Calgary, AB (January 18th, 2017): Dr. David Swann unveiled a new policy today that will save Albertans billions of dollars in electricity costs. As well, the policy will remove the need for government to borrow to fund the liability to the Balancing Pool caused by Power Purchase Agreement (PPA) holders returning their contracts under the “Change in Law” clause.
By adjusting the way the Regulated Rate Option (RRO) is calculated (this is the rate most Albertans pay for electricity), Dr. Swann’s plan could save Albertans $700 million to 2020 and $3 billion to 2030.
The change is centred on the calculation used to determine the final price of electricity. Currently the RRO is not based on the actual cost of electricity at time of consumption (the “Pool price”), instead using a process based on a “forward price.” Adjusting the process to reflect the actual price creates a very different outcome.
“The forward price has consistently been higher than the actual wholesale price,” says Rob Spragins, a former Utilities Consumer Advocate. “Historically, using this model would have saved Albertans over $1 billion between July 2006 and June 30, 2016.”
In the fall session the government passed the Electric Utilities Amendment Act (Bill 34). This bill allows unlimited borrowing to cover the cost of PPAs returned to the Balancing Pool because of changes in government policy. The liability is estimated between $2.5 billion and $3.5 billion; if paid off by borrowing, the cost to consumers could increase from $350 million to $500 million.
“Albertans are extremely concerned with the debt loads this government is taking on,” says Swann. “Bill 34 gives the Government unlimited borrowing power to cover up their mistakes in the electricity market. The simple changes we are proposing will remove the need for this additional debt.”
The savings created by Dr. Swann’s plan would allow the Balancing Pool to pay off the PPA liability as part of its normal operations, without incurring added expense to consumers through interest payments. The proposed RRO flow-through rate would more than offset the added costs of the PPAs, and consumers would even see a net reduction in their power bills.
For example, to retire the liability of the Balancing Pool by 2020:
||Cost of Balancing Pool Liability1
||RRO savings to consumers under Dr. Swann’s plan
|1 Note that these figures do not include the value of settlements reached with PPA buyers; the figures have either not been released, or include carbon offsets of which the government has not declared a monetary value.
“By making this simple change,” continued Swann, “the electricity market can operate without manipulation by the government. Under the current regime, the government is taking on enormous risk and, for political reasons, avoiding passing the cost directly on to consumers. In the end, though, the cost is paid out of our pockets.”