News & Updates

November Volatility

Nov 20, 2018

Expect High Volatility All Winter Long

Since the start of November, the natural gas futures index on the NYMEX has shown incredible volatility. Now up 60% YTD, the natural gas futures are having a rocky relationship with weather forecasts across North America.

The root cause behind these massive price swings up and down appears to be the looming shadow of a possible natural gas shortage this winter. On Thursday last week, the EIA released its weekly storage report, showing a net injection of 39 Bcf, which was higher than the estimated injection rate of 31Bcf. The report sent natural gas futures prices tumbling down from $4.70/MMBtu to around $4.00/MMBtu for just 2 days, before a cold weather forecast sent prices spiking back up to the previous levels. These pricing swings show the great tug-of-war currently underway in the market. One side points to record production levels for reasons why the price of natural gas is artificially inflated. The other side points to the terrifyingly low storage levels, sitting at 15 year lows for this time of the year. Those storage levels are made even more concerning going into the winter of a year that has seen highly unpredictable weather patterns.

 

 

Both sides of the debate will be using weather reports and storage reports to pull the prices in either direction on a daily basis all winter long. This makes it very difficult for anyone to determine where the market will end up when the warmer weather comes in. A mild winter will see prices dip back down toward the $3.80/MMBtu range, while a colder winter that draws much of the available storage could spike spot prices as high as $8/MMBtu, as seen in the winter of 2014, when the polar vortex drained natural gas storage to record lows.

 

Businesses that are on system supply with their local utility are not in the clear, either. While the utilities in Ontario only update their prices every quarter, they will be playing catch-up in early 2019 after they supply natural gas for a loss over the next few months, having locked in their prices in October. As always, they will incorporate the Gas Cost Adjustment to tweak their past prices, and cover their costs. In addition, we are forecasting that they will adjust their prices much higher in the New Year, as storage levels rebuild from extremely low levels, as seen following the winter of 2014. In 2014, Union Gas bumped their prices from 12.3 ¢/m3 of gas, up to 22.5 ¢/m3, with prices not recovering back to pre-2014 levels until April 2015.

 

Would you like to know what our market outlook is, and how we have prepared our client base for what we think will be an expensive winter? Are you on system supply with your local utility and want to know how to avoid a 2019 full of expensive gas? Send us an email at sales@ces-energy.com and we can start a conversation about how to best manage your natural gas portfolio for the upcoming year.

 

Sources: US EIA   Natural Gas Intel 1 2

Federal Carbon Tax Plan

Oct 26, 2018

The federal government has released its official plan for the carbon tax that is to be implemented beginning January 2019. This tax plan will be released to provinces that opt to use it over a provincial carbon tax, as well as those provinces that don’t have a carbon pricing plan.

 

As supporters and critics emerge to discuss the changes and implications of this national carbon tax, many businesses are wondering how to forecast how this pricing scheme will affect their 2019 budget. This article will help to clear the haze surrounding the costs that Canadian businesses should be expecting to pay.

 

Individuals will be taxed in this new plan primarily through an increase at the pump and rising natural gas prices: fuel in Ontario is forecasted to increase by 4.4 cents per litre in 2019, with natural gas rising 3.9 centres per cubic meter. The federal government, however, has indicated that individuals will actually gain more money than they spend in the form of an annual rebate. In Ontario, the average household (at 2.6 people) will pay $244, but be compensated $300 in 2019. Where is this extra money magically coming from? The excess will be paid by Canadian businesses.

 

The calculation for figuring out how much a business will be required to pay to this carbon tax is split in two. If your business creates over 50,000 tonnes of CO2 equivalent per year in emissions, then you will be billed on the Output-Based Pricing System (OBPS). This system also offers an optional opt-in for companies creating over 10,000 tonnes of CO2 eq per year, beginning in 2020. If your business is under this threshold, as all but 174 businesses in the 4 provinces that will have the federal plan imposed on them, you will be charged on a per-use basis of electricity, natural gas, and fuel CO2 equivalent emission amounts. Unlike individuals, however, businesses will not be receiving rebates to cover the increased costs.

 

Want to figure out what this carbon tax will cost your business, and how to budget accordingly? Canadian Energy Strategies has in-house energy experts, ready to assist you and your company with forecasting carbon tax related price increases, as well as strategies that you can implement in order to reduce your related costs. Email me today at lclimenhage@ces-energy.com.  

 

 

Articles and Websites Referenced:

Government of Canada 1  2

National Post

Repeal of the Green Energy Act

Oct 2, 2018

Ontario’s Government has introduced legislation to repeal the Green Energy Act. This initiative is in line with other actions it has taken to try and reign in electricity prices in Ontario. While this will not directly impact many businesses, it may have indirect implications. For businesses that currently participate in the Feed-In-Tariff (FIT) or were looking to participate, those incentives and contracts will be coming under increased scrutiny, with the Government already acting to cancel new energy projects under the Green Energy Act and FIT. For the average business in Ontario, this decision is promoted as necessary to ultimately achieve the Government’s goal of a 12 per cent reduction in hydro rates. Within the last few years the Government has committed to several long-term contracts for large scale energy projects including nuclear power.  The large scale power projects will contribute to the slow and steady increase of hydro rates.  Therefore, it is unclear as of yet how much this legislation will change current hydro rates as many contracts have 20-year terms, however by stopping future contracts the hydro rates may have been effectively frozen. 

Our outlook is that hydro rates will remain relatively flat for the short-term as the Government looks to reduce costs. We remain cautious about rates decreasing, as contracts that are already in place will likely remain and keep rates where they are today. Currently we are seeing slightly lower Global Adjustment (GA) rates compared to last year, however they are well within average GA rates for the past few years.

For more information on Ontario's hydro policy and our hydro management strategy you can reach us here.

 

Sources: Ontario Newsroom

Ontario Cap & Trade

Sep 12, 2018

Next month, Ontarians will see a change on their utility bills: no more Cap & Trade. The 3.3 ¢/m3 fee that has been applied to utility bills since January 2018 will be removed as of October 1st. The removal of the Cap & Trade program is good news for Canadian businesses. A medium sized company, using 1 million cubic meters a year of natural gas, will see a $33,000 decrease on their yearly costs.

The Auditor General, after conducting an audit of the program, indicated that the cap-and-trade system would have cost Ontario consumers and businesses $8 billion. She went on to say that the carbon pricing program would likely show reductions in emissions by the province of only 3% by 2020. This compared to the emissions reduction target of 15% below 1990 levels that has been set for 2 years from now.

The Federal government has indicated that if the province does not have its own carbon tax in place by September 1st, a date that has now passed by, it will implement its own carbon tax of $20/tonne CO2, effective January 1st, 2019. Premier Ford has indicated that he will fight Ottawa in court over the federally implemented tax. Manitoba, a province hoping to go the same route, has been told by independent legal counsel that the Supreme Court would likely side with the Feds on the ruling.

So what does this mean for Ontario businesses come 2019? Will a mandatory federal carbon tax be implemented, or will it have to pass through the court system first? For more information regarding how the ending of the Cap & Trade program will affect your business, please feel free to contact us.

 

Articles referenced in this post:

Ontario Newsroom 1 2  Global News CBC

The End of the Debt Retirement Charge

Mar 21, 2018

  The Debt Retirement Charge (DRC) on business and industrial hydro bills in Ontario will be ending after 16 long years. This charge came into effect in 2002 to combat stranded debt from the 1999 breakup of Ontario Hydro and is a flat rate of 0.70 cents/kWh. While there are several ways that the stranded debt is being paid down, electricity consumers have paid over 13 billion dollars as of 2016 through the DRC. The Ontario Government has committed to reduce electricity costs, and as part of that promise has decided to remove the DRC from hydro bills effective April 1st, 2018. While this is good news for consumers in the short-term, as their hydro bills will decrease, the future of electricity rates is still unclear. With the Government's intervention to cut and fix hydro rates, we will see debt continue to increase. While this new debt is not ‘stranded’, it will still need to be paid back at some point in the future.

 

Sources: Ministry of Finance & Ontario Electricity Financial Corporation

Ontario’s Push for Electric Vehicles Continues with More Incentives

Feb 9, 2018

   Ontario has been planning for an explosion in electric vehicle (EV) sales, that has been slow to materialize, so they are adding fuel to the fire.  The Government has been rolling out incentive programs over the past few years to try and increase (EV) adoption.  Existing programs included funding for the purchase of an EV and the purchasing and installing of a charging station in residential homes.  These incentives have been popular, but they have not been enough to see widespread adoption.  Many concerns still exist such as range anxiety, long charging times, and a wait and see approach to the new technology.

In order to promote Ontario as a green economy, and further the Government's climate action goals, they are revealing more funding for EVs.  This time targeted at businesses.  On top of existing incentives to buy electric vehicles, the Government has announced funding for charging station in workplaces. Depending on the number of employees, workplaces will be eligible for 2 or more charging stations. This incentive comes just after the Government announced changes to the Ontario Building Code that require some future developments to include electric vehicle charging stations, including residential and commercial provisions.  Lastly the government is rolling out funding for the purchase of electric semi trucks, which was announced coincidentally with Tesla's release of their electric semi.

All of these incentives are available to residents and businesses looking to take the leap and purchase an EV.