We're paying less for gas than what it actually costs

THE BATTLE between what Pacific Northern Gas (PNG) charges Methanex to ship natural gas to its Kitimat methanol plant has moved

- beyond a business disagreement.

{It now involves a public policy set years ago which encouraged residential and other smail users of energy to hock up to natural gas.

‘And it could be yet more bac news for na- tural. gas users already facing higher heating bills this winter because of soaring prices for the fuel.

Methanex closed its methanol plant in July for at least a year, saying a re-opening is con- tingent upon lower costs.

Among other items, Methanex wants PNG to cut what it charges to move natural gas through its pipeline.

This has implications for other natural gas users because PNG will want more from them

‘to make up for what it loses from Methanex _

whichis by far its largest customer and pro- vides 40 per cent of its income.

That's lead to suggestions Methanex will then be subsidized by the other users. ~ But in reality Methanex is already paying PNG more than what it costs to ship gas to ils methanol plant.

And the excess is being used to subsidize the cost of providing gas to residential and small business usets.

The situation dates back years when PNG’s pipeline was first built through the northwest, says William Grant of the B.C. Utilities Com- mission (BCUC) which regulates PNG’s trans- mission rates.

' At that time it was envisioned as a pipeline mainly for large industrial users such as Me- thanex and Skeena Cellulose’s Prince Rupert pulp mill.

But there was also a realization that natural gas would benefit residential and small busi- ness users of energy, said Grant.

So a rate structure was developed to ad- dress a number of circumstances.

The large industrial rate was designed to be

The price to deliver gas for resi- dential and other small users was set lower than its true cost to en- courage them to switch from oil, electricity and wood heat.

_ less expensive than other sources of energy

such as oil and electricity in order to attract them to natural gas.

At the same time, rates for residential and other smaller users were developed. These were also structured to be less than the cost of other energy sources but they were also less than the true cost of delivering the gas.

“If we charged the full rate in the early days, it would have been too much money to attract customers to the pipeline,” said Grant.

One reason was to encourage residential and other small users to switch from oil, elec- tricity or wood to cleaner natural gas.

“Essentially residential customers became subsidized,” said Grant of the rate structure.

At the same time, the additional revenue from residentia! and other customers, even though it was less than the true cost, helped overall pipeline costs borne by large users, he said.

“By subsidizing, it also reduced reduce their own costs by using ideal capacity in the pipeline,” said Grant.

Right now, residential and other smatl users pay only approximately 75 per cent of the true cost of providing natural gas.

Over time the idea was to slowly equalize the delivery rates so that these users paid their full share, said Grant.

“We had begun to move in that direction

"except that in the past two years, we've been pre-empted by the rise in the commodity cost ‘- of natural gas,” he said.

That now means the BCUC has pretty much hit a brick wall because of that rate policy set years ago.

Consumers are already facing massive in-

creases in their heating bills because the price of gas itself has been soaring.

Should the BCUC continue with its delivery rate equalization plan, the overall cost of na- tural gas could very weil rise beyond that of other sources.

This could then encourage people to switch from nalural gas to those other sources,

And it will become an issue of simple af- fordability for people who have no access to other heating means. ,

“En this situation, we’re pretty much be- tween a rock and a hard place,” said Grant.

The added problem in al! of this is Metha-

nex’s demand for a lower transmission price . from PNG to fit ils own set of economic cir- '

cumstances, he said. That new rate would be lower than what

Methanex would be paying even if the gas de- - ©

livery rates were equalized so everybody would be paying their own fair share.

“Methanex is so large a customer [of PNG] that the rate it is asking for would have a large impact on all the other users of the system,” said Grant.

“They would be subsidizing Methanex at that point in time.”

All of this will come down to BCUC hear- ings this fall. It will be asked to decide be- tween the merits of rate applications being submitted by PNG and Methanex.

“I’ve been in this business for nearly 25 years and in this case 1 can tell you it will be the most complicated and interesting set of hearings in those 25 years,” said Grant.

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