Canada Energy Market Report - February 2018

Electricity Hedging Strategy: These days, electricity below $0.10/kWh is a real treat for class B customers in Ontario as they are stuck between low-volume consumers and energy intensive heavy industry, both of whom have received significant price relief from the provincial government. The electricity “middle class” will continue to be squeezed as participation in the expanded class A category increases - this is because the share of Global Adjustment that new class A customers would have paid under their old class B rate is downloaded onto the remainder of class B.

Compounded with this fact is that the price relief that low-volume consumers are enjoying is being financed by provincial government. Also, the interest costs associated with this deferment is being captured in a variance account that will eventually be transferred back to the Global Adjustment and recaptured from all ratepayers. As of February 2018, this account has increased to over $1.5bn.

Natural Gas Hedging Strategy: As an altogether underwhelming month for natural gas draws to a close, close attention will be paid to gas producers for any mention of production pullbacks. Supply has been steady and gaining for the last year, but how long producers can sustain margins in the current low price environment is uncertain. TransCanada recently announced plans to study opening some dormant capacity on the mainline, which would help western producers compete for market share in eastern Canada, a market where they have steadily lost out to shale producers in the U.S. On the futures side, balance of 2018 is now at $1.40/GJ, 2019 - $1.61, 2020 - $1.69 and 2021 - $1.90.

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