Electricity rates figure to be affordability and utilities minister Nathan Neudorf's 'toughest task'

Alberta’s affordability and utilities minister, Nathan Neudorf, got his marching orders from Premier Danielle Smith this week.

And he’s got a lot on his plate. His mandate letter tasks Neudorf with "working with the relevant ministries to address cost-of-living concerns for Albertans, with a specific focus on housing, utilities, food costs, and insurance.”

All are large files, but most experts agree revamping Alberta’s 20-year-old deregulated electricity market will be his biggest task

"We've had a deregulated market for over 20 years now. And people have made investments in our market, especially (energy) generation companies under a certain framework, right? So to make any changes to that has to be taken deliberately and cautiously and needs to protect investors as well," said Colette Chekada, president of Carmal Energy Advisors.

"When you think about our electricity policy, it has largely remained unchanged since 2005. And we do live in a different world now than we did then when thermal assets were ... the expected source of generation for ... the future.

"That's not the case anymore," he added. "And our policy needs to evolve to reflect the fact that we need to get to a net-zero grid.”

Affordability continues to be at the top of mind for many Albertans. We need to build a utilities system that is reliable and affordable.

I look forward to working for Albertans to keep life affordable for generations. pic.twitter.com/SCmnbc0qRk

— Nathan Neudorf (@neudorf_ab) July 19, 2023

ELECTRICITY MARKET WOES

Speaking to reporters in Edmonton on Thursday, Smith identified two specific parts of the electricity market she thinks need immediate attention: the regulated rate option (RRO) and transmission and distribution costs.

Albertans can choose between two options when selecting how they want to receive their electricity: a contract, signed with one of several competing energy companies, or the RRO, which fluctuates based on the market price of electricity.

Presently, contract rates sit at close to 12 cents per kilowatt hour (kwh), depending on providers and contract terms, but the RRO has risen as high as 28 cents per kwh in July.

“The regulator rate option is misnamed. It is not regulated and it is not a protection for consumers. There are a lot of people who are getting really hurt by that, because they think that they're protected because it's a regulated rate. And it is the most volatile rate," said Smith.

“You've got people who are fixed income -- seniors, you've got people who are renters, you've got students, you've got people who don't have the credit to enable them to get long-term contracts, and they are the ones most exposed to that, right?  And they're the ones hurting the most, and I can't stand by and let that continue to happen.”

Energy companies agree, saying the current system is flawed.

“The bottom line is that the RRO hasn't worked the way it was intended to work, and the prices have grown quite substantially. So we are encouraging the review, and we look forward to hearing the recommendations that come out of it," said Matthew Coad, director of strategy for ATCO.

Coad recommends consumers shop around for a contract that best suits their needs.

"Every retailer is a little bit different, and every retailer has different value-added services that they offer. But right now, with the soaring oil prices, you know, rates are certainly attractive on the fixed contract side."

Smith also wants Neudorf to address the rising cost of transmission and distribution of electricity.

"We've always had in distribution and transmission has always been regulated. And it's not working very well, if you look at your power bill, that's one of the things that has escalated the most in the last number of years." said Smith.

"We need to wait for technology to become available, so we can bring on new power perhaps from small modular nuclear (reactors). We need to work with B.C. and Manitoba to build transmission so we can bring in power from B.C. and Manitoba. Those things take time."

This is an extreme cost to place on ratepayers.
As Minister, I am focused on providing a transition to carbon neutrality that balances affordable and reliable electricity, and providing a good future for our kids and grandkids without the burden of these costs. pic.twitter.com/nlP62o6k0Z

— Nathan Neudorf (@neudorf_ab) July 19, 2023

Time, though, is one thing Neudorf may not have. Chekada says the province needs to roll out a strategy soon, or it may be lost in the four-year election cycle.

"The problem is that electricity is like this hot potato, no one wants to touch it, because it's so controversial. But if they do something today, they look at policy, (and then) they do something quickly, decisively, then I think they have a chance," said Chekada.

"If they take too long to get started, then we'll be in another election cycle and we'll be another four years out before anything kind of changes," he added. "They need to take it seriously. They need to start, you know, today."

Neudorf has a lot of other files on his plate. He’s been ordered to work with other ministries to ramp up the supply of affordable housing in the province, as well as incentivize the construction of more new homes in Alberta, which is intended to reduce both home purchase prices and rental costs

He’s also been tasked with overhauling the insurance industry in Alberta, both for property and vehicles.

 As well, he’s also been told to work with First Nations and Métis communities to ensure they are fully connected to electricity, natural gas and internet.