I’ve updated our energy charts at https://aleach.ca/charts. I had to change the title from weekly to occasional since it’s been a busier term than I’d expected.
We’ve got two student stories this week (school takes priority at this time of year). Kayla’s got a good news story on recycling drilling waste and Yousaff has a great piece on battery capacity in the US.
Other than that, this week, the inevitable and inexcusable deprecation of the most useful energy data source on the planet, the EIA’s v1 API, has overwhelmed the charts scripts and my debugging time. You’re missing some charts as a result, but the core elements are there. And, you’re missing an update of predictions from the EIA’s Annual Energy Outlook compared to previous years because, well, it’s a major pain and I haven’t been able to fix my code yet.
The past couple of weeks have been ones to forget for oil bulls.
WTI is trading in the mid-60s and Brent nearly sunk below 70 early this week as well. The pain is somewhat muted by the fact that implied WCS had risen against WTI since December, although the past week has still been a bloodbath.
On the electricity front, as predicted a couple of weeks ago, we saw a couple of days with more than a GW of peak solar supply and we’ve seen a few days recently with over 3000MW peaks in renewable supply from wind, solar, hydro and biomass. It’s definitely striking to see peaks over 3000MW and troughs down below 500MW in the same day (see the end of the day on March 18th): so much so that I think we’ll start showing an Alberta net load product over the next few weeks.
There’s a lot of attention on the Alberta electricity market right now, with the Premier promising a new look at electricity rates, specifically the Regulated Rate Option (RRO), the default supply contract for electricity. This raises a number of issues that are worth exploring today.
First, what is the RRO? It’s the contract you are on by default, if you haven’t (or can’t) sign up with any of the other myriad retailers in the province. The price you pay is based on the cost of an advance purchase of (essentially) financial power price hedges made on your behalf. And, the reason you’re hearing a lot about it now is because the cost of electricity under this default contract has gone through the roof.
Prior to this year, the RRO had only once crested $0.15/kWh, in 2012, and it got as low as $0.03/kWh in the depths of the downturn in 2017. Since early 2021, though, rates have been on a steady climb. And, as you can see on the graph above, the slope got really steep in the last 6 months. Thankfully (for consumers) the market looks to be settling back down a bit, although futures prices remain well above last year’s levels.
But, that’s not where this story ends. You see, since January, consumers on the RRO have not been paying the full cost of the power procurement, because government capped the rates at $0.13/kWh. Only, they didn’t actually cap rates, they only deferred them. That’s right: as the Alberta Utilities Commission explains, “any costs above the $0.135/kWh price ceiling will be deferred until rates drop and will be repaid over 21 months (April 2023 to December 2024).” The government basically allowed the default service provider to put some of the RRO costs on a line of credit which will be paid-down over the next 21 months, with interest. As of the last disclosure, for EPCOR alone, the shortfall for January through March 2023 is estimated to be $137,583,627.01.
Yes, $137.6 million. No, I didn’t make up the 1 cent in the estimate.
The government stepping in to cushion the blow of high energy prices isn’t necessarily a bad thing. But, it can be depending on how they do it and who they force to pay for it. And, in this case, there are some bad answers to both of those questions.
The deferred costs will be paid for by those still on the regulated rate (default) contract beyond the end of this month. Remember that the default contract reflects (roughly) the market cost per unit of electricity used by an average customer (different customers use more or less power at peak price periods, and the average cost is based on a forecast load shape for all customers), so the default supply contract plus the repayment of the deferred costs will almost certainly be above the cost of other fixed price contracts available.
That’s right. Even if you benefited from the deferral, you can opt out of paying it back by signing a contract with another retailer.
And, therein lies the problem: not everyone is eligible to sign a contract. New Canadians, people with poor credit histories, or those without the capacity to pay a deposit may have only the default option - they’ll have to stay on the RRO, and it’s these people who will pay back the full cost of the deferral for everyone.
Designing the so-called cap this way was a choice: to place the cost on ratepayers, not taxpayers. But, when you structure it so that some of those who benefited can avoid paying the cost and can shift that burden to those of us least able to shoulder it, that’s a problem.
These paybacks start in 11 days. It’s not too late from the government to fix the problem.