Risk Management Policy Development
WK Palmerton Associates LLC was retained by the City of Victorville, CA to assist with Strategic Planning and Risk Management Policy Development in 2008 and ’09.
The City’s Electric Department was beginning the process to connect its utility operations to the larger electric grid and participate in the California Power Markets. As part of that process, WKPA was retained to provide advice and counsel to the Utility Director on all aspects of CAISO market participation. In addition, the City was also preparing its internal organization, including its City Council, to participate in the bulk power markets. In a collaborative setting, WKPA developed the Risk Management policies that would establish the foundation for the City’s market participation.
An integral part of the assignment was the preparation of candidate power supply portfolios. Within the Risk Management Policy (called the Commodity Management Policy) were guidelines that established hedge targets and a planning process. In the case of the City of Victorville, the Policy defined the “Default” portfolio as that set of existing resource commitments. In the City’s case, the default portfolio left the City with a large net short position. WKPA created a series of “Mitigated” portfolios to close that net short position. Each candidate portfolio layered in market purchases and new resource commitments in a complementary way. The resulting Cost-of-Service / Retail Rates were estimated for each portfolio. The Risk of each portfolio was judged by measuring the range of cost outcomes over 100 iterations of possible load, natural gas price and market price futures.
WKPA utilized the Planning and Risk (PaR) market assessment software developed by Henwood Energy Associates, then Global Energy Decisions to perform the stochastic assessments of the City’s various portfolios.
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