By: Nick Clark
April started out like a lion. On April 1, Regulated Rate Option (RRO) retail prices in Calgary jumped up over 9 cents/kWh. Across the province, the average RRO price was 8.2 cents/kWh. Because of the fear of higher prices, the government’s RRO cap of 6.8 cents/kWh was implemented province wide. But, this subsidy didn’t work out very well; some retailers took the subsidy and didn’t reduce their rates to 6.8 cents/kWh.
50% of residential consumers in the province have already dumped the RRO and moved over to lower stable rates offered by non-government energy retailers. During the month of April alone, the government gifted RRO providers over $9 million in subsidies. Even worse, they spent over $250,000 promoting the rate cap as a safe haven to 1.6 million households. Money used to advertise a big government solution in opposition against the private sector, who are actually offering lower energy rates. A foolish use of taxpayer dollars.
The 6.8 cent cap was not evenly applied across the province. Some Rural Electrification Associations (REAs) and Municipalities set their price cap in April above the suggested price of 6.8 cents/kWh, yet they still received a subsidy from the government. Why? Because they are not regulated by the government and they are using this subsidy as a way of adding additional profits to their bottom line.
RRO providers who charged consumers more than the 6.8 cent/kWh cap:
But, by the end of the month, the actual cost of electricity was 4.1 cents/kWh. Those customers who were on the variable floating rate paid 18% less than the government rate. The cost of energy actually went up 27% but RRO prices went up 68%. Carbon tax dollars were spent, on subsidies which should never have been paid out.
We have supported some of the energy efficiency initiatives that the government has undertaken but have never supported subsidies that are used to artificially create a false economy. April was a perfect example of why.
When we looked at the government strategy on capping the RRO at 6.8 cents/kWh, I have to believe that the Minister of Energy is truly trying to do what she thinks is right. But, for many in the competitive business world, it is difficult to accept socialistic ideologies which are premised on solving problems with subsidies rather than solid economics.
It is equally hard to justify the mindset of our current government establishing policies based on promoting big government regulatory solutions rather than putting faith in the private sector. Alberta is built on innovation and local investments being made by small businesses like ours.
Some days we have a more sinister viewpoint of the government programs, in that by promoting the RRO the way they have, the government is now subsidizing the competition. They are trying to promote the RRO as a competitive retail product, rather than simply accepting the reality that the RRO is only there as a “Supplier of Last Resort” – available to consumers who might not be accepted as a customer of a competitive retailer.
There are lots of independent ventures in Alberta’s Energy Market that offer consumers prices below the cap of 6.8 cents/kWh, including long term guarantees out to the end of 2023. These companies are local, offer senior discounts, don’t charge penalties if you need to cancel, and employ Albertans. The government could have saved a few hundred million dollars if they simply encouraged consumers to sign up with a competitive retailer.
In fact, a recent report by EDC Associates Ltd., an independent energy-consulting firm based in Calgary, found that if all RRO consumers moved to a competitive price contract, the potential cost of the RRO price cap (now estimated at about $640 million during its lifetime) would cease to exist and the savings to RRO consumers would potentially amount to about $200 million over the same term. This would represent an $840 million saving to all Albertans – tax payers and consumers alike.
50% of residential consumers in the province have already dumped the RRO and moved over to lower stable rates offered by non-government energy retailers. During the month of April alone, the government gifted RRO providers over $9 million in subsidies. Even worse, they spent over $250,000 promoting the rate cap as a safe haven to 1.6 million households. Money used to advertise a big government solution in opposition against the private sector, who are actually offering lower energy rates. A foolish use of taxpayer dollars.
The 6.8 cent cap was not evenly applied across the province. Some Rural Electrification Associations (REAs) and Municipalities set their price cap in April above the suggested price of 6.8 cents/kWh, yet they still received a subsidy from the government. Why? Because they are not regulated by the government and they are using this subsidy as a way of adding additional profits to their bottom line.
RRO providers who charged consumers more than the 6.8 cent/kWh cap:
But, by the end of the month, the actual cost of electricity was 4.1 cents/kWh. Those customers who were on the variable floating rate paid 18% less than the government rate. The cost of energy actually went up 27% but RRO prices went up 68%. Carbon tax dollars were spent, on subsidies which should never have been paid out.
We have supported some of the energy efficiency initiatives that the government has undertaken but have never supported subsidies that are used to artificially create a false economy. April was a perfect example of why.
When we looked at the government strategy on capping the RRO at 6.8 cents/kWh, I have to believe that the Minister of Energy is truly trying to do what she thinks is right. But, for many in the competitive business world, it is difficult to accept socialistic ideologies which are premised on solving problems with subsidies rather than solid economics.
It is equally hard to justify the mindset of our current government establishing policies based on promoting big government regulatory solutions rather than putting faith in the private sector. Alberta is built on innovation and local investments being made by small businesses like ours.
Some days we have a more sinister viewpoint of the government programs, in that by promoting the RRO the way they have, the government is now subsidizing the competition. They are trying to promote the RRO as a competitive retail product, rather than simply accepting the reality that the RRO is only there as a “Supplier of Last Resort” – available to consumers who might not be accepted as a customer of a competitive retailer.
There are lots of independent ventures in Alberta’s Energy Market that offer consumers prices below the cap of 6.8 cents/kWh, including long term guarantees out to the end of 2023. These companies are local, offer senior discounts, don’t charge penalties if you need to cancel, and employ Albertans. The government could have saved a few hundred million dollars if they simply encouraged consumers to sign up with a competitive retailer.
In fact, a recent report by EDC Associates Ltd., an independent energy-consulting firm based in Calgary, found that if all RRO consumers moved to a competitive price contract, the potential cost of the RRO price cap (now estimated at about $640 million during its lifetime) would cease to exist and the savings to RRO consumers would potentially amount to about $200 million over the same term. This would represent an $840 million saving to all Albertans – tax payers and consumers alike.