The Ontario Energy Board (OEB) is initiating this proceeding on its own motion to consider the price paid by rate-regulated natural gas distributors (Distributors) for natural gas produced in Ontario. The price that Distributors currently pay Ontario producers for natural gas is ultimately passed on to their system gas customers through the OEB’s Quarterly Rate Adjustment Mechanism (QRAM) rate process.
Distributors procure natural gas on behalf of their system gas customers, largely on the open market from a variety of producers located outside of Ontario but also from producers that are located within Ontario. Most Ontario natural gas producers sell their gas directly to Distributors through gas purchase agreements. Under these agreements, Ontario’s largest distributor (Enbridge Gas Inc.) currently pays Ontario natural gas producers a forward Dawn Index price for natural gas. In the OEB’s recent consultation on Enbridge Gas’s gas supply plan (EB-2019-0137), the Ontario Petroleum Institute (OPI) argued that Enbridge Gas should instead be paying the Total Gas Supply Commodity Charge (TGSCC) in the Union South rate zone for gas produced in Ontario. The TGSCC is usually (though not always) a higher price than the forward Dawn Index price.
The OEB does not allow Distributors to earn a profit on the sale of natural gas to their system gas customers. Rather, Distributors must “pass through” the price they pay to buy natural gas to their system gas customers with no markup. The OEB does not currently directly fix or approve the price that Distributors pay for natural gas; however, through the QRAM the OEB does assess the reasonableness of Distributors’ gas supply costs when they seek to pass these costs on to their system gas customers. Any changes in the price paid by Distributors for natural gas, whether sourced within or outside of Ontario, can therefore affect the bills paid by their system gas customers.
This proceeding will focus solely on a consideration of the price for natural gas produced in Ontario, and will not consider the price for other sources of natural gas.
The OEB has prepared a draft issues list that identifies options as potential alternatives to the status quo, on which parties will be invited to comment in the early stages of the proceeding:
- Is it appropriate for the OEB to fix or approve price(s) (or pricing formula(s)) that a Distributor will be required to charge their system gas customers specifically for natural gas produced in Ontario and, if so, what should the price(s) (or pricing formula(s)) be?
- Alternately, is it appropriate for the OEB to provide direction on the principles it will consider when assessing whether the costs of natural gas produced in Ontario that a Distributor proposes to pass on to system gas customers through the QRAM are reasonable? If so, what should those principles and related filing requirements be?