Enbridge Inc. is battling New Brunswick over the government's overhaul of the way it sets natural gas distribution rates, a change that could force the company to take a $180-million writeoff on its investment in the province.
Faced with soaring energy costs, the province's Conservative government has passed legislation to roll back the distribution rates on gas bills for households and small businesses, a move that Enbridge says will prevent it from recouping its investment on building a natural gas system there.
Calgary-based Enbridge has complained that the government's action would be tantamount to bankrupting the New Brunswick subsidiary if it were a standalone company.
In a release Monday, Enbridge said the new regulations – which are expected to be finalized in coming weeks – will make it impossible for the company to expand its natural gas network, even though gas is the lowest-cost source of energy available.
David Charleson, the company's general manager in the province, said Enbridge won't know the exact financial impact of the new rules until they are finalized. It has invested $460-million in the province.
In a fact sheet on its website, Enbridge said the regulations threaten its ability to recoup $180-million in deferred revenue, suggesting it may have to write off that amount.
"There is the potential for that but until the regulations are finalized we don't want to speculate on what the amount might be," Mr. Charleson said in a telephone interview Monday.
Enbridge began building the natural gas distribution system in the province under a 1999 agreement with the provincial government.
To cover capital and operating costs in the early years, the New Brunswick Energy & Utilities Board allowed the company to establish a deferred account which represented the shortfall between its annual costs and revenues. It was to be recouped – with a rate of return – over 40 years.
But Enbridge signed up only a third of the expected customers, and the smaller revenue base has made it harder to recoup costs.
As a result, the deferred account has ballooned from an anticipated $13-million to $180-million.
"We've developed a system on a set of rules that were intended to make gas available to a large number of people in New Brunswick," Mr. Charleson said.
If that original agreement isn't working, the two sides should renegotiate, he said.
Last fall, the company filed a request with the utility to raise its distribution rate by 27 per cent for residential customers and as much as 180 per cent for some commercial and institutional users. The request came as the province's Conservative government released a new energy plan that promised to roll back those charges.
New Brunswick Energy Minister Craig Leonard said the rate-setting model agreed to in 1999 "has gone off the rails" and has resulted in his province having the highest gas distribution rates in North America.
"They are never going to get to the point where their revenues are meeting the revenue requirements unless rates are increased a substantial amount," Mr. Leonard said.
"At some point, somebody has to stop the madness and say, there is a problem here; people aren't joining the system."
Royal Bank of Canada analyst Robert Kwan said the battle in New Brunswick will have little impact on Enbridge's financial results. Enbridge New Brunswick contributes less than 2 per cent to the company's bottom line.
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