Plan to help Albertans with high electricity prices could leave post-election hangover
Regardless of who wins election, more electricity headaches expected
A plan to help approximately 600,000 Alberta customers deal with a spike in their power bills earlier this year will have a lengthy hangover, a Calgary economist says.
Under the plan developed by the United Conservative Party government, consumers on the default power rate (known as the regulated rate option or RRO) were charged a maximum of 13.5 cents per kilowatt hour during the months of January, February and March.
Anything beyond the 13.5 cents is to be paid by customers but spread over 21 months. Those deferred amounts started showing up on bills in April, and the monthly recoveries will remain until the end of 2024.
Three electrical utilities, Epcor, Enmax and Direct Energy, provide power to RRO customers. They charged between 18 and nearly 33 cents per kilowatt hour during the first quarter of this year.
It means a deferred bill of $200 million was built up.
The provincial government gave the utilities interest-free loans to cover the cost. Now, the utilities are collecting the deferred amounts from their customers to pay back the government.
For an assistant professor of economics at the University of Calgary, Blake Shaffer, the plan is a bit of a throwback.
"It's kind of like back in the day when Sears existed and you could buy now and pay later," said Shaffer.
The deferral plan currently adds about 2.5 cents/kWh to the monthly bill for those customers who don't have a fixed price contract with a provider.
"But here's the twist," said Shaffer.
"If you were on the RRO in Q1 and then come April or whenever, say today, I don't really like paying back that cost. I'm going to switch. I'm going to go and get a fixed rate. You're free to do that."
He said those who leave the RRO don't have to pay their share of the deferral. That means there are fewer people left on the RRO to pay the outstanding amount.
Theoretically, Shaffer said, if everyone left the RRO except for one person, the owner of that last account would pay the entire amount.
However, he said, there are thousands of Albertans who cannot leave the RRO because utilities won't allow them to sign a contract. This includes people with a bad or a low credit rating.
The plan also could affect some of the thousands of newcomers who arrive in Alberta every year.
"Someone coming here from Ontario not knowing any better than 'I should just get on that default rate because that's what I do everywhere else in Canada,' they're going to be to be paying for the cost of that cap that benefited RRO customers in Q1," said Shaffer.
UCP quiet on plans
CBC News repeatedly asked the UCP about the deferral plan but the party did not respond.
The minister of affordability and utilities, Matt Jones, told the legislature last December the program was designed to provide certainty to RRO customers while giving them more time to pay the higher rates.
"[It] will provide relief while smoothing and stabilizing bills. In addition, we'll be evaluating the RRO."
Jones said the previous NDP government imposed a rate cap and used public money to cover the excess cost of power.
"By comparison, while the NDP rate cap over the same period would cost taxpayers $375 million, the net cost to government of the pricing and deferral is estimated at around $12 million," said Jones.
NDP has 3-point plan
The NDP is promising that if it wins the May 29 election, it will pay off the deferred amount owing.
NDP candidate Kathleen Ganley suggested that by the time a new government is sworn in, that could be about $180 million.
She likened the UCP plan to a payday loan scheme that only gives people more time to pay what they owe rather than providing them actual relief.
Further, the NDP plans to cap electricity prices at 12 cents a kilowatt hour from July to September.
"No Alberta family should have to choose between buying groceries and keeping the lights on," said Ganley.
She also said an NDP government would launch an investigation into Alberta's electricity market.
The goal would be "to determine what's causing sustained high prices as well as price spikes and how to bring these prices down and protect consumers over the long term while protecting grid stability."
Challenges to come
Shaffer said that no matter who wins the election, more electricity challenges are on the horizon.
He said price forecasts for this summer call for prices to spike as high as 29 cents a kilowatt hour.
The NDP proposal for a price cap would protect consumers while tapping the provincial treasury.
The UCP plan for dealing with the price spike isn't known.
Shaffer described various relief programs over the past 20 years as Band-Aid solutions for a deregulated, market-driven system that isn't functioning as intended.
When introduced by former premier Ralph Klein, deregulation promised greater competition and lower electricity prices.
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Instead, as Shaffer pointed out, past governments have used rebates, price caps and deferrals to help consumers cope with volatile prices while little has been done to address the underlying problem.
"The question is: are we living in a period of high prices for too long? Are we OK with this? Do we have a sufficient level of competition for this type of market to work?" asked Shaffer.
"Changing electricity market design is a really complicated and unnerving process. But I think it's something we ought to be having a discussion on."