Electricity rates may be capped, but you will pay anyway

I hate being the bearer of bad news.

So, let me couch it with some good news.

Your electricity rates will be going up — but not astronomically.

This weekend TransAlta will be mothballing two coal-fired power plants at its Sundance facility west of Edmonton. According to a news release, it’s all part of the company’s “strategy to accelerate its transition to gas and renewables generation.” Electricity prices will rise. This shouldn’t come as a surprise to anyone. That news release was issued last December. But I doubt you read many news releases from electricity companies or stick them as a reminder to the fridge alongside the grocery list. Yes, your power rates will be going up.

But here’s the good news. They won’t be going up by a lot. In fact, the price won’t be going up past 6.8 cents a kilowatt hour. (Right now, the price is around 5.9 cents a kilowatt hour and the average house uses about 900 kilowatthours a month).

The price won’t be skyrocketing because the government invoked a four-year cap on the price of electricity.

You might not remember that. The cap was announced in November 2016 and took effect last summer. It’s all part of the government’s overarching plan to revamp our electricity system.

It is, to say the least, a complicated issue. The last time an Alberta government massively transformed the province’s electricity system was 18 years ago when then-premier Ralph Klein deregulated the power market. Back then the price of electricity was an astounding 13 cents a kilowatt hour.

The NDP is not exactly reregulating the market but it is stepping in where the PCs feared to tread. It is moving us from an “energy-only” model to a “capacity market” model.

Under an “energy-only” model, power generators are paid only for the electricity they produce, not how much they are capable of producing. The result has been wild swings in the price of electricity.

In a “capacity market,” power producers are paid to build up, even overbuild, capacity so there is always enough electricity in reserve. The government realized the transition would mean the price of power would rise as coal-fired power plants are phased out and replaced by natural gas and renewable sources such as wind and solar. The price cap kicked in June 2017 and will run until June 2021.

If the price does spike above 6.8 cents, the government will cover the extra cost by using money collected under its new carbon levy.

The government has estimated the cost of the price cap will be around $74 million this year.

That’s how much was set aside in last week’s provincial budget “to protect families, farms, and small businesses for four years while the province implements the necessary reforms to the electricity system.”

But you won’t actually find that $74 million figure anywhere in the budget documents.

It’s tucked inside a larger number: a $214-million line item for “electricity transition” that includes financial support for energy companies and coal workers.

Like some other parts of the budget, you have to do some digging to figure out what’s going on. Given the time of year I guess you could call them budget Easter eggs. If only they were as colourful or tasty.

The biggest egg, of course, was the discovery that by the time the government balances the provincial budget in five years, we will be faced with a $96 billion debt. That number is never expressed in the budget documents.

In the past week, the government has taken pains to point out that our debt-to- GDP ratio is still the smallest in Canada and we have the lowest tax regime in the country (Ontario’s debt, for example, is more than $300 billion giving it a GDP ratio of 37 per cent).

The Alberta budget documents helpfully pointed out if we raised our tax regime to match the next lowest, British Columbia, our government could collect another $11 billion in revenue per year.

But that would mean introducing a provincial sales tax, also known as a “provincial suicide tax” in Alberta. That’s not going to happen, so it’s a moot point.

Instead we have an $8.8 billion deficit this year, the highest per capita in Canada (Ontario’s deficit is projected to be $6.7 billion this year).

So, getting back to electricity prices: for Albertans the bad news is your power bills are going up. The good news is the government will make sure the spike is blunted through a price cap. But the bad news is the cap will cost taxpayers $74 million.

As Opposition politicians are happy to point out, you’ll be paying for the price hike one way or the other.