Panel recommends decrease in SaskEnergy rates and proposes regular commodity rate adjustments
The Saskatchewan Rate Review Panel (the Panel) has recommended an overall decrease in rates for SaskEnergy customers. On average, residential customers will see their bills decrease by about $4 per month. If approved by Cabinet, the rate change will take effect November 1, 2015.
SaskEnergy’s rate application proposed a 4.5% increase in the overall delivery service rate that SaskEnergy charges its customers, combined with a 14% reduction in the overall commodity rate to reflect the decrease in natural gas prices. The overall impact to customers from the rate adjustments would be an average 6.7% reduction to their bills.
Without the increase proposed to the delivery service rate, SaskEnergy is forecasting a shortfall of $10.1 million. Some of the main factors contributing to the shortfall are increased Operations and Maintenance expenses, higher transportation and storage costs due to greater reliance on imported natural gas, and increases in capital spending, While the rate adjustments requested would result in a Return on Equity of 5.62% which is less than the long-term target of 8.75%, the Panel is of the opinion the proposed changes are reasonable.
The Panel stated its concern, however, about the potential for future rate increases. It noted that in order to implement its current and long-term capital plan, and to achieve a target Return On Equity of 8.75% over the next five years, SaskEnergy forecast that it would need to increase delivery service rates by approximately 8% in 2016 and by 4% annually for the years 2017 to 2020. The Panel encourages SaskEnergy to find efficiencies and implement measures to mitigate these increases.
The Panel is also concerned that when large deficits accumulate in SaskEnergy’s Gas Cost Variance Account (GCVA), it may result in inequity for some customers. Large deficits can result in customers paying additional interest charges, as well as being subject to intergenerational inequity where those who incurred the deficit may not be the ones repaying the amount. There is also the potential for rate shock in the event of a spike in natural gas costs when a large deficit already exists in the GCVA. More frequent and smaller adjustments would meet customer preference for rate stability.
Panel Chair Kathy Weber said that as the Panel noted in its Report on SaskEnergy’s 2014 Commodity Rate Application, it would be in the best interests of the customer to create a framework so that when the balance in the GCVA exceeds a certain threshold a rate change is triggered. The Panel repeated its suggestion in this Report.
