HomeMy WebLinkAboutFIN-08-131 - Natural Gas RatesI L REPORT 74
Report To: Finance & Corporate Services Committee
Date of Meeting: October 20, 2008
Submitted By: Dan Chapman, General Manager of Financial Services
& City Treasurer
Prepared By: Loraine Baillargeon, 2532
Ward(s) Involved: All
Date of Report: October 10, 2008
Report No.: FIN-08-131
Subject: NATURAL GAS RATES
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That the supply component of the natural gas rates be increased to 31.6 cents per cubic
meter from 28.0 cents per cubic meter for system gas customers of the City of Kitchener
effective November 1, 2008; and,
That the transportation component of the natural gas rates be increased to 5.284 cents
per cubic meter from 4.114 cents per cubic meter for system gas customers of the City of
Kitchener effective November 1, 2008 to reflect the final rates charged by TransCanada
Pipelines as previously approved by the National Energy Board.
Kitchener Utilities began a gas supply program in April 1998 to arrange supply for Utilities'
customers who did not choose to buy from a gas marketer. The program was initiated with the
goals of mitigating the impact of the natural gas price volatility and eliminating retroactive billing
that had become common place with our past provider.
Our system gas program uses a disciplined economic approach to secure natural gas contracts
in a portfolio to strive for a low risk, reasonable cost alternative to the current retail offerings.
The supply program is a cost-based service and does not cross-subsidize with other Utilities
profits.
Since the beginning of the supply program, we have been able to keep rates at some of the
lowest levels in Ontario. We continue to mitigate the risk of price volatility through management
of the portfolio, contracting for fixed prices for a majority of the volumes of gas required
TransCanada Pipelines applied to the National Energy Board and received approval for final
rates to be effective J u ne 1, 2008.
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The natural gas commodity markets continue to be very volatile. Prices rose quickly and
steeply between March and July when the bulk of our purchasing for storage fill took place.
Since that time, prices have fallen to levels not seen during the past two years. A large part of
our portfolio is at fixed prices and we continue to pursue buying opportunities that would keep
our supply rate constant. An increase from $.280 to $.316 is required in our supply rate to meet
the projected gas costs for this year and to ensure that our program is not in a deficit position
overall.
In order to uphold the historical practice of establishing the transportation component of our
natural gas rates by using the National Energy Board ("NEB") approved rate for TransCanada
Pipelines tolls, the Transportation component of our Natural Gas Rates will increase from
$0. 04114/m3 to $0.05284/m3 effective November 1, 2008.
FINANCIAL IMPLICATIONS:
The combined impacts of the supply and transportation rates are expected to produce an
increase of 9.9% or approximately $100 per year for the average residential customer. In these
estimations, we use a 2100 m3 annual consumption as an average residential customer
consumption. The impact on residential customers above this average consumption will be
higher.
The Utilities Division will work with the Communications Division to ensure that media are
provided with a media release to inform our customers and an insert is being prepared to be
distributed with utility bills in November.
Wally Malcolm, MBA, P.Eng.
Director of Utilities
Dan Chapman
General Manager of Financial Services