HomeMy WebLinkAboutFIN 06-16 Cal/ 00 A
Report to
Executive Committee
PI KERI G
Report Number: FIN 06-16
Date: April 11, 2016
From: Paul Bigioni
Director, Corporate Services & City Solicitor
Subject: Commodity Price Hedging Agreements Report
Recommendation:
It is recommended that Report FIN 06-16 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 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) 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 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
137 municipalities. It 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.
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.
FIN 06-16 April 11, 2016
Subject: Commodity Price Hedging Agreements Report Page 2
Natural Gas
The 2016 draft natural gas budget is $381,740. To protect the City's budget plan, the
City has entered into the LAS Natural Gas Procurement Program for the period
November 1, 2015 to October 31, 2016 at the hedge price of 14.90/m3.
Electricity
The 2016 draft hydro budget for all City operations including streetlights is $2.6 million.
The LAS Electricity Procurement Program hedged purchase price is $26.01/MW
(program fees included), which equates to a per kWh contracted price of 2.602¢/kWh,
for the period of January 1, 2016 - December 31, 2016. This results in an expected all-
inclusive commodity cost of 10.53¢/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% of the City's municipal natural gas and electricity
requirements at the prices contained in this report with the remaining 35% of the City's
energy consumption being purchased at spot market prices for the 2016 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 — 2015 - $369,326
Current Contract Price - November 1, 2015 - October 31, 2016 - 14.90/m3
Hedged Volume — 65%
The LAS 2016 hedged purchase price for the purchase only portion of natural gas
decreased by 11.8% (or 20/m3) from the 2015 rate. However, the delivery charge has
increased over the same period which partially offsets any potential savings from the
hedge purchase price.
LAS Electricity Procurement Program — Enrolled January — 2011
Commodity Expenditure — 2015 — $2,368,714
Current Contract Price —January 1, 2016 — December 31, 2016 — 2.602¢/kWh
Total Expected LAS Commodity Rate — 10.53¢/kWh which includes: 65% Hedge
Price + 35% Average Hourly Ontario Energy Price + Average Global Adjustment
The LAS 2016 hedged purchase price portion decreased by 20% (or 0.6660/kWh) from
the 2015 rate. It is estimated that an all-inclusive cost avoidance of 0.850/kWh should
be realized, compared to the average Time of Use rates of 11.380/kWh. Additionally,
LAS hedged a block of off-peak power for municipal streetlight accounts that is
expected to realize a cost avoidance of 1.42¢/kWh compared to the current Rate
FIN 06-16 April 11, 2016
Subject: Commodity Price Hedging Agreements Report Page 3
Protection Plan rate of 11.2¢/kWh during Off-Peak hours. However, due to an increase
in the Global Adjustment Rate and Ontario's Average Hourly Energy pricing, an
increase to the overall cost of electricity is expected to be 1.62¢/kWh compared to the
2015 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 1137 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 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: Not Applicable
Prepared By: " Approved/Endorsed By:
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Ray Rodrigues Stan Karwowski
Supervisor, Supply & Services Divisi• ead, Finance & Treasurer
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Paul : gio
Direct.r, C•rp..ate Services & City Solicitor
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FIN 06-16 April 11, 2016
Subject: Commodity Price Hedging Agreements Report Page 4
Recommended for the consideration
of Pickering City Council
09A-Meea etc. 2.311-0/
Tony Prevedel, P.Eng.
Chief Administrative Officer
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