Description and Background
The Province of New Brunswick will review the natural gas rate structure and distribution network with the objective of achieving a cost-based rate structure and improve access to natural gas across the Province.
Enbridge Gas New Brunswick (EGNB) distributes natural gas under the terms of a 1999 agreement with the Province. At the outset, it was recognized that substantial investment and operating costs were required to build a new distribution system in several communities and to attract new customers. Because initial costs far exceeded revenues, the regulator approved market based distribution rates which allows EGNB to offer rates based on target savings compared with alternate sources, such as oil or electricity. Unexpected trends in oil and gas prices resulted however in very high distribution rates, compared with more mature distribution markets. Due to the current market based rate structure, the benefits of current and projected future low gas commodity prices are not being passed onto the consumer.
The Energy and Utilities Board is preparing for the eventual transition frommarket based rates to a cost of service based regulatorymodel. Government will also explore options to expedite the process with the objective of achievingmore reasonable and sustainable distribution rates for all classes over the long term. Options aimed at the distribution of gas to areas not currently served by pipelines will also be explored. These initiatives are aimed at reducing natural gas delivery rates, particularly for those customer classes payingmore than the utility’s costs of delivery, through the adoption of a cost of service based ratemodel and related programs to reduce utility costs and increase the revenue base. This will contribute to higher adoption rates for natural gas, a sustainable gas distribution systemunder regulatory oversight, and less reliance on imported energy from oil.
Key Objectives Served by this Action
Low and Stable Energy Prices – A new rate structure for natural gas customers will, first and foremost, contribute to the key objective of low and stable energy prices. Although natural gas commodity prices will continue to be based on market forces that are beyond the control of government, the distribution rates for delivery of gas will no longer be linked to the cost of alternative energy, in particular, oil. Lower prices will lead to greater adoption of natural gas, which in turn should help to lower proportionate costs.
Energy Security – Lower, cost-based distribution rates will likely lead to greater adoption of natural gas as a source of space heating and industrial process energy, which will contribute to the goal of energy security by providing a greater diversity of energy choices. Improved access will provide another option for some consumers and industry not currently being served.
Effective Regulation – A rate structure based on the cost of service is the almost universally adopted standard for regulated utility rates in North America. Adopting cost of service rate regulation will therefore also result in more effective regulation, by the Energy and Utilities Board, since the principles of rate regulation will be more standardized.