ADMINISTRATIVE REPORT

Date: June 26, 2002
Author/Local:V Wakefield/7253

K Kwok/7165

RTS No. 02832

CC File No. 1805

Council: July 30, 2002

TO:	Vancouver City Council
FROM:	General Manager of Corporate Services Manager - Materials Management
SUBJECT:	Award of Proposal No. PS01088 Broker/Consultant Services for the Supply of Natural Gas

RECOMMENDATION

THAT Council approve a three year contract with Enbridge Business Services Inc. for consulting and brokerage services for the supply of natural gas for the City at a fee equal to $0.10 per gigajoule (estimated annual fee: $29,000); source of funding to be the annual operating budget for utilities.

GENERAL MANAGER'S COMMENTS

The General Manager of Corporate Services RECOMMENDS approval of the foregoing.

COUNCIL POLICY

The policy of Council is to award contracts for the purchase of equipment, supplies and services that will give the highest values based on quality, service and price.

PURPOSE

The purpose of this report is to recommend the approval of a contract for natural gas brokerage and consulting services for the period from November 2002 to November 2005.

BACKGROUND

In 1993, the BC Utilities Commission approved measures to deregulate the supply of natural gas in BC. This deregulation provided new options for the purchase of natural gas by allowing larger consumers to purchase gas directly from producers rather than through BC Gas. BC Gas still delivers the gas and supplies services such as meter reading, billing for transmission, and customer service.

As a large consumer of natural gas, the City has taken advantage of this deregulation by entering into contract arrangements for the supply of natural gas with a Broker / Consultant. Under these arrangements, natural gas is purchased directly from a gas producer rather than through BC Gas. The advantage to the City is that about 50% of our natural gas consumption can be purchased and delivered at prices that are not subject to short term market fluctuation and that reflect the pattern of our consumption.

At present, gas deregulation applies to individual accounts with consumption exceeding 2,000 Gj (Gigajoules) per year. The City has 40 such accounts that breakdown as follows (based on 2002 consumption):

Department	Annual Consumption	Annual Cost through Broker
Engineering Services	85,000 GJ	$600,000
Park Board	130,000 GJ	$1,300,000
Civic Buildings	75,000 GJ	$1,000,000
TOTAL	290,000 GJ	$ 2,900,000

There are a number of alternative supply arrangements for the purchase of "deregulated" natural gas:

· purchase gas at the market ("spot") price as consumed;
· pre-purchase anticipated gas supply at a locked-in price for a specified period of time; or
· some combination of these two approaches.

The role of a broker is to monitor the market, find opportunities for savings which are presented to City staff for approval and then act on our behalf to implement the approved strategy.

Further deregulation of natural gas retailing is expected. It is proposed that all customer categories should have the choice to choose alternative gas supplies other than BC Gas, while BC Gas continues to be responsible for the delivery. The City has many buildings that would qualify for access to alternative purchase/delivery arrangements if deregulation is expanded and total quantities purchased directly from suppliers other than BC Gas could increase significantly.

DISCUSSION

The existing contract for these services expires in October 2002. Earlier this year, the City requested proposals from firms interested in providing these services for the three year period following expiry of the contract.

The Request for Proposals for "Broker/Consultant Services for the Supply of Natural Gas" closed on April 3. The document requested supply and delivery of estimated annual natural gas needs, through local distributors to BC Gas Inc, to serve about 200 City locations. Proposals were received from three respondents: Enbridge Services Inc., Premstar Pacific and British Columbia Health Services Ltd. This last proposal was incomplete and was therefore removed from the competition. The remaining two proposals were evaluated according to:

· Proposed strategy and market expertise;
· Experience, references and reputation;
· Supply issues;
· Commissions, fees and charges;
· Compliance with proposal requirements.

On the basis of evaluation it was determined that Enbridge's proposal was superior. Determining factors were Enbridge's strategy and market expertise for providing the City with an assured supply of natural gas from the highly volatile natural gas market at minimal risk, and the company's superior financial strength in support of contract commitments. Enbridge will receive a fee of $0.10 per Gj (gigajoule) of natural gas purchased, which represents 1.2% of the total transaction at the prevailing price. At an anticipated purchase volume with existing accounts of 290,000 Gj per year, this contract entails approximately $29,000 in brokerage fees per year on an anticipated $2.9 million contract.

CONCLUSION

The City has taken advantage of the deregulation of the natural gas industry since 1994 by the use of broker/consultants to provide advice and brokerage services. Enbridge Business Services has extensive experience in this field and has successfully provided administrative services to several municipal and government clients.

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(c) 1998 City of Vancouver