Local administrators discovered outdated rates in its pricing formula for natural gas and have adjusted May's price down from $8.55/GJ.--NEWS FILE PHOTO
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The floating rate for natural gas in Medicine Hat sank lower on Thursday in an unusual step after local administrators discovered their pricing formula included outdated rates.
It also shines a spotlight on local rate-setting, which became a hot topic of debate last winter as bills rose steeply.
The local gas price for April was initially set at $8.55 per gigajoule, almost double April’s rate and the highest since at least 2014, on Monday, but that was reduced to $6.44 on Thursday.
That’s still almost $2 higher than the price in April, as well as the fixed rate offered by the city, but results following two major gas distributors losing money on forecasts last month.
They can apply to recover losses when they buy and resell gas from the market at a lower price, or have regulators reduce costs to consumers when the situation is reversed.
In late April, Direct Energy and Apex utilities submitted rates that would recover a combined almost $9-million price difference as gas prices rose, but then re-applied later to spread that difference over several months, essentially lowering the price, but extending the time frame.
“It’s never really happened before,” said Travis Tuchscherer, the city’s superintendent of power business services, of companies re-applying for a rate adjustments, also called a “true-up.”
Medicine Hat officials used the first set of figures, then adjusted several days later with the new rates.
Medicine Hat most likely lost money on gas buying in the month as well, though administrators declined comment Thursday.
“We’re also benefiting from the price of our own gas production,” said Brad Maynes, head of the utilities and infrastructure division.
“It makes up part of our residential supply, but when you see that discrepancy between the fixed rate and commodity price, there is a cost to the city. Historically it tends to even out, but we haven’t seen this wide a discrepancy before.”
High utility costs rankled local customers this winter, and led to a debate over how the city-run power and gas distribution companies set rates and a host of fees.
Council’s utility committee is now awaiting a report on rate and fee setting, which will be done in a year and could include options to overhaul the 10-year-old system.
Committee chair, Coun. Alison Van Dyke, said this week she wants that review, now being conducted, to “be very broad.”
“We’ve asked administration whether the current rate-setting design is the best thing for the citizens of Medicine Hat,” she said. “We may look at it and decide it is in the best interest, but we’re looking at it top down.”
Since 2012, the city has based its default rate based at the average of rates offered by major distributors in the province.
That doesn’t allow the city to adjust prices to reflect its own gas costs month by month, but since Direct and Apex do use true-ups in their rate setting, the effect flows through to local customers not on fixed rates.
Maynes told Thursday’s committee meeting forecasts are for natural gas prices across North America to remain higher than expected for the next 12-18 months due to global instability and increased U.S. exports to Europe.
In April, the Medicine Hat price of was $4.54 per gigajoule based on forecasts done by Apex and Direct, but the AECO price for gas deliveries rose above $6 on April 6 and stayed there for the duration of the month.
That results is about one-fifth the price difference attached to final May rates. Since less gas is sold in warmer months the price difference per gigajoule may be exaggerated to collect the required amount.
Final default prices offered by Direct and Apex were $6.40 and $6.48, respectively, for May.
