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AGENDA ITEM NO.: 5.C.1 MEETING DATE: 06/25/2012
ADMINISTRATIVE REPORT NO.: 2012-86
To: Honorable Public Utilities Board Submitted by: _______/s/___________ Janet Oppio
AGM – Energy Resource Planning From: Janet Oppio AGM – Energy Resource Planning Approved by: _______/s/____________
Girish Balachandran General Manager
Subject: Resolution to Approve the Amended and Restated Northern California Power Agency
Market Purchase Program Agreement ______________________________________________________________________________ RECOMMENDATION By resolution, authorize the General Manager to execute the Amended and Restated Northern California Power Agency (NCPA) Market Purchase Program (MPP). BACKGROUND The Market Purchase Program (MPP) was made effective August 1, 2007, to enable NCPA, on behalf of participants, to engage in transactions to purchase energy for the benefit of the participants’ customers. At the November 2011 meeting, the Public Utilities Board (Board) approved Alameda Municipal Power’s (AMP) participation in the MPP and the City Council subsequently ratified the Boards decision. In addition to AMP, the participating members currently include the cities of Biggs, Gridley, Healdsburg, Lodi, Lompoc, and Ukiah. AMP’s membership in the MPP was intended to facilitate staff’s activities to acquire additional amounts of energy to meet load requirements, especially beginning in 2015 after the Morgan Stanley Power Purchase Agreement (PPA) expires at the end of December 2014. Transactions under the MPP were limited to the purchase of energy needed to serve a participants’ load. At the May 2012 meeting, the Board authorized the General Manager to enter into purchase and sales transactions necessary to implement the Renewable Power Sales Policy while meeting the requirements of AMP’s Renewable Portfolio Standard (RPS) Policy and AMP’s Renewable Power Procurement Plan. All transactions would be governed by the authorities and guidelines provided as Exhibit A of the associated administrative report. Given the level of resources that were anticipated would be required to execute this directive, staff has been working with NCPA since late last year to identify amendments to the MPP Agreement that would facilitate the transactions to implement these policies. During that process NCPA and other participants recommended additional revisions to the agreement to accommodate the needs of green-house gas (GHG) and resource adequacy compliance as well as a mechanism for procuring physical option products.
AGENDA ITEM NO.: 5.C.2 MEETING DATE: 06/25/2012
ADMINISTRATIVE REPORT NO.: 2012-86 DISCUSSION Due to the changing landscape of the wholesale electric market, including new regulatory obligations, AMP and the other MPP participants requested that NCPA revise the MPP Agreement to enable NCPA to transact new products that are currently not available under the MPP Agreement. In response to this request, NCPA developed the Amended and Restated Market Purchase Program Agreement to enable NCPA to engage in the purchase and sale, on behalf of the MPP participants, of Approved Products which include energy, resource adequacy capacity, renewable energy certificates (RECs), GHG compliance instruments and physical option products. Through the Amended MPP Agreement, AMP will be able to leverage NCPA staff resources to transact bundled and unbundled RECs as needed to manage AMP’s RPS Policy and AMP’s Renewable Power Procurement Plan, satisfy applicable resource adequacy requirements, and meet GHG emission compliance obligations more efficiently while benefiting from NCPA’s robust risk management program. The Amended MPP Agreement, which enables NCPA to engage in transactions through the purchase and sale of Approved Products, specifies the terms and conditions under which NCPA will perform such services. The Amended MPP Agreement establishes the process NCPA will use to consummate transactions, lists the transaction instruments that NCPA may use to execute transactions, and contains the process for delivery and/or receipt of approved products. The Amended MPP Agreement also includes various provisions related to the AMP’s financial obligations, including security deposit requirements which are attributed to a participant’s subscription percentage in a transaction. Finally the term of the Amended MPP Agreement was set at 5 years so it will not require Council ratification of the Board’s approval. A summary of the proposed revisions that are incorporated in the Amended MPP Agreement is included as Exhibit B. The Amended MPP Agreement is also included as Exhibit C. FINANCIAL IMPACT AMP, as a signatory to the Amended MPP Agreement, will continue to be responsible to pay NCPA each month the sum of the following: (i) Fixed MPP Costs of $900, (ii) one-twelfth of AMP’s allocated share of variable MPP costs calculated in accordance with the agreement, (iii) AMP’s transaction specific costs, and (iv) commodity costs for AMP’s transactions. In addition to these monthly payment obligations, AMP is obligated to fund: (i) AMP’s share of any and all required security deposits calculated in accordance with the agreement, and (ii) AMP’s share of working capital requirements for the MPP maintained at NCPA as set forth in the NCPA Annual Budget. These costs are included in the FY2013 budget and will continue to be included in future budgets. LINK TO STRATEGIC PLAN AND METRICS Strategy 2: Ensure utility financial health is preserved through short and long-term risk
management and planning.
AGENDA ITEM NO.: 5.C.3 MEETING DATE: 06/25/2012
ADMINISTRATIVE REPORT NO.: 2012-86 Strategy 9: Endeavor to maintain local control over utility programs including energy
efficiency, renewable power and distribution system standards. Strategy10: Manage short-term and long-term power supply reliability and cost, while
maintaining a loading order of efficiency and demand response, renewable energy resources, and clean and efficient fossil generation.
EXHIBITS A. Resolution B. Summary of Revisions to the Market Purchase Program Agreement C. Amended and Restated Market Purchase Program Agreement
AGENDA ITEM NO.: 5.C
MEETING DATE: 06/25/2012 EXHIBIT A - Page 1 of 2
CITY OF ALAMEDA ALAMEDA MUNICIPAL POWER
RESOLUTION NO. ____
APPROVING THE AMENDED AND RESTATED MARKET PURCHASE PROGRAM
AGREEMENT WITH THE NORTHERN CALIFORNIA POWER AGENCY ________________________________________________________________________ WHEREAS, Alameda Municipal Power (AMP) has the need to purchase and sell energy, resource adequacy capacity, renewable energy certificates (RECs) and green-house gas compliance instruments to meet its future electric power requirements and comply with state regulations; and WHEREAS, AMP is a member of the Northern California Power Agency (NCPA); and
WHEREAS, AMP became a participant in the Market Purchase Program Agreement to
enable NCPA, on behalf of AMP, to engage in transactions to purchase energy for the benefit of AMP’s customers; and
WHEREAS, the Board via Resolution 4886 on November 21, 2011 and the City Council
via Resolution 14639 on December 20, 2011 approved AMP’s participation in the MPP; and WHEREAS, due to the changing landscape of the wholesale electric market, including
new regulatory obligations, AMP has requested NCPA to revise the MPP Agreement to enable NCPA to transact new products that are currently not available under the MPP Agreement; and
WHEREAS, to satisfy this request, NCPA, working in coordination with AMP, has
developed the Amended and Restated Market Purchase Program Agreement to enable certain new approved products requested by AMP; and
WHEREAS, the Amended MPP Agreement will enable NCPA to engage in transactions,
on behalf of AMP, to purchase and sell approved products, which include energy, resource adequacy capacity, RECs, GHG compliance instruments and physical option products; and
WHEREAS, AMP, through transaction authorized under the Amended MPP Agreement,
seeks to assure greater rate and budget stability by: (i) reducing the proportion of energy AMP needs to acquire in a potentially volatile spot market; (ii) transacting in bundled and unbundled RECs to manage AMP renewable energy portfolio; (iii) satisfying applicable resource adequacy requirements more efficiently, and (iv) satisfying applicable GHG emission compliance obligations more efficiently; and
WHEREAS, the Amended MPP Agreement specifies the terms and conditions under
which NCPA will perform such services, including, but not limited to, NCPA’s and AMP’s
AGENDA ITEM NO.: 5.C
MEETING DATE: 06/25/2012 EXHIBIT A - Page 2 of 2
obligations regarding the transaction process, transaction authorization and financial requirements; and
WHEREAS, AMP, as a signatory to the Amended MPP Agreement, will be responsible
to pay to NCPA each month the sum of the following as defined in the Amended MPP Agreement: (i) the Fixed MPP Costs of $900, (ii) one-twelfth of AMP’s allocated share of Variable MPP Costs, (iii) transaction specific costs for AMP’s transactions, and (iv) commodity costs for AMP’s transactions; and
WHEREAS, in addition to the aforementioned monthly payment obligations, AMP is
obligated to fund: (i) AMP’s share of any and all required security deposits calculated in accordance with the Amended MPP Agreement, and (ii) AMP’s share of working capital requirements for the Market Purchase Program maintained at NCPA as set forth in the NCPA Annual Budget; and
NOW, THEREFORE, BE IT RESOLVED by the Public Utilities Board of the City of Alameda, and subject to ratification of its action by the City Council, as follows:
1. The Amended MPP Agreement with NCPA is hereby approved, and the General Manager of Alameda Municipal Power is hereby authorized to execute it on behalf of Alameda Municipal Power.
2. The General Manager or designee is hereby designated as the Designated Representative for the Amended MPP Agreement pursuant to the Amended MPP Agreement. Such Designated Representative is hereby authorized to execute Participant Confirmations for Approved Products provided that such Participant Confirmations are entered into in conformance with the Amended MPP Agreement. The obligations entered into by such officers on behalf of Alameda Municipal Power shall be valid and binding, and the Board agrees to approve the payment of such obligations in accordance with the Amended MPP Agreement as fully and as if each such Participant Confirmation and transaction were directly presented to and individually approved by it. BE IT FURTHER RESOLVED that Board recommends City Council ratification of its
action.
Approved as to Form
By: ______________________ Janet Kern City Attorney
AGENDA ITEM NO.: 5.C
MEETING DATE: 06/25/2012 EXHIBIT B – Page 1 of 4
Summary of Revisions to the Market Purchase Program Agreement
The following is a summary of the proposed revisions to the Market Purchase Program Agreement (the “MPP Agreement”), organized by MPP Agreement section: General Modifications
Modified the MPP Agreement to enable the purchase and sale of the following Approved Products:
o Energy o Resource Adequacy Capacity o Renewable Energy Certificates o GHG Compliance Instruments o Physical Option Products
Described the procurement process and requirements in various sections in the MPP Agreement; each such section is provided below
Multiple formatting changes have been made throughout the MPP Agreement Section 1 – Definitions
Revised several definitions in Section 1 Added new definitions in Section 1, including for example:
o Approved Products o Auction o Bilateral Agreement o Cap and Trade Program o Commodity Revenues o Contract Transaction o Physical Option Products o Replacement Commodity Costs
Deleted some existing definitions in Section 1 Section 2 – Effectiveness of Agreement
The MPP Agreement is set to become effective on the first day of the month following the Effective Date
Section 3 – Authority
Added Section 3 to clarify the authorities provided to NCPA and the Participants under the MPP Agreement
Section 4 – Transaction Conditions
Consolidated into Section 4 the conditions that must be met prior to consummating a Contract Transaction , specifically:
o All Contract Transactions must be made in accordance with the NCPA Risk Management Policies and Regulations, are limited only to the Approved Products
AGENDA ITEM NO.: 5.C
MEETING DATE: 06/25/2012 EXHIBIT B – Page 2 of 4
listed in the NCPA Risk Management Policies and Regulations, and may not exceed the Maximum Contract Price
The “Net Short” provisions have been removed from the Agreement because the Net Short protection is enforced through the NCPA Risk Management Policies and Regulations
Section 5 – Transaction Instruments
Added Section 5 to the MPP Agreement to identify the types of Commission-approved Transaction Instruments that are allowed to be used to consummate Contract Transactions:
o Master Agreements Edison Electric Institute (EEI) & Western System Power Pool (WSPP)
Agreement o Bilateral Agreements o Exchanges o Auctions
Section 6 – Transaction Process and Participant Subscription to a Contract Transaction
Modified Section 6 to include the process NCPA will use to enter into Contract Transactions, including both NCPA and the Participants’ obligations (e.g. Contract Transaction Participant Authorizations)
Expanded the options under which Contract Transactions may be initiated: o Through use of a request for proposal (RFP), or in response to a RFP o Through use of direct and/or bilateral negotiations with a Third Party or
Participant o On a Commission-approved Exchange or Auction
Clarified the roles and responsibilities of the Designated Representative and the Participants’ Principal Counsel so that Designated Representatives are approving the Contract Transaction, and the Principal Counsel is approving the Contract Transaction as to form, process and procedure
Section 7 – Delivery and Receipt of a Contract Transaction
Enhanced Section 7 with new rules associated with the delivery and receipt of Contract Transactions, including Participants’ obligations to deliver Approved Products to NCPA to support a sale made by NCPA on behalf of a Participant
Added new language to Section 7 to address the situation where a Participant fails to provide Approved Products that have been sold by NCPA
o The language includes the authority for NCPA to procure replacement products to fulfill the sales obligation, and such costs will be allocated to the defaulting Participant
o Language has also been added to describe the process used to transfer RECs and GHG Compliance Instruments purchased/sold under the MPP
Section 8 – Cooperation and Further Assurances
Made minor language modifications/clarifications
AGENDA ITEM NO.: 5.C
MEETING DATE: 06/25/2012 EXHIBIT B – Page 3 of 4
Section 9 – Financial Obligations, Invoicing and Security Deposit Administration
Added language to allow NCPA/Participants to adjust the Fixed MPP Cost rate based on NCPA’s annual budget and respective program efforts
Simplified the Variable MPP Costs calculation, and included volumes for all Approved Products, not just Energy
Specified that all Security Deposits required under the MPP Agreement will be held as committed funds in NCPA’s general operating reserve (GOR), and Participants may commit uncommitted funds in the GOR to meet their Security Deposit obligations through use of an Irrevocable Letter of Direction
Modified the calculation of the Initial Security Deposit requirement to be based on the three (3) highest months of Commodity Costs for all Approved Products, not just Energy
Added language to prohibit the use of Commodity Revenues as/or to offset Security Deposit requirements
Added new authority in the MPP Agreement to enable NCPA to request Participants to provide Additional Security Amounts that are in excess of the three (3) month Security Deposit requirement, and to cover other obligations that may be imposed on NCPA due to the expansion of Approved Product types
Clarified which Contract Transactions are or are not used to calculate a Participant’s financial obligations under the MPP Agreement
Added other minor language modifications Section 10 – Administration of Agreement
Added minor language modifications/clarifications Section 11 – Admission and Withdrawal of Participants
Added language to Section 11 to clarify a Withdrawing Participant’s continuing obligations under Section 14.3.2 of the MPP Agreement and to Deposit Security with NCPA for any outstanding Contract Transactions beyond the two (2) year period in which the Participant officially withdraws from the MPP Agreement
Section 12 – Term and Termination
Modified the Term of the MPP Agreement to include an Initial Term of five (5) years, and an automatic renewal for two (2) year increments thereafter
Section 13 – Default and Remedies
Added minor language modifications/clarifications Section 14 – Miscellaneous
Modified the Participant liability provisions of the MPP Agreement to include both several and joint liability. Each Participant will effectively have a several liability for their respective Contract Transaction, but to the extent a Participant defaults, all non-defaulting Participants will have a joint liability for such default
AGENDA ITEM NO.: 5.C
MEETING DATE: 06/25/2012 EXHIBIT B – Page 4 of 4
o Added this provision to the MPP Agreement to address cross member risk concerns, which is consistent with the provisions of the Natural Gas Program Agreement
Added language to enable amendments to the Exhibits of the MPP Agreement based on NCPA Commission action; no individual Participant governing body approval will be required for such amendments
Added other miscellaneous provisions, including: o Venue o Attorneys’ Fees o Interpretation o No Third Party Beneficiaries
Exhibits
Added a new Participant Authorization for Resource Adequacy Added a new Participant Authorization for RECs Added a new Participant Authorization for GHG Compliance Instruments Added new Exhibits to list the Commission-approved:
o Master Agreements o Bilateral Agreements o Exchanges o Auctions o Brokers
Added a new Exhibit containing an Irrevocable Letter of Direction for GOR deposits Removed NCPA’s pro forma RFP from the Exhibits
