Premier Danielle Smith appears in the Medicine Hat Stampede Parade on Thursday. - News Photo Collin Gallant
cgallant@medicinehatnews.com@CollinGallant
Hatters confused about the fixed versus floating power prices may not have to worry about it in the future, but it’s still unclear what might replace it.
This month, Premier Danielle Smith directed her electricity minister to determine whether to scrap or reform the floating price regulations in a mandate letter to the “Utilities and Affordability” ministry.
On Thursday she told the News the pricing regulated rate option is “a complete failure,” and that more information on addressing spiking power prices could come after a cabinet meeting next week.
“I want it to start right away, because every aspect of our electricity system is having problems,” Smith told the News following the Medicine Hat Stampede president’s luncheon on Thursday.
She said net-zero grid targets from Ottawa are causing uncertainty for generators who might otherwise add supply. As well, transmission costs – paid by Albertans to grid operators to maintain the power grid, though Hatters are shielded – are growing too fast in her opinion, she said.
“The RRO is a complete failure,” said Smith. “You can’t look at 32-cents per kilowatt hour and think it’s working well. People think they’re protected and they’re not. It’s highly variable, and now it’s as high as its ever been. Figuring out some stability in those prices is the No. 1 job for (Utilities Minister) Nathan Neudorf.”
City of Medicine Hat officials met with Neudorf last week to discuss the issue, among others. Mayor Linnsie Clark said she wants the city to closely monitor and provide input to Neudorf’s review.
“We’re certain that the RRO will be looked at judging from the mandate letter and that will factor into whatever we do,” said Clark. “It may mean we have to accelerate looking into new options.
City council paused an on-again, off-again review of its own rate setting policies last month as most customers were about to come off holdover pricing from 2022. Instead, council agreed to study how profits are spent.
Clark said council will dive in to “rate construction” potentially in the fall, before the 2024 business plan of the utility and rates are finalized late in the year.
Hatters have reacted sharply to a new set of floating and fixed rate contract options put in place this year, calling for more clarity but generally lower prices.
Under provincial regulations, power providers must offer a Regulated Rate Option (RRO) rate in a system that sees power retailers apply rates for the month ahead to the Alberta Utilities Commission.
Those are based on the forecast cost of buying power for resale along with a capped profit margin. It is meant to provide certainty for power companies and customers as rates are adjusted up or down in future months to correct for actual prices.
Price of power determined by supply versus demand on energy system
The actual price of power is determined by supply versus demand on the Alberta energy system, where generators bid prices into one of the few “energy-only” markets in North America.
In Medicine Hat, the RRO rate is set at the average of what other utilities offer, which critics say ignores local realities.
A policy paper presented to council in June lays out a mission statement at the power plant to act as any comparable private sector generator in the province. Its goal is turn a reasonable profit to ensure the stability of the publicly owned business and return cash to the city as a benefit .
Officials also highlighted council holds authority over what to do with those dividends that are currently earmarked to build reserve funds.
Floating power prices are set to reach record highs in August, pushed even higher by additional charges.
During massive price spikes last winter the province ordered distribution companies to cap the price of power on bills to 13-cents per kilowatt hour.
But, the difference was only deferred and now customers are being charged extra to cover the cost.
On Thursday, New Democrat energy critic Nagwan Al-Guneid released a statement saying the cap was poorly designed and will add to already increasing bills.
“This government has made the situation worse,” she said. “In the short term, this government needs to create a temporary cap to relieve Albertans who are struggling to pay their bills. Simultaneously, the UCP government needs to develop long-term solutions focused on creating a diversified electricity grid that is reliable, affordable and low-emission.”
When the winter deferral program was announced, some observers and academics called it a “death spiral” for the RRO system. Since amounts would be recuperated by charges put back onto RRO bills, those bills would become even less competitive against longer-term contracts.
As well, a customer could have their bills reduced in the winter, then side-step repayment by signing a contract in the spring. That could further compound the increases on a smaller number of RRO customers to repay for the estimated $200 million shortfall.
