Brian Zinchuk is editor and owner of Pipeline Online
Provincial Crown corporation SaskEnergy provided a submission to the Saskatchewan Economic Impact Assessment Tribunal, which was tasked with looking into the proposed federal Clean Electricity Regulations. This is SaskEnergy’s submission, verbatim:
Thank you for providing SaskEnergy the opportunity to submit our assessment of the impact of the Clean Electricity Regulations on our business, including the impact of a potential 107 per cent increase in electricity rates by 2035.
SaskEnergy is a provincial Crown corporation with the exclusive legislated franchise to transport and distribute natural gas within Saskatchewan. SaskEnergy operates the natural gas distribution utility and separately the transmission utility under subsidiary corporation TransGas Limited (TransGas). Our system includes approximately 72,000 kilometres of distribution lines and 15,000 kilometres of transmission lines spanning across the province. We serve 93 per cent of Saskatchewan communities and more than 400,000 customers with employees working in more than fifty locations across the province.
In setting service rates, SaskEnergy and its subsidiaries follow a cost-of-service methodology. With a large service area and geographic footprint, SaskEnergy relies on affordable and reliable electricity to our sites, buildings and equipment to maintain competitive rates while providing safe and reliable natural gas service to our customers.
Electricity costs are a significant component of our operating expenses. Forecasting a 107 per cent increase in electricity rates would result in an operating cost increase of nearly $3.4 million per year for the transmission utility TransGas. Cost increases of this magnitude by 2035 would require transportation rate increases of approximately 1.2 per cent to fully recover the additional costs. TransGas’ customers include SaskEnergy’s distribution utility, as well as large volume industrial customers, including SaskPower. Given the wide variation among customer sizes, providing the average annual dollar impact per customer of the 1.2 per cent rate increase is not practical in this context.
We would also expect additional costs to be passed on to TransGas from other service providers responding to the electricity cost increase. These costs are not considered in the above estimate, though would increase rate pressure for transmission customers.
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For SaskEnergy’s distribution utility, the estimate is an increase of $1.2 million from higher electricity costs as well as an estimated increase of over $0.8 million as a result of the higher costs passed on from the transmission utility. The incremental rate pressure is estimated at approximately 0.6 per cent by 2035. The majority of the distribution utility’s customers are residential users across the province. For these customers, a 0.6 per cent delivery rate increase would equate to an additional $5 per year in costs.
While the increased electricity costs impact operating expenses for SaskEnergy’s transmission and distribution utilities, there is a potential for a significant impact to the organization’s revenue because of the Clean Electricity Regulations.
At present, SaskPower indicates that 40 per cent of its generating capacity is derived from natural gas. This natural gas usage provides SaskEnergy with nearly 20 per cent of its transmission and storage revenue annually. With the Clean Electricity Regulations placing significant restrictions on using natural gas for electricity generation, it is reasonable to anticipate a significant impact to SaskEnergy’s transmission and storage revenue.
The total impact is not presently known as the pathways chosen by the electricity generators in the province is still being assessed, however imagining a scenario where natural gas could no longer be utilized for any electricity generation would result in lost revenue and a significant impairment in the value of TransGas’ system assets. The inability to recover the cost of those stranded assets would result in a significant financial impairment to SaskEnergy’s transmission system assets currently valued at $1.5 billion.
The significant loss in revenue combined with the increase in operating expenses presents a challenge for energy affordability in Saskatchewan post 2035. SaskEnergy remains committed to finding operating efficiencies in order to maintain competitive rates for customers, however, the Clean Electricity Regulations coupled with the prospective increase in electricity costs would no doubt impact SaskEnergy’s cost of service for customers.
Yours truly,
Mark H. J. Guillet, K.c.
President and Chief Executive Officer
SaskEnergy Incorporated
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