HomeMy WebLinkAboutE-2.1. Approve U.S. Resolution Stay ProtocolE-2
CONSENT CALENDAR
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY
BOARD
FROM: MANNY ROBLEDO, DIRECTOR OF UTILITIES 7Vl l'l...
DATE: FEBRUARY 24, 2020
SUBJECT: APPROVAL OF THE ADHERENCE TO U.S. BANK RESOLUTION STAY
PROTOCOLS
BACKGROUND:
Azusa Light and Water regularly purchases electrical energy and capacity, on a short-term basis,
from various counterparties, including large U.S. banking firms. Such banks are generally
financially stable and good trading partners, and it is in Azusa's interest to maintain them as
potential counterparties. In accordance to the provisions of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act), the regulators of large U.S. banks have
adopted Qualified Financial Contract (QFC) Stay Rules requiring "global systemically important
banks" (GSIBs), to include language in their QFCs that provides for contractual stays on
termination and other default rights of a counterparty. The primary purpose of these rules is to give
U.S. bank regulators time to implement an orderly resolution of a bank finding itself under financial
difficulty.
RECOMMENDATION:
Staff recommends the Utility Board take the following action:
1)Approve the adherence to the ISDA 2018 U.S. Resolution Stay Protocol as published
by the International Swaps and Derivatives Association (ISDA) on July 31,2018; and
2)Authorize the Director of Utilities, in a form acceptable to the City Attorney, to
execute the ISDA 2018 U.S. Resolution Stay Protocol.
ANALYSIS:
QFCs are very broadly defined in the Dodd-Frank Act to include any securities contract,
commodity contract, forward contract, repurchase agreement, swap agreement and any other similar
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Approved
Utility Board
02/24/20
agreement that may be determined by the U.S. bank regulators to fall within the definition of QFC.
Azusa has trade agreements with GSIBs that meet the definition of QFC. The QFC Stay Rules are
applicable to GSIBs and are effective January 1, 2019 with rolling implementation from
January 1, 2019 to January 1, 2020. Under these rules, GSIBs may not enter into new QFCs after
January 1, 2019 with a counterparty unless both parties have agreed to conform all existing and
future QFCs to the requirements of the QFC Stay Rules.
Azusa has received notices from at least two GSIB counterparties to take action to amend existing
QFCs to comply with the requirements. While compliance with these rules is a GSIB’s
obligation, Azusa will need to take action if Azusa intends to continue to transact business with
GSIBs. Staff recommends the proposed action because GSIBs represent a significant portion of the
short-term power market, they are credit-worthy counterparties, and not doing business with GSIBs
would limit the pool counterparties and increase the cost of energy and capacity products.
Azusa has the option of i) amending existing QFCs with the GSIBs or ii) approving the ISDA 2018
U.S. Resolution Stay Protocol (ISDA Protocol) and submitting a letter to ISDA indicating such
approval and adherence agreement. Individual amendments to QFCs would be costly and time
consuming for Azusa, and the ISDA Protocol is an industry standard document that applies to all
existing and new QFCs; therefore Staff recommends adopting the ISDA Protocol hereunder because
it is the most cost-effective method of compliance.
FISCAL IMPACT:
There is a one-time $500 submittal fee to ISDA associated with recommended actions of this
consent item to be paid from the Power Resources General and Administrative Fund.
Prepared by: Reviewed and Approved:
Richard Torres Manny Robledo
Assistant Director of Utilities - Resource Management Director of Utilities
Reviewed and Approved:
Sergio Gonzalez
City Manager
Attachment:
1) ISDA 2018 U.S. Resolution Stay Protocol
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