HomeMy WebLinkAboutG-1.1. Informational Item- Risk Management Policy Semi Annual Report_ApprovedINFORMATIONAL ITEM G-1
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD
FROM: TIKAN SINGH, GENERAL MANAGER
DATE: NOVEMBER 25, 2024
SUBJECT: SEMI-ANNUAL REPORT ON AZUSA LIGHT & WATER’S ENERGY PORTFOLIO
BACKGROUND:
The Utility Board adopted an updated Energy Risk Management Policy in February 2024. The Policy
provides for reporting to the Utility Board (UB) on a semi-annual basis on energy-related matters,
including risk, hedging, cost projections, market changes, and certainty on projections. This report is
scheduled to be provided to the Utility Board every November and June.
RECOMMENDATION:
Staff recommends that the Utility Board take the following action:
1.Receive and file the Semi-Annual Report on Azusa Light and Water’s Energy Portfolio
ANALYSIS:
The updated Azusa Light & Water Energy Risk Management Policy (Policy) set certain parameters to
lessen risk and/or market exposure as much as possible. The Policy also established the creation of a Risk
Management Committee (RMC). The RMC is comprised of the General Manager, City Manager,
Assistant General Manager – Resource Management, Utilities Administrative and Finance Manager
serving as Risk Manager, as well as legal counsel. Since the adoption of the Policy, the RMC has been
meeting regularly to discuss current portfolio statuses and hedges and recommend future risk tolerances.
The following provides further details.
Cost Projections/Market Changes
The cost of regional power in the futures market has continued to soften compared to the last June 2024
report. For example, in August 2025, So-Cal power was trading in the mid-$80s/MWh and is currently at
$67. Please note the illustration below showing forward pricing as of November 2024.
Approved
Utility Board
1/2/2024
Semi Annual Report
November 25, 2024
Page 2 of 5
Some factors affecting this trend are strong gas supplies, the fact that the California grid successfully
withstood summer 2024 heat events, continued battery storage buildout, and the current likelihood of a
warmer-than-average winter.
The cost of capacity in California has also seen a downward shift in price from 2024 to 2025. As an
example, capacity for the month of September 2024 was offered at levels above $80/Kw-month. The same
product for September 2025 (a year later) is seen offered at $40-$50/Kw-month. This volatility is mainly
attributed to supply additions.
ALW’s Resource Update
Overall ALW’s resources have been performing well. Thus far Garnet Wind is the only resource that
incurred a forced outage in September-October 2024 due to a circuit fault. ALW’s Mesa Wind is projected
to generate close to 84,000 MWh by the end of the year. The consistent wind output, together with the
solar and small hydro fleet, will allow ALW to solidly meet its 2024 state-mandated renewable target of
44%. Staff is now projecting excess Renewable Energy Credits (RECs) that may be sold to the market.
The RMC will discuss and set a marketing plan for 2025-2026 RECs.
Looking forward to 2025, ALW’s staff has been recording all new metered data from its Mesa Wind
project. With historical data from its existing resources and newly acquired Mesa generation data, staff
has projected its 2025 demand and energy supplies. After executing a few hedges, mainly for the summer,
ALW is meeting the required hedge requirements as shown below:
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So Cal Forward Energy Prices ($/MWh) as of 11/5
11/24 12/24 1/25 2/25 3/25 4/25 5/25 6/25 7/25 8/25 9/25 10/25 11/25 12/25 1/26 2/26 3/26
Semi Annual Report
November 25, 2024
Page 3 of 5
Please note that due to the seasonal nature of fall/winter weather and hydrology, ALW cannot yet
confidently assess the amount of renewable small hydro generation for 2025. Small hydro generation was
conservatively projected in the model.
From a capacity perspective, staff has successfully received the uppermost capacity value for its Mesa
Wind Project from the California Independent System Operator (ISO) for 2025. This substantially reduced
the burden of capacity procurement from the market. Staff executed its remaining capacity purchases
mainly for the months of July through October 2025 at prices no higher than $29/Kw-month, lower than
prevailing market prices. The graph below shows ALW’s healthy capacity portfolio for the upcoming
year.
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Energy Hedge Planning Nov 2024 Onward
Min. Hedge Act. Hedge
Semi Annual Report
November 25, 2024
Page 4 of 5
Potential Stress Events
Despite staff’s constant monitoring of market conditions, some key risks to communicate include
unforeseen extreme weather swings, plant and/or transmission outages as well as fires. Until the next
planned resource, Bonanza Solar/Battery project, comes online sometime in 2029 ALW continues to need
summer capacity products and select supplemental energy hedges. Staff will monitor any legislative risk
with the new presidency and any state impacts.
Summary
From an energy supply perspective, the ALW portfolio is well hedged. Supplemental energy purchases
will fill select periods of lower renewable output. Staff will continue diligently procuring short-term
capacity as it awaits the commercial operation of its Bonanza Solar/Battery Project. Regarding its
renewable progress, the staff sees little to no risk in achieving current and future RPS targets. In the next
semi-annual report, staff will report any changes in projections that differ from this report.
FISCAL IMPACT:
This item has no fiscal impact.
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Resource Adequacy 2025
Semi Annual Report
November 25, 2024
Page 5 of 5
Prepared by:
Richard Torres
Assistant General Manager – Resource Management
Reviewed and Approved: Reviewed and Approved:
Danny Smith Tikan Smith
Utilities Admin & Finance Manager General Manager
Reviewed and Approved:
Sergio Gonzalez
City Manager