HomeMy WebLinkAboutFIN 04-19-C~of-p](KERJNG From: Stan Karwowski Director, Finance & Treasurer Report to Executive Committee Report Number: FIN 04-19 Date: April 1, 2019 Subject: Commodity Price Hedging Agreements Report Recommendation: It is recommended that Report FIN 04-19 from the Director, Finance & Treasurer 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 at least once each fiscal year with respect to any and all commodity price hedging agreements in place containing, at a minimum, all information required by Section 6(1) 0. 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 the commodities of 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 133 municipalities. It buys energy commodities at varying percentages of their total volume through forward price hedge contracts, rather than being subject to 100 per cent of the price volatility through the spot market. The City has elected to continue with hedging 65 per cent of both the City's natural gas and electricity requirements while the remaining 35 per cent is purchased at fluctuating spot market prices.
Report FIN 04-19 Subject: Commodity Price Hedging Agreements Report Natural Gas April 1, 2019 Page 2 The 2019 natural gas budget is $399,302. To protect the City's budget plan, the City has entered into the LAS Natural Gas Procurement Program for the period November 1, 2018 to October 31, 2019 at the hedge price of 10.6¢/m3. For 2018, the City received a Rebate Cheque in the amount of $14,205 from LAS as the municipality's share of a reserve fund surplus that is returned to all members that had accounts enrolled in the LAS Natural Gas Program during the period of November 1, 2016 to October 31, 2017. Electricity The 2019 hydro budget for all City operations including streetlights is $2.44 million. The LAS Electricity Procurement Program hedged purchase price is $24.00/MW (program fees included), which equates to a per kWh contracted price of 2.4¢/kWh, for the period of January 1, 2019 to December 31, 2019. This results in an expected all-inclusive commodity cost of 10.573¢/kWh. Discussion: Volatile shifts in utility pricing create 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 65 per cent of the City's municipal natural gas and electricity requirements at the prices contained in this report with the remaining 35 per cent of the City's energy consumption being purchased at spot market prices for the 2019 term. This spot market exposure provides cost savings opportunities to the City compared to the current Regulated Price Plan (RPP) for eligible accounts, in addition to the price stability provided by the hedge purchase price. LAS Natural Gas Hedge Procurement Program -Enrolled April 2006 Commodity Expenditure -2018 -$325,091 2019 Contract Price -November 1, 2018 to October 31, 2019 -10.6¢/m3 Hedged Volume -65 per cent The LAS 2019 hedged purchase price for the purchase only portion of natural gas decreased by 10. 9 per cent ( or 1. 3¢/m3) from the 2018 rate. However, the delivery charge has increased over the same period and the Province began including a Cap & Trade charge of 3.4 ¢/m3to the delivery charges beginning January 1, 2017 which offsets any potential savings from the lowered hedge purchase price.
Report FIN 04-19 Subject: Commodity Price Hedging Agreements Report LAS Electricity Procurement Program -Enrolled January 2011 Commodity Expenditure -2018 -$1,939,772 April 1, 2019 Page 3 Current Contract Price -January 1, 2019 to December 31, 2019 -2.4¢/kWh Total Average LAS 2019 Commodity Rate -10.573¢/kWh which includes: 65 per cent Hedge Price + 35 per cent Average Hourly Ontario Energy Price + Average Global Adjustment The LAS 2019 hedged purchase price portion increased by 12.1 per cent (or 0.259¢/kWh) from the 2018 rate. It is estimated that an all-inclusive cost avoidance of 1.162¢/kWh should be realized, compared to the average Time of Use rates of 13.2¢/kWh. Additionally, LAS hedged a block of off-peak power for municipal streetlight accounts that is expected to provide a rate of 9.888¢/kWh. However, due to a decrease in the Global Adjustment Rate and increase in the Ontario's Average Hourly Energy pricing, a decrease to the overall cost of electricity is expected of -0.685¢/~Wh or -5.39 per cent compared to the 2018 all-inclusive rate. 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 133 municipalities and over 170 participating organizations 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 its natural gas and electricity purchases. 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 Prepared By: # Ray Rodrigues, CPPB Manager, Supply & Services Approved/Endorsed By: Stan Karwowski, MBA, CPA, CMA Director, Finance & Treasurer
Report FIN 04-19 Subject: Commodity Price Hedging Agreements Report Recommended for the consideration of Pickering City Tony Prevedel, P.Eng. Chief Administrative Officer April 1, 2019 Page 4