Fees to support N.B.'s natural gas network to finally hit six major industrial plants

After two decades of segregated public and private natural gas distribution systems in New Brunswick and what amounts to a seven-year notice period, big industry in the province has finally started paying promised fees to support the public gas network.

That should help lower prices to regular consumers who use natural gas, according to the company in charge of the public system.

"It helps a lot. It's a very very good start," said Gilles Volpe, vice-president of Liberty Utilities. Volpe expects industry will eventually pay more than $3 million per year to support the province's main gas distribution system, as compensation for not having to use it. 

"It seems fair to us at the moment."

New Brunswick has some of the highest natural gas distribution rates in North America for business, government and homeowners, in part critics have charged, because six of the largest users of natural gas in the province do not participate in the public distribution system. 

"Because the costs are born by fewer number of customers, the rates in New Brunswick are higher because of that," Volpé charged back in 2015.

"It costs $48 million a year to run this utility. It would probably cost $48 million if they were on the system also, but they would be paying a fair chunk of the cost to operate the utility, so everyone else's rates would be going down."

Segregated system goes back to 1999

In the infancy of natural gas coming to New Brunswick between 1999 and 2004, the province awarded special "single end use" franchises to six industrial operations, each locked in for 20-year terms.

Three went to mills owned by J.D. Irving Ltd., one to the Irving Oil refinery and two to a pair of natural gas electricity generators adjacent to the refinery — one owned currently by NB Power and one by TC Energy Corp.  

Each of the six was allowed to install and operate its own pipeline infrastructure and buy gas privately without using the public system or paying toward its operation. In exchange, each paid annual $50,000 franchise fees to the province, indexed to inflation.

In 2014, with the public system mired in debt and struggling to support itself with high rates to the customers it did have, the former government of David Alward passed legislation to require each of the six major users to pay 10 cents per gigajoule of gas they consume toward the public system. It was made a condition of renewing their 20-year franchise agreements.

At the time New Brunswick Energy Minister Craig Leonard estimated 85 per cent of the natural gas used in New Brunswick was flowing to industry outside the public system and said the companies benefiting from the arrangement grudgingly agreed to the 10-cent charge.

"We spoke with all of them. The general consensus was that they were not too keen on paying more, but they all recognized the need to incorporate some kind of structure where they were contributing to the public system," said Leonard.

One gigajoule of natural gas contains the energy equivalent of 26 litres of refined petroleum and a 10-cent fee would be similar to adding four-tenths of a cent to the cost of a litre of gasoline. 

$2M expected to go to public system in 2021

The first of the franchise renewals, and 10-cent fees, occurred late in 2020, seven years after being first announced by Leonard.

"I believe three ended in December 2020 and one is coming up in May and the other two sometime after that," said Volpe  

Liberty has budgeted to receive $2 million in payments this year as each industrial operation comes to the end of its first 20-year contract period.

That can only help with natural gas rates charged to the public in New Brunswick, which are still substantially higher than in most jurisdictions.  

New Brunswick homeowners currently pay $10.40 per gigajoule in distribution charges plus the cost of the gas itself, about four times distribution charges residents in Ontario communities like Thunder Bay pay.   

Volpe believes payments made to support the distribution system by industry will help pricing and make natural gas more attractive to potential customers who will help lower average costs for everyone as they join. 

"The more customers we add to the system, we believe we will be able to be on the growth path for at least the next 10 years." said Volpe.