A Letter to Minister Margaret McCuaig-Boyd: The biggest loser with the proposed electricity price cap will be the consumer
By: Nick Clark
Dear Minister:
On Tuesday, you tabled Bill 16: An Act to Cap Regulated Electricity Rates. The new bill will allow the government to place a cap on the Regulated Rate Option (RRO) for electricity. The retail price cap of 6.8 cents per kilowatt-hour will apply to those consumers on the RRO until May 31, 2021.
The subsidy, funded wholly from the Carbon Levy, will be paid to the RRO Utilities, Rural Electrification Associates (REAs) and the City of Medicine Hat to cover the difference between the calculated monthly RRO price and the government set cap of 6.8 cents per kWh.
All consumers in Alberta pay into the Carbon Levy but not all consumers will benefit from this subsidy. A policy that subsidizes only part of the population while requiring everyone to fund it is simply wrong. We are all Albertans and should be treated fairly.
The subsidy payment will go to the RRO providers who are guaranteed a marginal profit based on their individual Energy Price Setting Plans. We ask you to realize that some of the utilities you are subsidizing will now be going to utilities who have shipped Alberta jobs out of the province (Enmax to Tata; ATCO to Wipro; and Direct Energy to HCL). These jobs were once provided by Albertans in fields such as Information Technology, Customer Care, and Billing Services. Subsidizing RRO providers that shipped jobs to India, Guatemala or Ontario out of Carbon Levy dollars is not right.
The main message touted by the government for this new bill is "protection of the consumer from price fluctuations". Dear Minister, it is wrong to base your decisions on what RRO prices looked like in 2012 and 2013. Market conditions have changed. The market over the last three years has been stable and today, consumers are paying 3 cents for energy, not the 15.3 cents that was seen in the past. Are you expecting wholesale power prices to spike again given the various energy policies that you are planning on undertaking? If the wholesale market collapses and we see a return to 15.3 cent retail prices this will cost the government almost $120 million a month. Is this what you are anticipating?
The Cost of Energy is Not the Problem
What does the average consumer bill look like today?
Below is an example of a residential customer located in ATCO's Wires territory who is buying electricity from Spot Power, a competitive market participant.
The charges on an electricity bill can be split into two categories, regulated and de-regulated. De-regulated charges vary depending on which provider you choose to supply you with electricity. Regulated charges are set by the Wires company which services your area and remain the same, no matter who you choose to provide you with energy.
De-regulated charges include:
- The cost of electricity consumed (₵/kWh)
- Administration fees
- Balancing Pool Allocation
- Delivery Charges
- Local Access Fees
Clearly the cost of energy is not the problem.
Over the last four years, energy prices have declined every month – year after year. It was the private sector that invested $17 Billion in building generation facilities, and consumers have benefited. Today, retail prices indexed to the cost of energy have never been lower. If the cost of energy isn't the problem, possibly the cap should be applied to the cost of distribution and transmission. Consumers can buy electricity today for between 3 to 4 cents per kWh but pay two times and as much as five times more for the cost of delivery.
New Policies Will Cause Energy Costs to Rise
Closing coal plants, a conversion to natural gas, subsidies for solar PV, bailing out the Balancing Pool, and capacity payments being made to new generators will all contribute to pushing up the cost of generation.The total annual load that is eligible for the RRO is about 19 terawatt hours (TWh) translated on average to 1,600,000,000 kWh per month. This accounts for about 40% of the load settled through the Alberta Load Settlement System. If the wholesale market increases, thus causing the RRO to go above 6.8 cents per kWh, it is going to cost $10 million to $16 million in subsidies per month for every cent per kWh increase in the wholesale price. Wouldn’t we be wiser to spend this money on subsidizing programs that would increase the quality of our life or help reduce the carbon footprint, rather than manipulating the market?
What if the RRO spikes to 15.3 cents per kilowatt hour again? Under the cap that has been imposed, this would cost the government (consumers) $119 million during that particular month. This program could bankrupt the Carbon Levy fund and will do nothing to reduce our carbon footprint. Does the Carbon Levy fund have enough money in the budget to fund the additional expense?
A question to consumers: where do you think the money is coming from that will be used to fund the cap? Where?
Out of one pocket and into the other.
Industry who is consuming 60% of the load in Alberta will be required to step up to subsidize the subsidy.
A higher cost of electricity will hurt consumers as well as our manufacturing and industrial sectors. When this happens, we start to lose the Alberta competitive advantage
Does our government want to kill the Competitive Electricity Market?
It is the competitive retailers in the market that drive innovation and are constantly introducing new products and services. The RRO cap will artificially tilt the playing field towards the RRO providers and away from competitive market participants. Those who will profit from the end of the competitive market are the same players who exported jobs out of the province. With unemployment still far too high; why are we going to subsidize RRO providers who shipped jobs out of the province?
The Carbon Levy is being used to subsidize 40% of the load in the province, yet the other 60% are not eligible for the subsidy but are required to pay. This taxation program isn’t fair. It will hurt the private sector, and in the long run, consumers.
We are asking you to avoid harming private sector businesses, the likes of Spot Power, and scores of others that have invested in this province.