HomeMy WebLinkAboutFIN 10-17�� �
�, _----�
I���KE R1 N�
Report to
Executive Committee
Report Number: FIN 10-17
Date: May 8, 2017
From
Subject:
Stan Karwowski
Director, Finance & Treasurer
Commodity Price Hedging Agreements Report
Recommendation:
It is recommended that Report FIN 10-17 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) O. Reg. 653/05, as amended, as well as:
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 138 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.
Report FIN 10-17
Subject: Commodity Price Hedging Agreements Report
May 8, 2017
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 2017 natural gas budget is $400,852. To protect the City's budget plan, the City
has entered into the LAS Natural Gas Procurement Program for the period November 1,
2016 to October 31, 2017 at the hedge price of 12.9¢/m3.
Electricity
The 2017 hydro budget for all City operations including streetlights is $3.05 million. The
LAS Electricity Procurement Program hedged purchase price is $23.80/MW (program
fees included), which equates to a per kWh contracted price of 2.38¢/kWh, for the
period of January 1, 2017 - December 31, 2017. This results in an expected all-
inclusive commodity cost of 12.057¢/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 2017 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 — 2016 - $307,257
Current Contract Price - November 1, 2016 - October 31, 2017 - 12.9¢�/m3
Hedged Volume — 65%
The LAS 2017 hedged purchase price for the purchase only portion of natural gas
decreased by 13% (or 2¢/ni3) from the 2016 rate. However, the delivery charge has
increased over the same period which partially offsets any potential savings from the
hedge purchase price. Additionally, the province will begin including a Cap & Trade
charge of 3.4 ¢/rti3to the delivery charges beginning January 1, 2017. This has resulted
in an overall increase to the cost for the supply and delivery of natural gas compared to
the 2016 rate.
Report FIN 10-17
Subject: Commodity Price Hedging Agreements Report .
May 8, 2017
Page 3
LAS Electricity Procurement Program — Enrolled January — 2011
Commodity Expenditure — 2016 — $2,653,162
Current Contract Price — January 1, 2017 — December 31, 2017 — 2.38¢/kWh
Total Expected LAS Commodity Rate —12.057¢/kWh which includes: 65% Hedge
Price + 35% Average Hourly Ontario Energy Price + Average Global Adjustment
The LAS 2016 hedged purchase price portion decreased by 9% (or 0.222¢/kWh) from
the 2016 rate. It is estimated that an all-inclusive cost avoidance of 0.94¢/kWh should
be realized, compared to the average Time of Use rates of 11.81 ¢/kWh. Additionally,
LAS hedged a block of off-peak power for municipal streetlight accounts that is
expected to realize a cost avoidance of 0.94¢/kWh compared to the current Rate
Protection Plan rate of 11.81 ¢/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 increase 1.525¢/kWh
compared to the 2016 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 138 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: None
/
Report FIN 10-17
Subject: Commodity Price Hedging Agreements Report
Prepar�d By:
�Ray Rodrigue�
� Supervisor, Supply & Services
Approved/Endorsed By:
Stan Karwowski
Director, Finance & Treasurer
Recommended for the consideration
of Picke in City. Council
��'A
� C i 1� (� U E��i �1 d�'1—f 0�
Tony Prev del, Eng.
Chief Admin a ive Officer
May 8, 2017
Page 4
' �i