News & Updates

Benefits of a Deregulated Market

Dec 4, 2012

Deregulation - what does it mean?

For many years the gas industry was heavily regulated -- there were many rules about who could buy and sell natural gas. Since 1985 many of those restrictions have been removed. For example, prior to 1985, an Ontario customer could only buy natural gas from one source -- the natural gas utility that served their area. Today, through a process called direct purchase, customers have many more buying options. That means an industrial, commercial or residential customer can buy gas from a marketer, a producer or their local utility, like Union Gas. Whoever they buy it from, the local utility still delivers the gas to the customer.

How can I buy natural gas?

Today, you can buy your natural gas from your local gas utility or you can choose to buy it from a retail energy marketer or broker. When you buy from the local utility, you are receiving a *Consumption* Based billing program. Whereby you pay for what you burn every month at the Utilities quarterly (lagged) fixed price rate. When you purchase through a direct purchase marketer/broker, be sure to know what your term and rate are. Each Direct Purchase Natural Gas provider will have differing terms with varying rates. The most common among these are 3-5 year fixed rates. Other Marketers may have monthly float options as opposed to only yearly fixed rates.

Deregulating the natural gas market

Choosing your natural gas supplier is a big part of deregulating the natural gas market -- but it's not the only part. There are also rules about moving gas between provinces as well as rules for moving gas in and through local townships and communities. Here's a quick look at natural gas markets - then & now.

Then -- the regulated market

Delivering natural gas to communities is very expensive. To encourage the growth and use of natural gas, the Ontario Government granted supply monopolies to natural gas utilities. This helped consumers avoid paying for the additional costs of competing and overlapping gas delivery systems. However, in the place of price competition from other competitors, the government insisted that natural gas prices be regulated and protected. So the Ontario Energy Board (OEB) reviews the prices that gas utilities charge for their delivery services.

The Utility earns its profit from the rates charged for delivering natural gas. These rates and earnings are reviewed by the Ontario Energy Board. We cannot change either the price of the natural gas or its delivery price without first getting approval from the Ontario Energy Board. 

Now -- a less regulated market

Today's market is not completely regulated. Gas utilities continue to hold a franchise that allows them to deliver natural gas to an area without competition (if we didn't, there would be no incentive for gas utilities to expand into communities that are not currently served). The OEB continues to monitor and approve all our delivery costs and the gas prices of its regulated utilities.

 

OEB'S ROLES IN NATURAL GAS RATES

Mandate

The Ontario Energy Board oversees the province's electricity and natural gas sectors through effective, fair and transparent regulation and in accordance with the objectives set out in the governing statutory framework.

Mission      

To promote a viable, sustainable and efficient energy sector that serves the public interest and assists consumers to obtain reliable energy services at reasonable cost.

 Natural Gas

The Ontario Energy Board Act, 1998 sets out guiding objectives for the Board:

  • To facilitate competition in the sale of gas to users.
  • To protect the interests of consumers with respect to prices and the reliability and quality of gas service.
  • To facilitate rational expansion of transmission and distribution systems.
  • To facilitate rational development and safe operation of gas storage.
  • To promote energy conservation and energy efficiency in accordance with the policies of the Government of Ontario, including having regard to the consumer’s economic circumstances.
  • To facilitate the maintenance of a financially viable gas industry for the transmission, distribution and storage of gas.
  • To promote communication within the gas industry and the education of consumers.

In the natural gas sector, the Board regulates Ontario's natural gas utilities which are required to submit the rates they propose to charge their customers to the Board for review and approval.

The OEB licenses all marketers who sell natural gas to residential and small commercial consumers.

The Board is required to determine if the construction of a natural gas pipeline is in the public interest by considering need, safety, economic feasibility, community benefits, security of supply and environmental impacts. Each municipality may grant a gas utility the right to deliver gas service and use road allowances or utility easements within its borders. The specific terms and conditions of these franchise agreements between the municipality and the utility are subject to Board approval.

As well, the Board approves geological formations that are suitable to store natural gas and determines the compensation payable to landowners when storage pools are situated on their property, if the parties cannot come to an agreement among themselves.

Board approval is also required before a natural gas utility can sell its distribution system or amalgamate with another distributor.

The Board does not regulate competitive services. In the gas sector these include the sale of gas (commodity), water heater rentals and repair or maintenance services. These products and services are competitive services and can be obtained from various companies.

Natural Gas Rate Updates

Natural gas utilities apply for a quarterly rate adjustment to reflect the difference between the forecasted price for natural gas in the next 12 months and how much it actually costs. This is where the previously mentioned “lagged” quarterly price occurs. As during those 3 months the price on the open market fluctuates, thereby making the utility rate lagged in regards to the actual market rate. In Ontario, utilities pass the cost to purchase the gas on to consumers, with no markup. However, if a drastic price escalation occurs during rate adjustments, the OEB can approve a retro-active billing, whereby the utility is granted permission to re-bill every customer for the difference in price during that rate period on the customer’s consumptions during that quarter.

These quarterly adjustments reduce the risk of large, one-time payments (retro-active bills) or rebates.

Supply disruptions caused by unforeseen events, such as severe or abnormal weather can impact the market price of natural gas.

Rate adjustments are  implemented January 1, April 1, July 1 and October 1, after the Board reviews the utility’s application.

Is your gas supplier following fair business practices? Find out on the following website. Canadian Energy Strategies, inc, has always taken extreme caution in working to maintain fair business practices:

http://www.ontarioenergyboard.ca/OEB/Industry/Rules+and+Requirements/Compliance+and+Enforcement/Enforcement+Proceedings