Saskenergy Commodity Rate Announcement - BLENDED RATE

SaskEnergy Commodity Rate Announcement March 9, 2006 Frequently Asked Questions

What new commodity rate are you proposing and why?

SaskEnergy is applying to the Saskatchewan Rate Review Panel (SRRP) for a commodity rate of $6.80/Gigajoule (GJ), which represents about a 10% decrease in residential customers’ overall bills.

Currently, natural gas prices for the summer months are lower than our existing rate of $7.95/GJ. Considering SaskEnergy charges customers the market price for natural gas, we are proposing to reduce our rate to reflect these prices.

For how long will this rate be in effect?

While the market is not at last year’s historic highs, it remains extremely volatile, with prices for next winter continuing to trade above SaskEnergy’s current rate of $7.95/GJ. SaskEnergy expects to have a new application submitted to the Rate Review Panel for the start of the winter gas year, which begins November 1, 2006, that will reflect prices at that time.

How will I be impacted?

The different amount of natural gas used by each customer class would result in the average bill impacts shown. Customers with higher or lower usage will see a different rate impact:

% Decrease $/Month Decrease Residential 9.6 5 Farm 9.7 6 General Service II 10.4 19 General Service III 11.0 289

Doesn’t the Provincial Government’s cap on your rate end on March 31?

SaskEnergy is applying for a rate that will recover its gas costs from April 1, 2006 to October 31, 2006. It will be implemented as soon as SaskEnergy receives approval. If there is any delay in implementation, any variance will be captured in the Gas Cost Variance Account (GCVA) and reflected in a future rate.

The GCVA ensures that SaskEnergy does not incur a profit or a loss on the sale of natural gas to our customers. If the cost of gas is more than SaskEnergy collects from its customers, then we must collect the difference. If the cost of gas is less than our rate then SaskEnergy returns the difference to its customers through lower rates.

Why have natural gas prices dropped? When will they rise again?

North America has experienced the warmest winter on record for the past 100 years, meaning consumers are using less natural gas than originally predicted for this season. It is impossible to say when market prices will rise again, however, it’s important to remember that natural gas is the most price volatile commodity on the market, and prices can change at any time. Market prices for 2006/2007 are already trading near $9/GJ in anticipation of just a normal winter. Next winter is months away. How can prices be so high?

Many different factors are at play in the market; however, the greatest impact on price is determined by weather. There is always a concern about how cold the winter will be, and the expectation is that the next winter will be colder than the last. As well, hurricane season begins in June, and could potentially damage more natural gas production in the Gulf of Mexico.

Why don’t you just hold the line at the current rate for the next year?

Winter prices are higher than our current rate, so this forward price would need to fall off quite a bit for us to stay where we are today.

Through Saskatchewan Energy Share, the Government announced that $92 million would be used to help SaskEnergy pay down its deficit in the Gas Cost Variance Account. To date, only $48 million has been used. What will happen with the remaining $44 million?

Those funds will not be withdrawn from the Government’s General Revenue Fund and will be used for other government spending priorities.

Why isn’t this $44 million used to subsidize rates even further, and provide an even lower rate for all SaskEnergy customers?

The short-term assistance under the Saskatchewan Energy Share initiative was designed to ease customers into a higher-priced environment, and was intended as a one-time subsidy. Customers were expected to return to paying the market price of gas beginning April 1.

SaskEnergy’s proposed new commodity rate reflects current market conditions and a further subsidy isn’t required at this time.

However, the natural gas market remains extremely volatile and customers are encouraged to look for ways to conserve energy in recognition that prices for next winter are likely to be at higher levels.

What will happen if market prices rise again and you run a deficit in the GCVA? Will the government step in and help again?

The government’s subsidy through Saskatchewan Energy Share was designed as a one-time subsidy to SaskEnergy’s customers. There are no plans currently by the provincial government to change its approach.

The GCVA is designed to capture any difference between SaskEnergy’s actual gas costs and our rates. Balances are reflected in future rate applications.

I’ve heard that your profits are down. Will you apply for another rate increase anytime soon to recover these profits?

What we charge our customers in our commodity rate is essentially what we pay when we buy gas on the open market. No profit or mark-up is added in.

Yes, our profits for December 2005 and January 2006 are less than what we were projecting, simply because the weather was warmer and less natural gas was consumed by our customers. Regardless, profit is never a factor when setting our commodity rate.

2 Our profits are generated through our delivery rate, which has not changed since 1997. That said, there are still other areas of our business that are doing quite well – the pipeline transmission side for example – so we expect a good financial picture for the year. How much gas do you have in storage right now, and what does this represent?

We store a third of our annual need, which is roughly 40 to 50 per cent of what’s consumed during the winter. Under normal winter weather, there would be very little gas in storage left at the end of March. Right now we have less than one-quarter of that in storage, thanks to the warmer winter weather.

In addition, storage plays a major role in dampening the price volatility that we see during the winter. Therefore, storage is of major benefit to our customers both physically and financially.

If you’ve used less gas than you expected and have some in storage, why don’t you sell it to somewhere else and use that money to make our rates even lower?

The gas that’s in storage today is a benefit to our customers. It will be factored in to next winter’s natural gas supply, and therefore means we will need to buy less natural gas than if we did not have this supply already in storage.

Instead of paying a dividend to CIC each year, why don’t you just use these funds to make our rates lower?

SaskEnergy is mandated by the provincial government to provide a return annually, to be used for such things as health care or other social programs and development and maintenance of the Province’s infrastructure.

Why don’t you buy all your gas on the spot market? Would we see a bigger saving if you did?

Whether a utility purchases on the spot market or buys long-term contracts, the natural gas market will always be extremely volatile. However, the greatest volatility and risk is found when utilities purchase gas solely on the spot market. The natural gas utility in Calgary, for instance, changes its rate monthly, and has passed through very volatile and ever-changing costs to its customers.

Although we do buy some of our gas on the spot market, the majority of our supply is through long-term, fixed-price contracts. This is the safest route for customers, and offers rate stability in a very volatile marketplace.

Just to give you an example of how favourable fixed rates are for consumers, residents of Lloydminster, Saskatchewan are currently served by the natural gas utility in Alberta, which floats its price with the market and changes its rates monthly. Many of these residents are requesting natural gas service from SaskEnergy, as they prefer rate stability over rate fluctuations.

3 How will your new rate compare with other jurisdictions?

As of March 1, 2006, residential gas consumption charges are as follows:

$12 e l

u $9.79

o $9 or j 37.57¢/m3 a g

i $7.95 or G

29.51¢/m3 r

e $6 p

a Proposed Proposed l l April 1 April 1 o $3 D $8.14 $5.10 $6.80 $8.48 $10.93 $7.66 or or or or or or 31.26¢/m3 19.37¢/m3 25.62¢/m3 32.05¢/m3 41.19¢/m3 29.03¢/m3 $0 Vancouver Calgary Regina Winnipeg Toronto Montreal In Saskatchewan 1 cubic metre is equal to 0.03768 gigajoules on average. Based on posted utility rates and excludes savings from the Alberta Natural Gas Rebate Program.

Updated Mar. 9, 2006

What impact will this rate decrease have on the utility bundle?

Any decrease in utility rates in Saskatchewan decreases the overall value of the utility bundle and lessens the probability of a utility bundle rebate. However, there are a number of variables that influence the value of the utility bundle. Rates for other bundle services such as telephone, power, energy and car insurance are subject to change throughout the year in Saskatchewan and in competing jurisdictions such as Manitoba. It is too early to tell how Saskatchewan will compare to other jurisdictions at the end of the year.

The Crown Investment Corporation of Saskatchewan monitors utility rates in other jurisdictions throughout the year and will determine the final value of the Saskatchewan utility bundle closer to the end of the calendar year.

What is being done to help Saskatchewan consumers manage their heating costs?

There are a number of programs in place to help. The ENERGY STAR® Loan event, for instance, provides homeowners with loans at prime to help them purchase ENERGY STAR qualified furnaces and boilers – which essentially are the most energy efficient pieces of heating equipment available on the market today.

4 The Saskatchewan Energy Share, announced by the provincial government last fall, also includes six initiatives that will help consumers save energy and money over the long term:  Matching of the federal grant up to $2,000 for changes made after an EnerGuide for Houses follow-up audit;  Expansion of the PST exemption on ENERGY STAR® qualified appliances to include furnaces and boilers;  Up to a $45 rebate on ENERGY STAR® qualified programmable thermostats;  Expansion of the SaskEnergy Share the Warmth™ home energy efficiency project, which helps reduce heating costs for low-income households;  Expansion and cost-sharing of the federal EnerGuide for low income households; and  A new Saskatchewan EnerGuide program for modest income households

SaskEnergy also offers a number of energy savings tips on our website, at www.saskenergy.com. More information about the Saskatchewan Energy Share is also available at www.skenergyshare.com or by contacting the Saskatchewan Energy Share call centre at 1- 866-409-9770.

How do I contact the Panel to express my views of this application?

Saskatchewan Rate Review Panel 901 1st Ave. N Saskatoon, SK S7K 1Y4

Toll Free: 1-877-368-7075 Saskatoon: (306) 934-1948 Fax: (306) 244-7037

Website: www.saskratereview.ca E-mail: [email protected]