HomeMy WebLinkAboutINS-17-021 - Natural Gas Storage Transportation Contract - Union Gas
REPORT TO: Committee of the Whole
DATE OF MEETING: March 20, 2017
SUBMITTED BY: Jim Edmondson : Interim Director – Utilities
519-741-2600 ext. 4538
PREPARED BY: Danny Persaud, Manager, Gas Supply and Regulations, ext. 4255,
Loraine Baillargeon, Manager, Asset Optimization, ext. 4532
WARD(S) INVOLVED: All
DATE OF REPORT: March 15, 2017
REPORT NO.: INS-17-021
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,
2017, for a two year term ending on March 31, 2019; said agreement is to be satisfactory
to the City Solicitor, as outlined in INS Report INS-17-021.
BACKGROUND:
Kitchener Utilities manages all of the City’s direct and system gas purchase arrangements
under a single T3 Contract with Union Gas. 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.
REPORT:
The T3 Contract with Union Gas is up for renewal on April 1, 2017.
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
8. - 1
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 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.
The cost of the new T3 contract has increased substantially (approximately 20%) over the prior
contract. This increase is primarily attributed to expansion and renewal of capital infrastructure
on Union’s transmission system and other transmission related costs. The costs have been
scrutinized by the OEB and found to be prudent.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
The recommendation of this report supports the achievement of the city’s strategic vision
through the delivery of core service.
FINANCIAL IMPLICATIONS:
The total cost associated with this two-year contract is approximately $5.7 million per year. For
reasons outlined above, this represents an increase of approximately $1 million (approximately
20%) over the prior contract. As the full financial impact of the contract renewal was not known
during 2017 rate setting and budget deliberations, this increase will represent a negative
variance in the 2017 Gas Delivery budget and a new pressure on delivery rates for 2018. Had
the increase been incorporated into the delivery rate, it would represent a 1/3 of a cent increase
to delivery rate (currently 6.989 cents per m³).
COMMUNITY ENGAGEMENT:
Not Applicable.
ACKNOWLEDGED BY: Cynthia Fletcher, Interim Executive Director,
Infrastructure Services
8. - 2