Clean Power Alliance Energy Planning & Resources Committee
June 28, 2023

Energy Planning & Resources Committee
of the Clean Power Alliance of Southern California
Regular Meeting
Wednesday, June 28, 2023
12:15 p.m.

Visit CPA’s YouTube Channel to watch a Live Stream of the Meeting *There may be a streaming delay of up to 90 seconds. This is a view-only live stream.

CPA Office
801 S. Grand Ave., Suite 400
Los Angeles, CA 90017
Members of the public may also participate in this meeting remotely at the following locations:

Manhattan Beach City Hall
City Manager Conference Room
1400 Highland Avenue
Manhattan Beach, CA 90266
Alhambra City Hall
Conference Room A
111 S. First St.

Alhambra, CA 91801
Carson City Hall
Executive Conference Room
701 East Carson Street
Carson, CA 90745
Howard Building
368 Queenstown Road
Greater London, SW11
England, United Kingdom
West Hollywood City Hall
3rd Floor Conference Room
8300 Santa Monica Blvd.

West Hollywood, CA 90069
City of Oxnard Service Center 1
East Conference Room
214 South C Street
Oxnard, CA 93030
PUBLIC COMMENT: Members of the public may submit their comments by one of the following options:
• Email Public Comment: Members of the public are encouraged to submit written comments on any agenda item to [email protected] up to four hours before the meeting. Written public comments will be announced at the meeting and become part of the meeting record. Public comments received in writing will not be read aloud at the meeting. • Provide Public Comment During the Meeting: The General Public Comment item is reserved for persons wishing to address the Committee on any Clean Power Alliance-related matters not on today’s agenda. Public comments on matters on today’s Consent Agenda and Regular Agenda shall be heard at the time the matter is called. Comments on items on the Consent Agenda are consolidated into one public comment period. Members of the public who wish to address the Committee at CPA’s Office are requested to complete a comment card and provide it to staff. If you are attending from a remote location, please identify yourself to a CPA representative when your item is called. Each speaker is limited to two (2) minutes (in whole-minute increments) per agenda item with a cumulative total of five 5 minutes to be allocated between the General Public Comment, Agenda Page 1
the entire Consent Agenda, or individual items in the Regular Agenda. Please refer to Policy No. 8 – Public Comment for additional information.

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ACCESSIBILITY: Meetings are accessible to people with disabilities. Individuals who need special assistance or a disability-related modification or accommodation to participate in this meeting, or who have a disability and wish to request an alternative format for the meeting materials, should contact the Clerk of the Board at least two (2) working days before the meeting at [email protected] or (213) 713- 5995. Notification in advance of the meeting, while not required, will enable us to make reasonable arrangements to ensure accessibility to this meeting and the materials related to it.

CALL TO ORDER & ROLL CALL

GENERAL PUBLIC COMMENT

CONSENT AGENDA

1. Approve Minutes from May 24, 2023, Energy Committee Meeting

2. Receive and File May 2023 Risk Management Team Report

REGULAR AGENDA

3. Oral Update from Vice President, Power Supply

4. Review and Recommend Approval of Proposed Energy Risk Management Policy (ERMP) Amendments to the Board of Directors

COMMITTEE MEMBER COMMENTS
ADJOURN – NEXT MEETING JULY 26, 2023
Public Records: Public records that relate to any item on the open session agenda for a Committee Meeting are available for public inspection. Those records that are distributed less than 72 hours prior to the meeting are available for public inspection at the same time they are distributed to all, or a majority of, the members of the Committee. Public records are available for inspection at CPA’s Office at 801 S. Grand Ave., Suite 400, Los Angeles, CA 90017, or online at www.cleanpoweralliance.org/agendas.

Agenda Page 2
Staff Report – Agenda Item 1
To: Energy Committee
Subject: Approve Minutes from May 24, 2023 Energy Planning and Resources Committee
Date: June 28, 2023

RECOMMENDATION
Approve.

ATTACHMENT

1. Minutes
Agenda Page 3
Energy Planning & Resources Committee Item 1

MINUTES
Energy Planning & Resources Committee
of the Clean Power Alliance of Southern California
Regular Meeting
Wednesday, May 24, 2023, 12:15 p.m.

Meeting videos are available on CPA's YouTube Channel.
http://www.youtube.com/@CPApublicmeetings
Committee Members participated in this meeting from the following locations:

Manhattan Beach City Hall
City Manager Conference Room
1400 Highland Avenue
Manhattan Beach, CA 90266
CPA Office
801 S. Grand Ave., Suite 400
Los Angeles, CA 90017
Alhambra City Hall
Conference Room A
111 S. First Street
Alhambra, CA 91802
Carson City Hall
Executive Conference Room
701 East Carson Street
Carson, CA 90745
West Hollywood City Hall
3rd Floor Conference Room
8300 Santa Monica Blvd.

West Hollywood, CA 90069
Thousand Oaks City Hall
Public Works Conference Room
2100 Thousand Oaks Blvd.

Thousand Oaks, CA 91362
City of Oxnard Service Center 1
East Conference Room
214 South C Street
Oxnard, CA 93030

CALL TO ORDER & ROLL CALL
Acting Chair Maloney called the meeting to order at 12:15 p.m. and Gabriela Monzon, Board Clerk, conducted roll call.

ROLL CALL
Alhambra Jeff Maloney Committee Member Remote
Carson Reata Kulcsar Committee Member Remote
Manhattan Beach David Lesser Committee Member Remote
Oxnard Kathleen Mallory Committee Member Remote
Sierra Madre Robert Parkhurst Committee Chair Absent
South Pasadena Diana Mahmud Committee Member Remote
Thousand Oaks Helen Cox Committee Member Remote
West Hollywood Chelsea Byers Committee Member Remote
All votes are unanimous, unless otherwise stated.

Agenda Page 4
Energy Planning & Resources Committee Item 1

GENERAL PUBLIC COMMENT
There was no public comment.

CONSENT AGENDA

1. Approve Minutes from April 26, 2023, Energy Committee Meeting

2. Receive and File April 2023 Risk Management Team Report Motion: Committee Member Mahmud, South Pasadena
Second: Committee Member Byers, West Hollywood
Vote: The consent agenda was approved by a roll call vote.

REGULAR AGENDA

3. Oral Update from Vice President, Power Supply
Lindsay Saxby, Vice President, Power Supply, provided an update on CPA project statuses and solicitations. Five solar and storage projects, totaling 425 megawatts of solar and 181 megawatts of storage, are set to come online in 2023. CPA staff are currently negotiating long-term Resource Adequacy (RA) agreements, biomass projects, and other storage agreements.

Committee Member Mahmud inquired about CPA’s energy and storage capacity by summer’s end. Ms. Saxby indicated that the Resurgence project will come online by summer and contribute 48 megawatts of solar and 40 megawatts of storage.

4. Provide Feedback on Net Energy Metering (NEM) 3.0
Karen Schmidt, Director, Rates and Strategy, provided a presentation on NEM 3.0 policy options. The California Public Utilities Commission’s (CPUC’s) NEM 3.0 decision reduced overall compensation for roof-top solar for new solar customers, increased the economic payback for battery storage, and provided added compensation for low-income customers. While partially aligned with CPA’s goals, which include supporting grid reliability, incentivizing energy storage adoption, and expanding access for low-income customers, the approach adopted by the CPUC may not overcome barriers to general storage adoption or overall access to solar and storage for low-income customers. Ms. Schmidt reviewed the CPUC’s NEM

3.0 decision and its impacts on CPA’s existing customers, export compensation, and low-income customers. Ms. Schmidt explained CPA’s NEM policy options and compared the customer value, impacts on CPA policy goals, and costs of NEM 2.0 and NEM 3.0. CPA has the option to adopt a rate adder to increase the incentive for storage adoption and/or to increase compensation for low-income customers.

A rate adder could have marketing benefits for CPA, but it is challenging to predict the cost over time or how it would impact customer adoption. Incentives and other customer programs may provide a larger boost to the adoption of storage resources compared to rate adders; Ms. Schmidt reviewed various customer programs under consideration. Staff is preliminarily recommending setting CPA’s export compensation rate consistent with Avoided Cost Calculator (ACC) values adopted by the CPUC’s NEM 3.0 decision, complemented by a broad-based storage rebate program that includes additional incentives for low-income customers.

Agenda Page 5
Energy Planning & Resources Committee Item 1
Committee Member Cox inquired about the availability of funding via the Self-Generation Incentive Program (SGIP) for residential battery storage. Joanne O’Neill, Director, Customer Programs, indicated that SGIP offers funding for larger systems such as batteries and for wildfire-prone areas; there is no general funding currently available. Committee Member Cox emphasized the importance of exploring alternative methods to incentivize energy storage adoption, citing bulk battery deployment as an example. Ms. O’Neill explained that CPA currently envisions two stages, with the first stage involving up-front incentives and the second stage focusing on innovative approaches to reach specific markets.

Committee Member Lesser expressed support for staff’s approach; commented on the significance of CPA’s discretion to implement NEM 3.0 on the generation side; pointed to the relevance of Southern California Edison’s (SCE’s) NEM policy approach, as differences could lead to consumer confusion. Committee Member Mallory emphasized the importance of incentive programs targeting renters and low-income customers and suggested additional analysis of incentive programs used by other Community Choice Aggregations (CCAs). Committee Member Mallory noted that historically, upfront incentives for energy storage adoption by low-income customers have shown the most success. Committee Member Mahmud expressed support for staff’s recommendation; inquired about CPA’s implementation timeline and incentive eligibility. Staff indicated that CPA intends to implement in alignment with SCE’s proposed timeline, likely in December 2023.

With regard to eligibility, staff noted that customers must remain with CPA to receive incentives, but staff are discussing other potential eligibility conditions, including a form of economic dispatch back to the grid. Committee Member Mahmud expressed concerns about the effectiveness of low-income customer incentives and suggested a larger investment in community solar programs to maximize benefits for these customers, particularly those residing in multifamily housing. Acting Chair Maloney commented that focusing on technical assistance would be beneficial as it tends to be a barrier for low-income customers.

5. Provide Feedback on the 2023 Clean Energy and Reliability RFO John McNamara, Director, Structured Contracts, provided a presentation on the launch of the 2023 Clean Energy and Reliability Request for Offers (RFO). The 2023 Clean Energy and Reliability RFO aims to fulfill CPA’s remaining Mid-Term Reliability (MTR) compliance requirements and meet a portion of its portfolio needs, including Resource Adequacy (RA) requirements, through long-term contracts. This will reduce the reliance on short-term market procurement. In April, the Energy Committee provided feedback to modify the RFO design to attract more competitive long-term renewable energy and RA offers, including soliciting offers for natural gas tolling agreements (tolls). Mr. McNamara reviewed the expanded procurement options and the eligibility of different product types. CPA may receive offers for traditional natural gas tolling agreements, hybrid facilities with battery energy storage, or a conversion to a green hydrogen fuel source. Consequently, new criteria will be applied when evaluating natural gas offers. Offers that extend the scheduled retirement date of existing natural gas facilities without providing a transition to a cleaner alternative will be ineligible for participation in the RFO. Mr.

McNamara reviewed the qualitative and quantitative criteria for ranking toll projects received in the RFO, including the analysis of forecasted generation, greenhouse gas (GHG) emissions, and impacts on Disadvantaged Communities (DACs). Mr.

McNamara shared the RFO process timeline.

Agenda Page 6
Energy Planning & Resources Committee Item 1
Committee Member Kulcsar asked why resource start dates of as late as 2027 and 2028 were being solicited. Mr. McNamara explained the need for timeline flexibility to attract more facilities and bids. Matthew Langer, Chief Operating Officer, added that projects with earlier online dates will be preferred.

COMMITTEE MEMBER COMMENTS
None.

ADJOURN
Acting Chair Maloney adjourned the meeting at 1:43 p.m.

Agenda Page 7
Staff Report – Agenda Item 2
To: Energy Committee
From: Geoff Ihle, Director, Energy Risk Management
Approved by: Ted Bardacke, Chief Executive Officer
David McNeil, Chief Financial Officer
Subject: Risk Management Team Report
Date: June 28, 2023
May 2023 RMT REPORT
Key Actions
• Reviewed current counterparty credit exposure
• Reviewed April 2023 market performance
• Reviewed April 2023 generation and storage performance • Reviewed energy positions and approved 2023-2027 hedges • Reviewed February 2023 day-ahead load forecast performance • Reviewed positions for RPS and carbon free products
• Reviewed Resource Adequacy (RA) positions, including CPA’s 2023 and 2024 Month-Ahead and 2024 Year-Ahead open position and procurement strategy • Reviewed Energy Risk Management (ERMP) compliance
• Reviewed May 2023 CRR Allocations and Auction and 2023 YTD performance Policy Compliance
Policy Deviation Required Action
Carbon Free Energy: As of December 1,
2022, carbon free energy under contract
for 2023 was above the ERMP maximum
of 100%
None. As previously reported, due to
scarcity of carbon free energy
(hydroelectric power), CPA procured
additional supply to ensure it meets its
energy product content targets.

Resource Adequacy: As of December 1,
2022, July, August and September 2023,
Resource Adequacy under contract was
below the ERMP hedge minimum of 90%
of the Month-Ahead compliance
requirement.

As a result of procurement activity, CPA
cured the July, August, and September
2023 policy deviations. CPA met its July
and August 2023 Month-Ahead CPUC
RA compliance requirements and
continues to work to meet its September
2023 Month-Ahead CPUC compliance
requirements.

ATTACHMENT
None.

Agenda Page 8
Staff Report – Agenda Item 3

To: Energy Committee
From: Lindsay Saxby, Vice President, Power Supply
Subject: Oral Update from Vice President, Power Supply
Date: June 28, 2023
The VP will provide an oral report on CPA energy procurement activities, including:
• Resource Adequacy (RA) compliance update
Agenda Page 9
Staff Report – Agenda Item 4

To: Energy Planning & Resources Committee
From: Geoff Ihle, Director, Energy Risk Management
Approved by: Ted Bardacke, Chief Executive Officer
Subject: Amendments to the Energy Risk Management Policy (ERMP) Date: June 28, 2023

RECOMMENDATION
Review and recommend approval of proposed ERMP amendments to the Board of Directors.

ATTACHMENTS

1. CPA’s Energy Risk Management Policy (Redline)

2. Presentation on Amendments to CPA’s Energy Risk Management Policy Agenda Page 10
Energy Risk
Management Policy
July x, 2023
Agenda Page 11
1 Table of Contents
Section 1: ENERGY RISK MANAGEMENT POLICY OVERVIEW .............................................................................. 4

1.1 Background and Purpose .......................................................................................................................... 4

1.2 Scope ......................................................................................................................................................... 5

1.3 Energy Risk Management Objective ......................................................................................................... 5

1.4 ERMP Administration ................................................................................................................................ 5 Section 2: GOALS AND RISK EXPOSURES ............................................................................................................ 6

2.1 ERMP Goals ............................................................................................................................................... 6

2.2 Risk Exposures ........................................................................................................................................... 6

2.2.1 Customer Opt-Out Risk ...................................................................................................................... 7

2.2.2 Market Risk ........................................................................................................................................ 7

2.2.3 Regulatory and Legislative Risk .......................................................................................................... 8

2.2.4 Volumetric Risk .................................................................................................................................. 8

2.2.5 Model Risk .......................................................................................................................................... 8

2.2.6 Operational Risk ................................................................................................................................. 9

2.2.7 Counterparty Credit Risk .................................................................................................................... 9

2.2.8 Reputation Risk .................................................................................................................................. 9 Section 3: BUSINESS PRACTICES ....................................................................................................................... 10

3.1 General Conduct ..................................................................................................................................... 10

3.2 Trading for Personal Accounts ................................................................................................................ 10

3.3 Adherence to Statutory Requirements ................................................................................................... 10

3.4 Transaction Type ..................................................................................................................................... 11

3.4.1 Exceptions ........................................................................................................................................ 11

3.5 Counterparty Suitability .......................................................................................................................... 12

3.6 System of Record .................................................................................................................................... 12

3.7 Transaction Valuation ............................................................................................................................. 12

3.8 Stress Testing .......................................................................................................................................... 13

3.9 Trading Practices ..................................................................................................................................... 13

3.10 Training ............................................................................................................................................ 14 Agenda Page 12
2 Section 4: ORGANIZATIONAL STRUCTURE AND RESPONSIBILITIES .................................................................. 15

4.1 Board of Directors Responsibilities ......................................................................................................... 15

4.2 Risk Management Team ......................................................................................................................... 15

4.3 Segregation of Duties .............................................................................................................................. 16

4.3.1 Front Office ...................................................................................................................................... 16

4.3.2 Middle Office .................................................................................................................................... 17

4.3.3 Back Office ....................................................................................................................................... 17 Section 5: DELEGATION OF AUTHORITY ........................................................................................................... 19

5.1 Risk Limits................................................................................................................................................ 19

5.1.2 Delegation Authority ........................................................................................................................ 19

5.1.3 Long-Term Procurement .................................................................................................................. 20

5.1.4 Volume Limits .................................................................................................................................. 20

5.1.5 Locational Limits .............................................................................................................................. 21

5.1.6 CAISO Submission Limits .................................................................................................................. 21

5.2 Monitoring, Reporting and Instances of Exceeding Risk Limits .............................................................. 21 Section 6: CREDIT POLICY AND COUNTERPARTY SUITABILITY .......................................................................... 22

6.1 Master Enabling Agreements and Confirmations ................................................................................... 22

6.1.1 Exceptions ........................................................................................................................................ 22

6.2 Counterparty Suitability .......................................................................................................................... 22

6.3 Maximum Credit Limit ............................................................................................................................ 23

6.4 Credit Review Exceptions ........................................................................................................................ 23

6.5 Credit Limit and Monitoring .................................................................................................................... 23

6.6 CPA Credit Support ................................................................................................................................. 23 Section 7: POSITION TRACKING AND MANAGEMENT REPORTING .................................................................. 24 Section 8: ERMP REVISION PROCESS ................................................................................................................ 25

8.1 Acknowledgement of ERMP ................................................................................................................... 25

8.2 ERMP Interpretations ............................................................................................................................. 25 Appendix A: DEFINITIONS ................................................................................................................................ 26 Appendix B: ENERGY RISK HEDGING STRATEGY ............................................................................................... 28 Agenda Page 13
3 1.1 Introduction ............................................................................................................................................ 28

2.1 Governance ............................................................................................................................................. 28

3.1 Hedging Program Goals .......................................................................................................................... 28

4.1 Hedging Targets and Strategies .............................................................................................................. 29

5.1 Hedge Program Metrics .......................................................................................................................... 34

6.1 Reporting Requirements ......................................................................................................................... 34 Appendix C: AUTHORIZED TRANSACTION TYPES .............................................................................................. 35 Appendix D: NEW TRANSACTION TYPE APPROVAL FORM ............................................................................... 37 Appendix E: NOTICE OF CONFLICT OF INTEREST .............................................................................................. 38 Appendix F: CODE OF MARKETING AND TRADING PRACTICES ........................................................................ 39 See next page. ........................................................................................................................................... 39 Agenda Page 14
4 Section 1: ENERGY RISK MANAGEMENT POLICY OVERVIEW

1.1 Background and Purpose
The Clean Power Alliance of Southern California (CPA) is a Joint Powers Authority (JPA) administering a Community Choice Aggregation (CCA) program in Southern California. CPA service territory currently includes 32 jurisdictions – 30 cities and the unincorporated parts of Los Angeles and Ventura Counties.

CPA members presently include the following:

Counties:

Los Angeles
Ventura

Cities:

Agoura Hills Hawaiian Gardens Santa Monica
Alhambra Hawthorne Sierra Madre
Arcadia Manhattan Beach Simi Valley
Beverly Hills Malibu South Pasadena
Calabasas Moorpark Temple City
Camarillo Ojai Thousand Oaks
Carson Oxnard Ventura
Claremont Paramount West Hollywood
Culver City Redondo Beach Westlake Village
Downey Rolling Hills Estates Whittier
CPA service will expand to three additional communities – Hermosa Beach, Monrovia, and Santa Paula – in March 2024.

CCA, authorized in California under AB 117 and SB 790, allows local governments, including counties and cities, to purchase wholesale power supplies for resale to their residents and businesses as an alternative to electricity provided by an Investor Owned Utility (IOU). For CPA members, that IOU is Southern California Edison (SCE). Electricity procured by CPA to serve customers is delivered over SCE’s transmission and distribution system.

CPA exists to serve its local government members, and the residences and businesses located within their respective communities. CPA’s specific objectives are to provide its customers with a reliable supply of electricity, at competitive electric rates, sourced from a generation portfolio with lower greenhouse gas (GHG) emissions and higher renewable content than the incumbent utility, SCE. CPA also has goals to be a catalyst for local economic development and give its member agencies greater choice in the energy procured for their residents.

Agenda Page 15
5 To meet these commitments, CPA must procure electric power supplies and operate in the wholesale energy market which exposes CPA, and ultimately the customers that it serves, to various risks. The intent of the Energy Risk Management Policy (ERMP) is to provide CPA, and by extension its customers, with a framework to identify, monitor and manage risks associated with procuring power supplies and operating in wholesale energy markets.

The Energy Risk Management Policy (ERMP), including its appendices, establishes CPA’s Energy Risk Program.

1.2 Scope
Unless otherwise explicitly stated in the ERMP or other policies approved by the CPA Board of Directors (Board), the ERMP applies to all power procurement and related business activities that may impact the risk profile of CPA. The ERMP documents the framework by which CPA staff and consultants will:
 Identify and quantify risk
 Develop and execute procurement strategies
 Develop controls and oversight
 Monitor, measure and report on the effectiveness of the ERMP To ensure its successful operation, CPA has partnered with experienced consultants to provide power supply services. Specific to power procurement, CPA has partnered with a third-party Scheduling Coordinator that augments CPA’s internal Front (scheduling), Middle (monitoring) and Back (settlement) Office related activities as discussed at Section 4.3. The Scheduling Coordinator supporting CPA’s power procurement activities will adhere to and be governed by the ERMP in providing these services to CPA. In addition, the Scheduling Coordinator’s activities executed on CPA’s behalf will be governed by its own risk management policies and procedures, and prudent industry practices.

1.3 Energy Risk Management Objective
The objective of the ERMP is to provide a framework for conducting procurement activities that maximize the probability of CPA meeting the goals listed in Section 2.1.

Pursuant to the ERMP, CPA will identify and measure the magnitude of the risks to which it is exposed and that contribute to the potential for not meeting identified goals.

1.4 ERMP Administration
The ERMP has been reviewed and approved by the Board. The Chief Executive Officer in consultation with the Risk Management Team (collectively, the “RMT”), as defined in Section 4.2, and the Board must approve amendments to the ERMP, except for appendices D, E, and F, which may be amended with approval of the Chief Executive Officer, in consultation with the RMT. The Chief Executive Officer must give notice to the Board of any amendment it makes to an appendix or a reference policy or procedure document.

Agenda Page 16
6 Section 2: GOALS AND RISK EXPOSURES

2.1 ERMP Goals
To help ensure its long-term success, CPA has outlined the following goals:
 Build a portfolio of resources with lower GHG emissions and higher renewable content than SCE;  Meet reliability requirements established by the State of California, and operate in a manner consistent with Prudent Utility Practice (defined as the practices generally accepted in the utility industry to ensure safe, reliable, compliant and expeditious operations);  Maintain competitive retail rates with SCE after adjusting for exit fees (currently the Power Charge Indifference Adjustment or PCIA) and Franchise Fees paid by CPA customers;  Emphasize during the initial years of operation the funding of financial reserves to meet the following long-term business objectives:
o Stabilize rates by dampening year-to-year variability in power supply costs; o Establish an investment-grade credit rating to maximize the ability of CPA to engage in long-term acquisition or development of generation supplies consistent with ERMP goals; and
o Provide a source of equity capital for investment in generation.

The goals outlined above are incorporated into the financial models and metrics that are used to monitor and measure risk and ERMP success. It is important to note that the goals listed above are not intended to be a comprehensive list of goals for CPA. Rather, the above reflect the overarching goals critical to CPA’s long-term financial success and that will guide the ERMP.

2.2 Risk Exposures
For the purpose of the ERMP, risk exposure is assessed on all transactions (energy, environmental attributes, and capacity) as well as the risk exposure of open positions and the impacts of these uncertainties on CPA’s load obligations.

CPA faces a range of risks during launch and ongoing operation including:
 Customer opt-out risk
 Market risk
 Regulatory risk
 Volumetric risk
 Model risk
 Operational risk
 Counterparty credit risk
 Reputation risk
Agenda Page 17
7 2.2.1 Customer Opt‐Out Risk
Customer opt-out risk may be realized by any condition or event that creates uncertainty within, or a diminution of, CPA’s customer base. Customer opt-out risk is manifested in two separate ways.

First, the ability of customers to return to bundled service from SCE creates uncertainty in CPA’s revenue stream, which is critical for funding ERMP goals and achieving the investment grade credit rating needed to successfully operate over the long-term.

Second, customer opt-out risk can potentially challenge the ability of CPA to prudently plan for, and cost-effectively implement, long-term resource commitments made on behalf of its member communities and the customers it serves.

CPA will manage customer opt-out risk through the following means:
 Implement a key accounts program and maintain strong relationships with the local community including elected leaders, stakeholders and all of the customers CPA serves;  Actively monitor and advocate for the interests of CPA and its customers in SCE ratemaking proceedings, California Public Utilities Commission (CPUC) proceedings that potentially affect exit fees paid by CPA customers, as well as all regulatory and legislative proceedings where an adverse outcome may challenge the ability of CPA to deliver on customer commitments;  Regularly monitor and report actual and projected financial results including probability-based and stress-tested financial results assuming a range of possible future outcomes with respect to:
o Future SCE generation and PCIA rates;
o Future market costs for energy, environmental attributes and capacity; and o Anticipated or threatened regulatory actions, when appropriate.  Adopt, implement and update, as needed, a formal Energy Risk Hedging Strategy (Appendix B) describing the strategy that CPA will follow for engaging in procurement activities; and  Evaluate expansion of CPA’s customers base through incorporation of other eligible communities into the CCA.

2.2.2 Market Risk
Market risk is the uncertainty of CPA’s financial performance due to variable commodity market prices (market price risk) and uncertain price relationships (basis risk). Variability in market prices creates uncertainty in CPA’s procurement costs, which has a direct impact on customer rates. CPA will manage market risk through:
 Regular measurement;
 Execution of approved procurement;
 Hedging and Congestion Revenue Right strategies; and
 Use of the Limit Structure set forth in the ERMP (see limits in Section 5.1.2 and Appendix B).

Agenda Page 18
8 2.2.3 Regulatory and Legislative Risk
CPA and other CCAs are subject to an evolving legal and regulatory landscape. Additionally, CCAs are in direct competition with California’s IOUs in supplying retail electricity and the IOUs face the risk of stranded investments in generating assets and power purchase agreements procured in the past to serve now departing CCA loads. The manner in which such stranded costs of these legacy power supplies are allocated to departing CCA loads is subject to change based on various proceedings at the CPUC. The outcome of such proceedings will directly affect the cost of power for CPA’s customers, as well as impact the rate competitiveness of CPA.

In addition to exit fees, potential regulatory and/or legislative changes could affect the ability of CPA to exercise local control over the manner and means of procuring power supplies to serve its customers.

CPA will manage regulatory and legislative risks by:
• Regularly monitor and analyze legislative and regulatory proceedings impacting CCAs; and  Actively participate in, and advocate for, the interests of CPA and its customers during regulatory and legislative proceedings.

2.2.4 Volumetric Risk
Volumetric risk reflects the potential uncertainty in the quantity of different power supply products (e.g., renewable energy, Carbon Free Energy and capacity) required to meet the needs of CPA customers. This uncertainty can lead to adverse financial outcomes, as well as create potential for CPA to fail to meet reliability or renewable energy compliance requirements established by the State of California and/or the CPA Board. Customer load is subject to fluctuation due to customer opt-outs or departures, temperature deviation from normal, unforeseen changes in the growth of behind the meter generation by CPA customers, unanticipated energy efficiency gains, new or improved technologies, as well as local, state and national economic conditions. CPA will manage volumetric risk by taking steps to:
 Implement robust short- and long-term load and generation supply forecast methodologies, including regular monitoring of forecast accuracy through time and refining such forecasts, including by incorporating CPA’s actual load data into forecasts as such data becomes available;  Account for volumetric uncertainty in load and/or generation supply in in the Energy Risk Hedging Strategy;
 Monitor trends in customer onsite generation, economic shifts, and other factors that affect electricity customer consumption and composition; and
 Proactively engage with customers in developing distributed energy resources and behind-the-meter generation and energy efficiency programs so as to better forecast changes in load.

2.2.5 Model Risk
Model risk has potential for an inaccurate or incomplete representation of CPA’s actual or forecast financial performance due to deficiencies in models and/or information systems used to capture all transactions. CPA will manage model risk by:

Agenda Page 19
9  RMT ratification of models used to forecast financial performance, net positions and/or measure risk;
 Ongoing review of model outputs;
 A requirement to record all procurement transactions in a single trade capture system; and  Ongoing update and improvement of models as additional information and expertise is acquired and industry best practices evolve.

2.2.6 Operational Risk
Operational risk is the uncertainty of CPA’s financial performance due to weaknesses in the quality, scope, content, or execution of human resources, technical resources, and/or operating procedures within CPA.

Operational risk can also be exacerbated by fraudulent actions by employees or third parties or inadequate or ineffective controls. CPA will manage operational risk through:
 The controls set forth in the ERMP;
 RMT oversight of procurement activity;
 Timely and effective reporting to the Chief Executive Officer in consultation with the RMT, and the Board;
 Implementation of a compliance training program for CPA staff;  Ongoing CPA and Scheduling Coordinator staff education/training and participation in industry forums; and
 Annual audits to test compliance with the ERMP.

2.2.7 Counterparty Credit Risk
Counterparty credit risk is the potential that a counterparty will fail to perform or meet its obligations in accordance with terms agreed to under contract. CPA’s exposure to counterparty credit risk is controlled by the limit controls set forth in the Credit Policy described in Section 6.

2.2.8 Reputation Risk
Reputation risk is the potential that CPA’s reputation is harmed, causing customers to opt-out of CPA service and migrate back to SCE. Reputational risk is also the potential that energy market participants view CPA as an untrustworthy business partner, thus reducing the pool of potential counterparties and/or having counterparties apply a CPA-specific risk premium to pricing. Reputational risk is managed through:
 Implementation of and adherence to the ERMP;
 Engaging in ethical, transparent and honest business practices during trading activities; and  Establishment and adherence to industry best practices including both those adopted by other CCAs, as well as those adopted by traditional municipal electric utilities.

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10 Section 3: BUSINESS PRACTICES

3.1 General Conduct
It is the policy of CPA that all Board members, staff, and consultants (collectively referred to “CPA Representatives”), adhere to standards of integrity, ethics, conflicts of interest, compliance with statutory law and regulations and other applicable CPA standards of personal conduct while employed by or affiliated with CPA. Towards this end, all persons performing marketing and trading functions on behalf of CPA shall be subject to, read, understand, and abide by the provisions contained in the CPA Code of Marketing and Trading Practices (see Appendix F).

3.2 Trading for Personal Accounts
All CPA Representatives participating in any transaction or activity within the coverage of the ERMP are required to comply with the CPA Conflict of Interest Code approved by the Fair Political Practices Commission and are obligated to give notice in writing to CPA of any legal, financial or personal interest such person has in any counterparty that seeks to do business with CPA, and to identify any real or potential conflict of interest such person has or may have with regard to any existing or potential contract or transaction with CPA, within 48-hours of becoming aware of the conflict of interest. Written notice should be submitted to the Chief Executive Officer substantially in the form of the letter notification shown in Appendix E. This written notice obligation shall be in addition to the regulations or requirements of the Fair Political Practices Commission (e.g., Statement of Economic Interests, Form 700) and any policy adopted by the CPA Board of Directors, including but not limited to the Vendor Communication Policy No. 2019-10.

Further, all persons are prohibited from personally participating in any transaction or similar activity that is within the coverage of the ERMP, or prohibited by California Government Code Section 1090, and that is directly or indirectly related to the trading of electricity and/or environmental attributes as a commodity.

If there is any doubt as to whether a prohibited condition exists, then it is the CPA Representative’s responsibility to discuss the possible prohibited condition with CPA General Counsel.

3.3 Adherence to Statutory Requirements
All CPA Representatives are required to comply with rules promulgated by the State of California, CPUC, California Energy Commission, Federal Energy Regulatory Commission (FERC), Commodity Futures Trading Commission (CFTC), and other regulatory agencies.

Congress, FERC and CFTC have enacted laws and regulations that prohibit, among other things, any action or course of conduct that actually or potentially operates as a fraud or deceit upon any person in connection with the purchase or sale of electric energy or transmission services. These laws also prohibit any person or entity from making any untrue statement of fact or omitting a material fact where the omission would make a statement misleading. Violation of these laws can lead to both civil and criminal actions against the individual involved, as well as CPA. The ERMP is intended to comply with these laws, regulations and rules and to avoid improper conduct on the part of anyone employed by CPA. These Agenda Page 21
11 procedures may be modified from time to time based on legal requirements, auditor recommendations, and other considerations.

In the event of an investigation or inquiry by a regulatory agency, CPA will provide legal counsel to employees provided the subject of the investigation is within the employee’s course and scope of employment. However, CPA reserves the right to refrain from providing legal counsel if it reasonably appears to the CPA General Counsel and Chief Executive Officer that the employee was either not acting in good faith or was acting outside the course and scope of his or her employment.

CPA employees are prohibited from working for another power supplier, CCA or utility while they are simultaneously employed by CPA unless an exception is authorized by the Board.

3.4 Transaction Type
Authorized transaction types are listed in Appendix C. Each approved transaction type that is listed is included to either meet a mandatory procurement obligation required of all Load Serving Entities (LSE) serving retail loads in California; and/or alternatively, the approved product is needed for CPA to meet an identified ERMP goal. Major transaction types include:
 Resource Adequacy Capacity is a mandatory procurement obligation that ensures adequate generation supplies are available on a planning basis to reliably meet the requirements of electric consumers in the California Independent System Operator (CAISO) balance authority;  Portfolio Content Category 1 (PCC1) and Portfolio Content Category 2 (PCC2) renewable energy must be procured by CPA to comply with the state of California’s Renewable Portfolio Standard, as required by SB 350. CPA has made a voluntary decision to purchase incremental quantities of PCC1 and/or PCC2 renewable energy to exceed the renewable portfolio content of the incumbent utility;
 Carbon Free Energy is a voluntary purchase of specified source energy from large hydroelectric generation than enables CPA to provide its customers with electricity sourced from generators producing low GHG emissions so that member agencies can meet their climate action plans and CPA can contribute to combatting climate change;
 Physical Energy products are a voluntary purchase made by CPA to provide cost certainty and rate stability for customers; and
 The CAISO is the largest grid operator in the state of California and CPA members lie within its balancing area. CAISO operates Day-Ahead, Fifteen Minute and Real-Time Markets and other ancillary markets necessary for reliable operation of the grid. CPA is required to participate in CAISO markets. Acquisition of the CAISO products listed in Appendix C either result from mandatory participation in CAISO’s markets, or are useful for managing short-term market risks associated with CAISO’s markets.

The strategy for using and procuring the approved products is described in further detail in the Energy Risk Hedging Strategy.

3.4.1 Exceptions
New transaction types may provide CPA with additional flexibility and opportunity but may also introduce new risks. Therefore, transaction types not included in Appendix C must be approved by the RMT and the Agenda Page 22
12 Board prior to execution using the process defined below.

When seeking approval for a new transaction type, a New Transaction Type Approval Form, as shown in Appendix D, is to be drafted describing all significant elements of the proposed transaction. The proposal write-up will, at a minimum, include:
 A description of the benefit to CPA, including the purpose, function and expected impact on costs (i.e.; decrease costs, manage volatility, control variances, etc.);  Identification of the in-house and/or external expertise that will manage and support the new or non-standard transaction type;
 Assessment of the transaction’s risks, including any material legal, tax or regulatory issues;  How the exposures to the risks above will be managed by the Limit Structure;  Proposed valuation methodology (including pricing model, where appropriate);  Proposed reporting requirements, including any changes to existing procedures and system requirements necessary to support the new transaction type;  Proposed accounting methodology; and
 Proposed work flows/methodology (including systems).

It is the responsibility of the Middle Office to ensure that relevant departments have reviewed the proposed transaction type and that material issues are resolved prior to submittal to the Board for approval. If the transaction type is approved, Appendix C to the ERMP will be updated to reflect its addition.

3.5 Counterparty Suitability
All counterparties with whom CPA transacts must be reviewed for creditworthiness and assigned a Credit Limit as described in Section 6.

3.6 System of Record
Since information systems play a vital role for CPA’s trading and risk management abilities, CPA shall maintain and secure a System of Record. CPA’s transaction and contract data are also stored in its Scheduling Coordinator’s energy trading and risk management system.

CPA’s Technology and Data and Systems group supports the security, integrity, and recoverability of the System of Record. The Scheduling Coordinator has assigned a Database Administrator (DBA) that is charged with database security and maintenance for the Scheduling Coordinator’s transaction database.

For data recoverability, transaction data stored in the System of Record is replicated daily to ensure data redundancy and is backed-up via cloud-based applications.

All transaction records will be maintained in US dollars and will be separately recorded and categorized by type of transaction and other characteristics, in line with standard industry practice. This System of Record shall be auditable and audited as appropriate.

3.7 Transaction Valuation
Transaction valuation and mark-to-market (valuing of an asset based on its current market price) reporting of positions shall be based on independent, publicly available, market-observed prices (replacement costs) Agenda Page 23
13 whenever possible. In the event there are not market-observed prices, the value of CPA’s transactions shall follow a notional value calculation (the total nominal dollar value of a transaction over its full duration) or other methodology approved as part of the new product approval process.

All transactions and open positions will be valued daily.

3.8 Stress Testing
In addition to limiting and measuring risk using the methods described herein, stress testing shall also be used to examine performance of the CPA portfolio under potential adverse conditions. Stress testing is used to understand the potential variability in CPA’s projected procurement costs and resulting impacts on customer rates and CPA’s competitive positioning associated with low probability events. The Middle Office will perform stress-testing of the portfolio as directed by the RMT.

3.9 Trading Practices
As previously noted, CPA exists to serve its customers. The scope of its wholesale market operations is limited to that which is required to meet the power supply obligations of its customers consistent with ERMP goals. It is the expressed intent of the ERMP to prohibit wholesale market activities that result in procurement of any power supply product beyond that which is required to meet an identifiable need of CPA customers. The purchase or sale of any power supply product beyond what is reasonably anticipated to be needed to meet the requirements of CPA customers is a speculative transaction and is prohibited.

In the course of developing operating plans and conducting procurement activities, CPA recognizes that staff must employ reasonable expertise and judgment, and it is not the intent of the ERMP to restrain the legitimate application of analysis and market expertise in executing procurement strategies intended to minimize costs or maximize the value of generation within the constraints of the ERMP. If any questions arise as to whether a proposed transaction(s) constitutes speculation, the RMT shall review the transaction(s) to determine whether the transaction(s) would constitute speculation and shall document its findings. As used here, “speculation” means the act of trading an asset with the expectation of realizing financial gain resulting from a change in price in the asset being transacted.

Staff and consultants engaged in procurement activities will also observe the following practices:
 Persons shall conduct business in good faith and in accordance with all applicable laws, regulations, tariffs and rules;
 Persons shall not arrange or execute wash trades (i.e., offsetting transactions where no financial risk is taken);
 Persons shall not disseminate known false or misleading information or engage in transactions to exploit such information;
 Persons shall not game or otherwise interfere with the operation of a well-functioning competitive market;
 Persons shall not collude with other market participants; and  Persons shall immediately report any known or suspected violation of the ERMP.

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14 3.10 Training
CPA recognizes the importance of ongoing education to manage risk and to contribute to ERMP success.

Towards this end, CPA will observe the following practices:
 All employees executing procurement transactions on behalf of CPA must receive appropriate training in the attributes of each product type that they transact, how the product furthers the portfolio objectives of CPA, and how the risk profile of CPA is impacted by procurement of each product;
 All employees executing procurement activities shall complete required and available energy market compliance training as determined by the Chief Operating Officer once per calendar year and acknowledge receipt of said training in writing;
 The Human Resources Department shall maintain records of each employee’s training status.

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15 Section 4: ORGANIZATIONAL STRUCTURE AND RESPONSIBILITIES

4.1 Board of Directors Responsibilities
The Board has the responsibility to review and approve the ERMP. With this approval, the Board acknowledges responsibility for understanding the risks CPA is exposed to through its CCA activity and how the policies outlined in the ERMP help CPA manage the associated risks. The Board is also responsible to:
 Provide strategic direction to CPA;
 Consider transactions beyond authorities delegated to the Chief Executive Officer in consultation with the RMT;
 Consider changes to the Energy Risk Hedging Strategy (see Appendix B); and  Consider new transaction types not currently listed in the ERMP (see Appendix C).

4.2 Risk Management Team
The RMT is responsible for implementing, maintaining and overseeing compliance with the ERMP and for maintaining the Energy Risk Hedging Strategy. At a minimum, the members of the RMT shall include the Chief Executive Officer and at least two additional CPA staff members with experience in energy markets selected at the sole discretion of the Chief Executive Officer.

The primary goal of the RMT is to ensure that the procurement activities of CPA are executed within the guidelines of the ERMP and are consistent with Board directives. The RMT shall consider and propose changes to the ERMP when conditions dictate.

Pursuant to direction and delegation from the Board of Directors and the limitations specified by this ERMP, the Chief Executive Officer, in consultation with the RMT, maintains authority over procurement activities for CPA. This authority includes, but is not limited to, taking any or all actions necessary to ensure compliance with the ERMP.

The RMT responsibilities may include, but are not limited to:
 Maintain the Energy Risk Hedging Strategy and ensure that all procurement strategies and related protocols are consistent with the ERMP;
 Review financial and risk models and subsequent changes;  Establish counterparty Credit Limits;
 Review initial counterparty credit review models and methods for setting and monitoring Credit Limits and subsequent changes;
 Review reports as described in the ERMP;
 Meet to review actual and projected financial results and potential risks;  Keep apprised of any change in the environment in which CPA operates that has a material effect upon the risk profile of CPA;
 Review summaries of limit violations and recommend corrective actions, if necessary; and Agenda Page 26
16  Review the effectiveness of CPA’s energy risk measurement methods.

4.3 Segregation of Duties
CPA shall work to maintain a segregation of duties, also referred to as "separation of function," to help manage and control the risks outlined in the ERMP. Individuals responsible for legally binding CPA to a transaction will not also perform confirmation or settlement functions without supplemental, transparent, and auditable controls. CPA also will leverage the organizational structure of the Scheduling Coordinator’s Middle and Back offices to help maintain a segregation of duties. The Front, Middle and Back Office responsibilities for CPA are described below.

4.3.1 Front Office
The Front Office is headed by the Vice President, Power Supply. The Front Office has overall responsibility for (1) managing all activities related to procuring and delivering resources needed to serve CPA load, (2) analyzing fundamentals affecting load and supply factors that determine CPA's net position, and (3) transacting within the limits of the ERMP and associated policies to balance loads and resources and maximize the value of CPA assets through the exercise of approved optimization strategies. Other duties associated with these responsibilities include:
 Assist in the development and analysis of risk management hedging products and strategies, and bring recommendations to the RMT;
 Prepare a monthly operating plan for the prompt month (the month following the current month) that gives direction to the Day-Ahead and Real-Time Market trading and scheduling staff regarding the bidding and scheduling of CPA's resource portfolio in the CAISO market;  Calculate and maintain the net forward positions (a forecast of the anticipated electric demands compared to existing resource commitments) of CPA for all power products (energy, renewable energy, Carbon Free Energy and Resource Adequacy Capacity);  Develop, price and negotiate hedging products;
 Oversee scheduling of load and resources into CAISO;
 Keep accurate records of all executed transactions;
 Manage and facilitate the transaction execution process for power supply transactions through coordination of the following activities:
o Notify Front Office personnel of any anticipated unique physical delivery or scheduling issues;
o Work with Middle Office personnel and legal counsel to establish a contract, evaluate counterparty creditworthiness and secure additional credit from the counterparty, if necessary;
o Work with Middle Office, as needed, to perform an analysis of the potential transaction to evaluate the effect on CPA’s portfolio risks;
o Notify Back Office of terms and conditions affecting settlement to ensure that the necessary settlement procedures are in place.

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17 4.3.2 Middle Office
The Middle Office functions arewill be the responsibility of the Chief Financial Officer. The Middle Office provides market and credit risk oversight, has responsibility for development of risk management policies and procedures, monitors compliance with the same, and keeps management and the Board informed on risk management issues. CPA will maintain its Middle Office functions independent from the front and back office functions.

Middle Office responsibilities include the following:
 Create and ensure compliance with policies outlining standard procedures for conducting business;
 Oversee short-term and long-term load forecasting;
 Estimate and publish daily forward monthly power curves and weekly publish natural gas price curves for a minimum of the balance of the current year through the next calendar year;  Verify the net forward positions of CPA for all power products;  Ensure that CPA adheres to all risk policies and procedures;  Implement and enforce credit policies and limits;
 Confirm all transactions conform to commercial terms and alert Front Office to discrepancies;
 Ensure all trades have been entered into the System of Record as well as the Scheduling Coordinator’s transaction data management system;
 Ensure that all CAISO Day-Ahead, Fifteen Minute and Real-Time Market delivery volumes and prices are entered into a transaction database;
 Review models and methodologies and recommend RMT approval, as needed;  Mark unrealized and realized gains and losses associated with CPA hedge activity.  Development and maintain financial and energy risk management models as directed by the RMT  Develop and maintain load forecasting models and perform long term load forecasts as directed by RMT

4.3.3 Back Office
The Back Office functions are will be the responsibility of the Chief Financial Officer. It provides support with a wide range of administrative activities necessary to execute and settle transactions and to support the risk control efforts (e.g., transaction entry and/or checking, data collection, billing, etc.) consistent with the ERMP. Through its partnership with the Scheduling Coordinator, CPA will maintain its Back Office functions independent from the Front and Middle Office functions.

Back Office responsibilities include the following:
 Ensuring timely and accurate financial reporting;
 Maintaining a system of financial controls and business processes that control financial risk;  Maintaining the overall financial security of transactions undertaken on behalf of CPA;  Carrying out month-end checkout of all transactions each month; and Agenda Page 28
18  Validation and prompt payment of energy related invoices payable by CPA and resolving disputes with counterparties;
 Generation and prompt collection of energy related invoices payable by counterparties Agenda Page 29
19 Section 5: DELEGATION OF AUTHORITY

5.1 Risk Limits
The following limits apply to all CPA procurement activities. These limits are Board-approved and define the limits that CPA must operate within. The metrics and management of risk within these limits is further described in the Energy Risk Hedging Strategy.

5.1.2 Delegation Authority
Through its approval of the ERMP, the Board has delegated operations and oversight to the Chief Executive Officer, in consultation with the RMT, as outlined through the ERMP. Specifically, to facilitate daily operations of the CCA, the Board has delegated transaction execution authorities shown in the table below.

Table 5.1.2.*
Position Transaction Type Term
Limit*
Maturity
Limit
Counterparty
Limit
Notional
Value Limit
(per
transaction)
Notional
Value
Limit
(annual)
Chief Executive
Officer in
consultation
with the RMT
Tolling Agreements 3 years
5 years
3 years
Pursuant to
Credit Policy
in Section 6
of this Policy
Within hedge Board-approved limits set
approved in the Energy
Risk Hedging Strategy in
Appendix B of this Policy
New Build 5 years 7 years
Any non-tolling
transactions with
existing facilities
10 years
5 Years 10 years
Chief Executive
Officer Transactions 1 year $10m $80m1
*
See Appendix A for definitions of “Tolling Agreement,” Term Limit,” “Maturity Limit,” and “New Build.” For operational flexibility, the Chief Executive Officer will have the authority to delegate transaction execution authority to either the Chief Operating Officer, or Vice President, Power Supply, as needed. Any delegation will be documented in writing using the form in Appendix G.

For a transaction to be valid, it must conform to each of the four limits specified in the above tTable 5.1.2, above.

These limits will be applied to wholesale power procurement outside of transactions directly executed with the CAISO. These limits provide CPA the needed authority to manage risks as they arise. Transactions 1 Annual limits intended to reflect approximately 10% of annual power supply costs.

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20 falling outside the delegations above require Board approval prior to execution.

Transactions with CAISO and CAISO administrative fees are excluded from this table. CAISO transactions are limited to those required for scheduling contracts in the CAISO market and for balancing CPA’s load and resources.

5.1.3 Long‐Term Procurement
Long-term procurement, defined as transactions contract terms greater than 5 the Limits specified in Table years 5.1.2 will be subject to Board approval. Long-term contracts are procured through solicitations, bilateral negotiations, or regulatory proceedings, with oversight including shortlist approvals or procurement recommendations, provided by the Energy Resources & Planning Committee of the Board.

All long-term contracts are evaluated using standard evaluation criteria, including economic value over the life of the contract and any additional evaluation criteria established by the Energy Resources & Planning Committee and consistent with Board policy directives. Proposals received in solicitations, including all pricing and other confidential submission information, are reviewed by an RFO Review Team comprised of the Chief Executive Officer, additional Staff members as determined by the Chief Executive Officer, and a subset of Board members serving on the Energy Resources and Planning Committee, unless otherwise determined appropriate by the Chief Executive Officer and General Counsel in consultation with the Board Chair and Chair of the Energy Resources and Planning Committee. Proposals, either from solicitations, bilateral negotiations, or regulatory proceedings, are evaluated by the Energy Resources & Planning Committee and approved for contract negotiations. Final awards are then presented for Board consideration in accordance with applicable law.2
Any amendments to a Board-approved long-term contract that make material changes to the terms of the contract including, but not limited to, changes to price, volume, project size, commercial operation date, counterparty security requirements, or other amendments that impact the evaluation criteria upon which a project was approved must be also approved the Board.

Minor, non-core amendments, or additional agreements that are administrative in nature or arising from the counterparties effectuating their obligations related to the project under normal course of business (e.g., implementing project financing, consent to collateral assignment, assignments, changes to progress reporting forms, insurance obligations, or termination), may be approved and executed by the Chief Executive Officer or Chief Operating Officer.

All procurement executed under the delegation above must align with CPA’s underlying risk exposure (i.e., load requirements, locational and temporal) that is being hedged consistent with the Energy Risk Hedging Strategy. The RMT will consider risks associated with executed or planned long-term procurement within its evaluation of overall portfolio risk and procurement decision-making.

5.1.4 Volume Limits
Transactions should not be executed that exceed CPA’s energy, capacity, or renewable or Carbon Free Energy requirements. If there is an adjustment to CPA requirements resulting in the volume of existing 2 Awards will be presented without market sensitive information (i.e., pricing or other sensitive commercial terms) for Board consideration in accordance with applicable law.

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21 transactions exceeding CPA’s requirements, the RMT will determine the most favorable strategy to appropriately rebalance the portfolio.

An exception to the above limits may be made by the RMT if executing a transaction exceeding load will minimize costs or is necessary to ensure compliance. For example, procuring RA for the entire year could cause CPA to hold excess RA in certain months. Such a transaction would be acceptable if a lower cost alternative transaction or set of transactions that more closely matches monthly needs is unavailable.

5.1.5 Locational Limits
The delivery location for all transactions must support the requirements of CPA’s source or sink locations.

5.1.6 CAISO Submission Limits
CPA shall bid at least 80% of its forecast load requirements in the Day-Ahead Market and bids shall not exceed 100% of forecast load requirements.

CPA shall offer no more than 100% of the forecasted generation capability in the Day-Ahead Market. CPA shall follow CAISO protocols for all activity within CAISO.

5.2 Monitoring, Reporting and Instances of Exceeding Risk Limits The Middle Office is responsible for monitoring and reporting compliance with all limits within the ERMP.

If a limit or control is violated, the Middle Office will send notification to the trader responsible for the violation and the RMT. The RMT will discuss the cause and potential remediation of the exceedance to determine next steps for curing the exceedance.

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22 Section 6: CREDIT POLICY AND COUNTERPARTY SUITABILITY Prior to execution of any transaction, the Front Office will verify that CPA has executed a master agreement with the counterparty, that the counterparty has been evaluated for creditworthiness, and that an approved Credit Limit has been established. No transactions may be executed without first ensuring the transaction falls within the unutilized Credit Limit for the counterparty or has been approved on an exception basis by the Chief Financial Officer.

6.1 Master Enabling Agreements and Confirmations
Transactions are governed by master agreements, the forms of which must be prepared by CPA General Counsel and approved by the Board. No transactions may be executed without a fully executed master agreement being on file. Written confirmations of each transaction will contain standard commercial terms and provisions. Material modifications or additions to standard commercial terms in confirmations require approval by legal counsel. Modifications to standard credit terms in confirmations or enabling agreements require approval by CFO.

It is CPA’s policy to confirm all transactions in writing. All confirmations received from counterparties will be matched against trades in the System of Record. Any discrepancies between a confirmation and the System of Record may be handled by the Front Office representative that executed the transaction, or if necessary, a Middle Office representative will seek resolution with the counterparty. All confirmations will be kept on file.

6.1.1 Exceptions
It is standard industry practice to not provide written confirmation of certain short-term transactions with a term of one day or less. Additionally, CPA may agree with certain counterparties to alternative methods for confirming certain transactions. Transactions executed in a recorded telephone conversation or recorded instant message in which the offer and acceptance shall constitute the agreement of the parties must be confirmed in writing after-the-fact, with notice being provided to the counterparty within 72 hours.

6.2 Counterparty Suitability
All counterparties shall be evaluated for creditworthiness by the Middle Office prior to execution of any transaction and no less than annually thereafter. Additionally, counterparties shall be reviewed if a change has occurred, or is perceived to have occurred, in market conditions or in a company’s management or financial condition. This evaluation, including any recommended increase or decrease to a Credit Limit, shall be documented in writing and include all information supporting such evaluation in a credit file for the counterparty.

Counterparty Credit Limits, and credit and payment terms will be recommended by the Middle Office for approval by the RMT consistent with CPA’s Credit Protocols. The Middle Office will undertake credit analysis that shall include, at a minimum, an evaluation of current audited financial statements or other supplementary data and consider factors such as:
 Liquidity
Agenda Page 33
23  Leverage (debt)
 Profitability
 Net worth
 Cash flow
 Proposed collateral and other contract terms
Counterparty’s senior unsecured or corporate credit rating will be obtained from one of the nationally recognized rating agencies (S&P, Moody’s, and/or Fitch) if available. Trade and banking references, and any other pertinent information, may also be used in the review process.

When establishing credit and payment terms, RMT will consider the Credit Limit of the counterparty, current exposure to the counterparty, the product type and tenor of existing and/or future transactions, notional value of proposed or future transactions with the counterparty and the availability/scarcity and commercial significance of the product being traded. A counterparty may choose to provide a guarantee from a third party, provided the third party satisfies the criteria for a Credit Limit as outlined herein.

6.3 Maximum Credit Limit
Each new counterparty Credit Limit or increase to an existing limit will be reviewed by the RMT. The maximum amount of any Credit Limit extended to a counterparty shall not exceed $50,000,000unless approved in writing by the Board. unless approved in writing by the Board.

6.4 Credit Review Exceptions
Counterparties not subject to the above credit review criteria include those associated with Day-Ahead and current day purchases where risks associated with market movements are minimal.

6.5 Credit Limit and Monitoring
The Middle Office will monitor the current credit exposure for each counterparty with whom CPA transacts and include such information in the Current Counterparty Credit Risk Report. This report will be submitted to the RMT for review pursuant to the reporting requirements outlined in Section 7.

Current credit exposure is a measure of the known exposures and composed of two primary exposures – (1) realized exposure, and (2) forward exposure. Realized exposure, a payable or receivable amount owed between counterparties, is a measurement of cash flow for billed and unbilled transactions. Forward exposure is a measure of current unrealized exposure and includes the measure of a counterparty’s incentive to fulfill contractual obligations. Forward exposure measures the risk associated with having a payment default or the need to replace a transaction in the event of delivery default.

6.6 CPA Credit Support
Counterparties may require CPA to post a form of credit support, such as cash or a letter of credit. The Middle Office will ensure that any CPA credit support requirements are evaluated and approved within the context of the overall transaction approval as specified herein.

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24 Section 7: POSITION TRACKING AND MANAGEMENT REPORTING A vital element in the ERMP is the regular identification, measurement and communication of risk. To effectively communicate risk, all risk management activities must be monitored on a frequent basis using risk measurement methodologies that quantify the risks associated with CPA’s procurement-related business activities and performance relative to identified goals.

Minimum reporting requirements are shown below. The reports outlined below will be presented to the RMT, except reports to the Board. Reports will be generated weekly unless otherwise noted.  Financial Model Forecast
Latest projected financial performance, marked to current market prices, and shown relative to CPA’s financial goals.
 Net Position Report
Latest forward net position report, by product type (energy, PCC1, PCC2, Carbon Free Energy and RA capacity) for the current and prompt year.
 Counterparty Credit Exposure
Current counterparty credit exposure compared against limits approved by CPA, as well as the limit assigned to CPA by the counterparty.
 Monthly Risk Analysis
Cash flow forecasting and stress testing of financial forecasts relative to financial goals. Gross margin at risk reporting. Additional discussion of the specific gross margin at risk reporting and its application is provided in the Energy Risk Hedging Strategy.  Monthly Transaction Reporting
The following transactions executed under the authority delegated in Section 5.1.2 will be reported monthly to the Board: (i) Any Tolling Agreement; (ii) any transaction with a Term greater than five years.
 Quarterly Board Report
Update on activities, projected financial performance, and general market outlook to be presented quarterly at Board meetings, communicated in a way to ensure CPA confidentiality and market sensitive data is not released.

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25 Section 8: ERMP REVISION PROCESS
The ERMP will evolve over time as market and business factors change. At least on an annual basis, the Chief Executive Officer, in consultation with the RMT, will review the ERMP and associated procedures to determine if they should be amended, supplemented, or updated to account for changing business conditions and/or regulatory requirements. If an amendment is warranted, the ERMP amendment will be submitted to the Board for approval. Changes to ERMP appendices may be approved and implemented by the Chief Executive Officer, in consultation with the RMT, with the exception of new transaction types and changes to the Energy Risk Hedging Strategy, which also require Board approval.

8.1 Acknowledgement of ERMP
All CPA Representatives participating in any activity or transaction within the scope of the ERMP or in the case of a consultant, an executive of the consultant or a delegated representative authorized to bind the consultant with regard to ERMP obligations shall sign, on an annual basis or upon any revision, a statement approved by the Chief Executive Officer, in consultation RMT, that such CPA Representative has:
 Read the ERMP;
 Understands the terms and agreements of said ERMP;
 Will comply with said ERMP;
 If an employee, understands that any violation of said ERMP shall subject the employee to discipline up to and including termination of employment;  If a consultant, understands that any violation of said ERMP may be grounds for consultant contract termination; and
 If a Board member, understands that any violation of said ERMP shall subject the Board member to action by the Board.

8.2 ERMP Interpretations
Questions about the interpretation of any matters of the ERMP should be referred to the Director, Energy Market Risk Management.

All legal matters stemming from the ERMP will be referred to CPA counsel.

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26 Appendix A: DEFINITIONS
Back Office: That part of a trading organization which handles transaction accounting, confirmations, management reporting, and working capital management.

CAISO: California Independent System Operator. CAISO operates a California bulk power transmission grid, administers the State’s wholesale electricity markets, and provides reliability planning and generation dispatch.

Carbon Free Energy: Energy that is generated from a specific zero carbon emitting generating asset. It is commonly used to note energy from large hydroelectric or nuclear generation that while non-carbon emitting, is not an RPS-eligible generation source. Sometimes referred to as specified source energy.

CCA: Community Choice Aggregator. CCAs allow local government agencies such as cities and/or counties to purchase and/or develop generation supplies on behalf of their residents, businesses and municipal accounts.

CFTC: Commodity Futures Trading Commission. The CFTC is a U.S. federal agency that is responsible for regulating commodity futures and swap markets. Its goals include the promotion of competitive and efficient futures markets and the protection of investors and market participants against manipulation, abusive trade practices and fraud.

Congestion Revenue Right: A point-to-point financial instrument in the Day-Ahead Energy Market that entitles the holder to receive compensation for or requires the holder to pay certain congestion related transmission charges that arise when the transmission system is congested.

Credit Limit: The maximum amount of financial exposure one party is willing to extend to another.

Day-Ahead Market: The short-term forward market conducted by an Organized Market prior to the operating day. It is intended to efficiently allocate transmission capacity and facilitate purchases and sales of energy and scheduling of bilateral transactions.

FERC: Federal Energy Regulatory Commission. FERC is a federal agency that regulates the interstate transmission of electricity, natural gas and oil. FERC also reviews proposals to build liquefied natural gas terminals, interstate natural gas pipelines, as well as licenses hydroelectric generation projects.

Front Office: That part of a trading organization which solicits customer business, services existing customers, executes trades and ensures the physical delivery of commodities.

Franchise Fee: A franchise fee is a percentage of gross receipts that an IOU pays cities and counties for the right to use public streets to provide gas and electric service. The franchise fee surcharge is a percentage of the transmission (transportation) and generation costs to customers choosing to buy their energy from third parties. IOUs collect the surcharges and pass them through to cities and counties.

IOU: An Investor Owned Utility (IOU) is a business organization providing electrical and/or natural gas services to both retail and wholesale consumers and is managed as a private enterprise.

Limit Structure: A set of constraints that are intended to limit procurement activities.

Maturity Limit: tThe maximum time period between transaction execution date and the date of the final delivery of the contracted product
Middle Office: That part of a trading organization that measures and reports on market risks, develops risk management policies and monitors compliance with those policies, manages contract administration and credit, and keeps management and the Board informed on risk management Agenda Page 37
27 issues.

New Build: tThe development and construction of a new generating or storage facility or an expansion, upgrade, or redevelopment of an existing facility where incremental capacity is offered.

PCIA: Power Cost Indifference Adjustment or successor. The PCIA is intended to compensate IOUs for their stranded costs when a bundled customer departs and begins taking generation services from a CCA.

Portfolio Content Category 1 (PCC1) Renewable Energy: Energy and bundled Renewable Energy Credits that is simultaneously procured from an RPS-Eligible Facility that is directly interconnected to the distribution or transmission grid within a California balancing authority area (CBA); or that is not directly interconnected to a CBA but is delivered to a CBA without substituting electricity from another source.

Portfolio Content Category 2 (PCC2) Renewable Energy: Energy and bundled Renewable Energy Credits that is simultaneously purchased from an RPS-Eligible Facility, but the energy is firmed and shaped with substitute electricity scheduled into a CBA within the same calendar year as the renewable energy is generated.

Portfolio Content Category 3 (PCC3) Renewable Energy: Renewable Energy Credits from RPS-eligible facilities that do not meet the definition of PCC1 or PCC2.

Real-Time Market: The real-time market is a spot market in which LSEs can buy power to meet the last few increments of demand not covered in their day ahead schedules, up to 75 minutes before the start of the trading hour.

Resource Adequacy Capacity: A capacity product whereby a Seller commits to a must offer obligation of its generator in the CAISO market and on behalf of a specified Load Serving Entity.

RPS-Eligible Facility: Defined under CA Public Utilities Code § 399.11 et seq. and CA Public Resources Code § 25740 et seq. as an electrical generating facility using technologies such as biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuels, small hydroelectric generation of 30 megawatts or less, ocean wave, ocean thermal, or tidal current.

Settlement: Settlement is the process by which counterparties agree on the dollar value and quantity of a commodity exchanged between them during a particular time interval.

Stress testing: Stress testing is the process of simulating different financial outcomes to assess potential impacts on projected financial results. Stress testing typically evaluates the effect of negative events to help inform what actions may be taken to lessen the negative consequences should such an event occur.

System of Record (SOR): An information storage system that is the authoritative data source for a given data element or piece of information.

Term Limit: The total duration of the contract counted as the maximum time period between the beginning flow date of contracted product deliveries and the ending flow date of contracted product deliveries, inclusive.

Tolling Agreement: An agreement between a power buyer and a power generator, under which the buyer supplies the fuel, either physically or financially, and receives an amount of power generated based on an assumed conversion rate at an agreed cost. Typically used for generation facilities powered by natural gas and excludes battery storage.

Agenda Page 38
28 AAppendix B: ENERGY RISK HEDGING STRATEGY

1.1 Introduction
CPA is routinely exposed to commodity price risk and volume variability risk in the normal conduct of serving the power supply requirements of its customers.

This Energy Risk Hedging Strategy (ERHS) describes the strategy and framework that CPA will use to hedge the power supply requirements of its customers. Specific focus is on procurement of the following market-based products:
 Fixed Priced Energy
 Portfolio Content Category 1 Renewable Energy
 Portfolio Content Category 2 Renewable Energy
 Carbon Free Energy
 Resource Adequacy Capacity
In addition to market-based transactions entered into pursuant to this ERHS, CPA will also enter into longer-term power purchase agreements (PPAs) pursuant to statutory requirements (e.g., SB 350 mandate to, by 2021, procure a minimum of 65 percent of RPS requirements under a 10-year or longer power purchase agreement), as well as voluntary long-term resource acquisition decisions made independently by CPA pursuant to its Integrated Resource Plan or other approved Board-approved strategies. Long-term Power Purchase Agreements (PPAs) will count as hedges as described later in this ERHS.

2.1 Governance
This ERHS shall be updated, as necessary, from time to time and governed by the Energy Risk Management Policy (EMRP) approved by the CPA Board of Directors.

3.1 Hedging Program Goals
The overall goal of the ERHS is to identify exposure to commodity prices, quantify the financial impact variability in commodity prices, load requirements and generation output may have on the ability of CPA to meet its financial program goals, and manage the associated risk.

The primary goals that guide this ERHS are:
 Acquire a portfolio of resources with lower greenhouse gas emissions and higher renewable content than SCE;
 Meet reliability requirements established by the state of California, and operate in a manner consistent with prudent utility practice;
Agenda Page 39
29  Maintain competitive retail rates with SCE after adjusting for exit fees (currently the Power Charge Indifference Adjustment or PCIA) and Franchise Fees paid by CPA customers;  Build financial reserves to ensure the CPA’s long-term financial objectives are achieved.

All hedging activities will be conducted to achieve results consistent with the above goals and to meet the power supply requirements of CPA’s customers. Any transaction that cannot be directly linked to a requirement of serving CPA’s customers, or that serves to reduce risk is prohibited.

4.1Hedging Targets and Strategies

4.1.1Fixed Price Energy
Fixed Price Energy purchases provide for suppliers to deliver energy – for which CPA will receive energy market revenues – to CPA at a fixed price. They are used to manage the electricity commodity price risk that the CPA faces as a Load Serving Entity. Specific to CPA’s customers, Fixed Price Energy hedges are used to provide cost certainty and rate stability.

CPA predominantly employs Fixed Price Block Energy contracts, which provide for suppliers to deliver a predetermined volume of energy at a constant delivery rate. As CPA enters into long- term, fixed price contracts for renewable and/or carbon-free energy, these will likewise hedge CPA’s market risk and, subsequently, reduce the required volume of Fixed Price Block Energy purchases.

When assessing its requirements for Fixed Price Energy, CPA will use an econometric model to forecast hourly energy requirements and monthly peak demand by customer load class. The model will use historical data to estimate relationships between energy consumption and economic, demographic and/or weather variables. The model will be refined through time as additional load and other data is acquired.

CPA will observe the following schedule when hedging its Fixed Price Energy Requirements. The Minimum and Maximum hedge % represent the Fixed Price Energy planned or under contract divided by forecasted load.

Quarter
Minimum
Hedge %
Maximum Hedge
%
Prompt Q
(PQ) 85% 110%
PQ + 1 80% 110%
PQ + 2 74% 110%
PQ + 3 69% 110%
PQ + 4 63% 105%
PQ + 5 58% 99%
PQ + 6 52% 93%
PQ + 7 47% 87%
PQ + 8 41% 82%
PQ + 9 36% 76%
PQ + 10 - 39 30% 70%

Agenda Page 40
30 Time Period Minimum Hedge % Maximum Hedge %
Prompt 1-4 Quarters 85 110
Balance of prompt year not
covered by Prompt 4 Quarters
65 90
Current Calendar Year (CY) + 2 40 80
CY + 3 30 70
CY + 4 30 70
CY + 5 30 70
The hedge schedule for the Prompt QuarterEnergy hedging compliance will be measured as of within 5 days prior to the first day of the each quarter (e.g., on September 27on a date between September 26th and September 30th , 20192023, CPA will have hedged 85 to 110 percent of its projected energy requirements during for Q4 Q4 20232019 to Q3 2020 and 80 to 110 percent of requirements for Q1 2024).

The minimum hedge level will be achieved by implementing a time-driven programmatic strategy. Time-driven programmatic hedges are executed at a predetermined rate pursuant to a time schedule and without regard for market conditions. The purpose of these hedging transactions is to achieve a reduction in variability in power supply costs by gradually increasing the amount of energy hedged as the actual date of consumption approaches. Time-driven strategies avoid the inherent impossibility of trying to consistently and accurately “time the market” to purchase energy at least cost when making hedging decisions. Additionally, a load serving entity the size of CPA needs to spread its procurement efforts over time to effectively manage the potential negative price impacts of procuring a large volume of energy, over a short period of time, in an illiquid market.

Hedging decisions to reach targets between the minimum and maximum hedge levels will be based on price-driven or opportunistic strategies. The purpose of price-driven or opportunistic strategies is to capitalize on market opportunities when conditions are favorable. CPA will base its decision to execute opportunistic hedges on the anticipated impact to projected power supply costs and the resulting reduction in risk.

Opportunistic hedges may be executed when energy price levels are favorable to lowering the cost of power relative to established program goals and financial projections; alternatively, opportunistic hedges can be executed in adverse market conditions relative to financial goals in order to reduce the potential negative impact of continued upward trending commodity prices relative to established goals.

In executing this ERHS, Fixed-Price Energy hedges may be modified, repositioned or unwound for the purpose of maintaining hedge coverage that matches changes in forecast electric load. This includes the ability of the CPA to use liquid market products to hedge average loads over a defined time period and then later modify its hedges to more precisely match load.

4.1.2Renewable Energy
In order to cost-effectively meet its GHG-reduction and renewable energy goals, CPA intends to meet a growing share of its energy supply requirements with renewable energy, a large portion of which will be Product Content Category 1 (PCC1) renewable energy. PCC1 renewable energy is sourced from a renewable generator that is either directly interconnected to the California Independent System Operator (CAISO) or another California Balancing Authority or directly scheduled into CAISO without use of Agenda Page 41
31 substitute energy. CPA shall diversify its renewable energy portfolio further by incorporating Portfolio Content Category 2 (PCC2) renewable energy purchases. PCC2 renewable energy is sourced from renewable generators located outside the state of California- where that generation is “firmed and shaped” for delivery into California. PCC2 purchases are typically less expensive and shorter in term than PCC1, so they provide a cost-effective and flexible method of augmenting CPA’s renewable energy purchases to meet renewable portfolio content commitments to customers. However, not all PCC2 renewable energy is emissions-free; therefore, CPA must assess the value of PCC2s against its respective emissions intensity. In addition, RPS compliance rules set minimum requirements for PCC1 and PCC2 as a percentage of the total RPS compliance portfolio, which CPA will abide by in its procurement of both products.

In order to manage price risk of long-term renewable energy, and to allow CPA to prudently and methodically build a portfolio of long-term assets, CPA intends to meet its renewable energy targets with a blend of short and long-term contracts. CPA intends to fully comply with long-term contracting requirements mandated by SB 350; therefore, executed and planned long-term renewable contracts will be reflected in CPA’s renewable energy positions.

CPA shall observe the following schedule while hedging its renewable energy requirements. This hedge schedule shall first be measured within 5 days prior to the first day of each quarter for the Current Calendar Year, and within 5 days prior on Decemberto December 1, 2020 and then on December 1 of each subsequent of each year for the Prompt Calendar year and the two following ten following calendar Calendar yearsYears.

Time Period Minimum Hedge % Maximum Hedge %
Current Calendar Year 90 110*
Prompt Calendar Year 6580 100110*
PY + 1 4550 10595
PY + 2 3050 10090
PY + 3 3050 9585
PY + 4 - 9 3050 9580
* Maximum hedge percentages allow for a planning margin to accommodate volumetric uncertainty associated with electric consumption and generation

4.1.3Carbon Free Energy
In pursuit of its GHG-reduction objections, CPA shall augment its renewable energy purchases outlined above with energy purchases from carbon-free energy generating facilities, which are typically hydro-electric resources located in California that are too large to qualify as Eligible Renewable Resources (30 MW or greater) or located outside of California. Similar to PCC2 renewable energy contracts, carbon-free energy purchases are typically short-term, most frequently one to three years in length.

CPA may have the opportunity to receive free carbon free allocations from SCE. Hedging activity should consider these allocations and expected allocations should be included in the hedging percentage.

CPA will observe the following schedule when hedging its Carbon-Free renewable energy requirements.

This hedge schedule shall be measured within 5 days prior to the first day of each quarter for the Current Calendar Year, and within 5 days prior to December 1 of each year for the following ten Calendar Years.

Agenda Page 42
32 The hedge schedule shall be measured on December 1 of each year for the Prompt Calendar year and the two subsequent calendar years.

Time Period Minimum Hedge % Maximum Hedge %
Current Calendar Year 85 110*
Prompt Calendar Year 75 100110*
PY + 1 50 100110
PY + 2 25 10075
PY + 3 0 7550
PY + 4 - 9 0 7550
* Maximum hedge percentages allow for a planning margin to accommodate volumetric uncertainty associated with electric consumption and generation In setting the above targets, it is important to note that the purchase of Carbon Free Energy is a voluntary requirement set by the CPA Board to exceed SCE’s GHG emissions goals. In determining the total volume of Carbon Free Energy to be hedged, the CPA Board may elect to increase or reduce the total quantity of Carbon Free Energy included in CPA’s portfolio as it seeks to balance multiple program objectives, including financial goals such as targets for financial reserves and retail rates.

4.1.4Resource Adequacy Capacity
As a Load-Serving Entity (LSE) in California, CPA is required to demonstrate both annually and monthly that it has secured sufficient energy capacity to provide for its share of California’s energy load; this capacity is referred to as Resource Adequacy (RA). Because CPA serves customers in SCE’s service territory, CPA has local RA requirements specific to the Los Angeles Basin and Big Creek/Ventura local areas, as well as general RA requirements for Southern California (“South of Path 26 System”), a portion of which must be Flexible RA. Flexible RA requirements ensure resources are available on the grid to provide ancillary services such as ramping and regulation.

RA is typically transacted via contracts that vary in length from one month to three years, and it is currently bought and sold via a bilateral market, which not only provides cost-effective contracting opportunities but also proves at times to be fragmented and volatile. While a waiver process exists to excuse LSEs from their RA requirements, iIt is the goal of CPA to meet all RA requirements, including local, flex, and system products, and not use the RA waiver process.

CPA will observe the following schedule when hedging its RA requirements. The hedge schedule shall be measured for the system RA product by month that CPA is required to procure within 5 days prior toon December 1 of each year for the Prompt Calendar year and the two nine subsequent calendar years.

Agenda Page 43
33 Time Period Minimum Hedge %
(applicable to all months)
Maximum Hedge %
(applicable to peak month only)3
Prompt Calendar Year 90 100
PY + 1 50 95
PY + 2 3035 90
PY + 3 2035 80
PY + 4 - 9 2035 80

4.1.5Congestion Revenue Rights (CRRs)

4.1.64.1.5 As a CAISO market participant, CPA has congestion risk associated with serving its customer load. CPA manages congestion risks by preferring day ahead scheduling of energy delivered at SP-15, and by resource assessment and selection consistent with this Policy. Once energy is procured, CPA manages congestion risk through the prudent management of CRRs, which are financial instruments used to hedge against transmission congestion costs encountered in the CAISO day-ahead market. The RMT is responsible for overseeing the management of CRRs and CRR trading. The CRR portfolio will be managed by CPA's Front Office with support from CPA’s Scheduling Coordinator. CRRs are transacted to effectively manage portfolio congestion risk. Trading of CRRs for speculative purposes is not permitted. 3 Due to the variable nature of CPA’s monthly RA requirements, non-peak months may exceed the applicable Maximum Hedge %.

Agenda Page 44
34 5.1Hedge Program Metrics
Hedge Program Metrics
The success of the Energy Risk Hedging Strategy will be measured by realizing power supply costs in line with the budgeted power supply costs used to set customer rates, as well as by reducing CPA’s exposure to commodity price risk.

Current projected power supply costs will be compared to budgeted power supply costs where budgeted costs will be based on the assumptions used at the time customer generation rates are set. Current power supply costs shall use all fixed priced contracts executed as of the date of the report. All open positions will be marked to market and compared to the budgeted power supply costs.

The Front and Middle Office will use a variety of industry standard metrics to evaluate open positions and potential hedge transactions. RMT will review these metrics when making price-driven or opportunistic hedging decisions to ensure that the transactions are consistent with the goals of the Energy Risk Hedging Strategy. These metrics will be updated and reported on a monthly basis.

6.1Reporting Requirements
The following reporting is required to manage the hedge program and to ensure its success:
 Net position report for each product
 Current projected power supply costs compared to budget  Gross margin at Risk
 GHG intensity
Agenda Page 45
35 Appendix C: AUTHORIZED TRANSACTION TYPES
All transaction types listed below must be executed within the limits set forth in the ERMP. Definitions for each product are provided in Appendix A.
 CAISO Market Products
o Day-Ahead Market Energy (Energy purchased from the CAISO Day-Ahead Market.) o Real-Time Market Energy (Energy purchased from the CAISO in the Real-Time Market) o Congestion Revenue Rights (A point-to-point financial instrument in the Day-Ahead Energy Market that entitles the holder to receive compensation for or requires the holder to pay certain congestion related transmission charges that arise when the transmission system is congested.)
o Convergence Bids (Financial positions, either demand or supply, taken in the Day-ahead Market and liquidated in the Real-Time Market.)
o Inter-Scheduling Coordinator Trades (A trade between two Scheduling Coordinators that is a settlement service that CAISO offers to parties of a bilateral contract as a means of offsetting CAISO settlement charges against bilateral contractual payment responsibilities.)  Physical Energy Products
o Short-Term Energy (Energy traded in the CAISO market or bilaterally for a duration less than one year.)
o Long-Term Energy (Energy traded in the CAISO market or bilaterally for a duration greater than one year.)
o Physical Over-the-Counter (OTC) Options (Call options that give the buyer the right, but not the obligation, to buy an underlying power product at agreed upon terms as detailed in a confirmation agreement; or put options that give the seller the right, but not the obligation, to sell an underlying power product at agreed upon terms as detailed in a confirmation letter.)  Resource Adequacy Capacity (A capacity product whereby a Seller commits to a must offer obligation of its generator in the CAISO market and on behalf of a specified Load Serving Entity.)  Import Capability Rights (Entitles an LSE to count Resource Adequacy products at a specified import location toward its Resource Adequacy Requirements.)  Physical Environmental Products
o PCC1, PCC2 and PCC3 Renewable Energy (see definition in Appendix A)4 o Carbon Free Energy (see definition in Appendix A)
o Air Resource Board Allowances (An allowance is a tradeable permit issued by the California Air Resource Board to emit one metric ton of a carbon dioxide equivalent greenhouse gas emission.)
 Financial Hedging Products
o Futures Contracts (A contract to buy or sell a commodity (electricity) at a predetermined price at a specified time in the future. Futures Contracts are standardized for quality and quantity to facilitate trading on a futures exchange (e.g., Intercontinental Exchange).) 4 Clean Power Alliance’s Joint Power’s Agreement discourages the purchase and use of PCC3 products. PCC3 products will only be acquired under exceptional circumstances requiring the use of this product to achieve the agency’s environmental and financial goals.

Agenda Page 46
36 o Swaps (Financial contracts in which one party agrees to pay a cash flow calculated by multiplying a fixed volume by a fixed price (fixed price payer) and the other party agrees to pay a cash flow calculated by multiplying the same fixed volume times a market reference index price (floating price payer). At settlement, the party owing the higher amount pays the net difference. Swaps are transacted in over-the-counter markets.) o Call and Put Options (Call options give the buyer the right, but not the obligation, to purchase energy or other instruments. Put options give the buyer the right, but not the obligation, to sell energy or other instruments.)
o Options on Swaps (Swaptions) (call options give the buyer the right, but not the obligation, to enter into a swap transaction as the fixed price payer. A put option gives the buyer the right, but not the obligation, to enter into a swap transaction as the floating priced payer.)  Transmission (The reservation and transmission of capacity and energy between two points on a transmission provider’s system.)
 Tolling Agreements (Agreement between a power buyer and a power generator, under which the buyer supplies the fuel, either physically or financially, and receives an amount of power generated based on an assumed conversion rate at an agreed cost.) Agenda Page 47
37 Appendix D: NEW TRANSACTION TYPE APPROVAL FORM
New Transaction Type Approval Form
Prepared By:

Date:

New Transaction Type Name:

Business Rationale and Risk Assessment:
 Product description – including the purpose, function, expected impact on net revenues (i.e., increase, manage volatility, control variances, etc.) and/or benefit to CPA  Identification of the in-house or external expertise that will be relied upon to manage and support the new or non-standard transaction
 Assessment of the transaction’s risks, including any material legal, tax or regulatory issues  How the exposures to the risks above will be managed by the limit structure  Proposed valuation methodology (including pricing model, where appropriate)  Proposed reporting requirements, including any changes to existing procedures and system requirements necessary to support the new product
 Proposed accounting methodology
 Proposed Middle Office work flows/methodology, including systems  Brief description of the responsibilities of various departments within CPA who will have any manner of contact with the new or non-standard transaction Reviewed by:

Vice President, Power Supply Date
Chief Operating Officer Date
Chief Executive Officer Date
Agenda Page 48
Appendix E: NOTICE OF CONFLICT OF INTEREST
To: [insert title]
Declaration of Conflict of Interest
I understand that I am obligated to give notice in writing to Clean Power Alliance of any interest or relationship that I may have in any counterparty that seeks to do business with Clean Power Alliance, and to identify any real or potential conflict of interest such counterparty has or may have with regard to any existing or potential contract or transaction with Clean Power Alliance, within 48-hours of becoming aware of the conflict of interest.

I would like to declare the following existing/potential conflict of interest situation arising from the discharge of my duties concerning Clean Power Alliance activities covered by the scope of the ERMP:
a) Persons/companies with whom/which I have official dealings and/or private interests:
b) Brief description of my duties which involved the persons/companies mentioned in item a) above.

Position and Name:

Signature:

Date:

Agenda Page 49
Appendix F: CODE OF MARKETING AND TRADING PRACTICES
See next page.

Agenda Page 50
CPA Code of Marketing and Trading Practices, Version 1.1 (updated July 18, 2019)
Clean Power Alliance of
Southern California
Code of Marketing and Trading Practices
July 12, 2018
Definitions
Marketing and Trading Employee – Any employee, contractor, consultant, or agent of CPA who engages in procurement activity.

Scope of Code
This Code of Marketing and Trading Practices (the “Code”) applies to all CPA Marketing and Trading Employees.

Each person subject to this Code is required to read, understand, and abide by the provisions contained in this Code.

Purpose
In addition to demonstrating CPA’s commitment to ethical business practices, this Code is designed to ensure that CPA complies with its obligations under state and federal laws, rules and regulations promulgated by various governmental agencies, and applicable policies adopted by CPA. This Code defines and affirms the values and principles that CPA’s Marketing and Trading Employees must follow in conducting their business activities. The Code is intended to complement the other policies, procedures and processes of CPA and to guide traders and marketers as they negotiate transactions, arrange for transmission, and manage risk.

Compliance with the Code allows CPA to assure its counterparties, potential customers, regulators, and the public that its business activities are, and will continue to be, conducted with integrity and unlawful/unethical trading practices will not be tolerated.

Questions about compliance with industry and company regulations as well as with this Code should be referred to CPA’s General Counsel.

Policy
CPA’s Marketing and Trading Employees shall:

1. Conduct business in good faith and in accordance with all applicable laws, regulations, tariffs and rules.

2. Endeavor to always act in the best interests of CPA’s customers.

3. Not disseminate, cause to be disseminated or facilitate the dissemination of known false or misleading information, or engage in transactions in order to exploit known false or misleading information.

4. Engage only in transactions with legitimate business purposes.

5. Not knowingly arrange or execute wash trades.

6. Not engage in any activity with the intent to alter any market price or otherwise interfere with the normal operation of a well -functioning competitive market.

7. Not engage in price reporting or furnishing transaction prices to any entity that collects prices to be used in the calculation of a price index or for distribution to subscribers, without prior written approval of CPA’s General Counsel.

8. Not collude with other market participants to: (i) affect the price of any commodity; (ii) allocate territories, customers or products; or (iii) otherwise restrain competition.

Agenda Page 51
CPA Code of Marketing and Trading Practices, Version 1.1 (updated July 18, 2019)

9. Not engage in transactions for commodities or services without the intention of providing those specific commodities or services.

10. Not reserve service, attempt to reserve service, access information, or attempt to access information from any transmission service provider except through means available to all eligible customers.

11. Successfully complete yearly CPA compliance training.

12. Comply with requirements that trading and marketing activities are recorded and retained.

13. Cooperate with any audit or investigation into trading and marketing activities.

Duty to Report Violations and Non-Retaliation Clause
A Marketing and Trading Employee who believes that a violation of the Code has occurred is required to promptly notify CPA’s Chief Operating Officer. CPA shall make every effort to ensure the confidentiality of the reporting Marketing and Trading Employee. If the reporting Marketing and Trading Employee is a CPA employee, CPA shall not discharge, suspend, demote, harass, layoff, deny a promotion, or take any other retaliatory action against that employee solely as a result of the act of reporting a suspected violation of the code. This in no way affects CPA’s rights as an employer with respect to all other issues. CPA will monitor and follow up to ensure that employees who have reported alleged violations have not been subject to retaliation.

Disciplinary Action
Any failure to abide by this Code, including the Duty to Report Violations, will result in disciplinary action. All potential violations are handled on a case-by-case basis and will result in a full review by, at minimum, the following individuals: the CPA employee’s immediate supervisor and CPA’s General Counsel. Factors that are considered in setting the disciplinary action plan include but are not limited to: source of violation discovery (self-reported, peer-reported, reported by a third party, via internal procedures, or the result of an audit), intent (accidental or intentional), type and magnitude of risk that the CPA employee exposed CPA to (financial, reputation, etc.), and frequency of the violation (first offense or history of multiple offenses).The disciplinary actions taken may involve demotion, loss of compensation (suspension without pay), and termination of employment.

I have read CPA’s Code of Marketing and Trading Practices, understand its requirements, and agree to abide by its provisions.

Signature Printed Name Date
Agenda Page 52
CPA Code of Marketing and Trading Practices, Version 1.1 (updated July 18, 2019)
Appendix G: CEO SIGNING AUTHORITY DELEGATION FORM
Signing Authority Delegated To:

Effective Date:

Expiration Date:

Product:

CPA Buys/Sells
Delivery and Maturity Term:

Maximum Volume (per transaction):

Maximum Price:

Maximum Notional (cumulative):

CEO and RMT Reporting – specify
intended date of report, data to be
reported, and frequency (required):

Other Notes/Guidelines:

Chief Executive Officer approval signature:

Agenda Page 53
Item 4
Updates to the Energy Risk Management
Policy (ERMP)
June 28, 2023
Agenda Page 54
Recommendation:

Recommend approval of the proposed updates to the
Energy Risk Management Policy to the Board of Directors Agenda Page 55
In July 2018, the Board approved an Energy Risk Management Policy (ERMP) that governs the framework by which the CPA conducts power procurement and related business activities
Pursuant to the ERMP, staff performs an annual review of the ERMP and proposes amendments as needed to account for emerging risks, changing business conditions, and/or regulatory requirements.

Amendments have been approved in July of 2019, 2020, 2021, 2022. All Board members are required to sign annual ERMP acknowledgement forms Today’s presentation will summarize staff’s proposed updates for the Board to consider at its July 6 meeting; staff requests that the Energy Committee review, provide input, and recommend proposed amendments to the Board.

Overview
Agenda Page 56
Staff recommend the following updates:

Adjust delegation of transaction execution authority (slides 5 – 7) Revise hedge target ranges (slides 8 – 12)
Refine compliance measurement timing language (slide 13) Language clean up reflecting regulatory and/or market dynamics changes (not covered in this presentation – included in attached redlined ERMP Summary of Updates
Agenda Page 57
• CPA meets many of its energy procurement and risk management commitments by entering into Energy Committee-reviewed and Board-approved long-term renewable energy and storage agreements. This area of the business functions properly. No amendments governing long-term contracting are proposed • CPA fills in the gaps in its long-term contract portfolio by entering into short-term renewable, carbon-free, and system energy and Resource Adequacy transactions under the CEO's current approval authority. In the current ERMP, the CPA Board has delegated authority to the CEO, in consultation with the Risk Management Team, to execute short-term energy transactions within certain time horizon and hedge limits • This short-term area of the business functions adequately. As previously discussed with the Energy Committee, the supply of short-term products is constrained, prices have risen significantly in the last year, and new opportunity/risk areas have emerged • Proposed amendments to the delegated authority limits address these market conditions Operating Context
Agenda Page 58
Issues:

Current Term Limits delegate approval authority for transactions with delivery end dates that are not time constrained (i.e. a five year contract could begin ten years from now)
Given market conditions, staff need to procure products in the 5- to 10-year timeframe on a streamlined basis, and is unable to do so under current authorities
CPA’s RMT is highly functioning so less solo CEO authority is needed, while identification of new risks is heightened Proposed Updates:

1. Add Maturity Limits (the time period between contract execution and final delivery) in addition to Term Limits (the time period between the beginning and end of product delivery) Contractual obligations that occur farther in the future represent greater risk, regardless of the term of the contract.

Establishing Maturity Limits restricts the delegation authority to better align with risk.

2. Decrease current 5-year Term Limit for Tolling Agreements to 3 years Tolls are a new area of opportunity for CPA and more restrictive delegation is appropriate

3. Increase 5-year Term Limit to 10 years for existing resources (with the exception of tolling agreements) Shortens decision timeframe and improves competitiveness with other buyers Allows CPA staff to procure products such as resource adequacy, renewable, and carbon-free energy as they become available on a timely basis

4. Eliminate CEO solo approval authority
This authority has never been used and is not needed. All approvals will be done in consultation with RMT 6 Delegation of Authority (Section 5.1.2)
Agenda Page 59
7 Delegation of Authority (cont.)
Vary delegation of authority Term Limits by transaction type (Tolling, New Build, Existing Resources) Include Maturity Limits for each transaction type
Authority can only be exercised if all four limits (term, maturity, counterparty, value) are met for each transaction type Remove sole CEO authority
New Monthly Board Reporting Requirements: Any tolling agreement and any transaction with a Term greater than 5 years Agenda Page 60
8 Energy Hedge Targets Current:

Time Period CURRENT
Min Hedge %

CURRENT
Max Hedge %
Prompt 1-4 Quarters 85 110
Bal. of PY not covered by
Prompt 4 Quarters
65 90
CY + 2 (2025) 40 80
CY + 3 (2026) 30 70
CY + 4 (2027) 30 70
CY + 5 (2028) 30 70
Quarter PROPOSED
Min Hedge %

PROPOSED
Max Hedge %
Prompt Q (PQ) 85 110
PQ + 1 80 110
PQ + 2 74 110
PQ + 3 69 110
PQ + 4 63 105
PQ + 5 58 99
PQ + 6 52 93
PQ + 7 47 87
PQ + 8 41 82
PQ + 9 36 76
PQ + 10 - 39 30 70
Proposed:

Issue:

Current hedge targets may result in uneven volumes
of periodic energy purchases to remain in compliance
Proposal:

Adopt quarterly hedge targets. Smooth the volume
of periodic energy purchases and simplify
administration of hedge target compliance
Note: PQ + 10 - 39 targets are added to extend hedge target to 10 years Agenda Page 61
9 Energy Hedge Targets (cont.)
Example of before and after
proposed change:

The dashed, jagged purple and orange
lines are the current target limits that
load hedge must stay within
The thick blue line illustrates a
hypothetical percent of load hedged
each quarter in the future –
jaggedness can lead to uneven
procurement by quarter
The solid green and yellow lines are
the proposed targets
Agenda Page 62
10 Renewable Energy Hedge Targets
Issues:

Current upper hedge targets do not allow for
portfolio buffers in the current and prompt
years to address load and generation
uncertainty
Current upper hedge targets restrict CPA’s
ability to execute low-cost purchases in later
years
Current lower limits are below renewable
energy volumes under contract
Purchases of renewable energy in the current
year are not controlled by hedging targets
Proposals:

Increase upper and lower targets
Include current year in hedge targets
Time Period CURRENT
Min Hedge %

CURRENT
Max Hedge %

PROPOSED
Min Hedge %

PROPOSED
Max Hedge %
Current Calendar Year 90 110*
Prompt Calendar Year 65 100 80 110*
PY + 1 45 95 50 105
PY + 2 30 90 50 100
PY + 3 30 85 50 95
PY + 4 30 80 50 95
PY + 5 - 9 50 95
Note: PY + 5 - 9 targets are added to extend hedge target to 10 years Proposed Revisions:

Agenda Page 63
11 Carbon-Free Energy Hedge Targets
Issues:

Current upper hedge targets do not allow for
portfolio buffers in the current and prompt years
to address load and generation uncertainty
Current upper hedge targets restrict CPA’s ability
to execute low-cost purchases in later years
Purchases of carbon free energy in the current
year are not controlled by hedging targets
Proposals:

Increase upper targets
Include current year in hedge targets
Time Period CURRENT
Min Hedge %

CURRENT
Max Hedge %

PROPOSED
Min Hedge %

PROPOSED
Max Hedge %
Current Calendar Year 85 110*
Prompt Calendar Year 75 100 75 110*
PY + 1 50 100 50 110
PY + 2 25 75 25 100
PY + 3 0 50 0 75
PY + 4 0 50 0 75
PY + 5 - 9 0 75
Proposed Revisions:

Note: PY + 5 - 9 targets are added to extend hedge target to 10 years Agenda Page 64
12 Resource Adequacy Targets
Issue:

Current lower limits are below
resource adequacy under contract
Proposal:

Increase minimum targets
Time Period CURRENT
Min Hedge %

CURRENT
Max Hedge %

PROPOSED
Min Hedge %

PROPOSED
Max Hedge %
Prompt
Calendar Year
90 100 90 100
PY + 1 50 95 50 95
PY + 2 30 90 35 90
PY + 3 20 80 35 80
PY + 4 20 80 35 80
PY + 5 - 9 35 80
Note: PY + 5 - 9 targets are added to extend hedge target to 10 years Proposed Revisions:

Agenda Page 65
Issue:

Inflexible date of measurement may lead to measurement dates on weekends or holidays
Proposal:

Revise measurement timing for energy, renewable energy, carbon-free energy and resource adequacy to clarify implementation
Compliance Measurement Timing
Example: Carbon-free energy
Agenda Page 66
Staff is seeking input from the Energy Committee and a recommendation to the Board to approve the ERMP updates
Staff plan to present a redline to the ERMP reflecting the proposed updates on the Board’s July 6, 2023 consent agenda
Staff will request the Board complete their annual acknowledgement of the amended ERMP later in July. The acknowledgment will be emailed to the Directors in subsequent communication from the Clerk of the Board
Next Steps
Agenda Page 67
Recommendation:

Recommend approval of the proposed updates to the
Energy Risk Management Policy to the Board of Directors Agenda Page 68
Questions?
Agenda Page 69