Regulatory agencies

Utilities like Gaz Métro require a system infrastructure to provide their services, and such infrastructures entail substantial investment to build and maintain. For this reason, it is uneconomical from a public perspective to allow more than one enterprise to develop systems for the same functions. This means that certain enterprises have a monopoly, because they alone can distribute a certain product to consumers.

Agencies have therefore been mandated to regulate monopoly company activities. These economic regulatory bodies thus fulfil an essential need for an independent credible organization that oversees the activities of public utilities.

In exercising their role, regulatory agencies make decisions about network development, rate-setting and the use of underlying accounting methods that differ from those otherwise used by unregulated companies.
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Gaz Métro’s natural gas distribution activities in Québec are regulated by the Régie de l’énergie. The Régie de l'énergie was created in 1997 to regulate the entire Québec energy industry and now also oversees the natural gas, electricity, fuel oil and steam sectors.
Gaz Métro
Part of the role of the Régie de l’énergie is to regulate the transmission and distribution of electricity and the distribution of natural gas in Québec. In particular, it must:
  • Ensure sufficient supply;
  • Set the rates and conditions under which service is offered;
  • Investigate consumer complaints regarding the application of those rates and conditions;
  • Approve investment projects that exceed a given threshold.

Different organizations representing the interests of natural gas consumers, the environment, and the public are invited to participate in the Régie’s process. Gaz Métro firmly believes in this approach and acts in a spirit of collaboration and accountability conducive to constructive dialogue.
As a result, a true partnership has emerged with these groups to create a healthy regulatory climate envied by many regulated distributors. In particular, this partnership has facilitated innovation by establishing a regulatory framework to improve Gaz Métro’s performance while integrating important commercial, environmental and social concerns. The partnership has also established the Energy Efficiency Fund, financed by Gaz Métro’s productivity gains, which prioritizes subsidies for low-income residential customers as well as innovative community and social projects.

Gaz Métro is regulated by the Régie de l’énergie, which annually sets the transportation, load-balancing and distribution rates, while the supply, CATS and compression rates are established on a monthly basis. Since November 1, 2015, the compression service costs have been integrated into the transportation service rates, due to the abolition of the former service. The Régie also oversees Gaz Métro’s operating, network-development and natural gas distribution activities. As part of setting Gaz Métro’s annual rates, the Régie establishes the authorized rate of return on deemed common equity. As well, Gaz Métro’s supply plan is submitted to the Régie de l’énergie for approval on an annual basis. Gaz Métro buys the natural gas required to supply its customers or receives natural gas from customers who have opted to secure their own supply of natural gas.

Intragaz
Intragaz operates the only two underground natural gas storage facilities in Québec in Gaz Métro’s service area, and Gaz Métro is also Intragaz’s only customer. Intragaz’s rates are approved by the Régie and established using a cost-of-service method.
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The National Energy Board is an independent federal agency responsible for regulating various international and interprovincial aspects of oil, natural gas and electricity activities as they relate to revenue determination, tolls, construction and development.
Gaz Métro
Gaz Métro’s natural gas distribution activities in Québec are regulated by the Régie de l’énergie (see above). In addition, through subsidiaries, joint ventures and entities, Gaz Métro is active in other business activities that are regulated by other agencies. Trans Québec & Maritimes (TQM) and Champion Pipeline fall under the authority of the National Energy Board (NEB).

Trans Québec & Maritimes (TQM)

Gaz Métro holds a 50% interest in TQM, which operates a gas pipeline in Québec that connects upstream with that of TCPL and downstream with that of PNGTS and the Gaz Métro-QDA network. Its activities are regulated by the NEB.

Champion Pipeline

Champion, a wholly owned subsidiary of Gaz Métro, operates two pipelines that cross the Ontario border and supply Gaz Métro’s distribution system in northwestern Québec. Champion’s activities are regulated by the NEB with respect to revenue determination, tolls, construction and the operation of its network.
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The Federal Energy Regulatory Commission (FERC) is an independent agency that regulates the interstate transmission of natural gas, oil and electricity. It is also responsible for regulating natural gas and hydroelectric projects. Through its mandate, the FERC assists consumers in obtaining reliable, efficient and sustainable energy services at a reasonable cost.
Gaz Métro
Gaz Métro’s natural gas distribution activities in Québec are regulated by the Régie de l’énergie (see above). In addition, through subsidiaries, joint ventures and entities, Gaz Métro is active in other business activities that are regulated by other agencies. VYNPC, PNGTS, Velco and Transco are regulated by the Federal Energy Regulatory Commission (FERC).

Vermont Yankee Nuclear Power Corporation

The Vermont Yankee Nuclear Power Corporation (VYNPC) is an indirect wholly owned subsidiary of Gaz Métro that is regulated by the FERC for its rates and by the VPSB for all of its other matters.

PNGTS

PNGTS is a subsidiary indirectly owned by Gaz Métro at 38.3% that operates a gas pipeline in the northeastern United States. Its rates for the transportation of natural gas are regulated by the FERC, in accordance with the Natural Gas Act.

Velco and Transco

Velco distributes electricity in Vermont, while Transco owns the state’s high-voltage electricity transmission system. Velco and Transco are regulated by the FERC for rate-setting and financing and by other Vermont regulatory agencies for such matters as the construction of electricity transmission-related assets.
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The Vermont Public Service Board (VPSB) is a quasi-judicial board that supervises the rates, quality of service, and overall financial management of Vermont's public utilities: cable television, electricity, gas, telecommunications, water and large wastewater companies.
Gaz Métro
Gaz Métro’s natural gas distribution activities in Québec are regulated by the Régie de l’énergie (see above). In addition, through subsidiaries, joint ventures and entities, Gaz Métro is active in other business activities that are regulated by other agencies. VYNPC, VGS and GMP are regulated by the Vermont Public Service Board (VPSB).

Vermont Yankee Nuclear Power Corporation

The Vermont Yankee Nuclear Power Corporation (VYNPC) is an indirect wholly owned subsidiary of Gaz Métro that is regulated by the FERC for its rates and by the VPSB for all of its other matters.

VGS and GMP
Vermont Gas Systems (VGS) is Vermont’s sole natural gas distributor, and Green Mountain Power (GMP) is the state’s largest electricity distributor. Both are indirect wholly owned subsidiaries of Gaz Métro and are regulated by the VPSB. Rates for their activities are established using a cost-of-service method. Their rates are approved annually by the VPSB, whereas the price of natural gas and electricity are adjusted quarterly using current rate adjustment mechanisms. The mechanism for sharing profits and losses approved by the VPSB provides for a rate adjustment in the fiscal year following its approval.
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The Vermont Department of Public Service (VDPS) is charged with representing the public interest in energy, telecommunications, water and wastewater utility matters. It regulates the natural gas trade in Vermont and, thus, the activities of Vermont Gas Systems.
Independent System Operator is a regional utility organization that monitors and ensures the constant supply of electricity in New England. It dispatches and directs the flow of electricity across the power grid, and designs, administers and oversees the markets where electricity is bought and sold. It also conducts assessments and analyses and establishes plans to ensure New England’s power system requirements are met 10 years into the future. 
Gaz Métro
Gaz Métro’s natural gas distribution activities in Québec are regulated by the Régie de l’énergie (see above). In addition, through subsidiaries, joint ventures and entities, Gaz Métro is active in other business activities that are regulated by other agencies. The Green Mountain Power control center coordinates its activities with ISO-NE, and Transco, supplies electricity to New England through ISO-NE.

Transco
Transco owns a high-voltage electricity transmission system enabling it to offer electricity transmission services to over 17 electricity distributors in Vermont and two in New Hampshire. It also supplies electricity to New England through ISO-NE.
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Gaz Métro’s activities and facilities are subject to national, regional and local environmental laws, including the following: 
In Québec
  • The Regulation respecting a cap-and-trade system for greenhouse gas emission allowances (CATS) came into force on January 1, 2012. As of January 1, 2015, under this Regulation, Gaz Métro is required to cover: (i) its own GHG emissions, (ii) fugitive emissions and emissions caused by third-party damage and (iii) the emissions caused by the use or combustion of natural gas by its customers—other than those who themselves are emitters as defined in the regulation—for said customers’ establishments that are specified under Québec’s CATS Regulation. To meet these obligations, Gaz Métro must reduce its GHG emissions or purchase GHG allowances. Gaz Métro has taken the necessary measures to purchase the GHG allowances required to comply with the Regulation respecting the CATS. This has created an upward pressure on its rates, which impacts Gaz Métro’s ability to compete with other energy sources. Its monetary impact will depend in particular on the prices at which the emission allowances are traded. As such, in anticipation of the GHG emission allowances Gaz Métro must purchase, the company is keeping a close eye on the GHG allowance market and will adjust its purchasing strategy as needed.
  • In June 2012, the Government of Québec made public its 2013–2020 Climate Change Action Plan (CCAP 2020). For the government, the climate change challenge is an opportunity to reduce Québecers’ reliance on fossil fuels. Government actions under the CCAP 2020 will focus on transportation, industry and buildings. Gaz Métro is also closely monitoring the implementation of priorities defined in the CCAP 2020 to determine how they will influence its growth outlook and competitiveness.

In Vermont

  • GMP is subject to a state policy that encourages the development of renewable energy resources in Vermont and the purchase or sale of renewable energy by the state’s electricity distributors. More specifically, in June 2015, the Vermont Legislature passed a new renewable energy act (Bill H.40 or the “Renewable Energy Standard” (RES)) that establishes a mandatory renewable energy standard for Vermont electric utilities. This Act repeals Vermont’s Sustainably Priced Energy Development (SPEED) program instituted in 2005 and specifically requires electricity suppliers to: (i) include a minimum amount of renewable electricity in their supply portfolios; (ii) support small-scale renewable energy projects (≤ 5 MW) associated with the Vermont network (called “decentralized renewable energy projects”); and (iii) invest in projects aimed at reducing the use of fossil fuels for heating and transportation (called “energy conversion projects”). The resource requirements under this law come into effect in 2017 and will rise each year until 2032. GMP will closely monitor the program’s impact on its costs and competitiveness, as it begins to purchase renewable energy attributes in 2015 and 2016 to comply with the new law. Meanwhile, GMP plans to continue selling the credits generated by its renewable energy sources that it does not need for the purpose of the new program on the New England market. The revenues that GMP derives from the sale of attributes which are generated by its renewable energy sources vary between US$25 million and US$30 million annually. These offset its rate increases, but the new act is expected to reduce this net benefit in the future.
  • GMP participates in the Regional Greenhouse Gas Initiative, or RGGI, a cooperative initiative among northeastern states and mid-Atlantic states of the eastern seaboard to reduce CO2 emissions by implementing an interstate market-based carbon cap-and-trade system. The oil-fired turbine in Berlin, Vermont, is currently the only one of GMP’s electric power generators that is subject to the RGGI. GMP must purchase CO2 emission allowances to offset the total CO2 emissions generated by this facility. To date, the cost of participating in this program is low, and GMP expects these costs to remain statistically stable during its fiscal 2016. Compliance with the RGGI is maintained in three-year control periods. At the end of each control period, all regulated plants must remit one RGGI CO2 emission allowance per tonne of CO2 emitted in the past three years. The third and most recent control period took effect on January 1, 2015 and will extend through December 31, 2017.
  • VGS is subject to Vermont legislation that encourages GHG emission reductions. Currently, this law does not impose specific GHG reduction targets on the company, but it may tighten with time, which could force VGS to incur additional costs and affect its ability to compete.
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