City of Estevan facilities will be connecting with a new natural gas supplier beginning Nov. 1, as the City's current provider will no longer be in the business of selling the commodity.
In October, the contract with Nexxon is expiring, and the company has given notice to the City they are not going to be supplying natural gas, so the City is in the process of finalizing an agreement with Connect Energy that will see the Saskatchewan company supplying the City for the next five years.
Council passed a motion during the Aug. 25 regular council meeting to approve the recommendation to authorize the contract.
With a deal running until Oct. 31, 2019, the City will be charged $4.62 per gigajoule (GJ) annually, with a guaranteed rate over the course of the five-year contract.
On June 24, SaskEnergy received government approval to increase their price to $4.84 per GJ, which came into effect July 1 and will have price protection until next winter.
In the report, prepared by City Manager Amber Smale, she noted, "Connect Energy is confident that they will be able to provide the natural gas at the quoted price. However, the market is extremely volatile. If Connect Energy is unable to secure the purchase, they will provide the City of Estevan with other options. If that were to happen, the administration would enter into an agreement at the best available threshold price."
While Connect Energy will be the City's supplier of natural gas, SaskEnergy will continue to be the distribution utility, delivering the natural gas and providing any maintenance and emergency services as needed.
The report noted the expenditures for natural gas purchases for civic facilities over the past several years have been between $275,000 and $300,000.
Smale's report added, "Current volatility in the energy market makes it difficult to determine with certainty when the time to lock into an arrangement like this is appropriate. However, at this point, based on the best information available and past experience, the administration is comfortable that this is the City's best option for the purchase of natural gas."
The report noted it is common practice among Saskatchewan cities to buy natural gas for municipal buildings through a third party endorsed by the Saskatchewan Urban Municipalities Association at a savings to the City of about 10 per cent compared to market rates.
According to Connect Energy's website, they serve every health region and school division in the province as well as 180 municipal governments.
Before approving the new supplier, there was some question as to whether or not the contract should go through the tender process, as Coun. Lori Carr asked if there were other businesses the City should be approaching.
Smale said they could tender the contract and that there are other businesses outside of Saskatchewan that could supply natural gas.
Mayor Roy Ludwig noted SUMA has contracts with Connect and the City wanted to make sure they were able to lock in the proposed rate, considering the always-changing commodity price.
"The other thing is, you'll notice (the price) is starting to edge up, so I think it would be in our best interest to nail it, if we could tonight, because at least then you can budget accordingly. You have a set amount," said Ludwig.
Coun. Dennis Moore asked if it was best for the City to be locked into a guaranteed rate for five years, or if there is reason to have access to a variable rate.
City Treasurer Jeff Ward told council that SaskEnergy had kept their standard for the last few years but had to increase their rates because of infrastructure deficits.
"We feel that even if the market went down SaskEnergy wouldn't be able to lower those down. With a variable market, locking into that pricing, there's always that risk," said Ward, who added that for budgeting purposes over the next five years, the guaranteed rate would be helpful for planning.
Ludwig said he would prefer to see the City lock in to a five-year rate because it would provide them with a benchmark, so council knows what the costs will be going forward. Given the volatility of natural gas prices, the mayor said the City would be "shooting in the dark" if they had to work with a new, unknown rate every year.
As far as a transfer of service from Nexxon to Connect, the City has been informed the new supplier will take care of the legwork, co-ordinating with SaskEnergy to implement the changes.
