Prior to 1987, natural gas was supplied to end use customers in British Columbia by monopoly service providers only on a bundled basis. In 1987, Inland Natural Gas Ltd., a predecessor company to Terasen Gas Inc. (“TGI”), pioneered open access in this province by applying to establish transportation service rates for its industrial and large commercial

customers. Open access was made available to those customers commencing in 1987. The introduction of commodity unbundling for residential and small commercial sectors took much longer, and has faced some early problems. This article summarizes the story.

In July 1996, the BC Utilities Commission (BCUC) established a process to review the retail market for those goods and services which had not traditionally been marketed by a utility. In April 1997, following a stakeholder workshop and the issuance and review of a BCUC staff position paper, the BCUC issued its Retail Markets Downstream of the Utility Meter

Guidelines (the “RMDUM Guidelines”), which contain the findings of the BCUC with respect to the participation of utilities and their non-regulated businesses (“NRBs”) in the retail markets downstream of the utility meter.

In accordance with the RMDUM Guidelines, another predecessor of TGI, BC Gas Utility Ltd., filed with the BCUC a Code of Conduct governing the relationship between TGI and its NRBs for the provision of utility resources, and a Transfer Pricing Policy addressing the pricing of resources and services provided by TGI to NRBs and divisions of the utility providing unregulated products or services. The BCUC approved TGI’s Code of Conduct and Transfer Pricing Policy in December 1997.

In November 1998, the BCUC requested TGI to propose a proforma unbundled tariff to provide both residential and small commercial customers with the option of transportation service, and the ability to purchase their gas from a non-utility provider. However, difficulties in developing an appropriate business model and a need for legislative amendments delayed the project.

In the B.C. Provincial Government Energy Plan in 2002, a strong emphasis was placed on commodity unbundling for residential and small commercial customers. In accordance with Policy Action No. 19 of the 2002 Energy Plan, the Utilities Commission Act was amended in the spring of 2003 to allow direct natural gas sales to residential and small commercial

customers, and to require the licensing of marketers who serve those customers.

In January 2004, the BCUC approved the Code of Conduct for Gas Marketers, the purpose of which is stated to be the fostering of a sense of responsibility towards consumers and the general public by all those engaged in natural gas marketing in BC. Also in January 2004, the BCUC approved the Rules for Gas Marketers, which are designed to assist the administration of gas marketer licensing. In August 2006, following an oral public hearing, the BCUC granted TGI a Certificate of Public Convenience and Necessity for the Commodity Unbundling Project for Residential Customers.

On May 1, 2007, the BCUC announced the commencement of the Residential Commodity Unbundling Program (“RCUP”). The RCUP allowed natural gas marketers to sell longterm, fixed-price natural gas contracts to residential users. Between May 1, 2007 and June 27, 2007, gas marketers enrolled over 70,000 customers. However, aggressive enrollment

practices by some marketers resulted in the BCUC receiving a considerable number of complaints from customers. The large number of complaints prompted the BCUC to review the RCUP in June 2007 and ultimately to amend the Code of Conduct for Gas Marketers to provide for stricter regulation.

TGI continues to offer the same flow-through, variable rate gas supply as always, and is the default gas commodity supplier. TGI also continues to be the monopoly distribution provider. Marketers, on the other hand, offer only fixed price contracts for the gas commodity for terms of one to five years. There are currently 12 natural gas marketers licensed by the BCUC to sell fixed-price natural gas contracts to residential customers.

For more information please contact the head of our Energy practice group, Chris W. Sanderson, Q.C. at 604-631-9183 ([email protected]) or the author of this article, Chelsea D. Wilson at 604-631-6768 ([email protected]).

The information provided in this article is for general information purposes only and should not be relied upon as legal advice or opinion. If you require legal advice on the information contained in this article please contact one of the lawyers listed at the end of the article.

© 2007 Lawson Lundell LLP, 2007. All rights reserved.