HomeMy WebLinkAboutFND-014-12 Clarington REPORT
FINANCE DEPARTMENT
Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
Date: May 28, 2012 Resolution#: - f5 / By-law#:
Report#: FND-014-12 File#:
Subject: ANNUAL COMMODITY HEDGING REPORT - 2011
RECOMMENDATIONS:
It is respectfully recommended that the General Purpose and Administration Committee
recommend to Council the following:
1. THAT Report FND-014-12 be received for information.
Submitted by: / Reviewed by:
Nancy T ylor, BA, CA, nklin Wu,
Director of Chief Administrative Officer
Finance/Treasurer
NT/CC/hj I
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379
REPORT NO.: FND-014-12 PAGE 2
1. BACKGROUND
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.
2. COMMENTS
2.0 Over the last three 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 with an option to renew for two 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.
2.1 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, 2010 to October 31,
2011. The figures discussed in the next section reflect the impact of the initial
price hedging efforts.
2.2 The 2011 budget used a price of$0.270 m3 for natural gas when calculating the
$438,425 total value. This price was based on the actual rates charged in 2010
factored by Blackstone's projection. During the contract term — November 2010
to October 2011 - the weighted average price of natural gas we paid was
between $0.1200 and $0.2550 per m3. The year to date (to October 2011)
REPORT NO.: FND-014-12 PAGE 3
weighted portfolio average was $0.240644 per m3. This pricing, combined with
the mild winter in 2010/2011, resulted in a significant budget savings for the
contract period. The System Gas rate for the same term is shown in the chart
below.
October 2010-December 2010 $0.137818 / m3
January 2011 — March 2011 $0.118127 / m3
April 2011-June 2011 $0.130806 / m3
July 2011 — September 2011 $0.130806 / m3
October 2011-December 2011 $0.122284 / 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.
2.3 On December 9, 2009 the Municipality signed an Energy Management
agreement with Blackstone Energy Services Inc. to cover Hydro related matters.
The agreement is for a three year term with an option to renew for two years.
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.
3. CONCURRENCE — not applicable
4. CONCLUSION
4.0 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.
4.1 It is recommended that this annual commodity hedging report be received for
information in compliance with Ontario Regulation 653/05.
REPORT NO.: FND-014-12 PAGE 4
CONFORMITY WITH STRATEGIC PLAN
The recommendations contained in this report conform to the general intent of the
following priorities of the Strategic Plan:
Promoting economic development
X Maintaining financial stability
Connecting Clarington
Promoting green initiatives
Investing in infrastructure
Showcasing our community
Not in conformity with Strategic Plan
Staff Contact: Nancy Taylor, B.B.A., C.A., Director of Finance/Treasurer