Natural gas is a commodity traded on the open market like other commodities such as oil, coffee or lumber. As with most commodities, the price is dictated by supply and demand. When demand is high, the price rises. When supply is high, the price drops.
We buy gas on behalf of our customers and pass the cost of the commodity on without mark up. This means you pay what we pay. We charge for the delivery service, which is how we make our money.
What determines the price of natural gas?
There are several factors that influence gas pricing, including:
- The weather
- The economy
- International events
- Production and transportation costs
How does Pacific Northern Gas Ltd. (PNG) work to reduce price fluctuations?
We use several strategies to ensure a reliable supply of gas at a reasonable price:
- We purchase gas from a variety of sources.
- We lock in the price of gas through the use of contracts.
Who determines what we charge for natural gas?
PNG is regulated by the British Columbia Utilities Commission (BCUC). Each quarter, PNG submits a Gas Supply Cost Report to the BCUC for their review and approval. The report forecasts what PNG will have to pay for the commodity. A rate is then set (the commodity charge) that allows PNG to recover the cost of purchasing the gas. Delivery charges are reviewed once a year.
Gas sales rates are comprised of the following:
A gigajoule (GJ) is a metric unit of energy used in our rates. One GJ is equivalent to 947,817 BTU/h or 277.8 KW/h of electricity or 25.6 litres of fuel oil or 39.1 litres of propane.
Basic Monthly Charge
The basic monthly charge is a fixed fee that pays a portion of the cost of the facilities required by PNG to be ready and able to deliver gas to customers regardless of the amount of gas consumed each month.
The delivery charge recovers the costs incurred by PNG to deliver gas through its pipeline facilities to your home or business.
Company Use Rate Rider
The term Company Use refers to the gas PNG consumes in the operation of its gas pipeline systems in each service area. The forecast commodity cost of Company Use gas is included in PNG's budgeted costs used to determine customer rates. Actual gas market prices paid by PNG will be different than the forecast gas market prices used in the budget depending on actual gas price markets. The difference between the forecast and actual prices is recorded by PNG in an account called the Gas Cost Variance Account (GCVA). The balance of this account is reviewed by PNG and the British Columbia Utilities Commission every three months. If actual gas market prices have exceeded forecast gas market prices, then a Company Use debit rate rider will be added to rates to recover the shortfall in the recovery of actual gas costs. If forecast gas market prices are greater than actual gas market prices, then a Company Use credit rate rider will be added to rates. In this way, customers pay the same price for Company Use gas as is paid by PNG.
RSAM Rate Rider
RSAM stands for “Revenue Stabilization Adjustment Mechanism”. Every year Pacific Northern forecasts how much revenue it will receive from customers based on the annual forecast of gas to be consumed by customers. It is impossible to accurately forecast deliveries to customers because of the affect of weather on gas consumption. 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. Therefore, Pacific Northern is allowed by the B.C. Utilities Commission to record the difference between forecast and actual revenue recovery from residential and small commercial customers in the RSAM deferral account. In this way, if the actual deliveries are more than forecast deliveries with resulting higher revenue, then a credit balance will be recorded in the RSAM deferral account and a RSAM credit rate rider will be applied to rates for the purpose of stabilizing revenue from year to year. On the other hand if actual deliveries are less than forecast deliveries, then a debit RSAM rate rider will be added to residential and small commercial customers rates.
The commodity charge recovers the costs paid by PNG to buy gas on the open gas market. These costs are passed through to customers without mark-up. The commodity charge will change from time to time in response to changes in gas market prices.
GCVA Rate Rider
The commodity charge payable by customers is based on a forecast of the gas market prices PNG expects to pay to gas suppliers over a 12 month period. The difference between the forecast commodity cost PNG charges its customers and the actual gas market prices are recorded by PNG in an account called the Gas Cost Variance Account (GCVA). The balance of this account is reviewed by PNG and the British Columbia Utilities Commission every three months. If actual gas market prices have exceeded forecast gas market prices, then a GCVA debit rate rider will be added to rates to recover the shortfall in the recovery of actual gas costs. ‘If forecast gas market prices are greater than actual gas market prices, a credit GCVA rate rider will be deducted from customer rates. In this way, customers pay the same cost for gas as is paid by PNG.
British Columbia Utilities Commission
Pacific Northern’s rates are reviewed and approved by the British Columbia Utilities Commission, a regulatory body that sets rates for all utilities in British Columbia. For more information about the Utilities Commission, visit www.bcuc.com.