Alberta Taxpayers to lose $40 million to Electricity Subsidy in July and August
May 22, 2019: the UCP government announces Bill 1, an Act to Repeal the Carbon Tax. Scrapping the carbon tax:
July 24, 2019: Minister Savage announces that the move to a Capacity Market will be cancelled and Alberta will return to an Energy Only Market. This announcement will:
Today: the UCP government has announced that it will wait until the fall to review the RRO subsidy being paid to government regulated electricity providers under Bill 16. This decision will:
Urgent action is needed on Bill 16
Previously, revenue from the Carbon Tax was being used to fund the RRO subsidies. Now that the Carbon Tax has been cancelled, it is Alberta taxpayers who are on the hook.
By not acting swiftly to repeal Bill 16 as it had done with the carbon tax and the capacity market, the government has wasted millions in tax dollars.
Why do we say it was wasted?
Bill 16 was designed by the NDP to reward all regulated utilities and farming co-operatives. This wasn’t a cap on the cost of electricity generated, but rather, a way to protect the government regulated utilities’ margins while at the same time attempting to kill the competitive market.
With this subsidy there is no natural incentive for regulated utilities to control what they pay for the energy they purchase. If a regulated utility overpays for the electricity they buy from the grid, or as a result of poorly designed energy price setting plans, then they need not worry. Under Bill 16, the subsidies will make up for the difference between the actual cost of energy and the 6.8 cent/kWh “cap”.
If our government had an extra $40 or $50 million to spare this summer, possibly it should have been invested in social, educational, or green programs. Or, they could have kept this money in the bank to reduce the provincial debt.
The 6.8 cent Subsidy is Not Needed
It is important to understand that the Variable Floating Rate (charged by a competitive retailer) and the Regulated Rate (as set by the government regulated utility) changes every month based on what competitive retailers or utilities pay for the energy they purchase and their internal operating costs.
Here are the real numbers, based on what consumers paid for electricity this summer:
· On a variable floating rate offered by NewGen Energy during July 2019, the retail price was 5.6¢/kWh.
· The Regulated Rate Option (RRO), charged by EPCOR, ENMAX, and Direct Energy, saw average prices around 8.93 ¢/kWh but, because of Bill 16, consumers were only charged 6.8 ¢/kWh.
· The government subsidized the differential between the actual regulated cost of electricity and what was actually charged to RRO consumers, which works out to about 30% over and above the 6.8 ¢/kWh cap. To fund the inflated costs, $20 million was paid by Albertans in July.
· During August, the subsidy will go up another 10% and another $22.5 million will be gifted.
NewGen Energy was able to buy electricity through the Power Pool (AESO) and off of the same generators as all of the other regulated rate providers. We made a reasonable profit, our operating costs are lower due to efficiencies, and we were able to keep the retail price to consumers at 5.6 ¢/kWh, subsidy free.
The reality is that consumers on the government regulated rate paid over 20% more during July for the energy they consumed and the utilities were subsidized by an additional 30%. Consumers didn’t need to pay the 6.8 ¢/kWh and taxpayers didn’t need to pay out $20 million in subsidies.
The government, as well as the Utilities Consumer Advocate should be encouraging consumers to wake up and jump off of the regulated rates. This would help consumers save money, and while the government makes a decision on repealing Bill 16, will save the province millions each month.
There are four important lessons to be learned from the NDP Bill 16 issue:
1. Subsidies seldom work: someone will always figure out how to take advantage of the system and get their hands-on free money.
2. Nothing is free: the government doesn’t have a printing press. The money being used to fund the subsidy is coming out of the pockets of taxpayers.
3. Consumers have a choice when buying electricity: they should get off the government regulated rates and during July they would have paid less.
4. The government NEEDS to take swift action against Bill 16: if not, then the subsidy will continue to cost taxpayers, will needlessly continue to marginalize the competitive market, and will play into the NDP’s strategy in its attempt to degrade the benefits of Alberta’s deregulated market.
Half of Alberta consumers have already moved off of the Regulated Rate Option, yet some may try to argue that the 6.8 cent subsidy is designed to protect vulnerable Albertans. This isn’t the case. There are over 30 competitive retailers in Alberta and even the old incumbent utilities offering lower competitive rates compared to the RRO. With these other options, there is no need for the government to be subsidizing the regulated rate providers out of our tax dollars.
If the government truly wants to offer consumers lower rates, then maybe they should consider opening up the option of competitive retailers offering consumers a government sponsored regulated rate. Break up the RRO monopoly. Competition will bring down prices.
It is time to kill Bill 16 and encourage consumers to shop around for the best rates available. The best place for consumers to start looking is the Utility Consumers Advocate website, which provides a cost comparison tool that lists many of the retailers in Alberta and their prices.