The Alberta government is introducing a cap on electricity prices, which it says will protect consumers from “volatile energy prices” as the province moves away from coal-fired electricity production.
The cap, which will be fully implemented by June 2017 and run until 2021, will ensure Albertans pay no more than 6.8 cents per kilowatt hour.
That’s about twice what most Albertans pay now. The current regulated rate stands at about 3.8 cents per kilowatt hour.
The province said when the rate ceiling is in effect, consumers on the Regulated Rate Option (RRO) will pay the lower of the market rate or the government’s ceiling rate, and it will be automatically applied to bills.
Albertans may also choose to continue to take advantage of an offer from any private supplier they believe better suits their needs, the province added.
Premier Rachel Notley said the cap, along with other reforms, will ensure stable and affordable prices during the transition. Notley’s government is working to phase out coal-fired electricity by 2030 and replace it with renewable energy such as wind, solar and hydro.
The province is still working out what will happen if the spot price goes above 6.8 cents. Energy Minister Margaret McCuaig-Boyd will hold consultations with distributors, RRO providers, retailers and consumers, beginning in December.
Notley said one option to cover higher power prices us to use the carbon levy fund.
So is this a step back towards regulation?
“This is part of a plan that will move Alberta back towards the mainstream of electricity production, distribution and sales in North America,” Notley said. “And in so doing it will provide greater stability in prices for consumers and ultimately it will provide greater stability for investors as well.”
Enmax said electricity is essential to Albertans’ lives and the economy and any policy that impacts one part of the system affects all the others.
“Restructuring this system therefore demands proper understanding, planning and consultation,” the company said in a statement.
The rest of the statement reads:
“We appreciate the need to protect consumers in anticipation of the future volatility that is inevitable with Alberta’s shift to renewables and the costs of taking out coal-fired generation. However, the government’s announcement today on a price cap was short on details and ignores the fact that retailers have been providing this protection from price volatility for a decade.
“To put this in context, ENMAX Energy and other electricity retailers have competitive fixed rate contracts that are already protecting customers against the potential volatility of the RRO electricity rate.
“Moving forward, ENMAX intends to be fully engaged in the government consultation, keeping the interests of our customers front and centre.”
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The province said historically, regulated electricity rates have been extremely volatile: the price increased 65 per cent in a single month in April 2011, and dropped 42 per cent in June 2014.
“Previous Alberta governments experimented with a risky and volatile form of electricity deregulation,” Notley said. “This experiment left families, businesses and our economy at the mercy of sudden price spikes and uncertainty like we’ve seen in the past and need to protect against in the future.”
A study done at the beginning of this year said that Alberta’s Climate Leadership Plan would result in big reductions in emissions, but that the cost of boosting renewable energy usage would mean significantly higher electricity rates.
That triggered a backlash from power companies.
A number of private operators, including Enmax and Capital Power, sought to return to the province money-losing electricity deals they say were made more unprofitable by the new climate rules.
The PPAs, or power purchase arrangements, are the backbone of the deregulated electricity system created under the former Progressive Conservative government in 2000.
The idea was for power companies to buy electricity from generators at auction via the PPAs, then re-sell it to consumers for profit. But the rules stipulate that no matter what happens to prices, generators always get a reasonable rate of return.
The power buyers were, in turn, promised that if the government made changes to make the deals unprofitable or made money-losing deals “more unprofitable,” they could effectively turn the contracts back over to consumers through a neutral third-party entity.
In recent months, companies that buy electricity off coal-fired plants have done just that.
They say the decision by Notley’s government in June 2015 to hike the cost of carbon fees on large emitters made money-losing contracts “more unprofitable,” triggering the give-back.
The government is arguing that low power prices, not government action, triggered the decline in PPA value.
— With files from The Canadian Press
*EDITOR’S NOTE: This article originally stated the cap is higher than any price spikes going back more than a decade. However, the province said that was not correct. In 2012, price spiked up to 15 cents and in 2014, prices averaged above 7 cents.