City of Santa Clara
Meeting Agenda
Audit Committee
Hybrid Meeting
Council Conference Room/Virtual
City Hall - East Wing
1500 Warburton Avenue
Santa Clara, CA 95050
10:00 AMWednesday, April 1, 2026
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PUBLIC PRESENTATIONS
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GENERAL BUSINESS
1. Note and File the City Auditor’s Office Report on the Audit of Silicon Valley Power’s Power Purchase Agreement Process 26-344
Accept the City Auditor’s Office Report on the Audit of Silicon Valley Power’s Power Purchase Agreement
Process and recommend that this report be forwarded
for note and file to the full Council at a future Joint Council and Authorities Concurrent and Stadium
Authority Meeting.
Recommendation:
ADJOURNMENT
Future Audit Committee meetings will be scheduled at a later date.
Audit Committee Meeting Agenda April 1, 2026
MEETING DISCLOSURES
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City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
26-344 Agenda Date: 4/1/2026
REPORT TO COUNCIL
SUBJECT
Note and File the City Auditor’s Office Report on the Audit of Silicon Valley Power’s Power Purchase Agreement Process
BACKGROUND
Per Section 909 of the City Charter, and SCCC Section 2.29.010, the City Auditor’s duties and responsibilities include conducting in-depth financial and performance audits, overseeing the City’s performance management system, auditing and approving all bills, invoices, payrolls, demands or charges against the City government before payment and, with the advice of the City Attorney, making reports to the City Council as to the regularity, legality and correctness of such claims, demands or charges. The City Auditor’s Office conducts its work under the auditing standards prescribed by the Institute of Internal Auditors (IIA). The IIA International Standards for the Professional Practice of Internal Auditing (Standards) require the City Auditor to present the results of any audits to the Audit Committee.
DISCUSSION
In 2022, the City Auditor’s Office engaged Baker Tilly US, LLP (Baker Tilly) to conduct an annual citywide risk assessment and prepare an annual audit work plan for the next five years. The risk assessment process involves identifying and measuring risks associated with the audit universe (a list of specific departments, functions, processes, programs, etc. that can be subject to an audit, i.e. auditable units). Risk is defined as “the possibility of an event or condition occurring that will have an impact on the ability of an organization to achieve its objectives.” The risk rating attributed to a particular department or function reflects the theoretical potential for loss, rather than any actual loss history.
As part of the ongoing risk assessment process, the Auditor’s Office and Baker Tilly rated the power purchase agreement process as high risk based on inherent risks and specific information gathered, including:
· Budget and high dollar financial commitment.
· Detailed federal and state regulatory environment with firm reporting deadlines. · Evaluation and selection of agreements.
· Non-compliance with agreement requirements.
· Review process for potentially inaccurate supplier invoices.
Accordingly, the Auditor’s Office partnered with Baker Tilly to perform an internal audit of the power City of Santa Clara Printed on 3/27/2026Page 1 of 2
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26-344 Agenda Date: 4/1/2026
purchase agreement process. The objectives of this audit were to:
1) Evaluate the process of assessing and entering into power purchase agreements. 2) Evaluate the effectiveness of internal controls over management of power purchase agreements.
Attached is the City Auditor’s Office report containing the analysis, results and recommendations from the audit.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environment Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
Costs associated with the preparation of this report are included in the City’s FY 2024/25 and 2025/26 Adopted Operating Budget.
COORDINATION
This report has been coordinated with the City Manager’s Office and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email [email protected] or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Accept the City Auditor’s Office Report on the Audit of Silicon Valley Power’s Power Purchase Agreement Process and recommend that this report be forwarded for note and file to the full Council at a future Joint Council and Authorities Concurrent and Stadium Authority Meeting.
Reviewed and Approved by: David Noce, Audit Manager
ATTACHMENTS
1. City Auditor’s Office - Audit of Power Purchase Agreement Process City of Santa Clara Printed on 3/27/2026Page 2 of 2
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1 City of Santa Clara
City Auditor’s Office
Power Purchase Agreement Audit
Ct bakerti lly
Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms.
Contents
EXECUTIVE SUMMARY ............................................................................................................. 1 INTRODUCTION ........................................................................................................................... 2 DETAILED ANALYSIS ................................................................................................................ 7 AUDIT RESULTS ........................................................................................................................ 10 1 Executive Summary
Purpose of the Audit
Baker Tilly US, LLP (Baker Tilly) provides internal audit services to the City of Santa Clara (the City) and has conducted a Power Purchase Agreement (PPA) Audit based on the signed Statement of Work SOW No. 2023- 03 prepared in accordance with the 2023-2024 audit plan approved by the Audit Committee of the City. The objectives of this audit were to:
1) Evaluate the process of assessing and entering into power purchase agreements. 2) Evaluate the effectiveness of internal controls over management of power purchase agreements.
Report Highlights
Finding 1: Evaluation and Selection (page 10)
The SVP was not able to provide adequate support for four of the sampled PPAs to demonstrate that a supplier and product were evaluated against specific criteria important to the SVP before entering into the PPA because the documents were no longer available as the PPAs were entered into several years ago.
Management should develop a formal evaluation and selection process for all potential PPAs. All evaluation documents should be maintained for transparency, in accordance with the City’s record retention policy.
Finding 2: Contract Administration and Management (page 11) Based on the interviews with the SVP team, it was found that there was no standard process for administering and managing PPAs. Out of six PPAs reviewed, five PPAs entered into were drafted by developers or JPAs.
According to the SVP management, the SVP team is currently in the process of standardizing the PPA process and contract template.
Management should continue to standardize the PPA process and contract template and complete the implementation. Once a comprehensive PPA template is completed, the instructions for creating a draft PPA from a template and finalizing it with appropriate review and approvals should be documented. If using a supplier provided agreement, a detailed review should be performed using a checklist of all City requirements to ensure all requirements are included. Additionally, the SVP should implement a formal supplier performance monitoring procedure in which suppliers are periodically assessed for compliance and overall performance.
Finding 3: Invoice Verification and Payment (page 13)
Our discussions with the SVP team revealed the following:
For one of our sampled invoices, the supporting documents for the payment approval did not demonstrate how the discrepancy between the SVP’s tracking sheets and the independent system operator’s reports were resolved properly.
For NCPA invoices, there is no written communication from the Division Manager of Settlement to the Division Manager of the SVP Resources Group indicating that the settlement portion has been validated prior to payment.
SVP should implement a standardized process for reconciling and approving invoices for payment.
Finding 4: Reporting (page 14)
Although the RPS report is reviewed by another individual prior to submission, the review is not formally documented.
The Assistant Director (or another qualified individual) should review and approve all required reports prior to submission to the California Energy Commission to prevent inaccurate reporting and to ensure all state requirements are met. The review should be evidenced in writing (signature). (G bakertilly
2 Introduction
Objective
The objectives of this review were to:
1) Evaluate the process of assessing and entering into power purchase agreements. 2) Evaluate the effectiveness of internal controls over management of power purchase agreements.
Background
Silicon Valley Power (SVP)
The SVP is the City’s electric utility department and provides electricity to City residents and businesses. The City’s website states, “SVP provides power to 59,518 customers at rates 43 to 63 percent below neighboring communities. SVP is the only full-service, vertically integrated publicly owned utility in Silicon Valley owning generation, transmission, and distribution assets.” The SVP is recognized as a Smart Energy Provider from the American Public Power Association, as well as by the Environmental Protection Agency (EPA) for its Green Power program, which is included on the nation-wide Green Power Communities List.
California Policy
In 1996, the Electric Utility Industry Restructuring Act (Assembly Bill 1890) created the California Independent System Operator (CAISO) that has the responsibility to maintain overall electricity system reliability. The CAISO controls and operates the state’s transmission system to schedule delivery of electric power supplies, ensuring all standards for transmission service are met, and allows market participants to buy, sell, and transmit electricity. The CAISO makes various market and operations data/reports available. SVP is a metered subsystem in the CAISO and must participate in the CAISO energy market.
The State of California has set requirements to reduce greenhouse gas emissions 40% below 1990 levels by 2030, with utilities increasing their procurement of renewable energy resources to 50% by 2030. Senate Bill (SB) 100, passed in 2021, requires eligible renewable energy resources and zero-carbon resources to supply 60% of retail electricity sales by 2030 and 100% by 2045. SB 100 also required the Energy Commission (CEC), Public Utilities Commission (CPUC) and Air Resources Board (CARB) to use programs under existing laws to achieve 100 percent clean electricity and issue a joint policy report on SB 100 by 2021 and every four years thereafter. The SVP is required to disclose the mix of energy sources used to provide electricity service during the previous calendar year
1. The SVP also reports its compliance with Renewables Portfolio Standard (RPS)2 requirements.
SVP Power Purchase Agreements (PPAs)
Renewable energy can be purchased directly from a renewable electricity generator under a long-term PPA that is a contract used to execute and document the terms of the purchase between a customer, such as a city or utility, and a seller, such as an existing developer of an energy project. The ways SVP enters into PPA’s include the following:
1. Formal RFP by buyer
2. Formal RFP by seller
3. Direct proposal between counterparties
4. Participation in a regulated program (i.e. WAPA/PURPA) An RFP is recommended for PPAs3 to clearly define objectives and requirements and to receive competitive bids.
1 The Power Content Label (PCL) is an annual report required under the CEC’s Power Source Disclosure program. 2 The CEC administers the RPS program that is a significant initiative aimed at advancing renewable energy adoption. 3 U.S. Department of Energy, “Guide to Purchasing Green Power”, page 6-10, https://www.epa.gov/sites/default/files/2018- 08/documents/guide-purchasing-green-power-6.pdf
(G bakertilly
INTRODUCTION
3 Under long-term power purchase agreements, SVP purchases wholesale electric power through its participation in joint power agencies4 (NCPA5 and MSR PPA6), from various members of the Western System Power Pool (WSPP)7, from the Western Area Power Administration (WAPA)8, and other sources to provide the City’s electric utility customers with reliable electricity.
At the time this audit was commenced, the SVP had the following twenty-six (26) active PPAs to purchase power generated from a renewable or carbon neutral source.
PPA Supplier or Project Fuel Capacity
(MWs) Procurement Method
Ameresco Vasco Landfill Gas 4.3 SVP issued RFP
Central 40 Solar 40 No RFP
Friant Dam 1 Hydro 25 SVP responded to RFP
Friant Dam 2 - Quinten Luallen Hydro 8 SVP responded to RFP Rosamond One Solar 20 No RFP
Sand Bar Hydro 16.2 SVP responded to RFP
Ameresco Manteca Landfill Gas 4.2 SVP issued RFP
G2 Energy Ostrom Road Landfill Gas 1.6 No RFP
TriDam Beardsley Hydro 11.5 SVP responded to RFP
TriDam Donnells Hydro 72 SVP responded to RFP
TriDam Tulloch Hydro 25.9 SVP responded to RFP
Big Horn 1 Wind 105 No RFP,JPA-MSR PPA
Big Horn 2 Wind 17 No RFP,JPA-MSR PPA
WAPA Base Hydro varies SVP responded to
federal hydro program
Manzana Wind LLC Wind 50 No RFP
Manzana Wind LLC Wind 50 No RFP
Olcese Water District Hydro 14 SVP responded to RFP
Tioga Tasman Solar 0.38976 No RFP
Lafayette Landfill Gas 0.75 City’s Street
Department issued RFP
Aquamarine Westside Solar 75 No RFP
South Feather Water and Power Hydro 25 NCPA issued RFP
4 A joint power agency (JPA) is an organization formed by multiple public entities or municipalities to collaborate on power generation, distribution, and related services. Refer to Note 6 and Note 9 of the SVP Financial Statements for the year ended June 30, 2023. 5 The Northern California Power Agency (NCPA)’s membership consists of sixteen publicly owned entities. https://www.ncpa.com/ 6 The M-S-R Public Power Agency (MSR PPA) consist of the Modesto Irrigation District, the City of Santa Clara, and the City of Redding, California. https://msrpower.org/about-us/
7 The WSPP Inc.is an organization of electric wholesale market entities and gives the exclusive use of its standardized power agreement to over 275 WSPP members. https://www.wspp.org/pages/Overview.aspx 8 The Western Area Power Administration (WAPA) sells power to more than 684 firm and non-firm wholesale power customers. https://www.wapa.gov/
INTRODUCTION
4 South Feather Water and Power Hydro 7 NCPA issued RFP South Feather Water and Power Hydro 8 NCPA issued RFP
South Feather Water and Power Hydro 38 NCPA issued RFP
Camp Far West Hydro Hydro 6.8 RFP, JPA-NCPA
Rooney Ranch/Sandhill A&B Wind TBD (50-
80) SVP issued RFP
The six PPAs selected for review consist of the following:
Ameresco Vasco – Landfill Gas (Contract Start Date: February 22, 2014) Central 40 – Solar (January 1, 2021)
Big Horn 1 – Wind, JPA (October 1, 2006)
Aquamarine Westside – Solar (August 20, 2021)
South Feather Water & Power – Hydro, JPA (December 19, 2021) Camp Far West – Hydro, JPA (April 21, 2022)
Management of PPAs
The management of a PPA involves several key entities working together to ensure successful implementation and compliance:
Buyer (Offtaker - utility company, corporation, or government entity) manages the financial aspects, contractual obligations, and compliance with the terms of the agreement. SVP has two generation portfolios, a set of resources that SVP schedules as a market participant and NCPA schedules the remaining resources into the CAISO market.
Seller (Developer/Generator – independent power producer or a renewable energy project developer) manages the construction, operation, and maintenance of the project. Regulatory Agencies oversee compliance with state or national regulations related to renewable energy procurement and may review and approve PPAs to ensure alignment with policy goals. Independent System Operator (ISO) manages the transmission grid, operates the energy markets, and ensures reliable electricity delivery.
Supplier invoice payment process
A brief description of the typical non-NCPA/JPA PPA invoice process is as follows:
The CAISO produces market settlements and bills/pays SVP based on results. The SVP receives invoice/payment based on previous day’s activities and coordinates with the Resources Scheduling Day Ahead and Real-Time desks to confirm settlements process. Internal spreadsheets as well as third-party software is used to validate invoices. The SVP uses ZEMA9 software model to calculate expected invoice amount and compares to PPA invoice.
The Principal Power Analyst approves all non-NCPA/JPA PPA invoices.
The invoices for the PPAs entered into through NCPA (NCPA PPAs) are processed differently as described below:
9 ZEMA is market data management solution developed by ZEMA Global Data Corporation (Formerly ZE PowerGroup Inc.).
INTRODUCTION
5 NCPA manages settlement, invoicing, and reconciliation with CAISO as well as the PPA vendor. The Division Manager of the SVP Resources Group approves the invoice. The Division Manager of Settlement reconciles the NCPA All Resources Bill to ensure accuracy of PPA portion.
If any discrepancy is found, the Division Manager of Settlement works with NCPA directly to resolve any issues. Any errors ag reed upon by NCPA and SVP Settlement are then credited/debited in a future ARB.
During the FY2022 risk assessment conducted for an audit planning purpose, Baker Tilly rated the power purchase agreements as high risk based on inherent risks such as noncompliance with the agreement requirements and inaccurate supplier invoices.
To assess the internal controls over the PPA management to mitigate risks, Baker Tilly reviewed three (3) operational areas of PPAs: procurement, contract management, and payment.
Scope
The scope of this engagement includes interviews and document reviews regarding the internal controls over management of the SVP’s active PPAs as of August 2023 and associated supplier invoices received during fiscal year 2023.
Methodology
To achieve the audit objectives, Baker Tilly performed the following procedures. Gathered information to understand the environment under review including review of policies and procedures, PPAs, and reports.
Conducted interviews with key process owners and management including Division Managers of the Settlements and Resources Groups, Risk Manager, City Attorney, Resource Analyst, and Accounting Clerk.
Assessed risks and identified controls in place based on process walkthroughs and review of policy documents.
Performed testing of key controls around energy procurement/contracting, contract management, and invoice processing.
o Judgmentally selected six (6) PPAs, based on the American Institute of Certified Public Accountants (AICPA) small sampling guidance, for detailed control testing to include a variety of resource types (solar, wind, hydro) as well as selecting PPAs that were entered into through different means (through an RFP, through project developer outreach, and with a JPA). o For the selected six PPAs, tested all supplier invoices for three months (December 2022, March 2023, and June 2023).
Identified gaps in controls and recommendations for improvements.
Organizational Strengths
During this audit activity, we observed certain strengths of SVP. Key strengths include the following:
The City employs a structured Front Office / Back Office / Middle Office structure for all its energy transactions to ensure that the different aspects of the transaction process are carried out by independent parts of the organization and that there are internal controls and oversight in place.
INTRODUCTION
6 The City has been actively procuring renewable power for several years, and over that time City staff, SVP, and City Attorney has developed expertise with the PPA solicitation, negotiation, and management process.
Baker Tilly greatly appreciates the support of the SVP Resources Division, Settlement Division, and Risk Management Division in conducting this audit activity.
Thank you!
7 Detailed Analysis
To evaluate SVP's control environment, Baker Tilly created a Risk and Controls Matrix (RCM) based on documentation reviews and stakeholder interviews. The RCM was created to document known risks and mitigation practices based on the SVP’s processes and internal controls currently in place and identify opportunities and improvement areas. The RCM was created with the emphasis on the three focus areas that include procurement, contract management, and payment. The matrix documents risks that cover each of the focused operational areas. In addition, the RCM was used to plan the testing for this audit by identifying the risks associated with the current PPA processes, controls in place, and control gaps.
Risk
Ref. Process Sub-Process Risk Risk Description Control
# Control or Gap
1 Reporting
Needs
Assessment
Over or under
purchase of
renewable
energy
An inaccurate needs
assessment can result in the
overstatement or
understatement of needs
resulting in either an over-
commitment or under-
commitment outlined in
contracts.
C1
An Integrated Resources
Plan is created every 5
years to forecast load
resources and is approved
by the Board.
2 Reporting
Mandatory
Reporting
Required
reporting is not
completed
Reports may not be submitted
resulting in non-compliance
with state requirements.
C2
The Resource Analyst
tracks the report
requirements and attests to
the accuracy of the report.
3 Reporting
Mandatory
Reporting
Required
reporting is not
completed
Reports may not be submitted
resulting in non-compliance
with state requirements.
C3
Management monitors
compliance with submission
requirements by tracking an
established Key
Performance Measure.
4 Reporting
Mandatory
Reporting
Inaccurate
reports are
submitted
Unapproved reports may be
submitted which could cause
inaccurate reporting.
C4
The RPS and PCL reports
are reviewed for accuracy
prior to submission to the
CEC.
5 Contract
Administration
RFP
Development
Weak/Inaccurate
RFP
An RFP is issued that is not
adequately vetted and
developed with the review and
validation of specifications the
City needs to be achieved.
Gap
There is not currently a
formally documented RFP
development process to
ensure all required
specifications are included.
6 Contract
Administration
RFP
Development
Unapproved RFP
An Unapproved RFP is
distributed without validation of
legal and performance
specifications.
Gap
There is not currently a
formal RFP approval
process including
documentation of
approvals.
7 Contract
Administration
Evaluation
Unreliable or
Noncompliant
Supplier
The city may enter into
contracts with unreliable or
noncompliant energy providers.
C5
The City Attorney approves
the PPA during negotiations
and reviews that CEQA
requirements are met.
8 Contract
Administration
Evaluation
Improper
evaluation of
suppliers
Outdated supplier evaluation
criteria and weights are used
leading to the selection of an
unqualified supplier.
C6
Evaluation criteria and
weights are
developed/decided based
on each RFP.
<t bakertilly
I
-, ' 7" -' I
DETAILED ANALYSIS
8 Risk
Ref. Process Sub-Process Risk Risk Description Control
# Control or Gap
9 Contract
Administration
Evaluation
Improper
evaluation of
suppliers
Projects proposed by
Developers are not evaluated
leading to the selection of an
unviable project.
C7
An evaluation tool is used
to evaluate all potential
projects for viability.
10 Contract
Administration
Evaluation
Financially
unqualified
supplier
Supplier financial and credit
clearance not completed, and
financially unviable supplier is
chosen to provide services.
C8
Energy Risk Manager
completes financial/credit
evaluation.
11 Contract
Administration
Contract
Execution
Unapproved PPA
executed
Supplier PPA executed without
proper review and approval(s).
C9
City Attorney and City
Manager approve all PPAs
before execution. City
Council approval is required
for PPAs over $250,000.
12 Contract
Management
Contractual
Guarantees
Noncompliance
to contractual
development
timelines
Projects are delayed due to
noncompliance with contractual
development timelines.
C10
The lead PPA negotiator
monitors the contract
milestones using a Project
Tracker.
13 Contract
Management
Contractual
Guarantees
Unsatisfied
Commercial
Operations
Deadline (COD)
criteria
Commercial Operations
Deadline criteria are not met
prior to Commercial Operations
commencement.
C11
The City Attorney verifies
that requirements are
included in the PPA before
execution.
14 Contract
Management
Contractual
Generation
Guarantees
Supplier
noncompliance
with generation
requirements
Suppliers do not meet
generation requirements.
C12
Performance assurances
are placed in contracts to
ensure generation
requirements are met.
15 Contract
Management
General
Unacceptable
environmental
impacts/changes
in law and
regulations
Suppliers are unable to meet
environmental legal and/or
environmental changes and
requirements.
C13
If supplier is out of
compliance, the CEC will
not accept it and WREGIS
will not allow a REC to be
generated. Payment will be
withheld for invalid RECs or
non-compliance.
16 Contract
Management
General
Enforceability of
contracts
Weak legal constraints do not
allow for feasible contract
enforcement.
C14
Use and application of
appropriate legal clause
and constraints to support
City objectives.
17 Contract
Management
General
Severe weather
event
The potential risk of severe
weather events causing
disruption in service and
meeting contractual obligations.
C15
There are related contract
assurances in place in the
PPAs.
18 Contract
Management
General
Project Delays
Delay in completion of project
due to equipment delays or
project startup delays in
development resulting in the
City not obtaining the power
needed based on projected
timeline.
C16
There are financial
penalties and assurances
language in the PPAs.
DETAILED ANALYSIS
9 Risk
Ref. Process Sub-Process Risk Risk Description Control
# Control or Gap
19 Contract
Management
REC-
Renewable
Energy Credit
Generation totals
do not match
REC quantities
Invoice totals do not match
REC quantities transferred by
suppliers.
C17
Generation data is tracked
from supplier invoices. REC
quantities are reconciled to
generation totals from
invoices.
20 Payment
Verification of
Charges
Inaccurate
payments
The CAISO invoice is not
accurate leading to inaccurate
billings and payments.
C18
The Power Accountant
receives MWh from CAISO
and confirms amount with
counterparty before
receiving the invoice.
21 Payment
Verification of
Charges
Inaccurate
payments
The invoice is not accurate
leading to inaccurate billings
and payments.
C19
The Division Manager
ensures the ZEMA model
output matches the supplier
invoice and approves
payment.
22 Payment
Verification of
Charges
Unauthorized
payments
Unauthorized payments are
made.
C20
Payment packages are sent
to back-office management
for review and approval
before payment processing
by Accounts Clerk.
23 Payment Verification of
Charges
Inaccurate rates
are charged
Rates that are not in
accordance with the contract
rates are charged and paid.
Gap
There is not currently a rate
review process that occurs
upon invoice payment.
24 Payment
Supplier
payments
Duplicate/over
payments
Duplicate/over-payments are
made.
C21
There is a system control
that prevents duplicate
payments being made on
the same invoice.
25 Process
Monitoring
Internal
Review
Noncompliance
with internal
policies
Management is not in
compliance with internal risk
management policies.
Gap
There is no current process
for periodic review of
management's compliance
with internal policies.
10 Audit Results
Finding 1: Evaluation and Selection Process
Out of six PPAs reviewed, one was entered into through an RFP issued by SVP, two were entered into through an RFP issued by the JPA, and three had no RFPs because developers (sellers/suppliers) approached the SVP or JPAs directly. The SVP was not able to provide adequate support for four of the sampled PPAs to demonstrate that a supplier and product were evaluated against specific criteria important to the SVP before entering into the PPA. According to the Resource Analyst, the SVP’s practice is to create and use evaluation criteria for each PPA project, however, the evaluation documents for these four PPAs are no longer available due to the selected PPAs being entered into several years ago.
Per discussion with Santa Clara management, the City Attorney reviews and approves all PPA terms and conditions during negotiations including reviewing that California Environmental Quality Act (CEQA) requirements are met. There is no formal documentation of this review.
The SVP policy
10 requires analyzing the financial impact of contracts and ensuring all other parties to contracts are financially sound, qualified, and capable of performance. The policy also requires keeping complete records11.
The RFP process necessitates the SVP to define the objectives and requirements for a purchase and enables the SVP to receive competitive bids to be evaluated against specific criteria. Without solicitation, the SVP cannot ensure that a PPA helps the SVP achieve its goals at an optimum level.
Recommendation
Management should develop a formal evaluation and selection process for all potential PPAs. All evaluation documents, including financial credit evaluations, should be maintained for transparency in accordance with the City’s record retention policy.
Management should address the following, among others, in order to align with best practices12,13:
The SVP should implement a standardized RFP development process for a PPA to ensure all required specifications are clearly defined in an RFP and used to evaluate bids received. A formal RFP policy for PPAs should be created detailing guidelines to determine the requirements to be included and identifying the individuals who need to approve the RFP before issuance (City Attorney, Risk Manager, City Manager, etc.).
The process for PPAs procured through non-solicitation should also be formally established and include methods for evaluation, selection, and approval of a supplier. Potential suppliers should be vetted for reliability and compliance with relevant laws and regulations to prevent entering into agreements with unreliable or nonconforming suppliers. The approved PPA procurement policies should be periodically reviewed and updated, as necessary.
10 [1] and [2] of the Section 6.8 Electric Contract Administration, SVP Market Risk Management Regulations [As Revised by Risk Oversight Committee, October 23, 2012]
11 [3] of the Section 5.0 Internal Controls, SVP Market Risk Management Regulations [As Revised by Risk Oversight Committee, October 23, 2012]
12 U.S. Department of Energy, “Green Power Purchasing Steps”, https://www.epa.gov/green-power-markets/green-power-purchasing-steps 13 National Association of State Procurement Officials, “State & Local Government Procurement: A Practical Guide”, https://county.milwaukee.gov/files/county/administrative-services/Procurement/PagesfromNASPOStateandLocalProcurementGuideCh1-
10.pdf
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AUDIT RESULTS
11 Management Response
Responsible Department(s): Resources
Action Plan:
A procedural guideline for evaluating potential PPA’s will be developed and stored on a network drive. This guideline should be flexible enough to accommodate the uniqueness of projects and proposals while applying meaningful controls to ensure an effective balance.
Currently, the Resources department has baseline evaluation templates (excel models) that are used to evaluate the economic value of PPA proposals. However, these are not stored in a formal location and the updates to them occur from time to time which could cause confusion. SVP will establish an internal SharePoint site or similar tool that will serve as a resource database for PPA templates, guidelines, and related documents.
Additionally, a file repository will be established for each PPA that includes all supporting documentation.
City Code section 2.105.090 gives enterprise funds like electric and water the exception to the City’s centralized procurement for electrical power. The market for PPAs is dynamic and fast-moving. As such, there are various methods for entering into PPAs, and Management believes that there are significant internal controls for PPA procurement and payment in place, which can be enhanced as per Baker Tilly’s recommendations. Additionally, it is important to note that the document from EPA referenced in the recommendation as best practices for green power purchasing steps are geared towards retail purchasers such as commercial/industrial/corporate electricity customers. Projects at the wholesale electric utility level require different considerations when being evaluated for procurement. They are more difficult to commodify due to the unique value proposition of where they are electrically located, the technologies involved, the status of its site control, interconnection, environmental permitting, etc. The different statuses also mean projects can be available to the market at different times, therefore, if an RFP happens to launch outside of a high value project’s availability, SVP could end up missing out on that opportunity. For example, SVP has launched 2 renewable energy RFP’s through its Joint Powers Agency, NCPA, and the resulting bids were less favorable than some of the offers presented by project owners outside of the timing of those RFP’s. Because of this, it is important to maintain the flexibility to use the most effective and appropriate procurement path for any given situation.
Estimated Completion Date: December 2024
14 Finding 2: Contract Administration and Management
Based on the interviews with the SVP team, it was found that there was no standard process for administering and managing power purchase agreements. Out of six PPAs reviewed, five PPAs entered into were drafted by the developers or JPAs. According to the SVP management, the SVP team has been working with the City Attorney’s Office to standardize the PPA process and contract template. The SVP policy15 requires ensuring that contracts are written properly. While suppliers may often initiate the initial draft of the PPA, buyers can benefit from developing their own PPA template for the following reasons:
Customization – With a tailored template, buyers can ensure it aligns precisely with their organizational requirements.
Efficiency – An in-house template streamlines process by avoiding starting from scratch each time and saves time and effort.
Control – Buyers maintain control over the language, clauses, and provisions and emphasize critical aspects such as pricing structures and risk allocation. Consistency – Standardized terms and conditions ensures consistency across PPAs and enhance clarity.
14 Please note that the internal audit has not yet verified the completion of the corrective actions. Verification will be conducted during the follow-up audit on all corrective actions outlined in this report. 15 [3] of the Section 6.8 Electric Contract Administration, SVP Market Risk Management Regulations [As Revised by Risk Oversight Committee, October 23, 2012]
AUDIT RESULTS
12 Legal Review – Buyers’ legal teams can review and refine the template to ensure compliance with regulations and best practices.
Additionally, a formal process is not in place to monitor suppliers’ compliance with the requirements in the PPAs.
Recommendation
Management should continue to standardize the PPA process and contract template and complete the implementation. Once a comprehensive PPA template is completed, the instructions for creating a draft PPA from a template and finalizing it with appropriate review and approvals should be documented. The SVP should strive to use their drafted PPA template rather than the supplier provided agreement to ensure all required information is included while avoiding the additional time needed to review and approve all the terms and conditions in the supplier provided agreement. This will also help ensure consistency in managing PPAs. If using a supplier provided agreement, a detailed review should be performed using a checklist of all City requirements to ensure all requirements are included.
Additionally, the SVP should implement a formal supplier performance monitoring procedure in which suppliers are periodically assessed for compliance and overall performance, including ensuring the suppliers are in compliance with the following:
Development timelines
Commercial operations deadline criteria
Generation requirements
Environmental and legal requirements
Detailed reviews of specific PPAs, suppliers, or issues should be conducted on as needed basis. Each PPA should be reviewed in detail periodically to ensure alignment with the City’s goals and strategies and changing market conditions.
Management Response
Responsible Department(s): Resources
Action Plan:
As noted, Management is in the process of creating standard forms to build off as starting negotiation points for future PPA’s. While it is not practical to have a standard PPA that can be ready for all types of projects, SVP will prepare a power purchase agreement in consultation with the City Attorney’s Office prior to release of an RFP.
In the event SVP elects to purchase or sell renewable energy, renewable energy credits, or resource adequacy through a Western System Power Pool (WSPP) confirmation, SVP shall use a template confirmation which has been approved by the City Attorney’s Office. In some cases, when practical, counterparty’s template will be used subject to SVP staff and City Attorney’s Office review.
Management will direct staff to maintain a summary of all PPA’s that inventory key commercial terms. This will serve as a useful guide to refer to for consideration when negotiating future PPA’s.
For SVP’s future targeted RFP’s for PPA’s, management will design and establish upfront criteria for the targeted type(s) of resources before launch and develop a standard form PPA as the starting form for negotiations.
After a PPA is signed, the overall management of the different components is delegated to the responsible business teams. At present, the utility does not have a dedicated position responsible for management of executed PPAs. Given the number of PPA’s (see table in Intro section) and the limited number of staff available, creating a position in the Middle Office team, like other electric utilities, may benefit the Front Office team, the
AUDIT RESULTS
13 Back Office team, and overall PPA management. Currently, the City is undertaking an organizational assessment of SVP by an outside consulting firm. The purpose of the study is to review and make recommendations to enhance the organizational and staffing structure of the enterprise.
Estimated Completion Date: December 2025
Finding 3: Invoice Verification and Payment
For non-JPA/NCPA invoices, the SVP utilizes invoice tracking spreadsheets to reconcile the generation and rates billed to them with the CAISO reports. Our testing revealed that one of our sampled invoices did not match the CAISO report. According to the Settlements Group Division Manager, the CAISO report had an error which has since been corrected. However, there was no explanation in the supporting documents for the payment approval as to how it was determined that the CAISO report, not the invoice, included an error. The SVP policy16 requires wholesale purchases to be verified for payment. It also requires that trade transaction confirmation documents prepared by the supplier agree to the SVP’s own records and that exceptions be investigated.
For NCPA invoices, the Division Manager of Settlement reconciles the NCPA All Resources Bill to ensure accuracy of the PPA portion of the invoice and the Division Manager of the SVP Resources Group approves the invoice for payment. There is no written communication from the Division Manager of Settlement to the Division Manager of the SVP Resources Group indicating that the settlement portion has been validated prior to payment.
Recommendation
Management should implement a formalized process to validate supplier invoices and rate calculations completed by NCPA. Verifications performed by SVP should be completed before payments to ensure accurate payments.
A standardized process for reconciling and approving invoices for payment should include the following:
Reconciliation of generation and dollar amounts with CAISO reports, utilizing an invoice tracking sheet for all PPAs.
Review of reconciliation performed including evidence of review (signature). Verification of the rates invoiced with the approved contracted rate. Formal approval process with signature on invoices.
Management Response
Responsible Department(s): Resources and Settlements
Action Plan:
CASIO Settlement of PPAs – A CAISO process procedure has been documented and is currently in place as of June 2024.
NCPA Settlement of PPAs – A SNCL NCPA Settlement Procedure has been created as of June 2024.
Estimated Completion Date: June 2024¹⁴
16 [2] and [4] of the Section 6.5 Power Trading Division (Back Office), SVP Market Risk Management Regulations [As Revised by Risk Oversight Committee, October 23, 2012]
AUDIT RESULTS
14 Finding 4: Reporting
The RPS is one of California’s key programs for advancing renewable energy. The program sets continuously escalating renewable energy procurement requirements for the state’s load-serving entities. The RPS requires generation to be procured from RPS-certified facilities. The RPS compliance report is filed annually through the CEC online portal and is attested to by the Resource Analyst. Per SVP management, the RPS reporting process for the data cannot be reviewed prior to submission because the numbers are directly sent from WECC's WREGIS system to CEC for verification. The narrative section of the report is reviewed by a separate individual prior to submission, however, there is no formal documentation of this review.
The SVP policy
17 requires internal controls such as segregation of duties and accurate reporting to be integrated into all activities of the business.
The purpose of an independent review is to ensure that the information presented in the report is valid, complete, and free from errors or biases. By having an independent reviewer verify the accuracy of the report, the SVP can enhance accountability, compliance, and confidence in the reported data.
Recommendation
The Assistant Director (or another qualified individual) should review and approve all required reports prior to submission to the California Energy Commission to prevent inaccurate reporting and to ensure all state requirements are met. The review should be evidenced in writing (signature).
Management Response
Responsible Department(s): Resources
Action Plan:
Management concurs with Recommendation 4 and will enact the following step to ensure accountability:
SVP will have an Assistant Director, Sr. Division Manager, Division Manager, or Program Manager review the annual data in the RPS portal and be the Verification Attestant electronic signatory as the final step in the portal submittal process. This will ensure a final check and balance.
Additionally, it is important to note that the RPS compliance report data that is validated for the RPS is also validated through the CEC’s Power Source Disclosure Program (PSD) and all RECs are generated and transferred through from WECCS’s WREGIS system. The PSD has three levels of attestation. REC retirements are sent to the CEC through an independent WREGIS verification process, and then SVP reports category compliance on a separate CEC RPS web portal. In addition, SVP must submit all PPA agreements to the CEC for approval and adherence to the RPS requirements. SVP does a formal review of the RPS Narrative document. Because of these redundancies and cross-checks, it is not efficient to have an additional reviewer duplicate the efforts of the original compiler, however, as noted above, it makes sense to have a higher-level employee sign off to ensure the analyst has completed the steps required to move through the process.
Per Finding #4, SVP will enact the following step to ensure accountability:
SVP will have an Assistant Director, Sr. Division Manager, Division Manager, or Program Manager review the annual data in the RPS portal and be the Verification Attestant electronic signatory as the final step in the portal submittal process and. This will ensure a final check and balance.
Estimated Completion Date: July 2024¹⁴
17 Section 5.0 Internal Controls, SVP Market Risk Management Regulations [As Revised by Risk Oversight Committee, October 23, 2012]