Kitchener councillors approved a new natural gas pricing policy this week that sets prices more in line with market rates.

Kitchener Utilities, owned by the city, currently uses a blended system to buy natural gas, buying fixed-price gas on contract for up to five years and buying market or variable-rate gas when warranted. Its rates are set once a year.

The city argued its blended method gave customers more price stability while minimizing risk.

But councillors asked for a review of the policy after a public outcry arose in the wake of a Record comparison of customer costs between Kitchener Utilities and Union Gas, a private operator serving Waterloo and Cambridge that charges market prices. The comparison revealed the average Kitchener utility customer paid about $1,150 more in gas supply costs over the past five years.

Kitchener Utilities' new gas pricing policy, which takes effect in July, is a "market responsive" approach that strikes a balance, said Coun. Dan Glenn-Graham, who moved the recommendation to change the policy.

The new policy shortens the term for fixed-price gas contracts from up to five years to three. As well, it increases the proportion of market-price gas the utility buys.

The new policy will likely produce prices for its customers that are closer to market rates, while still providing some price stability. City staff warned councillors, though, that a more market-responsive policy will mean customers are less protected from market shocks.

Customers should see lower prices than under the previous policy when market prices are down, since the utility will be less locked-in to a long-term price. But customers will also likely pay a higher price than market when prices are on the way up.

The gas price will be set yearly, as it is now, said deputy chief administrative officer Pauline Houston, "but the change from one year to the next may be a larger swing than it has been in the past."

That swing could be either up or down. If the market continues to be as volatile as it has been in the past several years, rates could rise or drop by as much as 20 per cent a year.

The policy will take effect once it's approved by council, likely next week, but customers won't see much change until 2015, Houston said, since the utility already locked in much of its gas purchases for next year under the old policy.

City staff argued that customers still wanted to have some stability, based on the findings of a survey that found a majority of residents said they preferred stable rates. Customers weren't asked, however, if they were willing to pay a premium for that stability.

Staff will review the new policy every one to three years.

^{Source: Thompson, Catherine. "Kitchener Gas Pricing Policy Strikes Balance between Stability, Market Prices." The Record. The Record, 11 June 2014. Web. 20 June 2014. <http://www.therecord.com/news-story/4570046-kitchener-gas-pricing-policy-strikes-balance-between-stability-market-prices/>}