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Summary of Other Issues

Environmental Benefits of Natural Gas

Natural gas is the cleanest fossil fuel source available. The ability to substitute natural gas for either coal or fuel oil will result in substantially lower emissions of sulfur dioxide, carbon dioxide, and nitrous oxides into the air. Lower air emissions will provide the entire province with environmental benefits.

Required Changes to Legislation

The following statutes govern natural gas distribution in New Brunswick:

  • •Assessment Act, R.S.N.B. 1973, c. A-14
  • •Gas Distribution Act, S.N.B. 1981, c. G-2.1
  • •Gas Public Utilities Act, S.N.B. 1982, c. G-2.2
  • •Municipalities Act, R.S.N.B. 1973, c. M-22
  • •Pipe Line Act, S.N.B. 1976, c. P-8.1
  • •Public Utilities Act, R.S.N.B. 1973, c. P-27

The committee recommends that there be a comprehensive review of these pieces of legislation. Such a review should be conducted once the government has agreed on the policies it will adopt for the establishment and operation of the natural gas industry in New Brunswick.

The committee further recommends that legislation be introduced which would terminate the natural gas distribution rights of Moncton Utility Gas without compensation.

Centre for Excellence

The committee heard testimony on the need to be fully informed of the new applications, technology adaptations, development, and commercialization of natural gas. In addition, the testimony focused on the need for a natural gas technology centre to train fire fighters and provide safety and certification to accommodate this new industry. The committee recognizes that a Centre for Excellence is needed for gas to provide maximum penetration and benefits in New Brunswick.

The committee recommends that a Centre for Excellence be established to draw upon the resources of the natural gas industry and key stakeholders to address this new form of energy in the province. The committee sees New Brunswick playing the lead role in establishing a centre in the province by working with key parties to plan and fund research and development that has application to New Brunswick and adjacent jurisdictions. The committee calls for setting up an action committee to outline the research and identify sources of funds.

The committee further recommends that the action committee report back to the government with a detailed plan by February 1, 1999. Finally, the committee suggests that the topic of a centre be addressed in the Request for Proposals evaluation in Stage II.

Recommendations for Stage II Process

Some policy and other issues concerning the establishment of a natural gas industry in New Brunswick, which the Select Committee on Energy has considered in its deliberations, would, in our opinion, be more appropriately dealt with in the Stage II Request for Proposals process.

The purpose of this section is to provide the government with some discussion and comment on these issues.

Term of Franchise

The presenters who expressed an opinion on the term favoured the 20- to 30-year range or longer. The arguments in favour of a fairly long term are:

  • •The substantial investment required by the LDC. The committee heard from some presenters that this is a long-term investment and that they do not expect returns in the early years.
  • •The longer the term, the lower the annual fixed costs; hence, the lower the gas rate.
  • •LDCs may form partnerships with others, such as municipalities, other LDCs, and those offering unbundled service.

One disadvantage of longer-term franchises is the risk of poor performance, including slow penetration. The committee suggests the government require bidders to state clearly how quickly they expect to be able to develop their distribution franchises. The evaluation of the proposals would be based in part on the bidders' proposed performance objectives. The committee suggests the PUB be given the task of periodically reviewing the franchise holders progress towards their objectives and that the PUB be given the authority to modify a franchise, if necessary.

As part of the overall PUB review process, the committee recommends that the PUB require any general class franchise holder to submit periodic reports on the development of the distribution franchise. The PUB would review the company's progress report and compare it to the business plan initially approved by the PUB. If the distribution company was making substantial progress on its plan and anticipated being able to continue doing so during the upcoming period, the PUB would issue a finding of substantial compliance. However, if a company failed to make substantial progress or indicated the likelihood of substantial difficulties in making progress in the near future, the PUB would have the right to conduct a public hearing to determine if the franchise should be modified. This hearing would be limited to those situations where the PUB determined that a distribution company was failing to substantially comply with the performance standards it established in its original franchise application.

The purpose of the franchise review proceeding would be to determine whether the public interest was being served by the continuation of the existing franchise. If other parties thought that they would be able to expand the franchise more effectively, they would be given an opportunity to demonstrate their alternative plan. The proceeding would focus on the need for major changes in public policy and the restructuring of the franchise rights.

Number of Distributors

The number of franchises that will be awarded for the province should be determined as a result of the Request for Proposals process. Bidders will be able to bid on the basis of serving the entire province or serving portions of it. They will be obligated to identify the areas that they propose to serve and state whether their proposal to serve specific areas is contingent upon receiving authority to serve other specific areas. They will also be obligated to describe whether and how they would propose to serve the maximum amount of the province. The government expects to award franchises in a manner that maximizes access to natural gas. Furthermore, the government must retain the ability to negotiate final terms and conditions before awarding the franchise(s).

Development Plans

The Stage II Bidders will be required to provide the following information as a part of their responses to the Request for Proposals:

  • •The areas that the distributor proposes to serve
  • •The time frame for serving particular geographic areas
  • •Proposed market approach by market segments
  • •Proposed pricing policies and revenue projections by customer class
  • •Proposed use of incentives for conversions and new areas by market segment
  • •Proposed affiliations with partners and the proposed role of the LDC relating to sales service

  • •Proposed programs for mitigating municipal impacts and for working with municipalities
  • •Proposed policies for providing open access transportation and unbundled service
  • •Proposed policies for providing access to local production
  • •A preliminary financial plan.

In addition, the bidders should provide documentation of the major assumptions used in their plans. Along with these requirements, the bidders should propose a regulatory review plan that describes their proposed approach for setting and modifying rates and for changing general terms and conditions of their tariff.

The committee further recommends that the Stage II Request for Proposals be drafted to:

  • •Require a level playing field for all providers of gas sales service, regulated and unregulated
  • •State a preference for a fully unbundled system
  • •State a preference for the utility to have an affiliate perform commodity sales
  • •Require that bidders be subject to standards of conduct in relation to market power issues
  • •Ensure that adequate time be allowed for the interested parties to prepare and submit bids for areas they intend to serve.

The committee would expect the decision to be made based on the policies stated in this report. In particular, the decision would reflect the desire to maximize availability of natural gas in the province, the timely development of required infrastructure, and an increase in intra-fuel competition. It would not be appropriate to grant a franchise to a party if it would create market power. This may require a more in-depth examination of market power if a party engaged in the oil, coal, electric, or another natural gas area seeks to obtain a franchise.

The committee recognizes that the regulatory policies it has outlined requires the PUB to have specific expertise of a technical and legal nature relating to natural gas and substantially increases the responsibilities of the PUB. It is very likely that the PUB will require full-time commissioners and a larger staff. To cover this increase in expense, the committee recommends that the PUB be funded through franchise fees.

The committee also determined that it would be desirable for all end-users to support the overall provincial regulatory scheme. The committee recommends establishment of an annual fixed fee for single end-user franchises and a percent of revenues fee for general and producer franchises. Enabling legislation will be required for all of these recommendations.




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