HomeMy WebLinkAboutINS-11-024 - Natural Gas Storage & Transportation Contract - Union GasStaff Re~p~r~
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DATE OF REPORT: March 10, 2011
REPORT NO.: INS-11-024
SUBJECT: Natural Gas Storage & Transportation Contract with Union
Gas
RECOMMENDATION:
That the Mayor and Clerk be authorized to execute an agreement with Union Gas pertaining to
natural gas storage and transportation ("T3 Contract") effective April 1, 2011, for a five year
term ending on March 31, 2016; said agreement is to be satisfactory to the City Solicitor.
BACKGROUND:
The City of Kitchener, Utilities Division (Kitchener Utilities), offers its 60,000 customers the
choice of direct purchase for their natural gas use. Currently, about 60 contracts are
administered under bundled transportation agreements between the customer or their Agent
and the City of Kitchener. Customers who have not chosen a direct purchase supplier buy
"system" gas. Kitchener Utilities provides acost-based program to purchase system gas for its
customers. Approximately 95% of its total customers currently purchase system gas.
Kitchener Utilities manages all of the City's direct and system gas purchase arrangements
under a single T3 Contract with Union Gas. The existing T3 Contract has been in place since
2000, with several successive annual extensions of its initial five year term, the most recent
extension of which expires on March 31, 2011. The T3 Contract with Union Gas provides
Kitchener Utilities with firm access to Union's underground gas storage facilities near Sarnia
(Dawn) Ontario and its gas transmission facilities between Dawn and Milton (Trafalgar) Ontario.
Most of the gas used annually by Kitchener Utilities customers is during the winter heating
season. The storage facilities under the T3 contract with Union Gas allow Kitchener Utilities to
inject excess gas supplies into storage during the summer when demand is low and to withdraw
gas from storage during the winter to supplement flowing gas supplies when demand is high.
The storage space and related firm injection and withdrawal rights are the most economical
means of balancing the varying seasonal demands of the City's gas utility customers.
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Staff Re~p~r~
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REPORT:
The legacy T3 Contract with Union Gas has served the City of Kitchener and its utility
customers well over the past decade. The Ontario natural gas market has evolved over this
period and Union Gas has contributed with flexible service features to meet changing
requirements. A significant effort was also made by Union Gas to standardize and simplify
contractual arrangements with its larger customers, including the City of Kitchener.
The City's negotiations with Union Gas for a new T3 Contract have been intensive and lengthy.
These efforts were intended to retain as many of the beneficial and somewhat unique features
of Kitchener's legacy T3 Contract, while adopting much of Union's proposed standardized terms
and conditions. Importantly, the new T3 Contract includes revised (and reduced) service
entitlements which reflect regulatory changes approved by the OEB for gas storage and
changes to peak transportation requirements as a result of lower industrial demand for gas
(plant shutdowns and conservation) within the City of Kitchener's utility service area. The
reduced service entitlements result in sizable annual cost savings to the City as noted below.
The T3 Contract is essential to the gas operations of Kitchener Utilities. The rates charged by
Union Gas under the T3 Contract are reviewed and approved by the Ontario Energy Board
(OEB). There are no existing or feasibly possible alternatives to Union Gas for comparably
economic physical connection to gas storage and transmission facilities that would meet the
City's current and future needs to provide gas service to its utility customers. Accordingly,
Kitchener Utilities remains vigilant and participates actively in Union Gas rates hearings before
the OEB to ensure its interests and those of our customers are fairly considered.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
Theme: Financial Management
Strategic Direction: Ensure responsible use of public funds within a supportive policy
framework.
The new T3 Contract with Union Gas has been the subject of intensive negotiations conducted
in good faith by the City of Kitchener to ensure longer-term reliable and economic gas service
for its utility customers.
FINANCIAL IMPLICATIONS:
Funding will be provided from Account Number - 5018185 -Gas Delivery.
The reduced service entitlements under the new T3 Contract with Union Gas will provide an
annual cost savings of about $ 340,000 as attached ($ 255,000 or 75% is realizable in 2011 due
to April 1, 2011 effective date).
COMMUNITY ENGAGEMENT:
Not Applicable.
ACKNOWLEDGED BY: Pauline Houston, Deputy CAO, Infrastructure Services
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