HomeMy WebLinkAboutCST 07-12
Cis Report To
Executive Committee
PICKERING Report Number: CST 07-12
Date: April 10, 2012
From: Gillis A. Paterson
Director, Corporate Services & Treasurer
,Subject: Commodity Price Hedging Agreements Report
Recommendation:
That Report CST 07-12 of the Director, Corporate Services & Treasurer be received for
information.
Executive Summary: The Commodity Price Hedging Policy, approved by Council
per Resolution #88/10, requires the Director, Corporate Services & Treasurer to report
to Council, at least once each fiscal year, regarding any and all commodity price
hedging agreements.
The report shall contain, at a minimum, all requirements as set out in O. Reg. 653/05
(as it exists from time to time) and shall include:
1. A statement about the status of the agreements during the period of the report,
including a comparison of the expected and actual results of using the agreements.
2. A statement by the treasurer indicating whether, in his or her opinion, all of the
agreements entered during the period of the report are consistent with the
municipality's statement of policies and goals relating to the use of financial
agreements to address commodity pricing and costs.
3. Such other information as the council may require.
4. Such other information as the treasurer considers appropriate to include in the
report.
The City has entered into hedging agreements for Natural Gas and Electricity
Procurement through Local Authority Services Ltd. (LAS) which is a wholly owned
subsidiary of the Association of Municipalities of Ontario (AMO).
Financial Implications:
Natural Gas
The LAS Natural Gas Procurement Program hedged purchase price November 1, 2011
- October 31, 2012 period will be 20.1 cents/m3.
eport CST 07-12 April 10, 2012
Subject: Commodity Price Hedging Agreements Report Page 2
Electricity
The LAS Electricity Procurement Program hedged purchase price January 1, 2012-
December 31, 2012 is $34.30/MW (all fees included), which equates to a per kWh
contracted price of 3.43 cents/kWh, resulting in an expected all-inclusive commodity
cost of 7.18 cents/kWh (with the 12 month average Global Adjustment charge included).
Discussion:
LAS Natural Gas Program - Enrolled April - 2006
Commodity Expenditure - 2011 - $412,532
Current Contract Price - November 1, 2011 - October 31, 2012 - 20.010/m3
Hedged Volume - 75%
The LAS 2012 program rate of 20.010/m3 represents a 12.2% commodity cost
decrease from the 2011 rate of 22.9 cents/m3. LAS continues to operate a program
reserve fund. Member remittances, beyond supply and program administration costs,
are held in the reserve and rebated back to members via an annual distribution; in
August 2011 a rebate of $11,550.08 was issued to the City for 2010 and LAS expects a
similar 2011 rebate as well. These rebates lower the City's annual costs.
LAS Electricity Procurement Program = Enrolled January - 2011
Commodity Expenditure - 2011 - $1,767,500
Current Contract Price - January 1, 2012 - December 31, 2012 - Expected LAS
Rate - 7.18 cents/kWh
Hedged Volume - 75%
The LAS 2012 program rate of 7.18¢/kWh is 12% lower than the 2011 LAS Program
rate with an estimated all inclusive cost saving of 0.92 cents/kWh, compared to the
current Regulated Price Plan (RPP) rate of 8.10 cents/kWh. LAS has also hedged a
block of off-peak power for municipal streetlight accounts that is expected to realize a
savings of 1.30 cents/kWh compared to the current RPP rate. Due to the structure of
the LAS agreement for electricity, there is no rebate program as may be available in the
natural gas program.
The 2012 budget utilized the above rates together with historical usage, trends and
forecasts, to provide a reasonable estimate for the year. The actual expenditure is
influenced by greatly by weather fluctuations and usage.
Treasurer's Statement
The objectives of the LAS bulk hedging programs are generally synonymous with our
municipal objectives:
a. Facilitates Budgeting - purchasing blocks of energy commodities will produce stable
prices for budgeting
I
Report CST 07-12 April 10, 2012
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Subject: Commodity Price Hedging Agreements Report Page 3
b. Competitive Pricing - provide savings on required purchases
c. Maximize Purchasing Power - pooling requirements can leverage better
pricing than individually.
The LAS Natural Gas and Electricity Procurement Program has provided the City a
sound commodity hedging strategy for natural gas and electricity, which benefits us as
much as possible from falling market prices and protects us as much as possible when
prices are rising. Excellent program administration utilizing industry experts provides a
reliable energy supply with the price benefits of bulk procurement. Annual price
stabilization and long term price predictability, along with individualized support, advice
and consumption data reports, provides the City a means to monitor our usage and
accurately forecast our annual utility budget.
Attachments: None
Prepared By: Approved/Endorsed By:
B. uzma G. A. Paterson
Senior Purch ng Analyst Director, Corporate Services & Treasurer
Copy: Chief Administrative Officer
Recommended for the consideration
of Pickering City Council
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Tony Prevedel, P.Eng.
Chief Administrative Officer