2008 saskenergy delivery and commodity rate applications

2008 SaskEnergy Delivery and Commodity Rate Applications – Frequently Asked Questions – Oct 15, 2008 Update

1. What are the new SaskEnergy commodity and delivery rates, approved by the

Government of Saskatchewan?

The Provincial Government has approved an average 20 per cent total bill increase for SaskEnergy’s customers to reflect higher natural gas commodity costs effective Oct. 1, 2008. This increases SaskEnergy’s commodity rate to $8.51/GJ from $6.57/GJ which, when combined with the approved change to SaskEnergy’s delivery costs, results in a total bill impact of $19.50 per month for the average residential customer. On Oct. 8, 2008, the Saskatchewan Rate Review Panel recommended Cabinet approve SaskEnergy’s Delivery Rate Application for a $2/month increase to the Basic Monthly Charge effective Nov. 1, 2008. This was approved by Cabinet on Oct. 15, 2008.

2. Why is the commodity rate a lower amount than the $8.71/GJ commodity rate

recommendation brought forward by the Saskatchewan Rate Review Panel (SRRP)?

The Saskatchewan Rate Review Panel recommended an increased commodity rate of $8.71/GJ, however the new approved rate is slightly lower at $8.51/GJ which reflects an updated price forecast provided by SaskEnergy.

3. Why did SaskEnergy apply for both a commodity and delivery rate increase?

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. 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 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

2008 SaskEnergy Delivery and Commodity Rate Applications – Frequently Asked Questions 2

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.

4. What impact will the new Commodity Rate and Delivery Rate have on my bill?

Overall Residential Bill Impact – system average and higher use customer *Please note individual customer’s consumption will vary 5. Why are natural gas rate currently lower in Alberta than in Saskatchewan?

Alberta utility rates are set monthly, and recovery of the Gas Cost Variance Account is also factored into these monthly rates. At times when the market prices undergo significant volatility, as is currently happening, the monthly forward rate for Alberta utilities does not reflect actual market prices, creating situations where a significant under or over recovery of costs occurs the following month. In August, Alberta prices for ATCO South were $12.69/GJ and ATCO North were $11.23/GJ significantly higher than actual market prices, creating an over-recovery situation that is a large factor into both companies' September rates.

$ 26

24

$ 2

$ 20

18

$ 2

Increase$/month %

22.3%$ 1,716$ 1,401Total *

Commodity

Delivery

Total *

Commodity

Delivery

20.6%1,262971(3,950 m3/yr)

22.7%$ 1,291$1,057

20.4%914704 (2,861 m3/yr)

1.7%$ 454$ 430Higher Use Customer

2.3%$ 377$ 353System Average

Residential

ApplicationRates

Present Rates

$ 26

24

$ 2

$ 20

18

$ 2

Increase$/month %

22.3%$ 1,716$ 1,401Total *

Commodity

Delivery

Total *

Commodity

Delivery

20.6%1,262971(3,950 m3/yr)

22.7%$ 1,291$1,057

20.4%914704 (2,861 m3/yr)

1.7%$ 454$ 430Higher Use Customer

2.3%$ 377$ 353System Average

Residential

ApplicationRates

Present Rates


While prices for Alberta can be lower or higher than SaskEnergy's at any given time, it is important to remember than the Alberta situation produces extreme and unpredictable volatility in rates, often complicated by periods of high consumption. For example, the sudden spike in natural gas prices in late 2005 produced an under-recovery situation where ATCO South moved its monthly natural gas rate higher by almost $7/GJ to over $15.00/GJ in January 2006. The SaskEnergy gas price management strategy and our rate setting process deliver more predictable and stable rates for our consumers all year around.

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

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.

Dollars per Month

Dollars per Cubic Metre

Dollars per Cubic Metre

Commodity Rate

Delivery Charge

Basic Monthly Charge

SaskEnergy Services & Rates

Gas Delivery Service Gas Supply Service


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

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 brought forward a Delivery Rate application at this time.

8. What has SaskEnergy done to reduce its costs?

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.

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

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.

10. What is the Gas Cost Variance Account and what will the balance in it be by this

coming winter?

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. The GCVA had a balance owing the Corporation of about $15.5 million on October 1, 2008, at the time the new commodity rate become effective.


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

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.

12. Will the Delivery Rate increase be in effect until next year? Will Commodity

Rates remain at these high levels?

SaskEnergy’s Delivery Rate application was made 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 new Commodity Rate of $8.51/GJ is 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.

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

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. 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.


14. How does my bill compare to what people pay in other provinces?

In terms of delivery rates, 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 competitive to other jurisdictions. 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.

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

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.


� Prime Rate Loan Program - participating SaskEnergy Network Members

are offering prime rate loans (oac) to customers who purchase an ENERGY STAR qualified furnace with a high efficiency DC variable-speed motor. By upgrading from a standard furnace to a high efficiency furnace with a DC variable-speed motor an average home can save over 30% each year in energy costs.

� Programmable Thermostat Rebate - provides customers a $15 incentive to

purchase a thermostat that can automatically turn down the temperature at night or during the day when no one is home. Customers can save up to 2% on their heating bills for every 1°C they turn down their thermostat at night and when they aren’t at 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.


16. 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.

18. 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.

19. 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.

20. 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. Natural gas costs 40% less than electricity, 56% less than propane and 59% less than fuel oil. Reliable, safe and efficient natural gas is the most popular choice for home and water heating in Saskatchewan.

2008 saskenergy delivery and commodity rate applications

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