERMP
7. Purchase or sell firm transmission rights or congestion revenue rights to manage
congestion price risk.
13 Reporting
Any exceptions and/or violations to mandated procedures, credit limits, or other
authorized limits shall be reported promptly to the ROC. The Electric Utility Director or
designee(s) shall report to the ROC at least quarterly (ROC Reports). The City Manager or
designee(s) shall report to the City Council regarding business transacted by the ROC at
least quarterly and upon such occasions as the City Council shall direct (City Council
Reports).
13.1 ROC Reports
Reports to the ROC shall include, but not be limited to:
1. Load and resource balances, including regulatory, state- and federally-mandated
resource balances.
2. Load and resource balances as adjusted due to operating conditions or purchases
occurring during the quarter.
3. An assessment of LEU's portfolio exposure includes load coverage, fuel coverage, and
market exposure.
4. A summary of the transaction status/results of authorized procurements/transactions
by the ROC.
13.2 City Council Reports
Reports to the City Council shall ínclude, but not be limited to:
L. An assessment of the quarterly change in energy sale and power supply cost from
budget.
2. Forward looking load coverage based on the most recent completed transactions.
3. lnformation regarding regulatory requirements and reporting.
4. A summary of non-confidential business transactions conducted by the ROC during the
previous quarter.
L4 Policy Review
The ERMP shall be reviewed at least every three years or as needed in order to discuss the
effectiveness of the ERMP for necessary updates and evaluate alignment of the ERMP with
the City's organization, LEU Strategic Plan, and citywide risk management pol¡cies.
lnterim to the review, the ERMP will be reviewed and modified as necessary if:
o An event analysis determines that a modification to the ERMP would be
beneficial.
o The City experiences a regulation violation.
Page 11 of 12
City of Lodi ERMP
o Lessons learned orchanges have been identified in best pract¡ces.
o Any significant changes to the ERMP are approved by the City Council.
Non-substantive changes may be approved by the ROC. The City Attorney shall determine
whether the proposed changes are non-substantive or require City Council
review/approval.
Page t2 of L2