Electricity price cap could be headed for dust bin

Province on the hook for millions, could ditch electricity price cap for consumers

The provincial government just sent a small spark through Alberta’s power market.

A bigger jolt could come in the next few weeks.

The Jason Kenney government introduced legislative changes Thursday to retain the current structure of Alberta’s deregulated electricity system, known as the energy-only market, a move it first announced in July.

What Energy Minister Sonya Savage didn’t reveal this week was the fate of the province’s electricity price cap for consumers, although many industry players expect it’s soon destined for the dust bin.

Established by the former

NDP government, the cap limits electricity prices to 6.8 cents per kilowatt-hour for residential consumers, farmers and small business operators who are on the default regulated rate option (RRO). The province picks up the difference if prices exceed that mark.

The government spent

$53 million on the cap in the last fiscal year, using money from the now-defunct carbon tax.

Industry players estimate the province is on the hook for millions more this year, giving a debt-ridden province (with a new budget arriving next week) plenty of reasons to jettison the consumer price protection.

Savage only wanted to talk Thursday about the decision to stick with the existing market structure (instead of the shift to a capacity electricity market planned under the NDP), focusing on more than $2 billion of investment unveiled in recent weeks for new power-generation projects.

In the energy-only system, generators are paid for electricity produced and sold into the wholesale power market. Under a capacity market, generators also receive a payment for having electricity capacity available on demand for the grid, even if it’s not used.

But that won’t happen now. Since the government signalled Alberta would stick with the current market, Suncor Energy has announced it will spend

$1.4 billion on two co-generation units in the oilsands, while Perimeter Solar is proceeding with a solar project near Claresholm.

In August, Greengate Power obtained regulatory approval to build a $500-million solar project in Vulcan County, while BHE Canada — a wholly owned unit of Berkshire Hathaway Energy — confirmed this week it’s building a $200-million wind farm project near Medicine Hat.

All of these are positive developments for a province that’s phasing out coal-fired electricity and needs an estimated $12 billion in investments to flow into the sector.

Industry analysts say many generators were uncertain about making large capital commitments under the incoming capacity market rules.

“I don’t think we’ve seen a period where we have had pentup demand that was just sitting idle and waiting for the gates to be open,” said Duane Reid-carlson, chief executive of electricity consultancy EDC Associates.

“That’s where we are now. The decks have been cleared on many fronts.”

But what about the consumer cap?

During the spring provincial election campaign, UCP officials indicated the rate cap would be ditched. Last July, Savage said the province would make a decision on the price cap in the fall.

While all the leaves are gone, a decision still hasn’t been proclaimed.

“The rate cap will be dealt with shortly,” said one government source.

“I think there’s a high expectation of a significant change or

I think there’s a high expectation of a significant change or outright removal.

outright removal” of the price cap, said Reid-carlson.

Such a decision would face opposition from several corners.

The regulated rate cap was initially unveiled by the former NDP government as part of its plan to overhaul the province’s electricity sector by phasing out all coal-fired power generation and aggressively pushing for more renewable energy.

To respond to concerns about future price volatility, the government said a price cap would run from June 2017 until June 2021.

At the time, the NDP noted electricity prices in the province under deregulation were unpredictable, spiking by as much as 65 per cent in one month.

Wholesale power prices were extremely low three years ago, amid slumping demand and excess supply, averaging just $18 per megawatt-hour in 2016. Last year, prices recovered to $50 per MW-H and are up again this year.

For consumers, the price cap has provided relief, to the tune of $53 million in 2018-19. Nick Clark, co-owner of power retailer Spot Power, estimates the rate cap cost the province about

$20 million a month in July and August. He believes consumers will be able to find better prices and switch to lower rates if the cap is removed.

“There is no reason to offer a limited number of utilities and their regulated rate customers, (who) are now slightly less than 50 per cent of the market, price protection,” he said. “All consumers have to do is shop around.”

Yet many homeowners and small business operators don’t want to spend a lot of time hunting for electricity bargains.

Consumer groups say potential changes being contemplated to the energy-only market in the coming years — such as the Alberta Electric System Operator (AESO) allowing wholesale power prices to surge above their current limit — should influence what happens next.

“Don’t remove the price cap until you get a sense of what the AESO is going to do,” said Jim Wachowich of the Consumers’ Coalition of Alberta.

“The energy-only wholesale market is a volatile market. It’s designed to be a volatile market and the corresponding truth is most customers do not like volatility.”

NDP energy critic Irfan Sabir said the UCP government needs to provide Albertans with certainty and ensure they’re not subjected to power price spikes.

But the idea of interfering in an open market, spending government money to shelter consumers from fluctuating prices, has its own critics. Whatever decision the province makes, there will be resistance.

“Any time you’re using a subsidy to prop up something for political reasons, it’s not a good reason,” said energy economist David Gray, former executive director of Alberta’s Utilities Consumer Advocate.

“People always watch (their bills) closely. Electricity and natural gas prices are one of those things people can’t avoid … so they just freaking hate them and they watch ’em like a hawk.”