HomeMy WebLinkAboutF-3. Potential Procurement of (1) SP15 Energy Hedge(s)(2) Physical Energy Information Item
Presented 21I14
F-3
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INFORMATION ITEM
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY
BOARD
FROM: GEORGE F. MORROW,DIRECTOR OF UTILITIES
DATE: MAY 27,2014
SUBJECT: NOTIFICATION OF POTENTIAL PROCUREMENT OF: (1) SP15 ENERGY
HEDGE(S) FOR 3RD QUARTER 2014 AND (2) PHYSICAL ENERGY FOR
SUMMER 2015 TO REPLACE A TERMINATING CONTRACT
The electric utility has observed increased energy price volatility in Southern California. This
potential forward energy price uncertainty stems primarily from the fact that San Onofre Nuclear
Generating Station (SONGS) has been permanently shut down and a forecasted "dearth" of
California hydroelectric generation. Finally,the rising economic activity in the region has perked
up demand for power which in turn exerts upward pressure on energy prices. Hence the interest
in an energy hedge in summer 2014 for the SP15 (south of Path 15)market.
AL&W's five-year, 15 MW summer contract with Shell Energy sunsets after this year which
creates a considerable void in Azusa's energy portfolio beginning in 2015. Although in 2015 we
expect to begin taking energy deliveries under a recently executed renewable solar PPA, energy
from these deliveries will not fully close the gap created by the terminated Shell contract. Hence,
Staff is reviewing the need to procure up to 15 MW of physical On-Peak energy for the 2015
summer period.
In 1999, the Utility Board approved the Azusa Risk Management Policy(Risk Policy). The Risk
Policy was subsequently amended in 2006 and 2011. The currently approved policy, among
other things, grants specific ranges of authority to Staff to engage in purchases, sales and
hedging of energy, capacity, natural gas, transmission products, Renewable Energy Credits
(RECs), and GHG Allowances,within certain limits.
Although by no means certain, in order to control potential energy price exposure and stabilize
electricity prices/rates, Staff hereby notifies the Board that it may be prudent to procure forward
energy price hedges, up to 10 MW, for the super-peak hours of Q3 2014 and up to 15 MW of
forward physical power for peak hours of June—Sept,2015.
UB-65
2014 and 2015 Power Hedges
May 27,2014
Page 2
FISCAL IMPACT
Depending on market conditions at the time of procurement, it is estimated that it will cost up to
$160,000 per month for 2014 hedges and up to $325,000 per month for 2015 procurements,
should Staff decide to procure such products. Budgeted power supply funds will be allocated
accordingly.
Prepared by: Yarek Lehr,Assistant Director of Resource Management
UB-66