HomeMy WebLinkAboutFND-007-14 Clarbgton REPORT
FINANCE DEPARTMENT
Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
Date: April 14, 2014 Resolution#: °° -I By-law#:
Report#: FND-007-14 File#:
Subject: ANNUAL COMMODITY HEDGING REPORT — 2013
RECOMMENDATIONS:
It is respectfully recommended that the General Purpose and Administration Committee
recommend to Council the following:
1. THAT Report FND-007-14 be received for information.
Submitted by: Reviewed by:
Nancy Tay or, BA CPA, CA, Franklin Wu,
Director o Finance/Treasurer Chief Administrative Officer
NT/CC/hj I
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1 C 3A6 T 905-623-3379
REPORT NO.: FND-007-14 PAGE 2
1. BACKGROUND
1.1 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.
1.2 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
2.1 Since 2008, 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 one-year terms. The
Municipality has extended the agreement with Blackstone Energy Service and
the agreement ends October 2014. This agreement covers many services
related to the municipality's supply of natural gas including the supply of
information relevant to decision making; arranging contracts for the continuous
supply; analysis and reconciliation of usage, and forecasting of natural gas
pricing pressures. The Municipality is working with the Region on the RFP for
new energy consulting agreement.
2.2 Blackstone Energy Services Inc. working on the municipality's behalf is
authorized to enter into fixed priced natural gas agreements as per the
procurement strategies and indicative prices agreed to. We had a fixed source of
supply for 50% of the estimated requirement for each of the three years from
2009 to 2012 at a fixed price with the balance to be supplied on index. This fixed
price contract expired in October 2012 and was not renewed due to the low index
prices of natural gas. In November 2013, a new contract was entered to have a
fixed source of supply for 100% of the estimated requirement at a fixed price until
October 2014 when the Blackstone Energy Service consulting agreement ends.
2.3 The 2013 budget used a price of $0.226 m3 for natural gas when calculating the
$377,038 total value. This price was based on the actual rates charged in 2012
factored by Blackstone's projection. The weighted average price of natural gas
paid for in 2013 was $0.1470 per m3. This price was due to low system gas
prices as noted in the chart below. Due to the favourable market price and a mild
REPORT NO.: FND-007-14 PAGE 3
winter in early 2013, there was a budget savings of approximately 11% in 2013
for natural gas.
System Gas Rate
January 2013 — March 2013 $0.1073 / m3
April 2013 — June 2013 $0.1030 / m3
July 2013 — September 2013 $0.1290 / m3
October 2013-December 2013 $0.1146 / m3
2.4 From November 2012 to October 2013, the Municipality did not have a fixed
price agreement on natural gas since the index gas rates have been relatively
low. In November 2013, in consultation with Blackstone, the Municipality entered
a fixed price agreement for natural gas until October 2014 when the agreement
with Blackstone ends. The contract meets the procurement goal of both reducing
the risk and stabilizing the cost, as we have a fixed source of supply for 100% of
the estimated requirement up to October 2014 at a fixed price. This has proven
already beneficial due to the price volatility in the first quarter of 2014.
2.5 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 one-year
terms. The Municipality has extended the agreement with Blackstone Energy
Service to October 2014. 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
4.1 The Municipality of Clarington has one commodity hedging agreement which
ends in October 2014. This agreement was consistent with the municipality's
statement of policies and goals relating to the use of financial agreements to
address commodity pricing and costs.
4.2 The market will continue to be monitored by the Municipality and Blackstone
Energy Consultants during the term of the agreement. Once the new energy
REPORT NO.: FND-007-14 PAGE 4
consulting agreement is in place, the Municipality will evaluate the Municipality's
requirements and the market conditions. It is the intent of the Municipality to
enter commodity agreements that will limit the risk of price volatility and lack of
supply without a contract.
4.3 It is recommended that this annual commodity hedging report be received for
information in compliance with Ontario Regulation 635/05.
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