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2008 SaskEnergy Delivery and Commodity Rate Applications - Frequently Asked Questions

2008 SaskEnergy Delivery and Commodity Rate Applications - Frequently Asked Questions

  1. Why is SaskEnergy applying for both a delivery and commodity rate increase?

  2. Delivery
    Higher operational costs for items such as materials, labour and fuel are the main drivers for this rate proposal. While SaskEnergy continues to take measures to run as efficiently as possible, some cost measures cannot be avoided.

    In addition to these pressures is the continuing trend of declining natural gas usage. Customers continue to be more energy efficient, which contributes to the long-term sustainability of the natural gas energy supply, lowers greenhouse gas emissions, and reduces customers' costs. The volume of natural gas used per customer continues to decline at a rate of 1.5% to 2.0% annually, which does impact SaskEnergy's delivery revenues. However, making energy efficient decisions often leads to hundreds of dollars of long-term savings to a customer's bill, more than offsetting any inflationary increase in delivery charges.

    This rate increase will allow SaskEnergy to recover the costs of delivering natural gas to its customers, with service rates that will continue to be competitive with other jurisdictions.

    Commodity
    The strong demand for clean-burning natural gas in North America has caused natural gas prices to move to a new higher price environment, where global prices are having an influence on natural gas prices in North America. Current prices for next winter continue to be in the $11.00/GJ to $12.00/GJ range (and higher) at the Alberta trading hub, AECO, compared to SaskEnergy's existing commodity rate of $6.57/GJ.

    SaskEnergy is not profiting from an increase in the commodity since it only collects from customers what it pays for natural gas, including expenses associated with the buying of natural gas. Natural gas utilities across Canada have recently been increasing their commodity rates.

  3. How much are the proposed increases and when would they take effect?

  4. SaskEnergy's has applied to the Saskatchewan Rate Review Panel (SRRP) for proposed Delivery and Commodity Rate adjustments which would result in an overall total bill impact increase of 39% for the average residential customer, or about $35 more per month (depending on usage levels). Higher use customers could pay $35-$49 per month. This is a combination of a 2% increase to the Delivery Service and a 37% Commodity Rate increase.
     

    Bill Impact from Delivery

     

     

     Annual Impact per Customer

     Monthly Impact per Customer

     Delivery Bill Impact

     

     

     

     

     

    Residential

     

     $         24.00

     $          2.00

    2.2%

    Farm

     

     $         30.60

     $          2.55

    2.2%

    General Service II

     

     $         46.20

     $          3.85

    1.1%

    General Service III

     

     $       247.20

     $         20.60

    0.4%

     

     

     

     

     

     

     

     $         27.65

     $          2.30

    1.7%


     

    Bill Impact from Commodity

     

     

     Annual Impact per Customer

     Monthly Impact per Customer

     Commodity Bill Impact

     

     

     

     

     

    Residential

     

     $       393.09

     $         32.76

    37.0%

    Farm

     

     $       538.15

     $         44.85

    37.9%

    General Service II

     

     $    1,746.81

     $       145.57

    41.5%

    General Service III

     

     $  26,142.73

     $    2,178.56

    44.9%

     

     

     

     

     

     

     

     $       648.16

     $         54.01

    39.4%

     

     

     

     

     


    Total Bill Impact

     

     

     

     

     

     

     

    Annual Impact per Customer

    Monthly Impact per Customer

    Increase per Customer Class

     

     

     

     

     

    Residential

     

    $       417.09

    $         34.76

    39.2%

    Farm

     

    $       568.75

    $         47.40

    40.1%

    General Service II

     

    $    1,793.01

    $       149.42

    42.6%

    General Service III

     

    $  26,389.93

    $    2,199.16

    45.3%

     

     

     

     

     

     

     

    $       675.81

    $         56.31

    41.1%


    If approved, the Commodity Rate increase would take effect October 1, 2008, while the Delivery Service Rate increase would take effect November 1, 2008.

  5. What is the difference between Delivery Rates and Commodity Rates?

  6. A customer's bill is made up of two components - Gas Delivery Service, reflected in the Basic Monthly Charge and the Delivery Charge; and the Commodity Rate (Gas Consumption Charge), which is cost of the natural gas.

    SaskEnergy's Gas Delivery Service (the Basic Monthly Charge and the Delivery Charge) are designed to recover all costs in the provision of service to customers, including operating and maintenance. The Basic Monthly Charge is the fixed monthly charge payable for natural gas service regardless of the volume of gas used. The Delivery Charge is the volumetric charge that is charged on each cubic metre a customer uses. Currently SaskEnergy is not recovering its cost of providing service. It is proposing an increase to the Basic Monthly Charge, and no changes to the Delivery Charge in this application.


    The Gas Consumption Charge is the charge, in dollars per cubic metre, for natural gas consumed, and is reflected in the Commodity Rate, which is the cost that SaskEnergy pays to buy its customers natural gas on the open market. These costs are a direct pass-through to customers, with no mark-up by SaskEnergy.

  7. Didn't you just raise delivery rates last year? Why do you have to do it again?


  8. This is only the second Delivery Service increase in the last eleven years, with the most recent being a 1.5% increase on the total bill on June 1, 2007. At that time, SaskEnergy said it would review its Delivery Rates on an annual basis, in order to decide whether an application to the Rate Review Panel was required. As SaskEnergy continues to face pressures from rising costs in its operating, maintenance and administrating expenses, it is bringing forward a Delivery Rate application at this time.


  9. What has SaskEnergy done to reduce its costs?


  10. SaskEnergy is continually looking for ways to become more efficient as a company. Some initiatives that SaskEnergy has implemented to reduce its costs include paperless billing, joint line locating between SaskEnergy and TransGas and a soon-to-be-completed truck office project which will help increase efficiency and lower kilometres driven.

  11. Why are you applying to the Panel now, instead of waiting until the fall, before the start of the gas year in November?

  12. SaskEnergy made it through the first half of this year without any increases, in part because of its gas price management program, which shielded Saskatchewan customers from gas price volatility felt in other jurisdictions in Canada. Most of the SaskEnergy gas portfolio was locked in during the winter.


    Over the past several years, SaskEnergy has typically reviewed its rates in both the spring and the fall. You'll recall that last fall, SaskEnergy's Commodity Rate decreased from $7.17/GJ to its present rate of $6.57/GJ.

    This year, SaskEnergy reviewed its Commodity Rates in the spring and decided to wait as long as possible due to extreme market volatility, to see where the forward price for next winter would go. We've decided to come forward at this time with a Commodity Rate application because we have a greater degree of certainty around the cost of our gas portfolio. Delaying a commodity rate increase any longer could result in a large balance owing to SaskEnergy from customers in the Gas Cost Variance Account (GCVA).

    Letting our customers know now about the higher prices for this coming winter also allows them time to make changes to their energy consumption in their home or business before any possible increases take effect later this fall.

  13. What if prices change significantly between now and the implementation date?


  14. We expect that as we move through the process, the SRRP will ask us for an updated natural gas price forecast, which we will certainly provide. If prices have moved considerably from the time SaskEnergy prepared the application, a revised commodity rate will be brought forward. Accordingly, the final new commodity rate may not be $10.21/GJ (38.33¢/m3) but we do anticipate it to be higher than today's rate of $6.57/GJ.

  15. Prices were very low last winter. Why didn't you hedge more of your portfolio?


  16. The focus of the SaskEnergy gas price management strategy is to deliver stable, competitive rates to Saskatchewan consumers. It is not the aim of the program to speculate on the future direction on the market - such moves could jeopardize the goal of the strategy to deliver competitive rates. However, it is important to know that through the use of storage and our strategy, we did avoid a price adjustment until now, unlike other jurisdictions.

  17. What is the Gas Cost Variance Account and what will the balance in it be by this coming winter?


  18. The Gas Cost Variance Account (GCVA) tracks the difference between what SaskEnergy pays for natural gas, including the costs associated with buying it on the open market and what it collects from its customers through the commodity rate. Balances are refunded or collected in each rate application. A surplus in the GCVA can lower the commodity rate, while a deficit or balance owing to SaskEnergy can increase the commodity rate..jpg">

    SaskEnergy is projecting there will be a balance owing the Corporation of about $22 million by October 1, 2008, when the new rate will become effective.

  19. Is natural gas being impacted by record world oil prices?


  20. Natural gas and oil are two different commodities, and differ in their use. Although there is much talk in the news these days about the correlation between natural gas and oil, historical data reveals that there is not that much correlation between the prices. Demand continues to increase for natural gas, particularly to use to generate electricity. This increase in demand is expected to be met with unconventional natural gas production, which needs a higher price to be economically viable, as well higher imports of liquefied natural gas (LNG). Industry analysts agree that we may be entering a new price environment for natural gas, as we have seen with other energy sources, such as gasoline.

  21. If implemented, would a Delivery Rate increase be in effect until next year? Will Commodity Rates remain at these high levels?


  22. SaskEnergy's Delivery Rate application seeks to recover $5.4 million in costs from the period of November 1, 2008, until May 31, 2009. SaskEnergy will review its Delivery Rates as part of its 2009 Business Planning Process.

    SaskEnergy's Commodity Rate, at the applied for rate of $10.21/GJ (38.33¢/m3), would be in effect as of October 1, 2008. SaskEnergy typically reviews its Commodity Rate in both the spring and fall, and if prices are considerably different than its rate, it will submit an application.

    It is too early to speculate what the natural gas marketplace will look like in the Spring of 2009, due to on-going volatility.

  23. Is this the largest commodity increase SaskEnergy has ever applied for?


  24. While we understand this is a sizeable increase, our commodity and delivery rates will remain very competitive with other jurisdictions across Canada.

  25. It seems wrong to lump on another increase to delivery costs when you expect customers to pay more for natural gas. Why now?


  26. First, changes in our commodity costs are determined by the open market and changes to our commodity rate are designed only to recover the natural gas costs. We project that as of today, we will need another $200 million annually to buy our customers' gas for the coming gas year. If we do not adjust our rates, the GCVA would quickly grow to a large amount, which would result in even higher rates in the future.

    First, changes in our commodity costs are determined by the open market and changes to our commodity rate are designed only to recover the natural gas costs. We project that as of today, we will need another $200 million annually to buy our customers' gas for the coming gas year. If we do not adjust our rates, the GCVA would quickly grow to a large amount, which would result in even higher rates in the future.

    As for our delivery costs, we have worked hard to ensure we keep them competitive - there has only been two increases in the last 11 years. We feel it's best to let the panel decide if our applications for both increases are appropriate.

  27. If Saskatchewan is reaping the benefits of record oil and gas revenue, will the Government be shielding customers from these increases through a rebate program?


  28. It is important to let the Rate Review Panel complete its work into both applications before speculating what, if anything, the Government of Saskatchewan may do in relation to these rates.

    SaskEnergy continues to provide updated information to Government and expects to also supply the Rate Review Panel with an update on market conditions during the review process.

  29. With the proposed increase, how will my bill compare to what people pay in other provinces?


  30. In terms of delivery rates, if the increase is approved, SaskEnergy may still be the lowest. ATCO South (Calgary) currently has an application in progress and, if approved, will move its delivery charges higher than SaskEnergy.

    SaskEnergy's commodity rates are currently the lowest in Canada. While SaskEnergy generally adjusts its rates annually, other jurisdictions adjust commodity rates monthly or quarterly. Higher prices will be reflected in these jurisdictions as rates are adjusted. Year-to-date, SaskEnergy has had the lowest commodity rates in Canada and if the rate increase is approved, SaskEnergy's commodity rate will remain competitive.

  31. What is SaskEnergy doing to help customers manage their energy costs?


  32. SaskEnergy and the Province 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.
  1. Why isn't there competition in natural gas supply in Saskatchewan?
    The Saskatchewan residential market has been fully open to competition in gas supply since November 1998 and the commercial market has been open for 20 years. We would welcome residential competition, but no alternate suppliers have chosen to come to the Saskatchewan market to offer a program to widely serve residential customers.

    An alternate supplier, CEG Energy Options of Saskatoon, provides competitive gas supply for the commercial and business market in Saskatchewan.

  2. There is a lot of natural gas in Saskatchewan. Why are we paying so much for it?
    The Canadian natural gas market was deregulated approximately 20 years ago, meaning Saskatchewan producers are free to sell their gas anywhere in North America for whatever price the market will bear. SaskEnergy must compete with other utilities and major buyers such as New York and Chicago - areas with a high demand for natural gas.

    Saskatchewan residents use only about 0.5% of the natural gas consumed annually in North America, and therefore we are a price taker, not a price maker.

  3. Didn't Saskatchewan used to own natural gas reserves?
    The Province, through SaskPower, once held a portion of Saskatchewan's natural gas reserves. These were sold in the 1980s, and since then exploration and production companies have owned natural gas reserves in this province.

  4. With a potential rate increase, is natural gas still my best energy choice?
    Natural gas continues to be the most economical energy choice for heating, water heating, clothes dryers, and cooking. At the proposed rate of $10.21/GJ (38.33¢/m3), natural gas costs 30% less than electricity, 44% less than propane and 47% less than fuel oil at their current rates.

    Reliable, safe and efficient natural gas is the most popular choice for home and water heating in Saskatchewan.

  5. How can I register a comment with the Saskatchewan Rate Review Panel?
    • Email your comments to: input@saskratereview.ca
    • Leave a toll-free message at 1-877-368-7075.

    • Send written comments by mail to:

        The Saskatchewan Rate Review Panel
        P.O Box 1301
        Saskatoon, SK S7K 3N1


  6. Where can I find more information about the proposed rate increase?
    Please visit our website at www.saskenergy.com for copies of the applications, as well as more information on our programs to help you save money on your natural gas bill.