Loading...
HomeMy WebLinkAboutFND-011-11~~~(HI REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION Date: N1AY 9, 2011 Report: FND-011-17 File#: By-law#: Subject• ANNUAL COMMODITY HEDGING REPORT - 2010 RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-011-11 be received for information. Submitted by: Reviewed by: ~ r ~!N^~`x-~' Nancy Ta or, B C.A Franklin Wu, Director o Finance/ Chief Administrative Officer Treasurer NT/hjl 40 STREET, Resolution#: 6PH'37n't CORPORATION OF THE MUNICIPALITY OF L1C 3A61 REPORT NO.: FND-011-11 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 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. The contract price of the supply of natural gas is reviewed and the fixed source is set once a year for the period of November 1, 2009 to October 31, 2010. The figures discussed in the next section reflect the impact of the initial price hedging efforts. 1.4 The 2010 budget used a price of $0.300 m3 for natural gas when calculating the $557,475 total value. This price was based on the actual rates charged in 2009 factored by Blackstone's projection. During the contract term - November 2009 to October 2010 - the weighted average price of natural gas we paid was between $0.1995 and $0.2497 per m3. The year to date (to October 2010) weighted portfolio average was $0.2192 per m3. This resulted in a significant budget savings for the contract period. The System Gas rate for the same term REPORT NO.: FND-011-11 PAGE 3 started at $0.12954, increase to $0.211171 and then dropped to $0.122495 per m3. The fixed price contract resulted in a somewhat higher cost than may have been realized if 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. Currently there is no call for hedging on electricity. CONCLUSION: 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.