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HomeMy WebLinkAboutFND-004-16 O(Vill 9- toff Finance r Report If this information is required in an alternate accessible format, please contact the Municipal Clerk at 905-623-3379 ext. 2102. Report To: General Government Committee Date of Meeting: March 29, 2016 Report Number: FND-004-16 Resolution: , File Number: By-law Number: Report Subject: Annual Commodity Hedging Report— 2016 Recommendations: It is respectfully recommended that the General Government Committee recommend to Council the following: 1. That Report FND-004-16 be received for information. Municipality of Clarington Report FND-004-16 rage 2 Report Overview This report complies with the annual reporting required under Ontario Regulation 653/05 of the Municipality Act with respect to Commodity Hedging for 2015. 1 .0 Background 1.1 Under 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. 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. 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. 2.0 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. The Municipality has an energy consulting agreement with Blackstone Energy Consulting for the term 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 three pools — Empress (western Canada), Central Delivery Area (CDA) and Dawn. The Dawn hub is a new natural gas hub available in November 2015 and is located in southwestern Ontario. In 2017, the CDA gas source will no longer be available and our supply will be shifted to the Dawn hub 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 Municipality of Clarington Report FND-004-16 Page 3 the Empress gas volume with the balance fluctuating based on market price 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 the CDA gas volume frorn November 2014 to October 2015. 2.4 The 2015 budget used a price of $0.20 m3 for natural gas when calculating the $352,029 total value. The weighted average actual price of natural gas in the contract from November 2014 to October 2015 was $0.2013/m3. The 2016 budget used a price of $0.205 m3 for natural gas when calculating the $375,018 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 component of the natural gas pools is the setting of the Minimum Daily Volume (MDV). The MDV amounts were changed as shown in the chart below based on past natural gas consumption, climate projections for next year, and the addition of the new pool and reallocations of accounts contained in each pool. Nov 2014 — Oct 2015 Nov 2015 — Oct 2016 CDA Pool MDV 90 MDV 19 Empress Pool MDV 50 MDV 54 Dawn Pool n/a MDV 53 2.6 With the input of Blackstone, the MDV rate is set to estimate the actual gas consumption in prudent manner. In October 2015, the Municipality had a small gas surplus and can sell this in the market when prices are favourable. 2.7 These contracts met the procurement goal of both reducing the risk and stabilizing the cost, as we had 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. 2.8 As of November 1 , 2015, the Municipality has no natural gas hedges. Due to the forecasted mild winter along with the low natural gas prices, it was recommended that a hedge would not be required. Going forward, natural gas hedges are being considered Municipality of Clarington Report FND-00416 Page 4 in 2016. Natural gas prices are currently still low and it is recommended by Blackstone that it is a good time to consider another natural gas hedge. 2.9 Blackstone also provides market analysis and updates on electricity matters. In 2015, there was no call for hedging on electricity. Recent market analysis from Blackstone indicates that electricity hedging may be beneficial for the 2016 summer season. 3.0 Concurrence 3.1 This report has been reviewed by Marie Marano, Director of Corporate Services and she concurs with the recommendation. 4.0 Conclusion 4.1 The Municipality of Clarington had natural gas commodity hedging agreements which ended in October 2015. 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 consultation agreement. Commodity hedging is based on recommendations from Blackstone and the evaluation of the Municipality's needs going forward. It is the intent of the Municipality to enter into 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. Strategic Plan Application The recommendations contained in this report conform to the Strategic Plan. Submitted by: / L/, /446/_/! Reviewed by: ancy Tay or, A, CPA, CA Franklin Wu, Director of Finance/Treasurer Chief Administrative Officer NT/CC/hjl Municipality of Clarington Report FND-004-16 Page 5 Staff Contact: Nancy Taylor, Director of Finance/Treasurer, 905-623-3379 ext. 2602 or Lit aylor(c�clarington.net There are no interested parties to be notified of Council's decision.