Statistics Canada and the Isolated Posts Fuel and Utilities Index Allowance System

Annex - Fuel and Utility Paper

The Fuel and Utilities Index Allowance System could best be described as an administrative tool used to establish compensation levels for the increased cost of heating fuel and electricity in Isolated Posts. Given the generalized nature and the broad assumptions upon which it is based, the system cannot claim to accurately compensate a given individual for the added costs of these commodities. The complexity of a system that would provide individual compensation would necessitate detailed information and comparisons, requiring substantially more administrative and analytical resources than are currently available.

The Current System and Analysis

The Fuel and Utilities System as it exists today continues to improve on the methodology originally proposed by Statistics Canada and accepted by the Isolated Posts Committee of the National Joint Council in 1977.

Electricity and heating fuel only are considered in the calculation. The diversity of water billing methods vary from community to community to such an extent that it is often very difficult to arrive at a unit price for this utility. The weight (or expenditure) for water is assigned the weighted differentials of heating fuels and electricity to compensate for the assumed higher cost of this commodity at the post. Therefore, although not priced, the expenditure for water is included in the index by virtue of the index levels calculated for fuel and electricity.

Statistics Canada is asked to update the Fuel and Utilities indexes once per yearusing prices prevailing during the month of October. The process of review is generally two to three months for approximately 220 isolated posts currently included in the system.

It should be noted that, although the indexes are completed and released by Statistics Canada to the Treasury Board Secretariat upon completion, they are not officially adopted until accepted by the Isolated Posts and Government Housing Committee and included in the Isolated Posts and Government Housing Directive. In effect the allowance compensates federal employees according to price levels and conditions that existed during the previous year and is retroactive to October 1st of the year being reviewed.

The expenditure amounts on which the differentials are based are extracted from the Survey of Household Spending (SHS) and are currently derived from the most recent survey results. The expenditure amounts at each point of comparison are revised between SHS surveys through application of the appropriate Consumer Price Index (CPI) movement. An assumption is therefore made that consumption of each component of the index remains constant between SHS surveys.

For exampleas the price of furnace oil increases, measures such as added insulation, conversions to other heating sources (natural gas or electricity) and other forms of conservation may alter consumption habits during the time that the most recent "weights" are in use. The effects of such changes will only be reflected when subsequent expenditure surveys are completed and the new expenditure weights of electricity versus heating fuel and point of comparison dollar expenditures are implemented.

Electricity

It is assumed that electricity consumption in the north is not significantly different from that in the south (excluding heating). While employees in northern climes may expend more electricity during the dark season or for vehicle plug in, they may spend less during summer than those in southern climes for air conditioning and so on.

It is also assumed, based on new information from utility companies, that the average consumption of electricity is 700 kwh. per month (excluding heating).

The electricity index is based on the difference in the cost per kwh. at the post and the point of comparison using the average 700 kwh consumption. All information for the electricity calculations is obtained from municipal, provincial territorial and private utility companies.

Example calculation:
Power Company X Point of comparison Y
Basic customer charge $3.45
1st 225 kwh @ .0394 $8.87
Next 475 kwh @ .0277 $13.16
Total 700 kwh $25.48 Price per kwh  kwh  $ .0364

The index for electricity (excl. heat) is determined by the following equation:

Price per kwh (Post) multiplied by 100 divided by Price per kwh (Point of comparison)

Since the timing of rate increases vary from one utility company to the next, changes which occur at other than the review period are not reflected until the next update.

Heating Fuel Consumption

Consumption of heating fuel in northern areas is greater than in southern climes. Complex formulas have been developed to estimate fuel consumption differences, however they require detailed knowledge of individual circumstances of a particular dwelling and its inhabitants.

As an alternative estimation tool, reference is made to the attached extract from the "Supplement to the National Building Code of Canada". The National Research Council indicates that degree-days are reasonable indicator of consumption differences. (Also included in the extract is the definition of a degree-day).

The current system of establishing consumption difference between the isolated posts and southern Canada is calculated by averaging the degree-days of the base cities to determine a national average (4800 degree-days Celsius):

Consumption differential equals

degree days (Post) divided by National Average degree days

Fuel Index

The fuel index is based on the price of one litre of furnace oil (or the equivalent for natural gas, propane, or electric heat). In the majority of isolated posts furnace or stove oil is the fuel being used however, recent conversion factors for electric heat, natural gas and propane have been accepted by the Isolated Posts Committee for use in establishing post fuel indexes. Additionally, wood has been deemed to have the same price as that of the point of comparison. This decision was an administrative decision based on the recommendations of a sub-committee on fuel and utilities.

Generally, a combination of fuels is in use in the points of comparisons and it is necessary to average the prices using the ratio of expenditures for each type of fuel. Once the price at the point of comparison is calculated for the equivalent of 1 litre. of oil, the index is produced in the same fashion as the electricity index:

Price 1 litre oil (Post) multiplied by 100 divided by Price 1 litre oil (Point of comparison)

As with the electricity component, price changes that occur during the year can only be accounted for at the next review period. It has been observed that prices for fuel are generally reflective of the winter season when surveyed in October.

The main area of difficulty within the Fuel and Utilities update procedure is the determination of the price of fuel at the isolated posts. In some areas this information is available from central sources but generally telephone calls to local suppliers are required to obtain the current price. This is by far the most time-consuming aspect of the review. In this respect, the information that Statistics Canada requires from departments wishing to have additional Fuel and Utilities indexes established includes the following:

  1. supplier of electricity (if not a provincial or territorial utility)
  2. the type(s) of fuel used by employees at the post
  3. the supplier and the location of the heating fuel

Mixed Conventional Fuels

At posts where more than one fuel is in use, (e.g. oil and Natural gas) the relative importance of each is requested from the suppliers of the post as it applies to federal employees. The weighted importance of these prices is calculated accordingly.

Heating Index

The Heating Index is calculated by multiplying the Fuel Index by the Consumption Differential.

The Final Index

The Final index for each post is the combination of the Electricity and Heating Indexes using the ratio of expenditures on heating versus electricity at the point of comparison from the Survey of Household Spending.

(Electricity Index multiplied by ratio of expenditure for electricity) plus (Heating)

(Index multiplied by ratio of expenditure for heating) equals (Final Index).

The Fuel and Utilities Allowance Calculation

In recent years Statistics Canada has been asked to calculate the Allowance Differential Level as a verification check using the following formula:

(Final Index multiplied by base expend.) minus (1.15 multiplied by National Average expend.) equals Final Fuel & Utilities Allowance Differential

This Allowance Differential is then placed on the scale of Fuel and Utilities Allowances at the appropriate level in the Isolated Posts & Government Housing Directive.

Note:

The addition of 15% to the national average expenditure in the above formula reflects the intent of the Isolated Posts Directive to begin compensating federal employees once the post reaches 15% above the average costs in southern Canada.

It is not the intention of the IPD to compensate federal employees for fuel and utility costs unless they are paying directly to the suppliers. Employees in Crown-owned housing do not generally qualify for this allowance, as the cost of fuel and utilities is included in the rental charges. This system currently compares the isolated post to the point of comparison most closely associated to the region. Therefore valid comparisons between isolated posts in different regions having different base cities are not possible.

Further questions pertaining to the methodology used to calculate the Fuel and Utility Indexes may be directed to the Isolated Posts Unit, Government Allowance Indexes Section, Consumer Prices Division, Statistics Canada.

Appendix - The supplement to the National Building Code of Canada, 1990

Heating Degree-Days

The rate of consumption of fuel or energy required to keep the interior of a small building at 21º degrees C. when the outside air temperature is below 18º degrees C. is roughly proportional to the difference between 18º degrees C. and the outside temperature. Wind speed, solar radiation, the extent to which the building is exposed to these elements and the internal heat sources also affect the heat required, but there is no convenient way of combining these effects. For average conditions of wind, radiation exposure and internal sources, however, the proportionality with the temperature difference still holds. Heating degree-days based on temperature alone are, therefore, still useful when more complex methods of calculating fuel requirements are not feasible.

Since the fuel required is also proportional to the duration of cold weather, a convenient method of combining these elements of temperature and time is to add the differences between 18º degrees C. and the mean temperature for every day of the year when the mean temperature is below 18º degrees C. It is assumed that no heat is required when the mean outside air temperature for the day is 18º degrees C. or higher.

For all of the locations listed, degree days below 18º degrees C. have been computed day by day for the length of record available over the period 1951-1980, and an average annual total determined and published by the Atmospheric Environment Service. These values are given in the table to the nearest degree-day.

A difference of only one Celsius degree in the annual mean temperature will cause a difference of 250 to 350 in the Celsius degree-days. Since difference of 0.5ºC in the annual mean temperature are quite likely to occur between two stations in the same city or town, heating degree-days cannot be relied on to an accuracy of less than about 100 degree-days.

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