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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: March 16, 2026
Report #:2508-5117
TITLE
Adoption of a Resolution Approving Edison Electric Institute Master Power Purchase and Sale Agreements with NRG Business Marketing LLC, DRW Energy Trading LLC, and Dynasty Power Inc., (collectively the “Master Agreements”), Delegating Authority to the City Manager to Transact Under the Master Agreements for Electricity-Related Commodities and Services, and Updating the City’s Standard Form Edison Electric Institute Master Power Purchase and Sale Agreement; CEQA status: not a project under CEQA Guidelines sections 15378(a)
RECOMMENDATION
Staff recommends that Council adopt a Resolution (Attachment A):
(a) Approving the Edison Electric Institute (EEI) Master Power Purchase and Sale Agreements with NRG Business Marketing LLC (NRG), DRW Energy Trading LLC (DRW), and Dynasty Power Inc. (Dynasty) (Exhibits A, B, and C to Attachment A); (b) Delegating authority to the City Manager or their designee, the Director of Utilities, to transact under the Master Agreements for electricity-related commodities and services subject to the following limitations:
1. The date for delivery of the electricity products for each transaction shall not exceed 36 months from the date the transaction is executed;
2. The delivery date for any transaction shall not extend beyond December 2027;
3. The maximum aggregate transaction limit under each Master Agreement shall be $25 million;
4. All transactions shall be subject to the Palo Alto Municipal Code;
5. All transactions shall be subject to the City’s Energy Risk Management Policies, Guidelines, and Procedures;
(c) Waiving the investment-grade credit rating requirement for NRG, DRW, and Dynasty; and (d) Approving an updated standard form version EEI Master Power Purchase and Sale Agreement (Exhibit D to Attachment A).
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EXECUTIVE SUMMARY
An active set of financially sound counterparties is essential to ensure that the City can continue to meet its electric supply portfolio planning objectives, internal risk management controls, and external operational and regulatory requirements. Approval of the recommended Master Agreements with NRG, DRW, and Dynasty will provide the City with three additional electricity suppliers with which to transact in a timely and competitive manner, ensuring that the City’s objectives are met efficiently. Executing the Master Agreements does not automatically commit the City to any transactions with these suppliers, but it allows for transactions to be executed efficiently in the future. The recommended Master Agreements were negotiated under terms and conditions acceptable to the City and have been reviewed and approved by the City Attorney’s Office and the City’s Utilities and Administrative Services Department (ASD) risk management.
Utilities and ASD risk management also recommend waiving the investment-grade credit rating requirement for NRG, DRW, and Dynasty (the latter two of which are privately-held companies and thus lack credit ratings), given the companies’ strong balance sheets, positive financial outlooks, and the limited number of active counterparties the City currently has for its electric portfolio. Additionally, all counterparties will be required to post cash or a letter of credit as collateral to mitigate the City’s credit exposure, within 5 business days of the award of a transaction. Finally, minor changes are also recommended to the City’s standard form EEI master agreement to better align the City’s language regarding one-way termination with current industry standards.
BACKGROUND
Palo Alto Municipal Code (PAMC) Section 2.30.340 (Contracts for Wholesale Utility Commodities) allows for the use of master agreements such as the EEI Master Agreement to buy and/or sell electricity, gas, and related services through various preapproved (“enabled”) suppliers.
Contracts or transactions executed under the Council-approved master agreements must be done in accordance with the City’s Energy Risk Management Policy, Guidelines, and Procedures.
Historically, the process for entering into master agreements with wholesale utility suppliers has been to: issue a request for proposals (RFP); select multiple suppliers; negotiate terms and conditions with the potential suppliers; and seek Council approval of and authority to transact under the Master Agreements. This process took upwards of one year, and resulted in the execution of nine electric master agreements, which were all approved by Council in March 2013 (Resolution 93241).
1 Resolution 9324: RESO 9324 -
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=53606&dbid=0&repo=PaloAlto 8 0
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In August 2016, the Council streamlined this process, approving Ordinance No 5387 3, which modified the Municipal Code to explicitly allow for the use of Council-approved standard form master agreements. The ordinance modified PAMC Section 2.30.140, clarifying the process to enable new suppliers by specifically allowing the use of a standard form agreement that contains the City’s minimum contract terms and conditions. Negotiations could then be carried out with qualified suppliers on an ongoing basis without the need to issue successive formal requests for proposals, which also streamlined the contract negotiations by addressing the City’s requirements in the supplied master agreement forms. Under this process, any proposed amendments or deviations to the standard form master agreements with specific suppliers remain subject to Council approval before the master agreement may be executed or any transactions may be completed under it.
In December 2016 Council approved a standard form electric master agreement ( Resolution 96524), based on the year 2000 version of the EEI Master Power Purchase and Sale Agreement.
This standard form agreement has been made available on the City’s website to any wholesale utility supplier since that time, and in 2024 the City utilized this process to execute a new EEI master agreement with Silicon Valley Clean Energy (Resolution 101535). As a result, the City now has executed electric master agreements with the following suppliers:
1. BP Energy Company
2. Cargill Power Markets, LLC
3. Constellation Energy Generation, LLC (formerly Exelon Generation Company, LLC)
4. Avangrid Renewables, LLC (formerly Iberdrola Renewables, LLC)
5. NextEra Energy Marketing, LLC
6. PacifiCorp
7. Powerex Corp.
8. Shell Energy North America (US), L.P.
9. Turlock Irrigation District
10. Silicon Valley Clean Energy
ANALYSIS
In 2024 Palo Alto Utilities staff reached out to several suppliers, including NRG (formerly Direct Energy Business Marketing, LLC), DRW, and Dynasty about the possibility of entering into electric master agreements with the City. Over the past several years the City has entered into several resource adequacy capacity purchase and sale agreements with NRG via the Western Systems Power Pool (WSPP) agreement. NRG is a large North American energy trading and marketing 3 Ordinance 5387: 2016-08-29 Ordinance 5387 -
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=47269&dbid=0&repo=PaloAlto 4 Resolution 9652: RESO 9652 -
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=54485&dbid=0&repo=PaloAlto 5 Resolution 10153: RESO 10153 -
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company that operates in electricity, natural gas, and clean energy products. Its parent company, NRG Energy, Inc., has a portfolio of over 24,000 MW of generation capacity and annual revenues of over $28 billion. Staff are also familiar with DRW’s and Dynasty’s key personnel from when they worked for one of the City’s other electricity suppliers. DRW is a privately-held trading firm based in Chicago, while Dynasty is a privately-held trading firm based in Calgary and Houston. All three companies are highly active in California’s electricity markets, and are currently enabled with 40+ counterparties in the state.
Over the course of 2024 and 2025 Utilities staff worked with the City Attorney’s Office to negotiate master agreement language with staff and attorneys from NRG, DRW, and Dynasty.
The resulting agreements (Exhibits A, B, and C to Attachment A) meet the City’s “must-have” contract provisions9, have been approved as to form by the City Attorney’s Office, and have also been approved by the City’s Utilities and ASD risk management.
Consistent with the City’s other electric master agreements, Utilities and ASD risk management recommend that transactions executed under the master agreements with NRG, DRW, and Dynasty be subject to the following limitations:
a. The date for delivery of the electricity products for each transaction shall not exceed 36 months from the date the transaction is executed; b. The delivery date for any transaction shall not extend beyond December 2027; c. The maximum aggregate transaction limit under each Master Agreement shall be $25 million;
d. All transactions shall be subject to the Palo Alto Municipal Code; and In addition, all transactions shall be subject to the City’s Energy Risk Management Policies, Guidelines, and Procedures. Staff will seek Council approval prior to execution of any transaction outside of the above limitations.
Investment-Grade Credit Rating Waiver
NRG Energy, Inc. currently has an issuer credit rating of BB/Stable and a rating of BBB- on its senior secured debt from S&P Global Ratings. Utilities and ASD risk management recommend waiving the investment-grade credit rating requirement for NRG, given the company’s strong balance sheet, positive ratings outlook, the limited number of active counterparties the City currently has for its electric portfolio, and the relatively low financial exposure and short-term nature of these transactions. The City has waived the investment-grade credit rating requirement with other suppliers in the past due to similar circumstances. 9 PAMC Section 2.30.340(c) requires that utilities contracts incorporate the following contract terms and conditions: (1) governing law shall be the laws of the State of California; (2) choice of venue shall be the County of Santa Clara; and (3) a counterparty shall obtain and maintain during the term of the contract the minimum credit rating established as of the date of award of contract of not less than a BBB- credit rating established by Standard & Poor’s and a Baa3 credit rating established by Moody’s Investors Services. 8 0
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And while DRW and Dynasty are smaller, privately-held trading firms, they have both shared demonstrated their financial strength by providing financial data for staff’s analysis. Staff utilized a tool from Moody’s Analytics to assess these reports, which indicated that their balance sheets equate to implied ratings of Aa3 for Dynasty and Ba1 for DRW. (The Moody’s Analytics report for NRG also assigned it an implied rating of Aa3.) In addition, all proposed counterparties will be required to post collateral in the form of cash or a letter of credit from an A+ rated bank, within five (5) business days of the award of a transaction. Upon completion of each transaction, the collateral amount may be adjusted to reflect the value of outstanding transactions. The collateral posting shall serve as the primary mechanism to mitigate the City’s credit exposure. The provision of such collateral justifies the waiver of the City’s investment-grade credit rating requirement for the proposed counterparties. Finally, ASD risk management will continuously monitor the financial strength of all of these counterparties, and may impose trading limitations (such as total transaction volume or contract term) on them based on this assessment.
Standard Form EEI Master Agreement Updates
Finally, minor changes are also recommended to the City’s standard form EEI master agreement to align the City’s language regarding one-way termination with current industry standards. In recent years, staff has found that fewer of its long-standing counterparties are responding to our solicitations for short-term electricity purchases and sales. Based on conversations with several of these suppliers, it appears that one potential reason for this pullback from suppliers could be that the termination provisions in the City’s master agreements may be too broadly written in favor of the City.
For many years, one of the City’s required provisions in its master agreements is the use of “one- way termination.” Under one-way termination, if one of the City’s counterparties defaults on its master agreement, the City cannot be required to make a “termination payment” to the defaulting counterparty based on the current market value of the outstanding transactions the City has executed with that counterparty. Based on numerous discussions with large suppliers, it has become clear that “two-way termination” – where the defaulting counterparty is permitted to receive a termination payment – is now the industry standard, and that many banks are no longer willing to finance transactions that involve one-way termination language.
The recommended updates to the City’s standard form EEI Master Agreement (Exhibit D to Attachment A) clarify the City’s termination provisions in a way that maintains the principle of one-way termination, while hopefully making the City’s contract language more palatable to suppliers and their financial backers. The revised language clarifies that while the City will not make any punitive or remedial termination payments to a defaulting counterparty that are based on the market value of undelivered energy products that the two parties have contracted for, the City will still pay for any energy products that have already been delivered at the time of the default (assuming no other dispute).
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FISCAL/RESOURCE IMPACT
Approval of the electric master agreements with NRG, DRW, Dynasty and the updates to the City’s standard form EEI Master Agreement will help ensure that the City continues to have an active set of suppliers in the future so that it can continue to competitively and efficiently meet its electric supply portfolio objectives. Further, approval of these electric master agreements do not commit the City to any transactions with these suppliers; therefore, this action will not result in any direct fiscal impact to the City. Costs and revenues associated with future transactions under the recommended master agreements will be accounted for in the annual Electric Fund budget.
STAKEHOLDER ENGAGEMENT
Throughout this process, Utilities staff has coordinated with key staff from departments involved in the negotiation and/or implementation of electric master agreements, including the Administrative Services Department and the City Attorney’s Office. The proposed changes to the City’s standard form EEI Master Agreement were also reviewed by the City’s Utilities Risk Oversight and Coordinating Committee (UROCC). On June 23, 2025, the UROCC voted to approve an update to the City’s Energy Risk Management Guidelines to make them consistent with the updated standard form EEI Master Agreement language.
ENVIRONMENTAL REVIEW
The City Council’s approval of the electric master agreements with NRG, Dynasty Power and DRW and updates to the City’s standard form version EEI Master Agreement does not meet the definition of a project under the California Environmental Quality Act (CEQA), pursuant to Public Resources Code Section 21065 and CEQA Guidelines 15378(b)(5) because this activity would not result in a reasonably foreseeable direct or indirect change in the environment.
ATTACHMENTS
Attachment A: RESO EEI Master Agreement with NRG & Master EEI Updates Attachment A: Exhibit A - EEI Cover Sheet + GTCs with NRG City of Palo Alto 9-11-2025 clean exe Attachment A: Exhibit B - DRW EEI Master Agreement final updated Attachment A: Exhibit C - EEI Master Agreement - Dynasty Power - Palo Alto - 12.15.25 – CLEAN Attachment A: Exhibit D - CPAU Standard Form EEI Master Agreement - revised - DWGP(rkg) 042825
APPROVED BY:
Alan Kurotori, Director of Utilities