The Ontario Energy Board has confirmed a penalty charge imposed
on an Ontario gas distributor, Natural Resource Gas Limited. The
OEB's decision was issued on January 14, 2016 in a
combined proceeding held under Board docket numbers EB-2014-0053,
EB-2014-0361 and EB-2015-0044.
NRG is a direct purchase customer of Union Gas Limited and, at
the winter checkpoint during the unusually cold winter of
2013-2014, NRG failed to balance the gas that it brings to
Union's system with the amount of gas that it actually takes
from Union's system. In common with other direct purchase
customers, NRG was charged a penalty by Union for failure to
balance at the winter checkpoint. Union recognized that, due to the
cold weather during the 2013-2014 winter and the resulting high gas
prices, the penalty charges for direct purchase customers that
breached their contracts were very high. Union sought and obtained approval from the
OEB to reduce the penalty from the highest daily spot price at
Dawn in February to the second highest daily spot price at Dawn in
Despite the reduction approved by the Board, NRG objected to the
reduced penalty amount on the ground that, as a gas distributor, it
should be treated differently from other non-compliant direct
purchase customers. The OEB accepted that there are differences
between NRG, as a distributor, and Union's other (non-utility)
direct purchase customers. All the same, though, the OEB said that
NRG chose to be a direct purchase customer and that, as such, NRG
has a number of responsibilities, including the responsibility to
meet its balancing obligations.
The OEB found that the characteristics of NRG as a direct
purchase customer are not relevant to the intent of the
"penalty regime," which is to encourage compliance with
contractual obligations to protect Union's system for the
benefit of all customers, and that the reduced penalty charge must
apply to NRG as it does to all of Union's other non-compliant
direct purchase customers.
NRG also argued that, as it does not earn any profit from the
sale of the natural gas commodity, the penalty costs should be
passed through to its ratepayers. The OEB concluded that NRG did
not act in a prudent manner to rectify the imbalance in its banked
gas account with Union and that any costs of a distributor not
incurred in a prudent manner are subject to potential disallowance,
irrespective of whether the costs generate profits for the
Thus, the NRG decision indicates that, even though the OEB does
not allow the shareholder of a gas distributor to earn any return
or profit on the sale of the gas commodity to customers, the
shareholder can be held responsible for costs of managing gas
supply for customers that are not incurred prudently. Because the
penalty amount that NRG's shareholder must pay is significant
relative to NRG's annual shareholder returns, the Board
designed a "payment plan" taking into account NRG's
ability to pay the charges from the proceeds of its regulated
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