HomeMy WebLinkAboutFND-014-10REPORT
FINANCE DEPARTMENT
Meeting: GENERAL PURPOSE AND ADMINISTRATION
Date: JUNE 7, 2010 Resolution#: ~ PA-'3Y9-/0 By-law#:
Report: FND-014-10 File:
Subject: ANNUAL COMMODITY HEDGING REPORT - 2009
RECOMMENDATIONS:
It is respectfully recommended that the General Purpose and Administration Committee
recommend to Council the following:
THAT Report FND-014-10 be received for information.
Submitted by:
NT/hjl
Reviewed by: ~ ' ~
Franklin Wu,
Chief Administrative Officer
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T (905)623-3379 F (905)623-0830
Treasurer
REPORT NO.: FND-014-10
PAGE 2
BACKGROUND AND COMMENT:
1.0 Under Ontario Regulation 653/05, the Treasurer is required to report annually to
Council the status of existing commodity hedging agreements, including a
comparison of the expected results to actual of using the agreements, and
confirmation that they comply with the Municipality's policies and goals.
1.1 As required by the Municipal Act, 2001, Council adopted a Commodity Price
Hedging Agreements Statement of Policies and Goals in report COD-054-08, on
Monday, October, 6, 2008.
1.2 Over the last two years, considerable time has been spent to monitor the energy
requirements and consumption patterns throughout the Municipality's operating
departments. This information together with the procurement strategy aimed at
reducing risk and stabilizing cost continues to focus on the need for a stable
natural gas supply contract. On October 22, 2009 the Municipality signed an
independent consulting agreement with Blackstone Energy Service Inc. for a
term of three years. This agreement covers many services related to the
Municipalities supply of Natural Gas including the supply of information relevant
to decision making; arranging contracts for the continuous supply; analysis and
reconciliation of usage.
1.3 The original contract for the supply of natural gas signed in October 2008 expired
on October 31, 2009 and the figures discussed in the next section reflect the
impact of the initial price hedging efforts. Blackstone Energy Services Inc.
working on the Municipality's behalf was authorized to enter into fixed priced
natural gas agreements as per the procurement strategies and indicative prices
agreed to. The new contract meets the procurement goal of both reducing the
risk and stabilizing the cost, as we have a fixed source of supply for 50% of the
estimated requirement for each of the next three years at a fixed price with the
balance to be supplied on index. The market will be monitored with the intention
of locking the balance of the Municipality's requirements in for a fixed price when
fundamentals justify that action.
1.4 The 2009 budget used a price of $0.3962 m3 for natural gas when calculating the
$751,971 total value. This price was based on the actual rates charged plus an
average increase of 6% determined based on a review of the past rate history.
During the original contract term the weighted average price of natural gas we
paid was between $0.298941 and $0.309947 per m3. This resulted in a
significant budget savings for the contract period. The System Gas rate for the
same term started at $0.354559 and dropped to $0.129540 per m3. The fixed
price contract resulted in a somewhat higher cost than may have been realized if
REPORT NO.: FND-014-10 PAGE 3
the supply had been purchased on index however the Municipality would have
had the risk of price volatility and lack of supply availability without the contract.
1.5 On December 9, 2009 the Municipality signed an Energy Management
agreement with Blackstone Energy Services Inc. to cover Hydro related matters.
During the three year term of this agreement, Blackstone shall provide the
Municipality with supply and service proposals from Suppliers, market analysis
and hedging initiatives for the Municipality, along with other data management
tools.
CONCLU51ON:
2.0 At this time, the Municipality of Clarington has one commodity hedging
agreement that is consistent with the municipality's statement of policies and
goals relating to the use of financial agreements to address commodity pricing
and costs.
2.1 It is recommended that this annual commodity hedging report be received for
information in compliance with Ontario Regulation 653/05.