City Council Agenda Report
Meeting Date: November 7, 2023
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Administrative Analyst
Subject
Services Agreement with StoneX Financial, Inc. - FCM Division Recommendation
Approve and authorize the City Administrator to execute a Services Agreement with StoneX Financial, Inc. – FCM Division, in substantially the same form as submitted, to provide energy risk management services for Vernon Public Utilities in an amount not-to-exceed $180,000.
Background
Vernon Public Utilities (VPU) provides essential services to the City’s business and residential community, including a full range of dependable, high-quality, and competitive electric, water, natural gas, and fiber optic services. As an electric and natural gas provider, VPU has significant energy and natural gas procurement requirements for its retail electric and natural gas customers and its operation of the natural gas-powered Malburg Generating Station.
On November 15, 2022, the City Council adopted Resolution No. 2022-40, approving VPU’s Energy Risk Management Policy (Policy). The Policy was updated to provide a procedural framework to assist VPU in managing its operating risk and reducing its financial exposure to daily market prices in procuring natural gas and energy. The Policy establishes operating and financial procedures for purchasing and selling energy and natural gas, which is commercially reasonable to ensure that Vernon receives optimum value in its procurements. The Policy specifically addresses the management of the energy and gas portfolio through designated procedures and requirements. The Policy also provides a framework to maintain proper controls over portfolio activities.
The ultimate focus of the Policy is to provide a series of recommendations that can be implemented over time to provide clear direction and guidance based on established thresholds.
Additionally, it will provide an approach that includes recommendations and strategies for the procurement of gas, to hedge under more diverse market conditions, and to create as much cost and budget certainty as possible.
For this agreement, the City intends to piggyback on a current agreement between Imperial Irrigation District (IID) and StoneX Financial, Inc. - FCM Division (StoneX). IID is the third-largest public power provider in California and serves more than 152,000 customers across 6,471 miles of Southern California’s desert. Piggybacking is expressly authorized by Vernon Municipal Code (VMC) Section 3.32.110(A)(5), which exempts a contract from competitive bidding and competitive selection so long as the services can be purchased from a vendor offering the same prices, terms, and conditions as in a previous award from another public agency by competitive bid and, in the opinion of the Finance Director, it is to the advantage of the City to do so.
IID issued a Request for Proposals for Energy Risk Management Services on or around December 12, 2022, and selected StoneX as the company with the most competitive pricing and best suited to provide energy price risk management services. The agreement between IID and StoneX includes set monthly costs for ongoing services. By leveraging the IID negotiated terms and prices through piggybacking, the City will save time and resources that would otherwise be used in preparation for and during a vendor selection process. As authorized by the VMC, the City’s Finance Department agrees that piggybacking on IID’s agreement with StoneX would be to the City’s advantage. StoneX’s proposal to the City includes the same services as those in their agreement with IID - policy and procedure review, hedge strategy maintenance, counterparty credit evaluation, and ongoing position and credit reporting/tracking - for the same monthly costs and fees.
StoneX has over 33 years of experience providing risk management services and software products to manage energy price and credit risks. The proposed Services Agreement will allow StoneX to provide energy risk management services related to the procurement of power and natural gas. StoneX has a proven track record of over three decades in providing energy risk management services and software products to manage energy price and credit risks. StoneX services to VPU will focus on the following:
1. Review of VPU’s current Energy Risk Management Policy and procedures assessment to ensure that the policy continues to align with industry best practices;
2. Hedge strategy review to assist VPU in making any needed hedge plan updates to best manage VPU’s energy portfolio consistent with budget, operational, and market conditions to drive energy and related natural gas decisions;
3. Risk analysis reporting to assist with deal tracking and validation along with mark-tomarket reports and scenario analysis reports;
4. Credit risk evaluation, tracking, and reporting of VPU’s counterparties and assist in setting limits for approved counterparties, credit tracking, credit exposure reports along with credit news reports; and
5. On-going hedge strategy consulting and market intelligence updates including market and industry trends along with supply/demand and pricing data. This market data will be utilized to assist with hedge strategy implementation so that power supply costs are adequately hedged, which assists VPU in maintaining stable and affordable rates.
In the future, and with the necessary training and internal controls consistent with the Policy guidelines, VPU plans to utilize financial hedging along with physical hedging to improve the overall management and control of power supply costs.
Staff recommends that the City Council approve the proposed Services Agreement in the amount of $180,000 to provide energy risk management services for VPU. The Services Agreement has been reviewed and approved as to form by the City Attorney’s Office.
Fiscal Impact
The fiscal impact is not-to-exceed $180,000 for the term of three years. Sufficient funds are available in the Electric Fund, Administration Department, Professional Services-Other, Account No. 055-050-580-529215 for the current fiscal year and will be budgeted in subsequent years.
Attachments
1. Services Agreement with StoneX Financial, Inc. - FCM Division