Energy Costs Spike. Alberta RRO Utilities to Pay Generators More Than $70/MWh for Energy, up 90% from March
By: Nick Clark
RRO utilities will be subsidized. Changes to Alberta’s energy market will hurt consumers, small businesses and core industries including the oil and gas sector. Will the pain be worth the gain?
The electricity industry used to be easy to understand. In a stable and unmanipulated market, the cost of energy is driven by normal supply and demand economics. Basically, the cost of energy charged by generators drives retail prices. The Alberta Utilities Commission (AUC) regulates the delivery of energy to consumers and the generators in the province produce and sell into the market based on an orderly bidding process.
During the last few years we have enjoyed the lowest prices paid for electricity in a couple of decades. This is about to change. As reported in the Calgary Herald this morning, forward markets show that electricity prices are expected to jump above $70/MWh in April.
Because of the electricity price cap introduced by the government, high prices next month mean the government will have to start paying out, likely to the tune of about $5-$10 million in April, Blake Shaffer, a fellow-in-residence at the C.D. Howe Institute, told the Calgary Herald. In 2018 it is estimated to cost the government $50 million. EDC Associates Ltd, an independent energy-consulting firm from Calgary, forecasts that by the end of its term in May 2021, the RRO price cap could cost Alberta almost $700 million.
Since de-regulation, consumers have been given many retail choices including competitive fixed or floating rate plans, including the flexibility of being able to move between plans without penalty. Despite lower priced and stable rate options offed by competitive retailers, some consumers have remained on the governments Regulated Rate Option (RRO) and have historically, paid more for their electricity. It’s time to stop. Get off the RRO subsidized government rate. Support independent retailers and pay less.
As a baseline, consumers have enjoyed 3.4 cent/kWh electricity for last couple of years. So far this year, the wholesale cost of energy has increased by 60%. On the consumers electricity bill, it went from the 3-cent range to 5 cents/kWh.
Next on the horizon is the start of the closing and conversion of coal generation plants. The impact of this is going to be felt by consumers in April. Today, the utility providers of the RRO are paying over $70 per MWh. This is a 100% increase over the first 90 days and up to 200% over the average price paid in 2017.
*Posted NGX Flat Index Cost of Electricity
To protect those consumers still on the RRO from the full impact of the increase in wholesale costs, the government has capped the RRO price at 6.8 cents/kWh (which if translated to the cost of energy is equivalent to $55/MWh).
What does this cap really mean? If the cost of energy goes above the $55/MWh threshold, someone has to pay the generators to continue to produce. Where is the money coming from to fund the subsidy? It is money coming out of Albertans’ pockets. Money paid in the form of the Carbon Tax. Tax everyone and give subsidies to big utilities (some of the same companies that shipped jobs out of the province to help lower their operating costs). Is this the best solution?
“It has merit as a political decision. In terms of an economic decision, its less than optimal,” said energy economist David Gray, former head of Alberta’s Utilities Consumer Advocate, in a Calgary Herald article. “Does it make sense to levy a tax on the one hand, and then give a big refund on the other?”
50% of Albertans have moved off of the RRO because the competitive market retailers offered better prices. As an example, we looked at all of the historical invoices of the first customer who left the RRO and signed up with competitive Energy Marketer, Spot Power, in November of 2007. Cumulative savings today has totalled $2,899.19 on consumption of energy alone. Depending on how much energy a consumer uses, the savings will differ, but isn’t $3,000 better in your pocket than the pockets of the big utilities?
With the government now subsidizing the RRO providers they are creating a unlevel playing field. Why does our government want to go to battle with the private sector? Why is the government using my tax dollars to unfairly compete with us? Is this intentional? Or is this just short-term pain for a long-term gain?
Problems started in late 2015 after the NDP government raised the carbon levy on large greenhouse gas emitters – such as coal-fired power plants – it triggered an opt-out clause in the Power Purchase Agreements (PPAs). PPAs are managed by the Balancing Pool, an agency of the government. This became a legal battle with the latest decision being delivered this month by the courts. The government lost. It has been speculated that the government agency will lose an estimated $2.5 billion which also has to be financed by consumers. Historically the Balancing Pool used to rebate consumers profits on the income earned from the PPAs. In 2018, the Balancing Pool needs to collect $190 million from consumers to fund this year’s shortfall. To cover the losses, for many years to come, consumers will see a debit on their utility bill which once used to be a credit. These charges could have been avoided if the PPAs were simply left to expire in 2020 without penalties. A rush to restructure the industry has proven costly. But $2.5 billion in losses is just the tip of the iceberg.
The challenge: where is the government going to get new money or how are they going to attract additional capital to invest in Alberta’s new generation strategies? An estimated $25 billion is required to be invested into new generation if the government is going to achieve its goals of 30% renewable energy generation in Alberta by 2030. Somewhere in the mix of things, consumers will end up paying this bill.
The new concept of capacity payments is deemed necessary to entice new investment to build 5,000 MW of renewable power generation in Alberta, as well as the additional new plants required for backup. What will be the impact on consumers? Still unknown is how the cost of the capacity payments will appear on the consumers monthly invoice. Will it be added to the cost of energy, added to the fees collected by the Balancing Pool or buried in the cost of transmission?
Option M was introduced to compensate Distributed Generators (DG), which refers to smaller-sized generation projects (generally less than 20MW) that are directly connected to the lower voltage local electricity distribution systems that service consumers, thus avoiding being connected to the Transmission Grid. DG’s convinced the government that because they didn’t use the transmission system, then the avoidance of costs should be paid to them rather than being passed along to electricity consumers. Local community generation, doesn’t save money for consumers but rather increases the DG profits. Somehow, this doesn’t really sound kosher. At the same time, the money earned by Micro Generators exporting into the grid is also funded through higher transmission costs charged to consumers as a hidden subsidy program.
How much money has been collected from consumers through inflated transmission fees to subsidize these programs? Wouldn’t it be nice if our government was open and offered consumers transparency in the numbers? Remember: Transmission and Wires Distribution fees are regulated by the government. The only portion of Alberta’s deregulated program that worked for the benefit of consumers was the introduction of competitive retailers and the cost of energy provided by the competitive market.
Alberta Energy recently released a document outlining the Government of Alberta’s policy direction for the capacity market. The document can be found here. Once implemented the generators will have one stream of income based on the energy they produce and sell into the grid and another stream which will compensate them for the capacity of their generation facility. This will be another layer added on top of the Carbon Tax in addition to the money that the Balancing Pool is now indebted as it relates to the cost of cancelling PPAs.
How can a typical consumer really keep tabs on how many dollars are being spent by the government in its 30 by 30 master plan? Here is a link that consumers might want to monitor: http://eralberta.ca/. $327 million has been invested in projects that are innovative and many indeed generate a valuable contribution to our economy. The roadmap created by Emissions Reduction Alberta is impressive.
Notwithstanding, many of the good investments being made, many people question the value of other programs. The list of subsidies just keeps growing and so does the provincial debt. Consumer energy bills are going to continue to increase. Where do you think all this money is coming from? So much money is being spent it is hard to keep track. While every project probably has a value proposition that may be perceived to be worthwhile; can we continue to spend money we don’t have? We asked Finance Minister, Joe Ceci to provide a balance sheet of money being spent, but he has not responded to our request.
The rulebook is changing as Alberta transitions its generation fleet from one that was once dominated by coal to one that will be dominated by renewables and natural gas. Doing business in Alberta is increasingly risky and the biggest threat to a stable market is a rubrics cube of unknown government policies, subsidies, and the rush to redesign the market on a very tight timetable. How does all of this impact our business and consumers pocket books?
The UPC talks about repealing the Carbon Tax and this is a political sound bite that may resonate with some voters, but the tax and the never-ending subsidies being handed out is a small part of the problem taxpayers are facing. The carbon tax is just a $5 billion issue. Yet, if it is going to cost $25 Billion to revamp the generation matrix in Alberta; how and who is going to pay for this massive build up of renewables? Some taxpayers are worried today about the province’s $10 billion budget deficit – shouldn’t we be concerned about closing down operational generation plants before their normal end of life and creating a capacity market that will artificially increase the cost of energy to all Albertans?
Interestingly, the problems we are facing in Alberta are no different than elsewhere in the world as politicians are focused on restructuring the energy grids. Are we heading down the same path that others have followed? Ontario residents today are suffering with the term ‘Energy Poverty’. Here is an article on how they got there and why the plan will not work. In Southern Australia, this month they voted out the Labor Party over their governments renewable energy policy and the choice between solar and wind energy backed by Labor and coal backed by the conservative government. South Australia invested in wind and solar and has the highest electricity prices in their country. They are also suffering from repeated blackouts when intermittent wind power is insufficient and back-up power from coal and gas is unavailable. Here in Alberta, we need to learn from mistakes made by others.
Now our government is threatening to cut exports of products from Alberta to BC at the same time the cost of production is going up. Is doubling down on the pain good for our economy? Tim McMillan, president of the Canadian Association of Petroleum Producers (CAPP) cautioned that curtailing shipments of production from Alberta to BC could further damage our energy sector. The ripple effect will be felt by so many people it is hard to quantify.
Support your local independent retailer of electricity and natural gas. Get off of the government’s RRO. Continue to support the strategy of greening the grid, as in the long term it truly makes sense, but do so at a measured pace and ask our government to invest dollars wisely and don’t spend money we don’t have. Consumers on the RRO will pay 6.8 cents/kWh on April 1, so get off of this rate and find a retailer that will offer competitive rates below this cap. Shop around and buy locally. Stop supporting the big utilities that exported jobs offshore and are now being subsidized by the government to keep the RRO cap at 6.8 cents/kWh.
UTILITYnet continues to promote green options and supports the following Energy Marketers. If you want to get off of the government RRO – here is a list of retail options that are worth checking out. All have rates lower than your utilities RRO rates, guaranteed until December 31, 2023, with no penalty to cancel. We are offering low rates to help give consumers a bridge over what is proving to be turbulent times in Alberta’s energy market.
The electricity industry used to be easy to understand. In a stable and unmanipulated market, the cost of energy is driven by normal supply and demand economics. Basically, the cost of energy charged by generators drives retail prices. The Alberta Utilities Commission (AUC) regulates the delivery of energy to consumers and the generators in the province produce and sell into the market based on an orderly bidding process.
During the last few years we have enjoyed the lowest prices paid for electricity in a couple of decades. This is about to change. As reported in the Calgary Herald this morning, forward markets show that electricity prices are expected to jump above $70/MWh in April.
Because of the electricity price cap introduced by the government, high prices next month mean the government will have to start paying out, likely to the tune of about $5-$10 million in April, Blake Shaffer, a fellow-in-residence at the C.D. Howe Institute, told the Calgary Herald. In 2018 it is estimated to cost the government $50 million. EDC Associates Ltd, an independent energy-consulting firm from Calgary, forecasts that by the end of its term in May 2021, the RRO price cap could cost Alberta almost $700 million.
Consumer electricity prices are on the rise
2018 will be marked as the year when the market is faced with the first wave of the tsunami which will make landfall on April 1. When politicians attempt to manage the market and unwittingly make changes to the normal supply and demand curve, there will always be some unintended consequences.Since de-regulation, consumers have been given many retail choices including competitive fixed or floating rate plans, including the flexibility of being able to move between plans without penalty. Despite lower priced and stable rate options offed by competitive retailers, some consumers have remained on the governments Regulated Rate Option (RRO) and have historically, paid more for their electricity. It’s time to stop. Get off the RRO subsidized government rate. Support independent retailers and pay less.
As a baseline, consumers have enjoyed 3.4 cent/kWh electricity for last couple of years. So far this year, the wholesale cost of energy has increased by 60%. On the consumers electricity bill, it went from the 3-cent range to 5 cents/kWh.
Next on the horizon is the start of the closing and conversion of coal generation plants. The impact of this is going to be felt by consumers in April. Today, the utility providers of the RRO are paying over $70 per MWh. This is a 100% increase over the first 90 days and up to 200% over the average price paid in 2017.
Cost of Energy (Dollars/MWh) Paid to Generators
| Last Year | $22.18 |
| 2018 YTD | $35.57 |
| April 2018 RRO Cost* | $74.34 |
| Balance of 2018 (forward market estimate) | $61.85 |
*Posted NGX Flat Index Cost of Electricity
To protect those consumers still on the RRO from the full impact of the increase in wholesale costs, the government has capped the RRO price at 6.8 cents/kWh (which if translated to the cost of energy is equivalent to $55/MWh).
What does this cap really mean? If the cost of energy goes above the $55/MWh threshold, someone has to pay the generators to continue to produce. Where is the money coming from to fund the subsidy? It is money coming out of Albertans’ pockets. Money paid in the form of the Carbon Tax. Tax everyone and give subsidies to big utilities (some of the same companies that shipped jobs out of the province to help lower their operating costs). Is this the best solution?
“It has merit as a political decision. In terms of an economic decision, its less than optimal,” said energy economist David Gray, former head of Alberta’s Utilities Consumer Advocate, in a Calgary Herald article. “Does it make sense to levy a tax on the one hand, and then give a big refund on the other?”
50% of Albertans have moved off of the RRO because the competitive market retailers offered better prices. As an example, we looked at all of the historical invoices of the first customer who left the RRO and signed up with competitive Energy Marketer, Spot Power, in November of 2007. Cumulative savings today has totalled $2,899.19 on consumption of energy alone. Depending on how much energy a consumer uses, the savings will differ, but isn’t $3,000 better in your pocket than the pockets of the big utilities?
With the government now subsidizing the RRO providers they are creating a unlevel playing field. Why does our government want to go to battle with the private sector? Why is the government using my tax dollars to unfairly compete with us? Is this intentional? Or is this just short-term pain for a long-term gain?
Other Major Challenges Facing Alberta’s Energy Market
Today, we are facing major and new challenges. As outlined in the provincial Climate Leadership Plan, some of the current power plants will be dismantled and the market will be restructured to adopt the concept of capacity payments. Historically, Alberta’s generators and industries have always invested in a stable and predictable market. This has proven true in Alberta when you consider that over the last couple of decades power producers in Alberta privately invested about $17 billion in building the current fleet of generation. What does the future look like? What are consumers going to have to fund as part of the Climate Leadership Plan?Problems started in late 2015 after the NDP government raised the carbon levy on large greenhouse gas emitters – such as coal-fired power plants – it triggered an opt-out clause in the Power Purchase Agreements (PPAs). PPAs are managed by the Balancing Pool, an agency of the government. This became a legal battle with the latest decision being delivered this month by the courts. The government lost. It has been speculated that the government agency will lose an estimated $2.5 billion which also has to be financed by consumers. Historically the Balancing Pool used to rebate consumers profits on the income earned from the PPAs. In 2018, the Balancing Pool needs to collect $190 million from consumers to fund this year’s shortfall. To cover the losses, for many years to come, consumers will see a debit on their utility bill which once used to be a credit. These charges could have been avoided if the PPAs were simply left to expire in 2020 without penalties. A rush to restructure the industry has proven costly. But $2.5 billion in losses is just the tip of the iceberg.
The challenge: where is the government going to get new money or how are they going to attract additional capital to invest in Alberta’s new generation strategies? An estimated $25 billion is required to be invested into new generation if the government is going to achieve its goals of 30% renewable energy generation in Alberta by 2030. Somewhere in the mix of things, consumers will end up paying this bill.
The new concept of capacity payments is deemed necessary to entice new investment to build 5,000 MW of renewable power generation in Alberta, as well as the additional new plants required for backup. What will be the impact on consumers? Still unknown is how the cost of the capacity payments will appear on the consumers monthly invoice. Will it be added to the cost of energy, added to the fees collected by the Balancing Pool or buried in the cost of transmission?
Hidden Costs
Have you ever wondered, what is actually buried and hidden in the transmission fees that is over and above the actual cost of building and managing the provincial transmission grid? To try to keep the cost of energy low, there is a little-known secret sauce called Option M which pays some of the community-based generators through transmission fees collected from consumers.Option M was introduced to compensate Distributed Generators (DG), which refers to smaller-sized generation projects (generally less than 20MW) that are directly connected to the lower voltage local electricity distribution systems that service consumers, thus avoiding being connected to the Transmission Grid. DG’s convinced the government that because they didn’t use the transmission system, then the avoidance of costs should be paid to them rather than being passed along to electricity consumers. Local community generation, doesn’t save money for consumers but rather increases the DG profits. Somehow, this doesn’t really sound kosher. At the same time, the money earned by Micro Generators exporting into the grid is also funded through higher transmission costs charged to consumers as a hidden subsidy program.
How much money has been collected from consumers through inflated transmission fees to subsidize these programs? Wouldn’t it be nice if our government was open and offered consumers transparency in the numbers? Remember: Transmission and Wires Distribution fees are regulated by the government. The only portion of Alberta’s deregulated program that worked for the benefit of consumers was the introduction of competitive retailers and the cost of energy provided by the competitive market.
Alberta Energy recently released a document outlining the Government of Alberta’s policy direction for the capacity market. The document can be found here. Once implemented the generators will have one stream of income based on the energy they produce and sell into the grid and another stream which will compensate them for the capacity of their generation facility. This will be another layer added on top of the Carbon Tax in addition to the money that the Balancing Pool is now indebted as it relates to the cost of cancelling PPAs.
How can a typical consumer really keep tabs on how many dollars are being spent by the government in its 30 by 30 master plan? Here is a link that consumers might want to monitor: http://eralberta.ca/. $327 million has been invested in projects that are innovative and many indeed generate a valuable contribution to our economy. The roadmap created by Emissions Reduction Alberta is impressive.
Notwithstanding, many of the good investments being made, many people question the value of other programs. The list of subsidies just keeps growing and so does the provincial debt. Consumer energy bills are going to continue to increase. Where do you think all this money is coming from? So much money is being spent it is hard to keep track. While every project probably has a value proposition that may be perceived to be worthwhile; can we continue to spend money we don’t have? We asked Finance Minister, Joe Ceci to provide a balance sheet of money being spent, but he has not responded to our request.
The rulebook is changing as Alberta transitions its generation fleet from one that was once dominated by coal to one that will be dominated by renewables and natural gas. Doing business in Alberta is increasingly risky and the biggest threat to a stable market is a rubrics cube of unknown government policies, subsidies, and the rush to redesign the market on a very tight timetable. How does all of this impact our business and consumers pocket books?
The UPC talks about repealing the Carbon Tax and this is a political sound bite that may resonate with some voters, but the tax and the never-ending subsidies being handed out is a small part of the problem taxpayers are facing. The carbon tax is just a $5 billion issue. Yet, if it is going to cost $25 Billion to revamp the generation matrix in Alberta; how and who is going to pay for this massive build up of renewables? Some taxpayers are worried today about the province’s $10 billion budget deficit – shouldn’t we be concerned about closing down operational generation plants before their normal end of life and creating a capacity market that will artificially increase the cost of energy to all Albertans?
Interestingly, the problems we are facing in Alberta are no different than elsewhere in the world as politicians are focused on restructuring the energy grids. Are we heading down the same path that others have followed? Ontario residents today are suffering with the term ‘Energy Poverty’. Here is an article on how they got there and why the plan will not work. In Southern Australia, this month they voted out the Labor Party over their governments renewable energy policy and the choice between solar and wind energy backed by Labor and coal backed by the conservative government. South Australia invested in wind and solar and has the highest electricity prices in their country. They are also suffering from repeated blackouts when intermittent wind power is insufficient and back-up power from coal and gas is unavailable. Here in Alberta, we need to learn from mistakes made by others.
Impacts Beyond Residential Consumers
It is important to remember one of Alberta’s major industries, the Oil and Gas sector. Notwithstanding that they have been hit hard with the drop in global oil prices, when the cost of electricity jumps next month it will immediately hit the bottom line of one of our core industries. Did you know that one of the highest operating cost line items on the balance sheet of the petroleum industry is the cost of electricity? April 1, operating costs are going up.Now our government is threatening to cut exports of products from Alberta to BC at the same time the cost of production is going up. Is doubling down on the pain good for our economy? Tim McMillan, president of the Canadian Association of Petroleum Producers (CAPP) cautioned that curtailing shipments of production from Alberta to BC could further damage our energy sector. The ripple effect will be felt by so many people it is hard to quantify.
What can you do?
Being an informed consumer is the best way to protect yourself. Accept the premise that competition in the market works. Deregulation of the energy industry brought billions of investment dollars into the province and retail prices came down.Support your local independent retailer of electricity and natural gas. Get off of the government’s RRO. Continue to support the strategy of greening the grid, as in the long term it truly makes sense, but do so at a measured pace and ask our government to invest dollars wisely and don’t spend money we don’t have. Consumers on the RRO will pay 6.8 cents/kWh on April 1, so get off of this rate and find a retailer that will offer competitive rates below this cap. Shop around and buy locally. Stop supporting the big utilities that exported jobs offshore and are now being subsidized by the government to keep the RRO cap at 6.8 cents/kWh.
UTILITYnet continues to promote green options and supports the following Energy Marketers. If you want to get off of the government RRO – here is a list of retail options that are worth checking out. All have rates lower than your utilities RRO rates, guaranteed until December 31, 2023, with no penalty to cancel. We are offering low rates to help give consumers a bridge over what is proving to be turbulent times in Alberta’s energy market.
- Adagio Energy
- Bow Valley Power
- Brighter Futures Energy
- Camrose Energy
- DGN Power
- ENRG Power
- Echo Energy
- EMCO Energy
- Fluent Utilities
- Foothills Energy Co-op
- Get Energy
- Mountain View Power
- NewGen Energy
- Oasis Power
- Reset Energy
- Sandstone Energy
- Solarmax Power Inc.
- Spot Power
- UTILITYnet.ca
- Vector Energy