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POL.COR.11.09
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Commodity Price Hedging Policy
Policy
POL.COR.11.09
Commodity Price Hedging Policy
Policy Type:
Corporate Policy (Approved by Council)
Date Approved: September 26, 2011
Department:
Finance and IT Services
Staff Report:
FIT.11.45
By-Law No.:
2011-55
Policy Statement
This policy governs the procedures regarding the evaluation and determination of Commodity
Price Hedging for The Corporation of the Town of The Blue Mountains as required under
Section 6(1) of the Municipal Act, 2001 and Ontario Regulation 653/05.
Purpose
Price instability of some commodities required by the Town can lead to budgeting challenges
and increased financial risk. The primary objective for the Town's Commodity Price Hedging
Policy is to reduce financial risk by providing price stability and protection against affects of
adverse market conditions.
Application
This policy applies to all Financial Agreements that are entered into by the Town for the
purpose of fixing future prices through commodity price hedging, as well as to those employees
responsible for the control, management, or purchasing of hedging agreements.
No person shall be permitted to engage in a commodity price hedging activity using Financial
Agreements except as provided for under the terms of this policy.
Definitions
Agent means an individual or organization acting on behalf of the Town to provide advice on
price hedging strategy and/or to execute agreements and transaction.
Commodity means, whether in the original or processed state, an agricultural product, a forest
product, a product of the sea, a mineral, a metal, a hydrocarbon fuel, electricity, a precious
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Commodity Price Hedging Policy
stone or other gem and other physical goods but does not include chattel paper, a document of
title, an instrument, money or securities.
Commodity Price Hedging Agreement is a financial instrument to fix the cost and/or manage
the financial risk associated with the purchase of a commodity.
Hedge means, in the context of this policy, the purchase of a commitment to acquire a specified
quantity of a commodity, at a specific price, at some future point in time.
Town means The Corporation of the Town of The Blue Mountains.
Treasurer means the Treasurer for the Town of The Blue Mountains or their designate.
Procedures
Statutory Requirements
A commodity price hedging agreement may only be undertaken if the agreement is in
compliance with the Ontario Regulation 653/05. Requirements include the following:
a) The Financial Agreement must fix, directly or indirectly, or enable the municipality to fix
the price or range or prices to be paid by the municipality of the future deliver of some
or all of the commodity or the future cost to the municipality of an equivalent quantity
of the commodity.
b) The Town may enter into a Financial Agreement only for the future delivery of some or
all of a commodity or the future cost of an equivalent quantity of a commodity. A
financial agreement shall not be entered into for the purpose of speculative investing;
and
c) The Town is prohibited from selling or disposing of the Financial Agreement or an
interest in the Agreement. An exception to this requirement exists if there is a sale or
change of use of real property to which the Agreement applies or the Town ceases an
activity for which the commodity was being acquired.
Statement of Commodity Price Hedging Polices and Goals
1. The Town will consider commodity price hedging agreements as a means of fixing,
directly or indirectly, or enabling the Town to fix, the price or range of prices to be paid
by the Town of the future delivery of some or all of the commodity or the future cost to
the Town of an equivalent quantity, where it is advantageous for the Town to do so.
2. In determining whether a particular commodity price hedging agreement is
advantageous for the Town, the following will be taken into account:
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Commodity Price Hedging Policy
a) Any and all projects of the Town are projects for which commodity price hedging
agreement will be appropriate;
b) If, at any time, it is the opinion that fixed costs and estimated costs of
the Town will be reduced by virtue of the use of such an agreement.
c) If, at the time, it Is the opinion that the future price or cost to the Town
of the applicable commodity will be lower or more stable than it would
be without the agreement;
d) If, at the time, the project includes a detailed estimate of the expected
result of using such an agreement;
e) If, at the time, it is the opinion that the financial and other risks to the
Town that would exist with the use of such an agreement will be lower
than the financial and other risks to the Town that would exist without
such an agreement;
f) If, at the time, it is the opinion that the agreement contains adequate
risk control measures relating to such an agreement, such as;
i. Limited credit exposure based on credit rating and/ or on the
degree of regulatory oversight and/ or on the regulatory capital
of the other party to the agreement;
ii. A standard agreement;
iii. On-going monitoring with respect to the agreement.
Approvals
Approval by Council will be required prior to commencing a hedging program for each
commodity. Approval may be sought concurrently with the initial purchase of a commodity or
at some point during the term, of a commodity purchase contract. The subsequent financial
agreements must be approved by the Treasurer.
Delegation of Authority
The Treasurer will have the overall responsibility for the commodity price hedging program
which involve financial agreements and will have responsibility for directing/implementing the
activities of the commodity price hedging program.
Notwithstanding, the Town may delegate specific authority to an "agent" of the Town. The
authority delegated will be strictly governed by the terms of an agency contract that will be
approved by Council.
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Commodity Price Hedging Policy
Responsibilities
All officers and employees responsible for commodity price hedging agreements will follow the
standard of care identified in this policy. No person shall be permitted to engage in a
commodity price hedging activity using financial agreements except as provided for under the
terms of this policy.
The Treasurer will be responsible for all activities undertaken and shall establish a system of
controls to regulate the activities of staff and exercise control over those staff including:
- Establishing delegation of authority to persons responsible for commodity price hedging
activities.
- Reviewing and recommending the financial and business aspects of any Financial
Agreements to be utilized in hedging a commodity price;
- The signing and execution of documents on behalf of the Town and perform all other
related acts with respect to Financial Agreements; and
- Ensuring that all reporting requirements Identified within this Policy are met.
Reporting Requirements
In addition to information requested by Council or that the Treasurer considers appropriate,
the Treasurer shall submit on an annual basis to Council a detailed report on all existing
financial agreements. The report will contain the following information and documents:
a) 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;
b) A statement indicating whether all of the agreements entered during the period of
the report are consistent with the Town's statement of policies and goals relating to the
use of financial agreements to address commodity pricing and costs; and
c) A statement of transactions with financial institutions.
Exclusions
None
References and Related Policies
The Municipal Act, 2001, S.O. 2001, c.25
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Commodity Price Hedging Policy
Ontario Regulation 653/05 - Debt-Related Financial Instruments and financial agreements
Consequences of Non-Compliance
Consequences shall be commensurate with the severity of the breach of this policy.
Review Cycle
This policy shall be reviewed on a regular basis. Amendments may be made at any time at the
recommendation of the Director. The appropriate authority must approve any policy
changes.