DBRS Places Pacific Northern Gas Ltd. Under Review-Negative

Dominion Bond Rating Service (“DBRS”) has today placed the ratings of Pacific Northern Gas Ltd. (“PNG” or the “Company”) “Under Review with Negative Implications”.

Rising natural gas prices and the prevalence of dual-heating source residential customers (wood and natural gas) are the key reasons for the placing of PNG under review.

In addition, there is the negative impact of high natural gas prices on the competitive position of energy-intensive industries, most recently evidenced by the August 30, 2005, announcement by Methanex of the permanent closing of its Kitimat, B.C. methanol plant. As a result of rising natural gas prices, which is the main feedstock for the production of methanol, the plant had become economically non-viable. The anticipated closing is in March 2006. As the source for roughly 24% of PNG’s net revenues and 67% of the Company’s throughput volumes, this plant closing is considered a material event for the Company. DBRS notes that the Company will be receiving a one-time termination payment equal to the present value of the take-or-pay contractual amounts, amounting to Cdn$23 million, expected to be booked in February 2006. The Company will be amortizing the payment over the life of the former contract, to 2009, such that the existing customer base should not realize the impact of the Methanex closure in their rates. However, this is subject to British Columbia Utilities Commission (“BCUC”) approval. The ongoing implication of the contract being terminated on PNG’s financial results from 2009 onwards is yet to be determined.

DBRS is of the view that the BCUC is a supportive regulator and expects that the BCUC will continue to permit full cost-of-service recovery. Continuing increasing commodity costs will result in higher customer rates, as these costs are pass-through, and could lead to switching from natural gas by the dual-source customers mentioned above.

Overall, DBRS will base its rating on the outcome of the regulatory decision regarding the treatment of the loss of Methanex, as well as the longer term commodity cost impact on the Company’s customer base and expected future earnings. Of particular concern is that, while the BCUC is likely to permit higher customer rates to compensate for higher commodity costs, it will not prevent the downward spiral caused by falling volumes, pushing tolls even higher and leading to further volume declines.