Ontario natural gas prices are changing, but still lower than previous years
Natural gas customers across Ontario will see increases on their bills in the New Year, but overall, prices will remain lower in 2017 than they have been during recent peak periods – even when factoring in the cost of cap and trade.
The changes include the routine quarterly adjustment for the market price of the natural gas commodity – known as the Quarterly Rate Adjustment Mechanism (QRAM) – which has taken place every three months since 2001 and will impact rates for customers of Ontario’s three natural gas utilities – Enbridge, Union Gas and NRG – beginning Jan. 1, 2017.
In addition, the OEB recently granted interim rates for cap and trade and a rate adjustment for utility operations for Enbridge and Union Gas – all of which will impact customer bills in the New Year. Union Gas is also changing its rate zones to better reflect where it buys natural gas from and how it transports it to its customers.
Despite these rate adjustments and the introduction of cap and trade, overall, customers are still paying significantly less than they were at peak periods in 2009 and 2014, when natural gas costs were higher in Ontario due to factors including high market prices and unusually cold weather.
The amount of the increases to customers’ bills will vary between utilities and how much natural gas individual customers use. However, typical residential customers can expect to see their bills rise by between $4.65 and $13.54 on average per month for the year ahead.
The QRAM portion of today’s announcement is a routine rate adjustment – a process that’s been in place since 2001.
As a commodity, natural gas prices fluctuate daily and can change significantly over the course of a year, rising and falling based on factors such as weather and supply and demand.
Every three months, natural gas companies apply to adjust their rates to cover the cost of the market price of natural gas. Adjusting the rates each January 1, April 1, July 1 and October 1 helps smooth the price to shield customers from sharp price swings that can occur on the market. These costs are passed on to customers by utilities without a mark-up.
The latest adjustment takes effect Jan. 1, 2017, reflecting the actual cost of natural gas in the previous four months and a forecast of natural gas market prices for the upcoming year.
Cap and Trade
Another component of this upcoming rate change is the costs associated with the government’s cap and trade program, which takes effect in January.
Enbridge, Union and NRG are required to manage their own business operations and buy allowances to cover the emissions that their customers – including Ontario households and small businesses – produce.
The OEB has granted interim rates for each of the three utilities so they can participate in the cap and trade market and meet the obligations set out in the government’s cap and trade program, which is intended to reduce GHG emissions in Ontario, beginning Jan. 1, 2017. Consumers can participate in the process to decide final rates. For more information visit: OntarioEnergyBoard.ca/notice.
The OEB expects utilities to provide consistent and clear information to their customers to help them understand the cap and trade program and the associated costs. Utilities have a number of channels that they are already using for customer outreach, including websites, bill calculators, call centres and bill inserts.
Both Union Gas and Enbridge have indicated they will be meeting the OEB’s expectation to include an on-bill message about cap and trade, which includes a direct link to information already available about cap and trade costs (i.e. the cost per cubic metre of natural gas and the average cost impact of cap and trade for the typical customer) on their websites.
For Enbridge and Union Gas customers, part of the change is a result of a small rate increase to fund their local operations.
Union Gas Rate Zones
Following review and approval by the OEB, Union Gas has introduced a change in rate zones to better reflect the mix of natural gas supply markets and transportation pipelines available to serve each area. Union Gas is making this change so customer costs in each area are better aligned with the true cost of natural gas supply and the transportation services that serve them.
NATURAL GAS RATE CHART – JAN. 1, 2017
The following chart shows the average overall monthly bill impacts in addition to a breakdown of each of the monthly impacts of the OEB’s Quarterly Rate Adjustment Mechanism (QRAM), cap and trade interim rates, as well as a rate adjustment for Enbridge and Union Gas. These totals are based on a typical residential customer for each utility.
Exact impacts will depend on how much natural gas customers use each month.