Form revised June 11, 2010

 

FISCAL NOTE FOR NON-CAPITAL PROJECTS

 

Department:

Contact Person/Phone:

DOF Analyst/Phone:

City Light

Eric Campbell/684-3659

Calvin Chow/684-4652

 

Legislation Title:

 

A RESOLUTION endorsing the City Light Department’s Wholesale Energy Risk Management Policy; establishing it as the policy governing wholesale energy risk management at the City Light Department; and superseding Resolution 31053.

 

·         Summary of the Legislation:

 

The legislation adopts an amended risk management policy document.

 

·         Background:


In order to provide electricity to its customers economically, Seattle City Light routinely buys and sells wholesale energy products.  This transaction in wholesale energy markets necessarily exposes Seattle City Light funds to risk, including market and credit risk.

 

City Light adopted a risk management policy document in 2008 which was endorsed by Council in Resolution 31053.  This resolution updates the risk management policy.

 

The material changes are as follows:

 

The key changes to the Policy are enabling the purchase of certain energy products and refining some risk limits:

 

·         Authorizing the purchase of “call” and “put” options.  Calls and puts are the right, but not the obligation, to either buy (“call”) or to sell (“put”) a fixed quantity of energy at a fixed delivery point, for a stated fixed price.  This transaction type serves as a form of energy supply resource insurance, providing cost effective hedges on City Light’s hydroelectric volumetric risk.  Calls will allow City Light to buy additional resources, at a known price, that may be needed in times of anticipated supply deficit and in forward markets that City Light has previously sold forward.  Puts will be used to lock in a floor price (guaranteed bottom) for a possible sale to protect City Light from the market price dropping below a stated price for a specified quantity of energy.

 

·         Refining certain risk limits.  Reducing the risk tolerance band on the 5% Tail Risk Metric limit for the current year from $10 million to $8 million and from $15 million to $12 million for the calendar year that follows the current year.  Clarification of the annual reassessment of credit risk tolerance and how it is communicated.

 

__X__   This legislation does not have any financial implications.