Alberta Government Picking Winners and Losers in Electricity Market
Governments everywhere have repeatedly proven that they are failures in picking winners and losers.
And; here we go again!
Alberta Electricity 101 says that if you as an electricity consumer choose not to lock in your prices with a fixed rate contract, you are placed on what is classified as a Regulated Rate Option (RRO). The RRO is a profit guarantee to the select few electricity retailers which the government has awarded this privilege to. Each and every month these selected retailers file their rates to the government, this is the process of requesting permission to charge their customers the price of power for each specific month plus a guaranteed profit. The formula includes the power they purchase on your behalf, overhead, management fees, and a host of other costs. Finally, at the bottom of the page they add in their profit. Guaranteed!
On June 1 of 2017, the Alberta provincial government announced that they would guarantee Alberta customers on the RRO that they would pay no more than 6.8 cents/kWh until May 31, 2021. In other words, no matter what the wholesale price of power , the government would cover the costs above and beyond the 6.8 cents/kWh mark. Inflation, a jump in the price for fuel used to generate electricity which increases power prices, untimely generator breakdowns which create electricity scarcity and higher prices, or a host of other issues will not impact your personal costs. What a deal!
At the face of it this was great news for electricity consumers. Imagine a fixed price and no effort required to take advantage of the program. The domino effect of this announcement though has not yet been fully appreciated by Albertans.
As a citizen of the province, you are now on the hook for your neighbour’s profligate use of electricity.
Here is why you should be concerned. Industry experts have estimated that this well-meaning program will actually cost the provincial coffers as much as $1 billion during the period of this program. Your personal income taxes will have to jump up to pay for that debt or it will be hidden in other parts of your electricity bill. That neighbour we mentioned earlier? They are tapping into your wallet to help pay their light bill as they have no incentive to reduce their costs.
Just this last week, the Alberta government announced a major new initiative to encourage energy efficiency in Alberta homes. The government will actually help you through a special program that will finance everything from light bulbs to new appliances. Meanwhile, by guaranteeing an artificially low price for your electricity, they have taken away any incentive at all to reduce your power consumption. You can reduce the amount of power when you buy that new refrigerator or energy efficient air conditioner (financed by the government) but your neighbour has no real incentive to turn off their porch light during the day.
Now we get to the best part.
Remember the RRO? Only a very few select Alberta power retailers have been chosen to administer the RRO. Those very few major companies selected to administer this program are absolutely guaranteed a profit.
Did you know that there are more than 25 electricity retailers in Alberta, yet only four of these have been allowed to profit from the RRO? At this point in time about 55% of all electricity consumers are still on the RRO, which means that 55% of consumers are guaranteeing that these 4 major companies are showing a profit, while all other retailers in the province are left out in the cold.
One of these silver-spoon companies has their head office outside of Canada. The Alberta government in its infinite wisdom has chosen to send “profit” from Alberta’s electricity business to a company with headquarters and employees outside of Canada. In another case, many of their accounting functions and the people that you call when there is a billing problem reside in another country entirely. Ever wondered why you are speaking to a customer service rep in Guatemala when you are located in Alberta? In other words, the money the government spends to prop up these major companies is in fact paying a living wage to everyone except an Albertan.
Of all the retailers in Alberta, the government has chosen to allow only the largest ones or those with headquarters outside of the province to profit on the RRO. They will be getting some of their profit from the $1 billion debt which will be accumulating in Alberta to support your guaranteed low power prices and which you will be supporting through your tax dollars.
Isn’t that great? The companies that hire Alberta employees and pay taxes to our provincial government are being sidelined so that the government can prop up the largest electricity companies and their operations overseas. You have the distinct privilege of paying higher taxes to support them.
What a deal!!
VP Business Development, NewGen Electricity