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Staff Report
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Report To: Joint Committees
Date of Meeting: March 20, 2023 Report Number: FSD-010-23
Submitted By: Trevor Pinn, Deputy CAO/Treasurer
Reviewed By: Rob Maciver, Deputy CAO/Solicitor Resolution#: GG-079-23
File Number:
Report Subject: 2022 Annual Commodity Hedging
Recommendations:
By-law Number:
1. That Report FSD-010-23 and any related delegations or communication items, be
received for information.
Municipality of Clarington
Report FSD-010-23
Report Overview
Page 2
This report complies with the annual requirements to report to Council on the status of the
existing commodity hedging agreements.
1. Background
1.1 Under Ontario Regulation 653/05, the Treasurer is required to report on an annual basis
to Council regarding 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
Agreement Statement of Policies and Goals in report COD-054-08, on October 6, 2008.
In this statement of policies and goals, the responsibilities are delegated as follows:
a. The Deputy CAO/Treasurer (at the time Director of Finance/Treasurer) or designate
is responsible for the financial administrative matters pertaining to commodity price
hedging.
b. The Director of Corporate Services or designate is responsible for the procurement
and contractual administrative matters pertaining to commodity price hedging.
1.3 The designate for the Director of Corporate Services was the Purchasing Manager.
Following the 2020 reorganization, this position has moved to the Financial Services
Department and reports to the Deputy CAO/Treasurer.
2. Annual Reporting Matters
Natural Gas Hedging
2.1 Through the Co-operative Buyers Group, Request for Proposal issued by the Region of
Durham and approved through Report COD-003-20, the Municipality has an existing
energy consulting agreement with Blackstone Energy Services Inc., Toronto, for the
provision of consulting and related services for the supply of natural gas. Blackstone
acts as an independent agent of the Municipality of Clarington to execute direct
purchase agreements. The term is for three years with an option to extend for two
additional one-year terms.
2.2 The Municipality's energy consumption trends have been studied since 2008. Detailed
budget estimates are made based on these consumption trends and pricing projections
Municipality of Clarington
Report FSD-010-23
Page 3
of the various utilities including natural gas for 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.
2.3 Blackstone Energy Services Inc. on behalf of the Municipality of Clarington is authorized
to enter into fixed priced natural gas agreements as required, considering market
conditions at any given time. Previously natural gas was supplied from two pools —
Dawn (southwestern Ontario) and Empress (western Canada). All of the Municipality's
natural gas is now supplied from the Dawn hub.
2.4 The Municipality of Clarington had natural gas commodity hedging agreements in place
up to October 2019. These agreements were consistent with the Municipality's
statement of policies and goals relating to the use of financial agreements to address
commodity pricing and costs. In 2017, in consultation with Blackstone, the Municipality
entered into a hedging agreement from November 2017 to October 2019; where 100%
of the gas supply was hedged. The Municipality did not enter any new hedges from
November 2019 to November 2022.
2.5 Staff receive regular market intelligence and analysis from Blackstone Energy Services
on the natural gas market. With the information received from Blackstone, the
Municipality is able to proactively respond to the market conditions to ensure a secure
supply source and cost certainty where determined to be prudent.
2.6 Based on recommendation of Blackstone Energy Services, the Municipality entered into
the hedging agreements, all via the Dawn hub, shown in the following chart:
pr IM
Date Rang
November 1, 2022 to October 31, 2023
7.550
50
Fixed
November 1, 2022 to March 31, 2023
7.435
20
Fixed
November 1, 2023 to October 31, 2024
5.350
40
Fixed
November 1, 2024 to October 31, 2025
5.595
30
Fixed
November 1, 2025 to October 31, 2026
5.575
20
Fixed
Municipality of Clarington Page 4
Report FSD-010-23
2.7 Another element of the natural gas purchasing is that the Municipality sets the price on
bill (POB). The POB is set to estimate the average cost of the gas factoring in
transportation costs. Setting the price on bill reduces the fluctuations over the year, it is
similar to the concept behind consumer "equal billing" plans. The POB was reviewed in
2022 and adjusted upwards to $0.450/m3 to compensate for increasing natural gas
prices. It is anticipated that the POB will be adjusted back downwards to $0.250/m3
progressively during the year.
2.8 The natural gas year is from November 1 to October 31. During this period the
Municipality may use more gas than estimated during the heating season and use less
during the cooling season. These differences are settled in the Municipality's account at
Blackstone with the gas suppliers. As of October 31, there may be a balance of gas
owing or a supply of gas to be sold in the market based on the gas supply obligation
from the estimate required versus actual usage. Blackstone provides advice on the best
time to settle the gas account for the best price (or hedge price if applicable) and is
settled in the account.
2.9 The contracts met 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
during the winter months at a fixed price with a reasonable consumption estimate.
Electricity Hedging
2.10 To date the Municipality has not hedged electricity. The structure of electricity hedging is
different from natural gas. A significant portion of the large electricity accounts is the
Global Adjustment. Hedging of the electricity commodity does not reduce the Global
Adjustment charges. Electricity hedging could be explored in the future, but it is not
anticipated that the Municipality would be hedging electricity in 2023.
3. Financial Considerations
Not Applicable.
4. Concurrence
Not Applicable.
5. Conclusion
It is respectfully recommended that this annual commodity hedging report be received
for information in compliance with Ontario Regulation 635/05 of the Municipal Act, 2001.
Municipality of Clarington
Report FSD-010-23
Staff Contact: Trevor Pinn, Deputy CAO, Treasurer, 905-623-3379 x2602 or
tpinn@clarington.net.
Attachments:
Not Applicable
Interested Parties:
There are no interested parties to be notified of Council's decision.
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