Carbon tax changes have city on hold

By COLLIN GALLANT on May 24, 2019.

cgallant@medicinehatnews.com@CollinGallant

City utility officials say they are in a holding pattern until the political fight over carbon pricing is resolved by other levels of government, but tell the News the municipal power plant may not be affected or come out ahead in the end.

Factors causing the confusion are several and complex: Alberta is set to scrap its carbon levy system, Ottawa is promising to impose a different national standard, court challenges are ongoing and a federal election looms in the fall.

Working in the Medicine Hat power plant’s favour however, is that it burns exclusively natural gas, not coal, which is harder hit by any measure of carbon pricing.

“We’re trying to get a sense of the various scenarios, but we feel that we’re reasonably well positioned because we’re a gas fleet,” said Rochelle Pancoast, head of the city’s utility business support office.

“There’s a lot of uncertainty on the policy side … from our perspective it could be good news or bad news.”

This week, Premier Jason Kenney opened the legislature promising to end Alberta’s carbon levy next week.

It is expected the federal government will impose the national program in the province this summer, as it did in April in Ontario, Saskatchewan, Manitoba and New Brunswick.

Already, some lobby groups are sending out price releases stating that electricity prices would soar if the regime changes.

Adding complexity is the fact that carbon pricing in Alberta really involves two distinct programs.

There is the better-known carbon levy, put in place three years ago, for energy consumers on utility bills and at the fuel pump, but also a decade-old system that charges major industry on their emissions.

That second program, known at the Carbon Competitiveness Incentive Regulation (CCIR), captures electricity production and major industries, like petrochemical plants, that use petroleum a feed stock, and are exempt from the other levy.

That means the Alberta carbon levy of 2017 didn’t affect power prices, as they did in Saskatchewan, where SaskPower announced the federal levy would add $2 per month to an average household’s power bill.

In Medicine Hat the CCIR charge is considered an operating cost since 2007 and is recovered in the commodity charge, not as a separate administration fee.

As well the city earns CCIR credits via a contract to buy power from a three-turbine wind farm in the city’s northwest and composting efforts at the landfill. Those are transferred to the power plant to defray costs.

A UCP replacement for CCIR would however, base emission standards on gas standards, which favour the city, said Pancoast.

“It’s gas-based, and our cost are relatively low compared to others in the market,” said Pancoast, who adds that coal power still has a large effect on market pricing in Alberta’s energy grid.

“Depending on where coal is sitting it market, the price impact could be more than offset … our exports are affected by market prices,” she said.

“Typically, the higher the carbon price, the higher the price of power in the market.”

The city sells more power on to the gird when prices rise, but also sets local power prices against the provincial average.

If local carbon cost falls and general prices rise, the city’s profit margin – which currently builds reserve funds and covers a tax shortfall – would grow.

The United Conservative Party platform stated such fees on large emitters would form the basis of a climate action strategy, but new rules in early 2020 would lower the price per tonne from $30 to $20.

But with the federal government requiring a $30 price next year, there’s a question of compliance, and whether Ottawa would again step in.

The UCP has also announced it will conduct a 90-day review of planned changes for the provincial grid to a capacity system, though no timetable for the review has been set.

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