Enbridge Gas New Brunswick is seeking to halt proposed rate increases for its largest customers pending negotiations with the provincial government over a possible change in how it charges its distribution rates.

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Enbridge is asking the Energy and Utilities Board to ignore its request to increase natural gas rates for its large industrial customers, such as Atlantic Wallboard. ((CBC))

Enbridge is preparing to start a regulatory hearing with the Energy and Utilities Board on Wednesday over its plans to increase natural gas distribution rates.

Dave Charleson, the general manager of Enbridge, said in a letter to the regulatory board that the natural gas company is seeking a last-minute change in its rate structure.

Charleson said in an interview on Tuesday the discussions with the provincial government started in recent weeks.

"There has been a fair amount of public dialogue over the natural gas system in the last year or more. During that time, there have been general discussions with the government about concerns from different market participants. We've been looking at different things that you can do to look after all stakeholders," Charleson said.

'Everything has to be on the table.'— Dave Charleson, Enbridge Gas

"In the last month or month and a half, we've had more serious discussions with the provincial government about what are some of the options that could be concerned, what could be looked at to move the market forward."

The letter, which is dated May 20, asks for the regulatory board to hold off on plans to increase rates for the two specific classes — Contract General Service (CGS) and Contract Large Volume Off-Peak Service (CLVOPS)  — and to hold the current rate for the first block of the Contract Large General Service - Light Fuel Oil (LFO) class.

Further, Enbridge is asking the EUB suspend the planned rate increase for the LFO rate class that was supposed to come into force on July 1.

The company uses a market-based formula to set distribution rates. Enbridge sets its current rates by discounting the price of natural gas compared to the cost of competing energy sources, such as electricity or oil.

In the letter, Enbridge states the negotiations with the provincial government could eventually lead to a scheme that would allow the company to charge rates based on its cost of service. This change could allow Enbridge to be more competitive in how it charges its rates.

Energy Minister Craig Leonard told the legislative assembly on Tuesday the negotiations were going well with Enbridge toward the ultimate goal of moving to the new rate-setting system.

Enbridge has a franchise agreement with the provincial government that allows it to be the sole natural gas distributor in New Brunswick until 2020.

There is also a framework in place on how Enbridge must pay back its deferral account.

A possible agreement with the New Brunswick government would offer Enbridge more time to pay off the account.

"The fact of the matter is if they are not able to continue on with their situation that deferall account is an issue for them. We are looking at basically provinding an option for Enbridge to continue on beyond past that date as long as they come to the table and provide rate relief for New Brunswickers," Leonard said.

"It would be Enbridge that would be taking on an issue here. We are looking at a solution here that won't cost New Brunswickers a dime."

Enbridge plan not opposed

Basile Chiasson, the government-hired public intervenor, wrote in a letter to Charleson that he does not oppose the request by Enbridge to amend its rate plan.

The public intervenor is also proposing a meeting with the other intervenors that could lead to a deal before it appears in front of the energy regulator.

"[It] may be useful to spend the first scheduled day of the hearing ... in a settlement proceeding to determine if we can't narrow the remaining differences to a point where EGNB and the formal intervenors could make a joint submission to the board on Thursday," Chiasson said in the letter.

The energy regulator is scheduled to meet in Fredericton on Wednesday.

Options examined

The company's general manager would not offer specific proposals that would allow Enbridge to make the switch between the different rate pricing systems.

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Enbridge is continuing to seek rate increases for smaller users, such as homeowners. ((CBC))

When Enbridge started creating the province's natural gas pipeline, it put all of the costs associated with the development stage into a deferral account, which has to be repaid.

The deferral account has roughly $170 million in it. Enbridge paid $6 million into the deferral account in the first quarter of 2011, according to Enbridge.

But paying back those fees over the long term would make it difficult to switch immediately to a cost-of-service model.

Charleson said there are some options in the near term that could "take some of the costs out of the system."

One option could be the provincial government covering off some of the deferral account or allowing Enbridge to pay back its development fees with the provincial government's lower interest rate, which is similar to a plan set up for NB Power.

Charleson would not say whether those options are being explored.

"Everything has to be on the table. Obviously, the province right now is facing fiscal challenges, so that may limit their ability to do anything like that," Charleson said in reference to ways to limit the company's payments on the deferral account.

The province's energy regulator will have to approve Enbridge's latest plan.

Enbridge will still petition the EUB to increase the rates for the other customer classes, such as for residential customers.

The proposal to move ahead with rate hikes on smaller customers, such as homeowners, is because if there is a transition to a new rate plan the larger natural gas users would likely see their rates drop. So Charleson said the plan to halt the rate increases for large customers would allow "some equilibrium."

The natural gas company said in the letter the change will prove costly if the negotiations with the provincial government do not pan out.

"If EGNB is unable to arrive at an appropriate solution to the current market challenges with the government, it would likely advance a market-based rates application for the CGS, CLVOPS and LFO classes for 2012," the letter said.