TCDSB GAS PURCHASING STRATEGY

Transcription

1 PUBLIC REPORT TO CORPORATE AFFAIRS, STRATEGIC PLANNING AND PROPERTY COMMITTEE TCDSB GAS PURCHASING STRATEGY I can do all this through Him who gives me strength. Philippians 4:13 (NIV) Created, Draft First Tabling Review March 4, 2014 March 20, 2014 Click here to enter a date. K. Elgharbawy, Senior Coordinator, Operations and Maintenance West A. Rashid, Senior Coordinator, Operations and Maintenance East M. Farrell, Coordinator, Materials Management P. de Cock, Comptroller, Business Services M. Puccetti, Superintendent, Facilities Services RECOMMENDATION REPORT Vision: At Toronto Catholic we transform the world through witness, faith, innovation and action. Mission: The Toronto Catholic District School Board is an inclusive learning community rooted in the love of Christ. We educate students to grow in grace and knowledge and to lead lives of faith, hope and charity. G. Poole Associate Director of Academic Affairs A. Sangiorgio Associate Director of Planning and Facilities S. Pessione Associate Director of Business Services, Chief Financial Officer and Treasurer Angela Gauthier Director of Education Page 48 of 158

2 A. EXECUTIVE SUMMARY 1. This report provides information on future gas purchases and future gas market trends for 2014/ This report further recommends locking in 2/3 (66.67% of the Board s natural gas requirement for the period of September 1, 2014 to August 31, 2015 at a price of $3.75/GJ or better at AECO (Alberta) and that the remaining 33.37% Gas Commodity remain on index with a predicted target price of $3.60/GJ or lower. 3. This report further recommends locking in 1/3 (33.33% of the Board s natural gas requirement for the period of September 1, 2015 to August 31, 2016 at a price of $3.50/GJ or better at AECO (Alberta) and that the remaining 66.67% Gas Commodity at a much later point in time or a target price of $3.35/GJ or lower. 4. This report also recommends locking in 100% of the Board s gas transportation requirement for the period September 1, 2014 to August 31, 2015 at a price not to exceed $2.25/GJ. 5. This report does not recommend locking in transportation for the period of September 1, 2015 to August 31, 2016 as we expect Enbridge Gas to secure transportation assets that will enable customers to deliver their gas at alternate delivery points, hopefully at a much more reasonable transportation cost than what is currently being priced in the markets today. 6. The total recommended Gas budget for the year 2014/2015 is $5,155,049 including HST. B. PURPOSE 1. Provide recommendations for the gas purchases strategy for budget years 2014 through C. BACKGROUND 1. The Board s current gas purchase agreements expire on August 31, Currently, the Board has not locked in natural gas or gas transportation requirements for the upcoming 2014/2015 school year. Page 49 of 158 Page 2 of 8

3 3. Previous gas budgets for the last seven (7) years for gas commodity and gas transportation are as follows: Year Approved Gas Budget (including steam) Actual Gas Expenditure (including steam) Under Budget 2007/08 $8,203,568 $7,538,566 $665, /09 $8,000,000 $7,706,422 $293, /10 $7,179,188 $5,655,759 $1,523, /11 $6,071,172 $5,177,123 $894, /12 $6,128,603 $5,128,529 $1,000, /13 $4,696,794 $3,501,009 $1,195, /14 $4,705,360 $3,996,369 $708,991 Gas Budgets and Actual Expenditure / /9 2009/ / / / /14 Approved Budget Actual Gas Expenditure 4. Due to the continued measures taken by Board staff to control energy consumption and gas prices (as shown in the graph above), the actual gas expenditure for 2013/14 was below the approved budget by $708,991. Of note, these saving were accomplished despite the colder winter in the 2013/ The Board currently purchases the gas commodity directly from a natural gas supplier for the following reasons: capability to fix natural prices if the gas market starts to move up or down; ability to ensure budget stability. Page 50 of 158 Page 3 of 8

4 6. If the Board is to return System Gas with Enbridge Gas, the disadvantages to the Board include: not able to fix natural gas prices if the gas market starts to move up or down (thus, not having the capability to ensure budgets are met); to enter into a Direct Purchase Contract with Enbridge takes approximately sixty (60) days lead time and vice a versa, to purchase gas with a Gas Supplier; Higher transportation costs associated as market prices tend to be lower than the utility regulated transportation rates. D. NATURAL GAS COMMODITY AND TRANSPORTATION INFORMATION: 1. The Board currently delivers approximately 1600 GJ/d to Enbridge Gas in the current gas year (September 1, 2013 to August 31, 2014). 2. Aggressive steps have been taken to control the increase in Gas Consumption in our facilities including, but not limited to, installing high efficiency equipment and building automation systems (BAS) to control the space temperatures, operation schedules, etc. As a result, facilities staff have managed to limit the daily consumption increase to 25 GJ/d only, despite the extreme cold winter weather experienced in 2013/ Facilities staff, in consultation with the Board s energy consultant, are forecasting that the Board s Mean Daily Volume (MDV) consumption, for all buildings, will be approximately 1,625 Gigajoules (GJs)/day for the upcoming 2014/15 school year. 4. Natural gas operations have been impacted by the severe winter weather experienced across the country for the past and current years, which has depleted storage fields, and has caused freezing at gas production facilities and pipelines. These factors are anticipated to impact pricing for 2014/ On Thursday, February 6 th 2014, the Energy Information Administration reported that working gas in U.S. storage ended January at a 10-year low, with January setting a record for highest demand month seven out of the top 10 natural gas demand days occurred in January. The North American pipeline network is now showing clear signs of deliverability stress as traditional sources of storage gas have been depleted due to this extreme cold weather. The cash gas prices or spot gas prices in the Northeast region of Canada and the United States were the highest in recent history, trading between $50-$150 US/MMBtu throughout January and February. Cash prices at the Toronto City-Gate (Enbridge CDA) exchange traded at $98 US/MMBtu (over $ CDN/GJ) in late January to $48 US/MM (over $50.00 CDN/GJ) in early February. In general, price spikes for spot gas deliveries have largely been relegated to just a few Northeast trading points. The volatility of gas prices in the marketplace has been substantial as result of demand and continuation of the extreme cold weather. The graph shown below, illustrates the trading range of cash prices AECO, (Canadian dollars per gigajoule) over the last several weeks: Page 51 of 158 Page 4 of 8

5 AECO Jan 3-Jan 5-Jan 7-Jan 9-Jan 11-Jan 13-Jan 15-Jan 17-Jan 19-Jan 21-Jan 23-Jan 25-Jan 27-Jan 29-Jan 31-Jan 2-Feb 4-Feb 6-Feb 8-Feb AECO 6. Throughout February 2014, gas prices on the market have been averaging $ CDN/GJ. It is important to note that due to the strategy implemented last year to lock-in prices, the Board has been able to avoid the volatility and price spikes for gas and transportation prices. To ensure the same security for the upcoming budget year, this report recommends a similar strategy of locking-n both natural gas consumption and gas transportation. The current weighted average fixed price for the Board at AECO is $ CDN/GJ. This ends August 31, Gas pricing is monitored daily by staff in consultation with Navicomm Energy Group Inc. Board staff is prepared to notify the Board s consultant to fix the gas commodity prices at favourable rates, as the market opportunity arises, in order to provide price protection and price stability to the Board. E. OPTIONS/SCENARIOS 1. There are alternative strategies to purchasing gas, however there are risks associated with these alternatives as summarized by Navicomm Energy Group Inc.: a. Conservative Approach i. Current AECO Price for September 1, August 31, 2015: $4.20 CDN/GJ. ii. Current AECO Price for September 1, August 31, 2016: $3.65 CDN/GJ iii. Fix 100% at a price equal to current market value or below. iv. These rates are lower than experienced in the past 5 to10 years. Given the depletion of gas storage due to the prolonged cold winter, there is a concern that gas prices will continue to be volatile throughout v. The Board will have budgetary peace of mind and a good price level compared to historical year pricing. If prices were to go up in the future, the Board will be 100% secure in knowing they are locked in. Page 52 of 158 Page 5 of 8

6 b. Aggressive Approach i. Remain 100% on daily index and fix prices in increments over the next few months - prior to the key peak air conditioning season in July/August. ii. This approach will not ensure budget certainty. Month-to-month volatility in prices will occur as the daily market price for gas goes up and down. The Board will be susceptible to market fluctuations that occur from Traders and Geopolitical Risks in the market. However, one can save if the prices weaken as we move out of the colder temperatures we are continuing to experience from late season winter and into the shoulder period where it is neither too cold nor hot. iii. Target a price level of $3.80 CDN/GJ for the first "buy" signal on natural gas for September 1, 2014 August 31, iv. Target a price level of $3.50 CDN/GJ for the first "buy" signal on natural gas for September 1, 2015 August 31, c. Balanced/Cautious Approach i. Purchase a Fixed Price natural gas contract for 2/3 (66.7%) of the total annual consumption at market target of $3.90 CDN/GJ or below, for the September 1, 2014 August 31, ii. Purchase a Fixed Price natural gas contract for 1/3 (33.3%) of the total consumption at market target of $3.50 CDN/GJ or below for the September 1, 2015 August 31, iii. The remaining 1/3 (33.3%) of the total consumption for September 1, 2014 to August 31, 2015 will be on index price in the event that the price lowers, between the end of the cold weather and the early fall, in order lock-in the remainder of the portfolio at price Target of $3.75 CDN/GJ or lower. iv. This balanced approach will allow the Board to have some measure of price stability in the portfolio and yet be able to take advantage of any price decreases that may occur in the marketplace later in the year. v. The consultant does recommend fixing 100% of the price of gas prior to the peak winter months, in anticipation of reduced gas storage capacity and another cold winter. There is a concern gas prices could increase as much as 25-50%. 2. Natural Gas Transportation Information: a) Currently the forward market rate from natural gas transportation from Alberta to Ontario is CDN $2.50 CDN/GJ for the period September 1, 2014 to August 31, b) The Board s consultant has recommended that the Board lock in 100% of the 2014/15 at a rate of $2.20 CDN/GJ or lower for the September 1, 2014 to August 31, 2015 time period. This is rate is much higher than the current gas transportation price, and is the result of recent decision made by National Energy Page 53 of 158 Page 6 of 8

7 Board regarding TransCanada Mainline rates for transporting natural gas from Western Canada to Ontario. This represents an increase of $545,219 over the year. The tables below show current and anticipated gas commodity and gas transportation rates for September 1, 2014 August 31, Dollars Required for 1625 GJ/day September 1, 2014 to August 31, 2015 Gas Commodity Purchase Comparision 2014/15 TCDSB $4.25 CDN/GJ Current 1 year Gas Market Price $4.13 CDN/GJ (as of Feb 11, 2014) $2,520,781 $2, $2,283,534 Navicomm Energy Recommendation to lock in Market of $3.90 and $3.75 CDN/GJ when the Market Allows* Dollars Required 1625 GJ/day September 1, 2014 to August 31, /14 TCDSB $2.30 CDN/GJ Gas Transportation Current 1 year Gas Transportation Market Price $ CDN/GJ (as of Feb 11, 2014) Navicomm Energy Recommendation to lock in $2.15 CDN/GJ or Lower $1,364,188 $800,719 $1,275,219 The table below shows current and anticipated gas commodity and gas transportation rates for September 1, 2015 August 31, Dollars Required for 1625 GJ/day September 1, 2015 to August 31, /16 TCDSB $3.80 CDN/GJ Gas Commodity Current 1 year Gas Market Price $3.60 CDN/GJ (as of Feb 11, 2014) $2,253,875 $2,135,250 Navicomm Energy Recommendation to lock in Market of $3.50 or lower and when the Market Allows. Remainder on index at this time Total spend for % is $691,910 Page 54 of 158 Page 7 of 8

8 3. Natural Gas Recommended Budget for 2014/15: a) The recommended gas budget for 2013/14 is as follows: Gas Commodity $2,520, Gas Transportation $1,364, Gas Distribution from local hub to each school $1,161, HST $108, Total Recommended Budget $5,155, b) A total recommended budget in amount of $5,155,049 including HST. This is higher than last year s (2013/14) gas budget in the amount of $449,688; the overall increase is due to higher gas prices due to the long, extremely cold winter we are currently experiencing. This has led to natural gas storage being depleted to levels not seen since Another concern is if we experience a hot summer, there is be increased demand for air-conditioning, which also uses gas. As such, we may experience gas prices that are much higher than the current market price for 2014 through 2016 time period. c) The Board will continue to take the necessary steps to control the overall energy consumption including, but not limited to, installing high efficiency equipment and building automation systems (BAS) to control the space temperatures, operation schedules, free cooling and adopting any new technology saving Energy. d) Based on the foregoing, staff anticipates annual gas costs being in line with the projected PAG budget. F. STAFF RECOMMENDATION 1. That the Director of Education implement the following Natural Gas Procurement Strategy: a. Fixing the price of 66.67% of the Board s natural gas requirement for the period of September 1, 2014 to August 31, 2015 at a price not to exceed $3.90/GJ and that the remaining 33.33% Gas Commodity remain on index with price target of $3.75 CDN/GJ or lower. b. Locking in 100% of the Board s gas transportation requirement for the period September 1, 2014 to August 31, 2015 at a price not to exceed $2.25 CDN/GJ/day. c. Fixing the price for 33.33% of the Board s natural gas requirements for the period of September 1, 2015 to August 31, 2016 at a price not to exceed $3.50 /GJ in order to provide a stable price environment in the future for natural gas deliveries. Page 55 of 158 Page 8 of 8