Questions about Transportation Service

 

What is a marketer?

Gas marketers (sometimes called brokers) are independent suppliers who purchase and supply the commodity portion of your gas energy. Instead of buying the commodity from the utility, you can purchase it directly from the marketer. The commodity is the actual product (natural gas) that is consumed. You will still use the utility company for the delivery or transportation of the commodity. At today’s rates, the commodity portion is approximately 50% to 75% of your overall gas costs.

How secure is the marketer’s gas supply?

In the unlikely event of a marketer going out of business, the utility company will make every effort to provide you with natural gas, however the utility has no legal obligation to do so, and any such gas purchases may be at a different price than you have been receiving from your marketer. Are marketers regulated? There is no code in place for marketers, only buy sell brokers who sell to residential and very small commercial users.

What is transportation service?

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Questions about Switching to Cascadia

 

Can marketers change their gas costs like the utility does?

The monopoly utility company must receive approval from the BCUC before any price changes become effective. Your marketer will charge prices as dictated by the contract between you and the marketer. The utility company is obligated to charge all customers in a given rate category at the same price level. The rates and charges levied by the marketer are not regulated, and are as spelled out in your contract with them, and could be different from other customers. As mentioned above, the marketer may charge a fixed or a variable rate, or a combination of the fixed and variable rates for the gas.

If I sign with a marketer, why do I need a contract with the utility?

Once you have signed a contract with the marketer, you also need to sign a contract with the utility company to advise that they will not need to purchase gas for you. There are minimum lengths of time that the contract must run, and specific dates when you can come back to the utility, should you wish to do so. This enables us to arrange for supply gas purchases for you, and to ensure continuity of supply. Copies of the terms and conditions are available through the utility company or on our website.

If I sign with a marketer will I get two gas bills?

Yes, you will continue to get a bill from the utility for delivery, basic monthly charges, and demand volumes (Rate 25) from the utility. The marketer will bill you separately for the commodity. One thing to bear in mind is that there will no longer be any provincial tax assessed on the bills from the utility company(for those who do not have provincial tax exemption), when purchasing gas through a marketer, increasing your savings.

Why do I need a phone line connected to my gas meter?

Once you have signed your contracts with a marketer and BC Gas, you will need to install an analogue telephone line to your gas meter. The utility company will install a device called an AMR (Automatic Meter Reader) on the gas meter, and hook up to the telephone line. This device will record the daily consumption, and download the data through the telephone line. The download is done in the evenings or at night, and you will not even be aware of the phone connection. It is only a download system, and cannot interfere with any other telephone transactions or computer systems. The utility company requires the daily consumption, in order to tally overall daily consumption data to determine if the marketer has delivered the correct supply volumes for their customers.

I’ve signed with the marketer, now what can I expect?

Once you have signed with the marketer, you should notify the utility that you have elected to purchase your gas from them. The utility company representative will provide you with a form that outlines information such as the company details, signing authority, selected rates, and confirmation that you are wish to change rates. This form should be sent directly from you, and should be faxed or e-mailed to us for expediency.
The utility company will prepare contracts for you to sign. Once you have signed the contracts, and returned them, the next step is to install the telephone line. Detailed requirements of the telephone line are submitted with the contract documents.
Once the contract is returned, and you advise that the phone line is installed, The utility company will advise applicable billing departments that you are no longer buying your commodity from the utility, effective the first day of the following month (or later if indicated on the contract).
The utility company will install the AMR and whatever meter upgrades are required, and program it to download the data to our central computer. This may not be done immediately, especially at the start of a new contract year, however that will not delay the start of your new contract.
The meter will be manually read on the last day of the existing rate, and all charges up to that date will be charged the same as you are currently being billed.

 

Questions about Pricing & Markets

 

What is “locking in” or hedging ?

Users of a commodity, such as natural gas, have several reasons for wanting to “lock in” or “fix” the price of that commodity. Obviously end users are not speculators, those who purchase an interest in a commodity in anticipation of a price change from which they can profit. End users buy a commodity as the raw material for, or input into, their primary business, from which they expect to derive a profit.

It should be noted that fixing the price of a commodity is normally carried out as a separate process from acquiring the physical supply of that commodity, although both can sometimes be done at once. Acquiring physical supply, in terms of the BC based natural gas market, should be seen as a separate activity. It involves numerous parameters, such as pipeline space and interconnecting utility arrangements, which make it unwieldy to react to the rapid price volatility of the commodity. Locking in, as referred to herein, means the trade of a variable price for a fixed price, with the underlying assumption that the customer will or has arranged a physical gas purchase at the variable price arrangement being traded.

Why lock in?

The single best reason to fix a price is to secure or lock in a profit, or conversely to minimize losses. Secondly, budget certainty is paramount for some customers. Finally, when prices are trading at long term historic lows, it is prudent, though still slightly speculative, to lock in such pricing. Overall, any or all of these reasons are variations on the same theme: managing risk. To lock in the price is to manage the risks associated with the price changing over time.

It is important to consider that fixing the price for any commodity, i.e. lumber, gas oil, etc., is an exercise in reducing financial risk. It is similar to buying insurance. If prices change unfavourably, the hedge protects you. If prices change favourably, it is tempting to consider this a loss, but similar to buying fire insurance and having your house not burn down, the lost opportunity is the cost of risk protection. To not fix the price is to speculate that the price will change favourably or continue to be favourable to you. Locking in is not speculation. It is, in fact, exactly the opposite.

What makes now a “good” time to lock in?

In a single word, uncertainty. Uncertainty that prices will continue to be low, or even below your particular budget constraint. Each company has it’s own risk profile and should lock in to match that appetite for risk.

What lock in strategies can I use?

Generally, customers should look at an implementation strategy for executing the fixed price using the following criteria;

• First, to meet budget or price targets

• Second, timing the market at a historical low point. In the past, a reasonable strategy was to lock in if prices reached what had been historically low prices.

• Third, blind hedging within a specified time window. This assumes that “averaging “ the costs of buying gas over a longer period will smooth out price anomalies.

Natural Gas is a commodity in the market

Natural gas is currently ranked as the second most volatile commodity traded, second only to electricity. Expectations are that this highly volatile environment will persist for the foreseeable future.

What is the Alberta Market

Pricing generally driven by the Nymex futures contract, but also by events and demand driven by the mid-west and east coast. The Alberta market is approximately four times the size of the Sumas market. It is referred to as “AECO”.

What is “Station 2” ?

Station 2 in the trading point located at the physical intersection of many of the gas outputs from northern BC gas wells and processing plants. It is the point where gas either travels south down the Spectra Energy mainline, or east into Alberta and into the Alliance pipeline. Historically, physical gas at Stn 2 has traded at a slight discount or premium to the AECO monthly index. In addition, Stn 2 prices will respond to increases in the Sumas index. This effectively means Stn 2 pricing, as with AECO, will be driven by the Nymex futures contract for the upcoming gas year.

General US Markets

The Nymex futures contract provides price leadership for all US markets. Unusually cold or hot temperatures lead to increased demand for natural gas. Whether natural gas is used for home heating or generating electricity for air conditioning, when demand outpaces supply, prices rise.

Buying on the open market

Natural gas is deregulated and traded on the open market, much like oil or gold. Free trade has created a North American market for natural gas and a continental network of pipelines allows gas producers to sell their product where demand is greatest.

Companies like Cascadia Energy don’t produce natural gas; we have to compete on the open market to purchase gas for customers here in British Columbia, and the price we pay for natural gas is the price customers pay – there is no markup on the cost of gas.
We manage our gas supply with the aim of reducing the effect of market volatility on our customers.
We try to buy gas at the lowest possible price by purchasing gas from a variety of sources in B.C. and Alberta. When possible, we try to lock in the price of gas through the use of contracts.
We also put gas in storage during times of low demand for use at a later date. This storage buffer allows us to bridge the gap between supply and demand, helping cushion our customers from the fluctuations of the daily spot price charged for natural gas.

What is the effect of economic conditions and world events?

During periods of economic growth, demand for energy rises to keep assembly lines moving and plants operating. When we experience economic slowdowns, demand decreases. But there’s another factor at play here: industrial energy consumers can often switch between oil and natural gas. War such as the one with Iraq or the disruption of Venezuelan oil production can affect oil prices. Since natural gas can often be used instead of crude oil, a rise in oil prices often means natural gas prices also rise.

How does exploration and production affect pricing?

The amount of gas being produced, the cost of finding and producing that gas, and the costs associated with bringing it to market also affect the price. High prices tend to encourage exploration and production of natural gas, resulting in additional supply coming on market. Over time, increases in supply will catch up to demand and lead to a drop in prices.

Why do the marketer and the utility company costs differ?

Marketers can usually offer lower commodity costs than the BC Gas. There may be a number of reasons why this can occur. Generally utility company commodity pricing is slower to react than marketers to market commodity pricing, due in part to the approval processes, so the marketer may be able to supply cheaper. The utility company currently reviews its commodity charges every three months. In addition, gas supplies purchased from the utility company are subject to “riders” to recover any under or overcharges when the prices charged customers are different from the cost of those supplies. Also, the marketer may be able to provide you with a fixed gas price for longer terms than BC Gas, or they may be able to supply a combination of fixed and variable pricing. It is somewhat like choosing a mortgage rate and terms, which should suit your comfort and affordability level.

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