Recently in the news, FortisBC announced some of their residents’ natural gas bills will be lowered this winter across BC.
This is because the commodity price is forecasted to drop for natural gas, lower than it already has. So how does a lower commodity price impact our bills here in Tumbler Ridge?
For homeowners, there may be a tendency for one to think the commodity price is the price of the resource/commodity and that’s it, however, how this little number gets calculated isn’t quite so easy.
“Natural gas prices have fallen since spring,” says Cynthia Des Brisay, vice president of energy supply and resource development for FortisBC. “The mild summer on the East Coast resulted in a reduced continental demand for power, which is often generated by natural gas.”
She also points out natural gas prices are still near their lowest levels in a decade.
For this reason, FortisBC has received approval from the BC Utilities Commission (BCUC) to decrease prices for many of its customers starting Oct. 1. The company says the savings will amount in about $60, or about $5 a month, over the course of the year for homeowners in the Lower Mainland, the Interior and Northern BC.
Though northern communities using Fortis will see a commodity price drop, the BCUC explains for the Tumbler Ridge region, with Pacific Northern Gas (PNG) our natural gas prices actually went up a little bit, though not enough to apply for a rate increase.
BCUC explains PNG did not apply for a rate increase because the increase is below the threshold to make a rate change.
PNG comments, “PNG’s review and analysis indicated an increase in commodity costs due to Tumbler Ridge’s sole gas supplier introducing a new facilities charge. Fortunately, this increase is partially offset by the expected lower natural gas prices. Since the calculated commodity rate increase is within the BCUC guidelines threshold, PNG will not institute an increase at this time.”
So how does this work?
Basically a commodity price is not actually the base price of the commodity as the term leads one to believe. This little figure as explained by the BCUC comes from a little equation that works out how much gas the company can get, how far their supplier has to go to get it and how many suppliers they have.
There are two main companies who supply south peace communities with their natural gas – FortisBC and PNG. For PNG there is a base commodity price, which includes the price for the commodity itself as well as customers paying to get the natural gas from the well to the processing plant. The farther the distance from A (the well) to B (the processing plant), the higher the commodity cost on your bill. The gas then travels from B to C (Tumbler Ridge) where another delivery charge is applied; known as the delivery charge on our bill.
The BCUC says every utility company submits a quarterly report. They apply quarterly for commodity price changes based on market conditions. BCUC explains FortisBC is buying gas at close to market prices because of large supply. By using historical price points, FortisBC applied for a decrease because the market price indicators going forward pointed to a lower commodity price…for them.
Basically, FortisBC is able to get a better price for natural gas by having more supply than, say, PNG which only has one supplier.
So if PNG was to have more suppliers in the north, wouldn’t that lower the commodity cost?
PNG president Greg Weeres says, “The issue is if the current supplier needs to continue to go further and further afield to continue to supply our processing plant, their costs will increase. Those are born as part of the commodity cost of the gas. We know there is a long term multi-producer supply available [though not yet attained] in the Dawson Creek area.”
Canadian Natural Resources Limited (CNRL) is the company that supplies PNG with their gas. They are the company who own the wells that extract the raw natural gas. The company has about 22 gas wells in the Peace River South area, according to FracFocus, an offshoot fracking website offered through the BC Oil and Gas Commission. It is not noted if the wells are active or not.
CNRL, though responsible for the slight rate increase due to their new facilities fee declined comment for the story, and to explain what the new facilities fee (mentioned above) is for.
It’s amazing that with the amount of natural gas extraction in the Tumble Ridge area, there is only one supplier for our community.
“Total natural gas production in BC in the 2012/13 fiscal year was 1.5 trillion cubic feet (Tcf), approximately half of which was produced in the province’s two most active basins – the Montney (40 percent) and the Horn River Basin (10 percent). Of the 444 wells drilled in the province in 2012/13, over 85 percent targeted unconventional sources, 339 of which were drilled in the Montney, 39 in the Horn River Basin, two in the Liard Basin and one in the Cordova Embayment,” explains the new report by the Oil and Gas Commission.
Tumbler Ridge is located on the edge of the Montney and unconventional sources means shale gas, which means fracking, which means natural gas.
So, let’s get back to the commodity charge. On the PNG website you can learn about the different charges on your bill. The tool explains the commodity charge: “This is the charge for the gas you have consumed in this billing period. This recovers the costs paid by PNG to buy gas on the open market. These costs are passed through to you without mark-up. The commodity charge will change from time to time in response to changes in the gas market prices.”
So then, how can it be that FortisBC is able to lower their commodity price due to lower market costs, but PNGs rates actually went up slightly? According to PNG, because we have to cover the cost for CNRL’s new facilities charges.
Good news for Tumbler Ridge is we are paying less than Dawson Creek and Fort Nelson, who pay $4.02 per GJ for commodity while Tumbler Ridge is paying $3.40. People from Vanderhoof to Kitimat pay $4.32 per GJ through PNG, whereas Fortis in the Lower Mainland’s and Whistler charges $3.91 per GJ for commodity.
The price for natural gas ( which is a combination of commodity, delivery and a few other charges) in Tumbler Ridge is currently $9.50 per GJ, however in Dawson Creek it is $7.43, for Fort Nelson it is $7.63.
Before Fortis announced this change, Tumbler Ridge actually had one of the lowest commodity charges in BC.
So where does the difference come in for Tumbler Ridge? How do we have one of the lowest commodity prices, but one of the highest gas prices in our region? The answer is our delivery charge.
We have a high delivery charge at $6.10 per GJ compared with Dawson Creek at $3.41 per GJ and Fort Nelson at $3.61.
So in the land of natural gas, we are paying a higher delivery cost, than say the Lower Mainland’s, through FortisBC, because our provider (PNG) has less access to gas in our backyard that ends up the natural gas that heats our homes.
Over the past 12 years natural gas prices in Tumbler Ridge have gone from $13, down to $9, and in 2006 the price was $16 because of a hike in commodity price. Graeme Doak, PNG vice president of human resources and government relations says, “Commodity cost really has an impact on what the rates are whereas the basic and the delivery, when you look at that line, there has been very little fluctuation in basically 12 years.”
So with 339 wells drilled around us in the last year, there has been no drop in delivery charges to residents of Tumbler Ridge.
Though it may not fluctuate much, it seems for Tumbler Ridge at the moment, it is actually the delivery charge separating us in terms of pricing from other regions in the north and the south.
The delivery charge for Chetwynd through FortisBC is $3.397 per GJ, and in the Lower Mainland, it is $3.34.
However for Whistler it is $11.42, almost double that of Tumbler Ridge.
With the new rate FortisBC has just announced, Chetwynd and many of their other service area customers will experience a bit lower commodity price of $3.27 per GJ. This is about a 64-cent decrease per GJ. The initial rate would have put the commodity price for Chetwynd at a higher cost than what we pay here in Tumble Ridge, though now, it is cheaper.
One thing that FortisBC is doing, which allows customers some options in terms of commodity pricing is offering unbundled commodity services. This means, the separation of the commodity and the cost of delivery.
Using FortisBC as a neutral partner, natural gas marketers are able to sell their natural gas to homes and businesses for a fixed rate, say for five years. This allows people to stabilize their commodity cost over the long-term and experience no sudden rate hikes or dips.
PNG cannot offer this service because they have one supplier for the Tumbler Ridge area.
When you break it down like this, the confusion becomes a little simpler. Business is business, but when it comes to utilities we need, shouldn’t we have a regulating body that monitors, what say the $330,000 from Tumbler Ridge residents to PNG annually for our basic charge ($23 a month per resident) is being used for?
The PNG website explains the basic charge to, “pay a portion of the cost of the facilities required by PNG to deliver gas to its customers.”
However president Weeres states, “I don’t recall exactly how our bill is set out…It [the website] will talk about how you have a metre; we need to read it, etc. That is the cost of that $23.”
Mayor Wren asks Weeres at a recent council meeting, “Part of a business is forecasting structure failure and putting money aside to build your infrastructure as you need it. It seems to me, that something has come up and all of a sudden you need all of this money [in reference to the proposed virtual pipeline].”
Weeres explains on an annual basis they make an application to the BCUC, where they forecast their costs of service for that year, including the cost to maintain or replace their existing assets if necessary. Those costs are reviewed on an annual basis by the BCUC.
Perhaps a long-term plan should be requested by the BCUC and required by utility companies.
All in all, when it comes to our bills, it’s interesting to see what the communities around us are paying in relation to what we are paying. If we add the commodity price and delivery price together, Chetwynd is paying $6.67, Dawson Creek is paying $7.43, for Fort Nelson $7.63, and Tumbler Ridge, $9.50.
The BCUC explains people do have a voice if they are unhappy with rate changes to their service. This voice can be heard by applying for intervener status whenever there are rate changes announced by a utilities company. “When people have concerns we highly recommended they chose to intervene. The Commission is limited in its ability to make decisions in a proceeding. To be a party to the evidence collecting, you need to register as an intervener,” says a BCUC spokesperson.
Before any rate change, a utility company must post a notice in the local newspaper to alert residents. It is at this point where communities can voice their opinions both positive and negative about rate changes.