co~ CO/"t./ ~\ ~ If?<$) gt·: -~ ~ ~ ~ + -(;'~ C ---..~~ z \ .~~1t'} ... 0 SIXTH FLOOR, 900 HOWE STREET, BOX 250 ? ~ ~~ • :-.. VANCOUVER, B.C. V6Z 2N3 '/"~ •• • • •• ~ • ••• ••• • • • • • r; r : _ J TELEPHONE: (604) 660-4700 '~ •• •• •• -..J BC TOLL FREE: 1-800-663-1385 CANADA /~S CO""~\ FACSIMILE: (604) 660-1102 AN ORDER IN THE MAITER OF the Utilities Commission Act, S.B.C. 1980, c. 60, as amended An Application by BC Gas Utility Ltd. Reference Price Factors for Buy/Sell Energy Supply Contracts BEFORE: M.K. Jaccard, Chairperson; and ) L.R. Barr, Deputy Chairperson ) August 24, 1995 ORDER WHEREAS: A. The Commission's July 7, 1995 Decision regarding the Review of Buy/Sell Deliveries of Natural Gas to the Core Market directed each LDC to file for Commission approval its reference price calculation methodology and a preliminary price forecast as soon as possible after August 1, 1995, and not later than August 15, 1995; and B. On August 14, 1995 BC Gas Utility Ltd. ("BC Gas"), filed for Commission approval its buy/sell reference price methodology and a forecast of reference price factors for the 1995/96 gas contract year; and C. The BC Gas filing did not include the results (gains or losses) of any active gas price hedging activity in the calculation of reference prices, but requested direction from the Commission with regard to this matter; and D. Actual reference price factors may differ from the forecast due to the market sensitive pricing provisions included in a significant portion of BC Gas' system baseload contracts; and E. The Commission has reviewed the filing and finds that approval is required. NOW THEREFORE the Commission orders as follows: 1. For the Lower Mainland and Inland service areas, the reference price forecast and reference price calculation methodology as set out in BC Gas' letter dated August 14, 1995, which is attached as Appendix A, are approved, subject to review with respect to the exclusion from the calculation of the results of active gas price hedging activities. 2. Interested parties are invited to comment to the Commission and provide evidence in support of their position by September 15, 1995 regarding whether or not the results of any active price hedging should be included in BC Gas' reference price calculation. 3. BC Gas is directed to calculate actual monthly demand and commodity reference price factors at 100 percent load factor using its approved methodology and to report these factors to the Commission within 20 days after the end of each month. . . ./2
2 4. For the Fort Nelson and Columbia service areas, in the event that the utility receives a written request form an interested party to do so, BC Gas is directed to file within 20 days, a reference price forecast for either area that is based on expected system baseload pricing for the 1995/96 gas contract year. DATED at the City of Vancouver, in the Province of British Columbia, this day of August 1995. BY ORDER Dr. Mark K. Jaccm"d Chairperson BCUCIOrder/BCG-RefPrice Factors B/Sell
Be Gas Inc. David M. Masuhara 1111 West Georgia Street Tel (604) 443-6607 Vice President Vancouver, British Columbia Fax (604) 443-6789 Legal & Regulatory Affairs Canada V6E 4M4 and Secretary APPENDIX A to ® Order No. G-61-95A BCGas August 14, 1995 6th Floor, 900 Howe Street Vancouver, BC V6Z 2N3 ATTENTION: R.J. Pellatt, Commission Secretary Dear Sirs/Madams: RE: Direct Purchase Reference Prices: November 1995-0ctober 1996 The Commission issued its Decision in the matter of the Review of Buy/Sell Deliveries of Natural Gas to the Core Market on July 7, 1995. Section 5.2 of the Decision directed "... that each LDC file for Commission approval, its reference price calculation methodology and a preliminary price forecast as soon as possible after August 1 and not later than August 15". BC Gas Utility Ltd. ("BC Gas") hereby provides that price forecast to the Commission. This forecast is an estimate of the average reference price over the period from November 1, 1995 through October 31, 1996. BC Gas will be filing reference prices each month given that a portion of its baseload gas costs are related to different indices. It is BC Gas' intention to file its monthly reference price on or before the 10th day of the month following the month of deliveries. This is 10 days prior to the date that BC Gas issues its gas purchase statement to the A/B/M's. It is BC Gas' expectation that once the initial methodology has been approved and the pricing formula is in place it may be unnecessary for the Commission to formally approve each monthly price.
APPENDIX A to Order No. G-61-9~A 1. Pricing Parameters The assumptions used by BC Gas in preparing its estimate of gas pricing for the reference price calculations are as follows: • fixed price 46 % (1) • NYMEX-based 31 % (1) • • NYMEX forward strip $1.78 US/MMBtu (2) • basis differential 48¢ US/MMBtu (3) • $US/Cdn exchange 73¢ US/Cdn • average WEI tolls 65¢ Cdn/Gj (4) • MMBtu/Gj conversion 1.055056 MMBtu/Gj (5) Notes: (1) estimate based on current agreements (2) the forward strip for the November 1995 (1 year) period has varied between roughly $1.72 - 1.82 US/MMBtu since mid-June (see attached chart) (3) reflects typical market values over the past few months; only used on floating basis and index-based contracts (4) based on average acid gas (Huntingdon delivery point); will change in 1996 if NEB-approved toll is adjusted (5) as utilized by Westcoast As noted earlier, BC Gas will generate a monthly reference price, beginning in December 1995 (for November deliveries), that will incorporate actuals for the various parameters that change each month. Those factors include: • NYMEX settlement prices • Sumas index prices • exchange rate conversions • WEI demand tolls • WEI commodity tolls (motor fuel tax) • WEI fuel gas ratios
APPENDIX A to Order No. G-61-95A 2. Impacts of LDC Hedging All of the assumptions listed in Section #1 do not reflect any fmancial hedging impacts on gas costs. BC Gas has not yet completed its hedging activities for the 1995196 contract year. There is considerable debate, however, on whether or not such impacts should be reflected in the LDC reference price. Although not intended to be a detailed review of the alternatives, BC Gas has summarized some of the key arguments relating to this issue. • Exclude Hedging the price paid to baseload suppliers does not reflect any hedging adjustments hedging may be instituted for gas price volatility reasons, to capture savings from previous levels of gas costs, or to avoid price shocks from rapidly increasing prices baseload suppliers should not be at risk of displacement resulting from hedging decisions by the LDC the "savings" for a customer are a function of the difference between the price paid by the LDC (on average to its suppliers) and the costs incurred by the A/B/M customers in purchasing the supply if buy1sell was replaced by "bundled T-service", then hedging impacts would be irrelevant since non-system supply could not be hedged the reference price structure could be significantly impacted part way through a contract year, potentially impairing (as opposed to improving) a customer's "savings" paying a hedge to both the NB/M and the fInancial institution would skew the hedged ratio • Include Hedging the impact of the hedging transaction is reflected in the actual gas costs (ie. the sales rate to customers reflects the hedge-inclusive costs) if prices are hedged passively (ie. through a fIxed price from the producer) that is reflected in the reference price BC Gas is not making a formal recommendation at this time on whether or not to include the hedging impacts in its reference price. However, BC Gas requests that the Commission either determine that this should be an individual LDC consideration or that the Commission issue a decision as part of its approval of the reference price.
APPENDIX A to Order No. G-61-9 3. Reference Price and Price Factors (effective November 1, 1995) Price Factor Huntingdon Savona Station #2 ($/Gj) ($/Gj) ($/Gj) Reference Price 1.682 1.600 1.496 (@100% LF) Unit Fixed Charge 0.933 0.851 0.747 ........................ ............. ··lJllit·CC>Il1l'IlC><:f.ity 0.749 0.749 Charge Westcoast Commodity 0.022 0.015 0.007 Tolls Notes: (1) Reference Price is calculated by adding the Unit Commodity Charge to the load factor adjusted Unit Fixed Charge. Prices are actually paid on the basis of the individual components; fIling assumes a 100% load factor. (2) Unit Fixed Charge is paid on the Daily Contract Quantity each day that the gas is available (whether taken or not). (3) Unit Commodity Charge is paid on each unit of gas delivered to BC Gas plus any units delivered to Transporter (ie. Westcoast) for fuel gas; excludes WEI commodity tolls (motor fuel tax). (4) Westcoast Commodity Tolls are paid on each unit of gas delivered to BC Gas only and will be based on an average heat content and raw to residue ratio. As an example calculation, BC Gas will assume a DCQ of 1,000 Gj/d delivered to Station #2 for the month of November, 1995 assuming a 100% load factor for the month (based on the table of estimated values set out above). Stations #2 Example Demand charges = DCQ x # of days x Unit Fixed Charge = 1000 x 30 x 0.747 - $22,410 Commodity charges - DCQ x # of days x Unit Commodity Charge = 1,000 x 30 x 0.749 = $22,470
APPENDIX A to Order No. G-61-95A Fuel gas - delivered quantity x fuel ratio* x Unit Commodity Charge - 30,000 x 3% x 0.749 = $674.10 * assume 3% WEI Commodity = delivered quantity x WEI Tolls Tolls = 30,000 x 0.007 = $210 Total payments = demand charges + commodity charges + fuel gas + commodity tolls = 22,410 + 22,470 + 674.10 + 210 = $45,764.10 (excluding GST) This filing is made pursuant to section 5.2 of the Decision and is designed to provide a reasonable forecast of BC Gas' average reference price for the 1995/96 contract year beginning November 1, 1995. Individual monthly reference prices will be filed during the year on or before the 10th day of the month following the month of deliveries. Any questions related to this filing should be directed to Mr. Hank Petranik, Manager-Gas Purchasing at (604) 443-6975.
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