HomeMy WebLinkAboutFND-009-15 Clarington
Finance Department
Report
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Report To: General Purpose and Administration Committee
Date of Meeting: May 25, 2015
Report Number: FND-009-15
File Number: Department File# By-law Number:
Report Subject: Annual Commodity Hedging Report - 2014
Recommendations:
1. That Report FND-009-15 be received for information.
Municipality of Clarington
Report FND-009-15 Page 2
Report Overview
This report complies with the annual reporting required under Ontario Regulation 653/05
of the Municipal Act with respect to Commodity Hedging for 2014.
1 . Background
1.1 Under Ontario Regulation 653/05 of the Municipal Act, 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 extended the agreement
with Blackstone Energy Service to October 2014. The Municipality worked with
the Region on the RFP (RFP 348-2014 Region of Durham) for new energy
consulting agreement for natural gas. The Blackstone Energy Service was the
successful bidder. The current contract term is from November 1, 2014 to October
31, 2017 with an option to extend for two additional one year terms. 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; and
forecasting of natural gas pricing pressures.
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 to the agreed indicative prices. The Municipality is supplied natural
gas from two pools — one is Empress and the other is CDA. In November 2013, a
Municipality of Clarington
Report FND-009-15 Page 3
new contract was entered to have a fixed source of supply for 100% of the
estimated requirement at a fixed price until October 2014 for both pools.
2.3 In November 2014, in consultation with Blackstone, the Municipality entered into
the following agreements. The Municipality entered a contract with a fixed price
for 70% of our estimated requirements from the Empress pool from November
2014 to October 2015. For the CDA pool, the Municipality has a contract for 100%
fixed price on the winter transportation costs, and 100% of our estimated
requirements from the CDA pool from November 2014 to October 2015.
2.4 The 2014 budget used a price of $0.195 m3 for natural gas when calculating the
$334,630 total value. The weighted average actual price of natural gas in the
contract from November 2013 to October 2014 was $0.1773m3. The 2015 budget
used a price of$0.20 m3 for natural gas when calculating the $352,029 total value.
This price was based on the projected rates from Blackstone's analysis of the
market.
System Gas Rate
January 2014 — March 2014 $0.117412 / m3
April 2014 — June 2014 $0.208959 / m3
July 2014 — September 2014 $0.185187 / m3
October 2014-December 2014 $0.176755 / m3
January 2015 — March 2015 $0.183160 / m3
2.5 Another aspect of the natural gas pools is the setting of the Minimum Daily
Volume (MDV). Due to past natural gas consumption and projections for the
future, the Municipality increased the MDV as of November 2014.
Nov 2013 — Oct 2014 Nov 2014 — Oct 2015
CDA Pool MDV 85 MDV 90
Empress Pool MDV 42 MDV 50
With the input of Blackstone, the MDV rate is set to estimate the actual gas
consumption in prudent manner. The very cold winter of 2014/2015 increased
the gas consumption for many. However, the volume estimate helped mitigate
the additional costs. The Municipality was able to balance the pools within the
accumulated account surplus due to previous years' transactions.
2.6 These contracts meet the procurement goal of both reducing the risk and
stabilizing the cost, as we have a fixed source of supply for the majority of the
estimated requirement up to October 2015 at a fixed price with a reasonable
consumption estimate.
Municipality of Clarington
Report FND-009-15 Page 4
2.7 Blackstone also provides market analysis and updates on electricity matters. In
2014, there was no call for hedging on electricity. Recent market analysis from
Blackstone indicates that electricity hedging may be beneficial in 2015.
3. Concurrence - Not applicable
4. Conclusion
4.1 The Municipality of Clarington had one commodity hedging agreement which
ended in October 2014. New commodity hedging agreements as noted in 2.3
were set for the period of November 2014 to October 2015. These agreements
are 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
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 of the Municipal Act.
5. Strategic Plan Application
The recommendations contained in this report conform to the Strategic Plan.
Submitted by: " -� �G' Reviewed b
Nancy T lor, B A, CPA, CA Franklin Wu,
Director of Finance/Treasurer Chief Administrative Officer
Staff Contact: Catherine Carr, Manager of Internal Audit, 905-623-3379 ext. 2606 or
ccarrRclarington.net
NT/CC/hjl