Natural gas is a commodity traded on the open market like other commodities such as wheat, 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.
Customer bills include two main components: commodity charges and delivery charges.
The commodity charge reflects the cost of gas customers have consumed during the billing period. We buy gas on behalf of our customers and pass the cost of the commodity on without mark up. Customers pay what we pay.
The delivery charges cover the costs of maintaining the natural gas system to ensure safe and reliable service.
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?
PNG buys natural gas on behalf of our customers at the best possible price and passes on that exact cost. We are committed to ensuring a safe, reliable supply of natural gas at the lowest reasonable price. To ensure competitive pricing, PNG purchases gas from a variety of sources.
Who determines what we charge for natural gas?
PNG is regulated by the British Columbia Utilities Commission (BCUC), a regulatory body that sets rates for all utilities in British Columbia.
PNG’s rates are reviewed and approved by the BCUC. Each quarter, PNG prepares a Gas Supply Cost Report that includes a forecast of commodity costs and rate impacts. This report is submitted to the BCUC for their review and approval. The report forecasts what PNG will have to pay for the commodity. Rates are set (the commodity charge) to allow PNG to recover the cost of purchasing the gas. Delivery charges are reviewed and approved by the BCUC under a separate regulatory process and are typically set on an annual basis.
For more information about the BCUC, visit www.bcuc.com.
What are gas sales rates comprised of?
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 recovers 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 balance of costs incurred by PNG to maintain the natural gas system to ensure safe and reliable service to homes and businesses.
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 prices paid by PNG will be different than the forecast gas market prices used in the budget. 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 BCUC every three months. If actual gas prices have exceeded forecast gas market prices, then a Company Use debit rate rider will apply to recover the shortfall in the recovery of actual gas costs. If forecast gas market prices are greater than actual gas prices, then a Company Use credit rate rider will apply. 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 PNG 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 effect 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, PNG is allowed by the BCUC 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 apply 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 apply 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. The difference between the forecast commodity cost PNG charges its customers and the actual gas 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 BCUC every three months. If actual gas prices have exceeded forecast gas market prices, then a GCVA debit rate rider will apply to recover the shortfall in the recovery of actual gas costs. If actual gas prices are lower than forecast gas market prices, a credit GCVA rate rider will apply to refund the excess in the recovery of actual gas costs. This mechanism ensures that customers pay the same cost for gas as is paid by PNG.