HomeMy WebLinkAboutINS-2023-334 - 2023-2024 Natural Gas Rates'Staff Report r,.
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Infrastructure Services Department www.kitchener.ca
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: August 14, 2023
SUBMITTED BY: Greg St. Louis, Director, Gas & Water Utilities, 519-741-2600 ext. 4538
PREPARED BY: Khaled Abu-Eseifan, Manager, Gas Supply and Engineering, 519-741-
2600 ext. 4826
WARD(S) INVOLVED: All Wards
DATE OF REPORT: August 4, 2023
REPORT NO.: INS -2023-334
SUBJECT: 2023/2024 Natural Gas Rates
RECOMMENDATION:
That the supply component of the natural gas rate be decreased to 16.70 cents per cubic
meter from 20.85 cents per cubic meter for system gas customers of Kitchener Utilities
effective November 1, 2023; and,
That Kitchener Utilities' natural gas variable and fixed delivery rates be approved as
proposed in report INS -2023-334 - Attachment A, for all Kitchener delivery customers
effective November 1, 2023; and further,
That the supply rate of natural gas be reviewed quarterly against market conditions and
necessary changes to be brought forward for Council approval.
REPORT HIGHLIGHTS:
• The purpose of this report is to provide an update and recommendations for the natural gas
supply and delivery rates of Kitchener Utilities for the remainder of 2023 and 2024.
• The key finding of this report is that the supply rate is recommended to decrease from 20.85
cents per cubic meter to 16.70 cents per cubic meter to respond to lower market prices in
updated forecasts. The report also recommends increasing the delivery rate components as
proposed in attachment A; to cover various capital, operations, and financial requirements.
• The financial implications to Kitchener Utilities residential customers will be savings of
approximately $53.00 or 6% in 2024 compared to 2023.
• This report supports the delivery of core services.
BACKGROUND:
Kitchener Utilities (KU) is committed to delivering natural gas using a rate setting approach that
focuses on rate stability for our customers. We follow the Council endorsed Gas Purchase Policy
for the procurement of natural gas. The policy outlines how much of our natural gas portfolio can
be purchased in advance and on the spot market. It provides the ability to blend our natural gas
rate with fixed and market price natural gas. The blending of fixed and market price natural gas
is used to reduce volatility in prices to keep rates stable for customers. It is also used to respond
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
Page 112 of 122
to significant changes in market prices within a reasonable time frame. This is a key feature
which softens spikes in market prices and provides longer range rate stability while allowing KU
to respond to long term sharp market changes.
Other natural gas utilities, regulated by the Ontario Energy Board, purchase natural gas on the
market and adjust rates quarterly, due to the volatility of natural gas. This strategy provides rates
that are more reflective of market prices, but also includes more frequent rate fluctuations.
Kitchener Utilities last natural gas rate change was in January 2023. At that time, the supply rate
was decreased with a plan to review the prices more frequently due to the anticipated volatility
in market prices and delivery rates were increased. This report aims to revise the rates based
on updated market conditions and the requirements to deliver safe and reliable natural gas for
Kitchener Utilities customers. Kitchener Utilities is in a very good storage position and the
proposed changes aim to timely adjust rates to benefit customers, avoid significant rate spikes
and ensure reasonable rates are maintained for longer periods of time.
REPORT:
Kitchener Utilities natural gas rates have two components: gas supply, and gas delivery. The
gas supply program is responsible for the purchase of the gas commodity and transportation of
natural gas to Kitchener and is a pass-through cost program. The delivery program is responsible
for delivery of natural gas to customers. This includes billing, meter reading, capital,
maintenance, and operating costs of the distribution system.
The following are key highlights of this natural gas rate change report:
• Natural gas supply rate decreases for system gas customers;
• Delivery rate increases as proposed in Attachment A;
• With the proposed rate changes, an average residential customer will see an overall rate
decrease of approx. $53.00 or 6% for the period from November 1 st, 2023 to October 31 st
2024 compared with the current rates.
Gas Supply:
The natural gas market prices usually fluctuate with supply, demand, and weather factors.
Kitchener Utilities relies on its purchasing policy to create a blended portfolio of hedging (fixed
price contracts) and market price purchases. Along with the purchase policy, KU relies on the
stabilization reserve to absorb sudden price increases and soften rate spikes. In 2023, the supply
rate was set to maintain the stabilization reserve in anticipation of high volatility in market prices.
Actual market prices were lower than projected and the stabilization reserve is forecasted to be
over the maximum limit by the end of 2023. As the supply program is a pass -though -cost
program, the rate should be reduced to benefit customers. The recent dip in market prices is
forecasted to be short lived and prices are projected to increase in 2024. These conditions
indicate the need to reduce the supply rate in 2023 while maintaining the stabilization reserve
balance at the maximum limit at the end of 2024 given the uncertainty in market prices and the
desire to avoid sudden rate shocks. This would provide financial benefits to customers as well
as sufficient funds in the stabilization reserve to absorb market volatility and maintain rate
stability. Depending on actual market prices, the ability of KU to continue to secure reasonably
priced deals and actual gas consumption volumes, the supply rate should be reviewed frequently
and changed as needed subject to Council approval. Therefore, staff recommends the following:
Page 113 of 122
• Decrease the supply rate from 20.85 cents per cubic meter to 16.70 cents per cubic meter
effective November 1St, 2023,
• Maintain the stabilization reserve at the maximum limit at the end of 2024,
• Continuously monitor market prices and recommend changes to supply rate if needed.
Figure 1 below shows historical and forecasted supply rate changes for Kitchener Utilities
compared with market prices and Enbridge rates. KU's gas supply rate continues to be lower
than Enbridge's gas supply rate for 2023. The forward market prices are provided by KU's
consultants. These consultants are natural gas subject matter experts who are hired to provide
natural gas market analysis, forecasts, gas models and assist in purchasing KU's natural gas
portfolio.
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KU Gas Rate - cents per m3 — — — — Enbridge Gas rate - cents per m3 Market
Figure 1: Natural gas supply rates comparison
Gas Delivery:
There are two components to the delivery charges: a daily fixed charge, and a variable rate.
There are four Delivery Rate Groups: M1, M2, M4 and M5, (complete definitions are in
Attachment A). These rates service customers of different volumetric requirements. Delivery
rates are usually changed in January; however, KU staff recommends changing delivery rates
this time in conjunction with the supply rate starting November 1St, 2023. This would support
customer preference for rate stability by combining the rate changes and avoid confusion from
consecutive rate changes. The proposed delivery components of the natural gas rates starting
November 1St, 2023, are shown in Attachment A. The key drivers of delivery rate changes are
the following:
Page 114 of 122
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KU Gas Rate - cents per m3 — — — — Enbridge Gas rate - cents per m3 Market
Figure 1: Natural gas supply rates comparison
Gas Delivery:
There are two components to the delivery charges: a daily fixed charge, and a variable rate.
There are four Delivery Rate Groups: M1, M2, M4 and M5, (complete definitions are in
Attachment A). These rates service customers of different volumetric requirements. Delivery
rates are usually changed in January; however, KU staff recommends changing delivery rates
this time in conjunction with the supply rate starting November 1St, 2023. This would support
customer preference for rate stability by combining the rate changes and avoid confusion from
consecutive rate changes. The proposed delivery components of the natural gas rates starting
November 1St, 2023, are shown in Attachment A. The key drivers of delivery rate changes are
the following:
Page 114 of 122
• Additional resources that are needed to meet Bill 93, Getting Ontario Connected Act,
2022 requirements,
• A significant increase proposed by Enbridge to its rate that is applied to Kitchener Utilities
as part of its rebasing application (2024-2028) submitted to the Ontario Energy Board
(OEB). KU staff are intervening in the OEB proceeding and revising Enbridge contract
parameters to reduce the impact of the proposed increases,
• Additional funding to support Kitchener Utilities energy transition plans,
• Critically low delivery stabilization reserve that should be increased to mitigate financial
risks to the gas utility,
• Inflationary increases to operating and capital expenditures.
It is anticipated at this time that there will be no further delivery rate change in January 2024.
Comparison with Enbridge:
For an average system gas residential (Ml) customer, the total KU gas bill cost in 2023 is
forecasted to be 12% lower than the cost of similar customer in Enbridge franchise area.
Enbridge is proposing a significant increase to its M1 rates in 2024 however, a comparison for
2024 cannot be achieved now as Enbridge's supply and delivery rates have not been finalized
yet.
STRATEGIC PLAN ALIGNMENT:
This report supports the delivery of core services.
FINANCIAL IMPLICATIONS:
For an average system gas residential (M1) customer consuming 2,000 cubic meters annually,
the proposed natural gas rates result in a decrease in the overall annual bill by approx. $53.00
for the period November 1St 1, 2023, to October 31St, 2024. This excludes the Federal Carbon
Charge.
The increase in delivery rates is necessary to mitigate financial risks to the delivery stabilization
reserve. The stabilization reserve balance is forecasted to be below the 2023 budget estimate.
This reserve is needed to absorb variances in revenues due to weather factors, (colder weather
increases revenue and warmer weather decreases revenue) and to maintain rate stability
through out the year. The 5 -year operating budget projection for gas delivery is presented in
Attachment B.
The natural gas supply stabilization reserve balance is forecasted to be higher than the 2023
budget estimate and therefore, a decrease in the supply rate intends to keep the balance towards
the maximum benchmark of the reserve in 2024. The supply stabilization reserve is needed to
absorb fluctuations in market prices and soften rate spikes. Due to uncertainty and volatility of
gas markets, this reserve should be at the maximum balance to avoid rate shock for KU
customers. The 5 -year operating budget projection for gas supply is presented in attachment C.
Kitchener Utilities supports the Waterloo Region Energy Assistance Program. This program
offers support to customers facing challenges paying their utility bills. The program is
administered by the Region of Waterloo and offers support for both electricity and natural gas
bills.
Page 115 of 122
COMMUNITY ENGAGEMENT:
INFORM - Kitchener Utilities will work with the Corporate Communications and Marketing
Division to ensure that the rate change details are included in the Council Key Decisions media
brief. A bill insert will be distributed with utility bills along with posting information on the Kitchener
Utilities' and City websites. An on -bill message will also appear on October 2023 natural gas
bills.
This report has been posted to the City's website with the agenda in advance of the council /
committee meeting.
PREVIOUS REPORTS/AUTHORITIES:
• INS -2022-486: 2023 Natural Gas Rates
APPROVED BY: Denise McGoldrick, General Manager Infrastructure Services.
ATTACHMENTS:
Attachment A — Natural Gas Rates
Attachment B — 5 -year operating budget projection — Gas Delivery
Attachment C — 5 -year operating budget projection — Gas Supply
Page 116 of 122
APPENDIX A
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
GENERAL SERVICE RATE M1
Applicability
To residential and non -contract commercial and industrial customers that consume less than 50,000 m3 per year.
Rate
Daily Fixed Charge
And
$ .7600
SUPPLY COMMODITY VARIABLE DE LIVERY NET RATE
¢/m3 ¢/m3 ¢/m3
16.7000 10.7371 27.4371
Meter Readines
Gas consumption by each customer under this rate schedule shall be determined by periodic meter readings, provided that in
circumstances beyond the control of the Corporation, such as strikes or non -access to a meter, The Corporation may estimate
the monthly consumption between the meter readings and render a monthly bill to the customer.
Effective
November 1, 2023
Policv Relatine to Terms of Service
1) Gas purchased under this rate schedule shall not be resold, directly or indirectly by the customer, unless resold as "motor
vehicle fuel gas", as that term is defined in Ontario Regulation 805/82.
2) Customers who temporarily discontinue service during any twelve consecutive months without payment of the monthly
fixed charge for the months in which the gas is temporarily disconnected shall pay for disconnection and reconnection.
Page 117 of 122
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
GENERAL SERVICE RATE — M2
Applicability
To residential and non -contract commercial and industrial customers that consume 50,000 m3 and more per year.
Rate
Daily Fixed Charge
And
$2.4500
SUPPLY COMMODITY VARIABLE DELIVERY NET RATE
RATE
¢/m3 ¢/m3 ¢/m3
16.7000 9.5023 26.2023
Meter Readings
Gas consumption by each customer under this rate schedule shall be determined by periodic meter readings, provided that in
circumstances beyond the control of the Corporation, such as strikes or non -access to a meter, The Corporation may estimate
the monthly consumption between the meter readings and render a monthly bill to the customer.
Effective
November 1, 2023
Policy Relating to Terms of Service
2) Gas purchased under this rate schedule shall not be resold, directly or indirectly by the customer, unless resold as "motor
vehicle fuel gas", as that term is defined in Ontario Regulation 805/82.
3) Customers who temporarily discontinue service during any twelve consecutive months without payment of the monthly
fixed charge for the months in which the gas is temporarily disconnected shall pay for disconnection and reconnection.
Page 118 of 122
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
FIRM INDUSTRIAL AND COMMERCIAL CONTRACT RATE — M4
Applicability
To a customer who enters into a contract for a minimum term of one year, that specifies a daily contracted demand (CD) as follows:
Between 2,400 m3 and 140,870 m3.
Rate
1. Bills will be rendered monthly and shall be the total of
i) A Fixed Demanc
ii) A Variable Deli
iii) A Monthly Gas
Charge:
First 8,450 m3 of the daily contracted demand, 67.9000 ¢/m3
Next 19,700 m3 of the daily contracted demand, 30.8000 ¢/m3
All m3 over 28,150m3 of the daily contracted demand, 16.8000 ¢/m3
very Charge (incl. storage):
First 422,250 m3 delivered per month 2.0000 ¢/m3
Next volume equal to 15 days use of CD 2.0000 ¢/m3
Remainder of volumes delivered in the month 2.0000 ¢/m3
2. Over -run Charge
Authorized overrun gas is available provided that it is authorized by the Corporation in advance. The Corporation will not
unreasonably withhold authorization. Overrun means gas taken on any day in excess of 103% of contracted daily demand.
Authorized overrun will be available April I through October 31, and will be paid for at the rate of 4.5813 ¢/m3 for the delivery
and, if applicable, the federal carbon charge and the total gas supply rate of 16.70 ¢/m3.
Unauthorized overrun in any month shall be paid for at the rate of 9.2371 ¢/m3 for the delivery and, if applicable, the federal
carbon charge and the total gas supply charge for system -supplied volumes at the rate of 16.70 ¢/m3.
3. Minimum Annual Charge
In each contract year, the customer shall purchase from the Corporation or pay for a minimum volume of gas equivalent to
150 days use of contracted demand. Overrun gas volumes will not contribute to the minimum volume. In the event that the
customer shall not take such minimum volume, the customer shall pay an amount equal to the deficiency from the minimum
volume times a rate of 2.497 ¢/m3, and if applicable, a total gas supply charge of 16.70 ¢/m3.
In the event that the contract period exceeds one year, the annual minimum volume will be pro -rated for any part year.
Effective
November 1, 2023
Policy Relating to Terms of Service
Gas purchased under this rate shall not be resold, directly or indirectly by the customer.
Page 119 of 122
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
INTERRUPTIBLE INDUSTRIAL AND COMMERCIAL CONTRACT RATE — M5
Applicability
To a Customer who:
A) Enters into a contract for a minimum term of one year that specifies a daily contracted demand between 2,400 m3 and 140,870
m3 inclusive and,
B) Has an alternate fuel supply and combustion system available.
Rate
1. The price of all gas delivered shall be determined on the basis of the following schedules:
i) Monthly Fixed Charge $750.00
a. and
ii) Delivery Charge (incl. storage):
Dailv Contracted Demand Level (CD
2,400 m3
< CD <
17,000 m3
3.5539 ¢/m3
17,000 m3
< CD <
30,000 m3
2.7611 ¢/m3
30,000 m3
< CD <
50,000 m3
2.6859 ¢/m3
50,000 m3
< CD <
70,000 m3
2.6332 ¢/m3
70,000 m3
< CD <
100,000 m3
2.5955 ¢/m3
100,000 m3
< CD <
140,870 m3
1 2.5584 ¢/m3
iii) A Monthly Gas Supply Charge:
Supply Commodity 16.7000 ¢/m3
2. Over -run Charge
Overrun gas is available provided that it is authorized by the Corporation in advance. The Corporation will not unreasonably
withhold authorization. Overrun means gas taken on any day in excess of 105% of contracted daily demand.
Unauthorized overrun gas taken in any month shall be paid for at the rate of 10.7371 ¢/m3 for the delivery and, if applicable,
the federal carbon charge and the total gas supply charge for system -supplied volumes at the rate of 16.70 ¢/m3.
Unauthorized Overrun Non -Compliance Rate:
Unauthorized overrun gas taken any month during a period when a notice of interruption is in effect shall be paid for at the
rate of 234.72 ¢/m3 ($60 per GJ) for the delivery.
3. Minimum Annual Charge
In each contract year, the customer shall purchase from the Corporation or pay for a minimum volume of gas equivalent to
150 days use of contracted demand. Overrun volumes will not contribute to the minimum volume. In the event that the
customer shall not take such minimum volume, the customer shall pay an amount equal to the deficiency from the minimum
volume multiplied by 4.0299 ¢/m3 for the delivery charge and if applicable, a gas supply charge of 16.70 ¢/m3.
Effective
November 1, 2023
Policy Relatine to Terms of Reference
Gas purchased under this rate shall not be resold, directly or indirectly by the customer.
Page 120 of 122
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