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Staff Report
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Report To: Joint Committees
Date of Meeting: April 27, 2020 Report Number: FND-009-20
Submitted By: Trevor Pinn, Director of Finance/Treasurer
Reviewed By: Andrew C. Allison, CAO By-law Number:
File Number: Resolution#: JC-070-20
Report Subject: Annual Commodity Hedging - 2019
Recommendation:
1. That Report FND-009-20 be received for information.
Municipality of Clarington
Report FND-009-20
Report Overview
Page 2
This report complies with the annual reporting requirements to report to Council the status of
the existing commodity hedging agreements.
1. Background
1.1 Under the Ontario Regulation 635/05, 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.
2 As required by the Municipal Act, 2001, Council adopted a Commodity Price Hedging
Agreement Statement of Policies and Goals in report COD-054-08, on Monday October 6,
2008. In this statement of policies and goals, the responsibilities are delegated as follows:
The Director of Finance/Treasurer or designate is responsible for the financial
administrative matters pertaining to commodity price hedging. The Director of Corporate
Services or designate is responsible for the procurement and contractual administrative
matters pertaining to commodity price hedging.
2. Comments
2.1 Through the Co-operative Buyers Group, Request for Proposal issued by the Region of
Durham and approved through Report COD-003-20, the Municipality has an existing
energy consulting agreement with Blackstone Energy Services Inc., Toronto, for the
provision of consulting and related services for the supply of natural gas. Blackstone acts
as an independent agent of the Municipality of Clarington to execute direct purchase
agreements (subject to the approval of the Corporate Service's Department). The term is
for three years with an option to extend for two additional one-year terms.
2.2 The Municipality's energy consumption trends have been studied since 2008. Detailed
budget estimates are made based on these consumption trends and pricing projections of
the various utilities including natural gas for 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.
2.3 Blackstone Energy Services Inc. on behalf of the Municipality of Clarington is authorized to
enter into fixed priced natural gas agreements as required, considering market conditions
at any given time. Previously natural gas was supplied from two pools — Dawn
(southwestern Ontario) and Empress (western Canada). All of the Municipality's natural
gas is now supplied from the Dawn hub.
2.4 The Municipality of Clarington had natural gas commodity hedging agreements in place up
to October 2019. These agreements were consistent with the Municipality's statement of
Municipality of Clarington
Report FND-009-20
Page 3
policies and goals relating to the use of financial agreements to address commodity pricing
and costs. In 2017, in consultation with Blackstone, the Municipality entered into a hedging
agreement from November 2017 to October 2019; where 100% of the gas supply was
hedged. The Municipality did not enter any new hedges and continues to float the current
market pricing since November 1, 2019.
2.5 In the 2019 fiscal year, the Municipality purchased approximately 1.44 million m3 of natural
gas over 22 accounts at a cost of approximately $427,000 including utility administration
charges, taxes and carbon cost. The weighted average cost of the natural gas commodity
for 2019 ranged from $0.1079/m3 to $0.1854/m3 (note that these prices include some
transportation costs).
2.6 Over 2019, it is estimated that the Municipality's hedging transactions resulted in costs that
were approximately $1,200 higher than otherwise would have been incurred if natural gas
was purchased through traditional utility accounts.
2.7 Staff receive regular market intelligence and analysis from Blackstone Energy Services on
the natural gas market. With the information received from Blackstone, the Municipality is
able to proactively respond to the market conditions to ensure a secure supply source and
cost certainty where determined to be prudent.
2.8 To date the Municipality has not hedged electricity. The structure of electricity hedging is
different from natural gas. A significant portion of the large electricity accounts is the
Global Adjustment. Hedging of the electricity commodity does not reduce the Global
Adjustment charges. Electricity hedging could be explored in the future, but it is not
anticipated that the Municipality would be hedging electricity in 2020.
3. Concurrence
This report has been reviewed by the Director of Corporate Services who concurs with the
recommendation.
4. Conclusion
It is respectfully recommended that this annual commodity hedging report be received for
information in compliance with Ontario Regulation 635/05 of the Municipal Act, 2001.
Staff Contact: Catherine Carr, Manager of Internal Audit, 905-623-3379 ext. 2606,
ccarr@clarington.net
Attachments:
Attachment 1 — 2019 Natural Gas Summary
There are no interested parties to be notified of Council's decision.
2019 Comparison of Clarington Natural Gas Cost to Market Cost
'Calculated usinq Enbridqe annual conversion factor of .03868 GJ per m3
19-Jan
Total Costs
$ 19,970
Total
4,774
$4.1830
Total
123,423
WAC
$0.1618
19-Feb
$ 20,672
4,312
$4.7940
111,479
$0.1854
19-Mar
$ 21,766
4,774
$4.5592
123,423
$0.1764
19-Apr
$ 17,105
4,620
$3.7023
119,442
$0.1432
19-May
$ 19,673
4,774
$4.1209
123,423
$0.1594
19-Jun
$ 16,342
4,620
$3.5372
119,442
$0.1368
19-Jul
$ 18,649
4,774
$3.9063
123,423
$0.1511
19-Aug
$ 17,638
4,774
$3.6946
123,423
$0.1429
19-Sep
$ 16,607
4,620
$3.5945
119,442
$0.1390
19-Oct
$ 20,646
4,774
$4.3246
123,423
$0.1673
19-Nov
$ 13,912
4,290
$3.2430
110,910
$0.1254
19-Dec
$ 12,371
4,433
$2.7907
114,607
$0.1079
$ 215,350
Attachment 1 to Report
FN D-009-20
Commodity
0.130656
Transport
to Enbridge
0.043355
Enbridge
TransportEnbridge
Dawn
0.010638
Net
Enbridge
0.032717
Total Enbridge
comparable
0.163373
Estimated
Cost (no
Hedging)Transport
$ 20,164
0.130656
0.043355
0.010638
0.032717
0.163373
$ 18,213
0.130656
0.043355
0.010638
0.032717
0.163373
$ 20,164
0.119034
0.043355
0.008347
0.035008
0.154042
$ 18,399
0.119034
0.043355
0.008347
0.035008
0.154042
$ 19,012
0.119034
0.043355
0.008347
0.035008
0.154042
$ 18,399
0.116123
0.043355
0.008347
0.035008
0.151131
$ 18,653
0.116123
0.040925
0.008347
0.032578
0.148701
$ 18,353
0.116123
0.040925
0.008347
0.032578
0.148701
$ 17,761
0.096268
0.040925
0.008191
0.032734
0.129002
$ 15,922
0.096268
0.040925
0.008191
0.032734
0.129002
$ 14,308
0.096268
0.040925
0.008191
0.032734
0.129002
$ 14,785
(1) No active hedges. Clarington is purchasing system gas (i.e float the current market price).
$ 214,132 $ (1,217)