Panel recommends lower SaskEnergy commodity rates and increase in delivery rates
The Saskatchewan Rate Review Panel (the Panel) has recommended that the commodity rate proposed by SaskEnergy be reduced from $2.65/GJ to $2.575/GJ. The Panel confirms the interim reduction from $3.95/GJ to $2.95/GJ that took effect November 1st, 2018.
SaskEnergy’s rate application also proposed a 3.9% increase to the average delivery rate which would be $1.76 per month for a residential customer. The proposed rate increase for small commercial would increase by 2% or $4.47 per month. Large commercial customers would go up by 1% or $16.00 per month and small industrial customers would increase by .1% or $13.00 per month.
The Panel has also recommended the proposed 3.9% increase be reduced to 3.6% increase on the delivery portion of energy bills for SaskEnergy customers. On average, residential customers would see the delivery portion (only) of their bills increase by approximately $1.53 per month, or $18 annually. If approved by Cabinet the rate changes will take effect April 1, 2019. The reduction in the commodity rate combined with the increase in the delivery rate as recommended by the Panel results in an overall reduction to the average residential customer’s bill of approximately 11% or $101 annually.
In its application SaskEnergy stated the need for a delivery charge is due to increased capital spending, transportation and storage costs, and net income that allows the Company to achieve an industry comparable Return on Equity of 8.3%.
SaskEnergy purchases natural gas from suppliers in Saskatchewan and Alberta in energy units (gigajoules) and then delivers that gas and bills it in cubic meters. Since gas from different sources has different heat values, the fixed conversion factor from gigajoules to cubic metres creates inequities for customers in different regions. Since the delivery rate also has a volumetric component, this also results in a loss or gain to the company. Billing by volume also requires SaskEnergy to forecast this conversion value far in advance of the actual delivery.
Therefore, the Panel is recommending that the company pursue measures to commence billing in heat value to ensure equity and fairness to all customers as well as protecting the company from abnormal swings in the heat value of the gas purchased and delivered to customers.
The Panel has noted increasing operating and maintenance costs and has asked the company to set a target for increases which would relate to the annual rate of inflation.
Included in the ongoing costs increases are ever increasing amounts for information technology including labour costs, costs for third party hosting new applications and current and forecast capital expenditures for these costs.
The Panel has also recommended several technical subjects which need to be addressed by SaskEnergy related to future applications. These include forecast of other revenue, corporation capital tax, effect of accounting changes and zero cost capital on rate base and target level of the basic monthly charge.
The mandate of the Panel is to review the application and provide an opinion on the fairness of the rate adjustments requested, considering the best interests of the customer, the Crown Corporation and the public. The Panel believes these recommended rates, and the heat value recommendations, represent a fair balance of the interests of the affected parties.
