Some people are still upset with you the government for deregulating Alberta’s electricity industry. Consumers are frustrated with the extra charges included on their monthly utility invoices. Today, we will look at some of the taxes added to the utility bill that consumers are paying. Some are obvious; others are hidden.
We would also like to introduce you to Associate Minister Grant Hunter, whom we have asked to look at some of the Red Tape problems with deregulation. He has his hands full as he tries to unravel some of the costs that have caused utility bills to be higher than necessary.
First, an update. The story of deregulation of the energy industry in Alberta has been a 25-year work-in-progress meant to support opportunities, encourage investment in the province, and lower the energy cost for consumers by offering customer choice as a real option. I believe we are moving in the right direction, but there is still more to be done.
On the good news front, dozens of generators have invested over $20 billion of private-sector money in building new facilities. In 2000, the average cost of electricity dispatched onto the grid by generators was over 10 ¢/kWh. Today, it is under 5 ¢/kWh.
Dozens of new competitive retailers, privately owned and local, the likes of NewGen Energy, entered the market. Most are selling electricity below the Regulated Rate Option (RRO) offered by the “Big 5” in Alberta. Today more than ever, if homeowners or businesses want to reduce their utility bills, they simply need to shop around, switch, and save. Deregulation has been a success, yet some consumers are still upset!
Here is a look at a few reasons why.
What Does Linear Property Assessment Tax have to do with my Utility Bill?
One big mistake we feel made was allowing municipalities to add a form of property taxes to utility bills as part of the delivery cost to be absorbed by the consumer. The monthly utility bill paid by consumers is essentially being used as a taxation collection method.
You will see the Local Access Fees (billed on behalf of your municipality for the distributor for access to the land where the distribution system is built, maintained, and operated) on your monthly utility bill.
What you do not see is that some wires and gas distribution companies embed their Linear Property Tax (paid out to the local municipality) in their distribution rates. Retailers are not required to display these taxes on the utility bill, but they are there, hidden and artificially increasing the regulated distribution fees!
Over the last couple of decades, electricity and natural gas consumers have paid billions of dollars to municipalities in Local Access Fees (LAF) and property assessment taxes. Last year alone, those who live and work in Calgary paid out over $200 million in Local Access Fees plus the Municipal Taxes buried in their utility bills. To put this into perspective, the City of Calgary collected about four times more in taxes than the city’s utility paid in dividends on the profit made by ENMAX. In Edmonton, consumers paid over $64 million in Local Access fees to EPCOR and over $76 million in Municipal Franchise Fees to ATCO.
Are consumers being overtaxed?
We know that municipalities are struggling to survive, so maybe consumers should resign themselves to this fact and just pay the tax. Maybe Associate Minister Hunter cannot do anything about this! However, last year alone, consumers have been hit with over half a billion dollars in extra charges across the province. These fees have nothing to do with the cost of energy, transmission, or distribution services.
Here is what we want Mr. Hunter to look into. As owners of NewGen Energy and UTILITYnet.ca, independent retail businesses, we must post the equivalent of two months of taxes in security guarantees to the distribution company to ensure payment of the property taxes to all the various municipalities in which our customers live. If the consumer defaults, we have to pay the tax on behalf of the consumer and distributor. We don’t own the pipes in the ground nor the wires, so why is this liability on our shoulders? Payment of the taxes and security should not be our financial responsibility.
This anomaly in the system is what we would like the government to review. Possibly they can reduce the extra charges and securities posted that inevitably end up being charged to consumers to cover the risk of default. The same situation applies to the Carbon Tax. Why should the retailer have to pay the tax if the consumer or gas companies’ default? These are the type of tax manipulation strategies of the utilities that artificially cause the consumer’s utility bills to be higher than necessary.
For those who complain about deregulation, it’s essential to keep in mind that the taxes are the major hidden contributors. These taxes and fees artificially balloon the utility invoice that consumers have to pay. When all taxes aren’t transparent or disclosed on the utility bill or are not immediately evident to the consumer, it becomes extremely difficult for consumers to understand what they are paying. As such, it is easier for them to blame deregulation as a catch-all.
The way it is structured today, under the Linear Property Assessment Guidelines, the municipality charges the distribution company a tax; it is passed onto the retailer; the retailer passes it onto the consumer as part of the utility invoice. The retailer pays the distributor, and the distributor pays the municipality. The current system is convoluted. Just tax the consumer as part of their mill rate and cut out all the extra and needless steps in the process.
We have to ask the government, was this intended initially when the deregulation model was envisioned?
Hidden Charges
Everyone knows that the Federal Government adds their GST and Carbon Tax, and Municipalities add Local Access Fees. But what consumers do not see is the hidden tax buried into the cost of distribution and delivery charges.
The Municipal Government Act sets out the LAF and MFF calculations. The Electric Utilities Act sets out the distributor’s right to recover the tax, and the operator is subject to regulation by the Alberta Utilities Commission. The retailer ends up being the tax collector. If the government wants to reduce red tape, this is one area to examine.
Let's look at some examples.
Here is a sample of one Edmonton residential consumer's natural gas invoice during September:
Cost of Energy:
6%
Cost of Retailing Services:
9%
Cost of all Government Taxes:
28%
Regulated Distribution Fees:
57%
Let’s look at dissecting the amount of tax paid on a consumer’s electricity bill. The following is a list of some communities in Alberta and the taxes paid by consumers. As mentioned, the cost of electricity is half of what it was 20 years ago – and today, the taxation fees paid out to municipalities have increased disproportionately as a percentage of the cost of energy. If you live in Grand Prairie, whatever you paid for the electricity you consumed, you paid an additional 36% in taxes.
Compared to the cost of electricity that the customer consumed, in Airdrie, last month, residents paid an equivalent of 32% in additional taxes compared to those living in Mountain View County that paid 0%. The municipal taxes charged to electricity consumers in Calgary are almost twice as much as those billed to Edmonton consumers.
Taking the Lead on Transparency
It is time to stop hiding taxes on consumers’ monthly utility bills.
More transparency is needed so that consumers can truly understand where the charges on their utility bill originate. Our invoices are being redesigned at NewGen Energy our invoices are being redesigned to help provide this open transparency. All taxes will be separately listed on future monthly invoices.
Too bad you are not still around, Ralph Klein. I believe that Associate Minister Hunter might have benefited from your views on the market and this tax issue, specifically in light of the province trying to reduce red tape and improve its economic health.
Cheers
CC:
Jason Kenney, Premier Travis Towes, Minister of Finance Sonya Savage, Minister of Energy Tracy Allard, Minister of Municipal Affairs Grant Hunter, Associate Minister of Red Tape Reduction Dale Nally, Associate Minister of Natural Gas and Electricity