HomeMy WebLinkAboutFIN 05-15 C` 00 Report to
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6 _ — Executive Committee
PICKERING
Report Number: FIN 05-15
Date: March 2, 2015
From: Paul Bigioni
Director, Corporate Services & City Solicitor
Subject: Commodity Price Hedging Agreements Report
Recommendation:
It is recommended that Report FIN 05-15 from the Director, Corporate Services & City
Solicitor regarding commodity price hedging agreements be received for information.
Executive Summary:
The Commodity Price Hedging Policy FIN 060, approved by Council per Resolution
#88/10, requires a Report to Council with respect to any and all commodity price
hedging agreements in place and contains, at a minimum, all information required by
Section 6(1) O. Reg. 653/05, as amended, as well as:
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 that 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 Commodity Hedging Price Agreements; and,
3. Such other information as Council may require.
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:
The LAS Hedge Procurement Program currently includes 128 municipalities. LAS buys
energy commodities at varying percentages of their total volume through forward price
hedge contracts, rather than being subject to 100% of the price volatility through the
Spot Market.
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Report FIN 05-15 March 2, 2015
Subject: Commodity Price Hedging Agreements Report Page 2
The City has elected to continue with hedging 65% of both the City's natural gas and
electricity requirements while the remaining 35% is purchased at fluctuating Spot
Market prices.
Natural Gas
The 2015 draft natural gas budget is $363,561. To protect the City's budget plan, the
City has entered into the LAS Natural Gas Procurement Program for the period
November 1, 2014 to October 31, 2015 with at the hedge price of 16.9 cents/m3.
Electricity
The 2015 draft hydro budget for all City operations including streetlights is $2.37 million.
The LAS Electricity Procurement Program hedged purchase price is $32.68/MWH
(program fees included), which equates to a per kWh contracted price of 3.268
cents/kWh, for the period of January 1, 2015-December 31, 2015. This results in an
expected all-inclusive commodity cost of 8.91 cents/kWh.
Discussion: -
Volatile shifts in utility pricing creates significant challenges in maintaining utility
budgets. This uncertainty in energy pricing can impact decision making and cost
controllability for the City. The LAS Hedge Procurement Program stabilizes energy
pricing which assists in maintaining the,Council approved budget every year. The City
has hedged 75% of the City's municipal natural gas and electricity requirements at the
prices contained in this report with the remaining 25% of the City's energy consumption
being purchased at spot market prices for the 2015 term. This spot market exposure
provides cost savings opportunities to the City compared to the current Regulated Price
Plan (RPP), in addition to the price stability provided by the hedge purchase price.
LAS Natural Gas Hedge Procurement Program — Enrolled April — 2006
Commodity Expenditure —2014 -$354,639
Current Contract Price - November 1, 2014 - October 31, 2015 - 16.9¢/m3
Hedged Volume—65%
The LAS 2015 hedged purchase price increased by 5.9% (or 1¢/m3) from the 2014 rate.
However, the 2015 hedge rate is lower than the current Enbridge rates by
approximately 9%, and a range of approximately 15%-25% cost savings would be
realized from current Union Gas rates.
The 2015 draft natural gas budget includes a 10.0% increase over the 2014 Budget to
provide some budget flexibility.
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Report FIN 05-15 March 2, 2015
Subject: Commodity Price Hedging Agreements Report Page 3
LAS Electricity Procurement Program — Enrolled January— 2011
Commodity Expenditure—2014—$2,113,997
Current Contract Price—January 1, 2015— December 31, 2015— 3.268¢/kWh
Total Expected LAS Commodity Rate—8.91¢/kWh which includes: 65% Hedge
• Price + 35% Average Hourly Ontario Energy Price + Average Global Adjustment
Hedged Volume— 65%
• The LAS 2015 hedged purchase price increased by 15.5% (or 0.438 cents/kWh) from
the 2014 rate. However, due to an overall increase in energy pricing, an estimated all
inclusive cost saving of 0.879 0/kWh should be realized, compared to the current RPP
rate of 9.70 cents/kWh. Additionally, LAS hedged a block of off-peak power for
municipal streetlight accounts that is expected to realize a savings of 1.38 cents/kWh
compared to the current RPP rate of 10.0 cents/kWh based on Time of Use rates for
Off-Peak hours.
The 2015 draft hydro budget includes a 7.3% increase over the 2014 budget to provide
some budget flexibility.
Treasurer's Statement:
The objectives of the LAS bulk hedging procurement programs are generally
synonymous with our municipal objectives:
Facilitates Budgeting — purchasing blocks of energy commodities will produce stable
prices for budgeting;
Competitive Pricing — provides savings on required purchases; and
Maximize Purchasing Power— pooling requirements with 128 municipalities can
leverage better pricing than individual purchasing. •
The LAS Natural Gas and Electricity Procurement Program has provided the City with a
sound commodity hedging strategy for natural gas and electricity. This benefits the City
when prices fall and protects the City as much as possible when prices rise. Annual
price stabilization and price benefits from bulk procurement along with individualized
support, advice and consumption data reports, provides the City with a means to
monitor its usage and more accurately forecast its annual utility budgets.
Attachments: None
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Report FIN 05-15 March 2, 2015
Subject: Commodity Price Hedging Agreements Report Page 4
Prepared By: Approved/Endorsed By:
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Ray Rodrigues Stan Karwowski
Supervisor, Supply & Services Divisio -ad, Finance &Treasurer
Paul : gi., i •
Direct•r, orp• ate Services & City Solicitor
Recommended for the consideration
of Pickering City Council
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Tony Prevedel, P.Eng.
Chief Administrative Officer
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