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Natural gas rates set to drop

AFTER YEARS of increases, some of them in double digits, Pacific Northern Gas (PNG) is reducing its rates.

In filings made to the BC Utilities Commission,  PNG wants to drop its overall residential rate by 1.1 per cent next year.

In monetary terms, the decrease for the bundled rate, which takes in the delivery and commodity cost, works out to approximately 20 cents a gigajoule.

With the increases and decreases factored in, the 1.1 per cent price reduction for residential users, based on an average use of 68 gigajoules a year, should work out to $13.69 annually.

Although modest in size, the rate reduction follows steady increases, mostly on the delivery side when residential users had to assume more of the cost of maintaining PNG’s distribution system after it lost large industrial customers such as Methanex in Kitimat and Skeena Cellulose.

Senior PNG official Craig Donohue could not immediately recall the last time the utility’s overall rate decreased when compared to the year previous.

The closest example came in the early 1980s when PNG was whittling away at a debt load by paying off $2 million of it each year.

“In those days with high interest rates, we were paying 18 per cent. By retiring $2 million a year [at] 18 per cent, we did not apply for a rate increase for five years,” said Donohue.

As a regulated utility, the company earns its income from distributing gas. It is not allowed a mark up on the gas it purchases for its customers.

PNG’s overall rate reduction stems from a variety of shifts within its pricing structure for the commodity and for delivery.

Based on filings, the utility’s delivery rate for residential consumers is actually increasing by approximately 2.6 per cent or 34 cents a gigajoule.

That’s an increase needed to overcome an overall revenue deficiency of $886,000.

But PNG has also maintained what’s called a deferral account – money placed in an account with a specific purpose in mind.

“If the weather is colder than expected, then more gas will be consumed and revenues may be greater than what was forecast to be recovered from customers,” indicates an explanation on PNG’s website.

And that’s exactly what’s happened this year, said Donohue.

“We received more revenue than we budgeted for because of the cold weather,” he added.

Instead of paying in 15.6 cents a gigajoule, consumers will be receiving a credit of 4.7 cents a gigajoule, said Donohue.

There’s also a reduction coming in the price of the commodity itself, approximately 50 cents a gigajoule.

That drops the price PNG will pay for gas for its customers to the $4 a gigajoule range, making it the lowest such charges in years.

Rates are so low some analysts are predicting that some energy companies might start capping wells until the price increases.

Ironically, low gas prices could also increase PNG’s revenues from large industrial users.

It has an agreement to operate an anticipated new pipeline called Pacific Trails which will feed a planned liquefied natural gas plant in Kitimat to be built and operated by a consortium of energy companies called Kitimat LNG. Official construction word is expected early next year with the final product bound for Asian markets where prices are much higher than in North America.

And another group wants to build a second liquefied natural gas plant, also for Asian buyers, using gas that would flow through PNG’s existing but underutilized pipeline.

In both cases, increased revenues would be reflected in lower rates for PNG’s existing residential and other customers.

That drops the price PNG will pay for gas for its customers to the $4 a gigajoule range, making it the lowest such charges in years.

Rates are so low some analysts are predicting that some energy companies might start capping wells until the price increases.

Ironically, low gas prices could also increase PNG’s revenues from large industrial users.

It has an agreement to operate an anticipated new pipeline called Pacific Trails which will feed a planned liquefied natural gas plant in Kitimat to be built and operated by a consortium of energy companies called Kitimat LNG. Official construction word is expected early next year with the final product bound for Asian markets where prices are much higher than in North America.

And another group wants to build a second liquefied natural gas plant, also for Asian buyers, using gas that would flow through PNG’s existing but underutilized pipeline.

In both cases, increased revenues would be reflected in lower rates for PNG’s existing residential and other customers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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