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Commodity Market Prices Driving Factor in Proposed SaskEnergy Rate Changes

July 16, 2008

Commodity Market Prices Driving Factor in Proposed SaskEnergy Rate Changes

Continuing strong open market prices for natural gas have led SaskEnergy to follow other jurisdictions in Canada and the United States in applying to increase its commodity charge for the upcoming winter, as part of a combined commodity/delivery rate application to the Saskatchewan Rate Review Panel (SRRP).

Together, the proposed changes would see the typical residential customer paying approximately $35/month more for their natural gas service this winter, the overwhelming majority of which would be comprised of a proposed change in the commodity charge from $6.57 per Gigajoule (GJ) to $10.21/GJ (38.33¢/m3), effective October 1, 2008. The second part of the application deals with a proposed change to delivery costs of $2/month to the Basic Monthly Charge, which would take effect November 1, 2008. Rising operating and maintenance costs are the driving factor behind this component of the application (Editor's Note: See attached background information for further details and examples of customer impacts.).

The proposed $10.21/GJ commodity application rate reflects current pricing, but the SRRP is expected to evaluate this rate and ask the Corporation to provide market pricing updates as the rate review process moves forward. SaskEnergy's current commodity rate of $6.57/GJ has been in effect since November 1, 2007, when it was lowered from $7.17/GJ.

"SaskEnergy purchases all its customers' natural gas on the open market and like other Canadian natural gas utilities, sets its customer commodity rates only to recover its future costs, without markup," said Doug Kelln, President and Chief Executive Officer, SaskEnergy. "Industry analysts agree that we are entering a new pricing environment for natural gas, and commodity charges have already moved to this higher level in other provinces.

"Our gas price management program shielded SaskEnergy customers from this volatility through the first part of 2008, and with today's announcement, we are hoping more Saskatchewan customers this fall will join the over 20,000 homeowners and businesses that have already taken advantage of provincial programming to improve their energy efficiency," said Kelln. "But ultimately, when a fundamental change in the market occurs, we are subject to those prices in the same manner as everyone else."

The proposed $2/month delivery adjustment, representing SaskEnergy's internal costs, would represent the second increase in the last 11 years to the delivery charge.

Even with the proposed changes, Saskatchewan consumers will be paying among the lowest natural gas rates in the country.

"While we cannot change the natural gas market, we will be working with our customers to encourage them to take advantage of programs designed to help them permanently cut their energy consumption. Programs like the Saskatchewan EnerGuide for homes initiative already have the highest penetration of any province in Canada, but there still thousands more customers who could take advantage of this initiative and others," said Kelln.

"We will be escalating all our efforts to ensure customers are aware of the programs they can access."

Further information on the rate review process, including a full copy of the SaskEnergy application, will be available at http://www.saskratereview.ca.

For further information, please call:

Paula Belanger
Supervisor, Employee and Corporate Communications
SaskEnergy
Phone: (306) 777-9635 or (306) 529-8037 (cell)
Email: pbelanger@saskenergy.com


Backgrounder

Overall Residential Bill Impact - system average and higher use customer



Delivery Service Impact


Backgrounder

SaskEnergy and the Government of Saskatchewan are committed to ensure that customers use energy responsibly. Currently the following programs are available to assist customers with reducing their energy use:

Saskatchewan EnerGuide for Houses Program - provides grants up to $10,000 for energy efficient upgrades homeowners make to their home - $5,000 from the provincial government and $5,000 from Natural Resources Canada. To qualify, homeowners must have an EnerGuide for Houses pre-retrofit evaluation, complete their retrofits, and a post-retrofit evaluation. The pre-retrofit evaluation will provide them with a list of recommendations for their home and applicable grant values.

Saskatchewan Home Energy Improvement Program - provides financial assistance of up to $4,000 to help low to moderate-income homeowners and rental property owners housing low income tenants make energy efficient retrofits that will help them save energy and money over the long-term. Applications are made through the Saskatchewan Housing Corporation (SHC).

Energy Efficient Rebate for New Homes Program - provides up to $2,400 in rebates to Saskatchewan residents who purchase or register a newly constructed home after April 1, 2007 that is either ENERGY STAR qualified, R-2000 certified or has an EnerGuide for New Homes rating of 80 or above. The rebate program helps offset the cost premium that is often associated with building an energy efficient home.

PST Exemption - for all ENERGY STAR® qualified furnaces and boilers.

Share the Warmth Home Energy Efficiency Project - SaskEnergy is delivering the "SaskEnergy Share the Warmth Home Energy Efficiency Project". This project helps lower-income families with energy efficiency improvements in their homes as a means to help reduce energy costs. Families are selected by the Salvation Army, and improvements are done at no cost to the families. These events will be held throughout the province in September and October and will provide opportunities in each community to pro-actively communicate with the media about SaskEnergy's rate application in the context of a positive energy efficiency program.

Equipment Leasing for Commercial Customers - SaskEnergy worked with the Mechanical Contractors Association of Saskatchewan (MCAS) to form the Commercial Network which has 30 members in 11 communities throughout the province. The Commercial Network is a voluntary alliance of mechanical contractors that install and service natural gas equipment for commercial customers. Commercial Network Members offer leasing services to help commercial customers upgrade to more efficient heating systems.

Commercial Boiler Program is designed to encourage the use of high-efficiency natural gas hydronic space-heating systems in commercial new construction and retrofit applications. Customers can increase the energy efficiency of their heating system and lower their costs by taking advantage of financial incentives for installing or upgrading to condensing boilers. This program is available through Commercial Network Members.

To find out more please visit www.saskenergy.com or call toll free 1-866-409-9770.


Backgrounder - Energy Industry News

  • Regina Leader Post, July 10, 2008 "Similarly, natural gas prices are expected to remain high — in the $11 to $16 per mcf range — for the next five years, as demand grows for natural gas-fired electricity generation and home heating."

  • Windsor Star, July 4, 2008 "The biggest price spike since hurricane Katrina affected energy production in 2005 will hit natural gas consumers this month, as rising oil prices drag other costs up with it."

  • Calgary Herald, July 3, 2008 "Natural gas prices on the NYMEX closed at $13.52 per mcf while AECO was at $10.96 per mcf. All signs point to a continuation of this trend."

  • Calgary Herald, July 3, 2008 "In a nutshell, the futures curve for natural gas is as much as $7 per mcf higher in the U.K. than it is in North America. The fact the spread is that wide means there is little incentive for liquefied natural gas to land on this side of the Atlantic. LNG will go to the highest bidder and, these days, it isn't North America. By this time last year, 460 bcf of LNG had been imported into the U.S. while today the number sits at 200 bcf. This state of affairs will only support current natural gas prices, which are slowly but surely creeping back to the all-time high of $15.38 per mcf, set in December 2005."

  • Calgary Herald, July 1, 2008 "Natural gas has risen 70 per cent this year, from $7.85 per mmBTU on Jan. 1, and 97 per cent since June 29, 2007, when the price was $6.77."

  • Calgary Herald, April 24, 2008 "Long defined as a continental commodity, natural gas is gradually becoming a global player and it is the growth in demand around the world — along with a smattering of geopolitical variables — that is pushing prices upward."

  • Newstalk 980, March 11, 2008 "Natural gas, which has been fairly cheap for a while, not so much anymore. A thousand cubic feet of natural gas, more than $10 on the New York Mercantile Exchange yesterday. That's almost double what it was worth last year."

  • Calgary Herald, February 6, 2008 "Longer term, another important factor is the growing shift to natural gas-fired electricity plants in the United States even in the absence of a national energy policy aimed at reducing carbon dioxide emissions. Just this week three investment firms Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley said they are not comfortable financing the construction of new coal-fired electricity plants because of the growing concern over emissions and the potential government response."