Last week the Manitoba Legislature approved a law that could let natural gas customers of Centra Gas/Manitoba Hydro burn now and pay later this coming winter. Lawmakers passed a bill that gives the Lieutenant Governor in Council authority to prescribe the maximum percentage by which Centra's rates may be increased.
If a rate cap is instituted, there will be a true-up period later when customers will pay for the gas they burned. The winter heating season, as defined by the legislation, runs from Nov. 1 through April 30. While Manitobans might appreciate relief from rate hikes during the period, they won't like paying later, and some say lawmakers have embraced bad rate making policy.
"We're not talking about reducing costs. We're simply talking about deferring them, which is crucial," Ian Mondrow, vice president for government and regulatory affairs for Direct Energy, which, operating under the name Municipal Gas, is a broker on the Centra Gas system, told NGI. "The second main point is that this is counter-productive for consumers."
Manitoba's rate-setting mechanism was originally developed to provide a market-reflective price to consumers but also insulate them from extreme price shocks. "This deferral masks the market price signal, and that has two effects: One is ultimately customers pay more because there are no real savings and you're incurring deferral costs. And secondly, probably of more magnitude, customers get an artificially low price signal, which means that they consume more than they should and they probably defer or undervalue efficiency initiatives."
An irony of the legislation that just passed, Mondrow said, is that it contains a provision to allow revenues Manitoba Hydro derives from the sale of its exported hydropower to be used to foster energy efficiency among its gas customers. "If you artificially suppress rates relative to market prices, you actually make efficiency much more expensive to procure because customers don't have the price signal," Mondrow said. "So in the end nobody really gains from that."
Tom Adams is executive director of Energy Probe, a Toronto-based organization that promotes conservation and sustainability. He wrote an editorial in the Winnipeg Free Press criticizing the just-passed legislation when it was introduced in November. He said that business customers of the gas utility may be in for a shock when it comes time to make up for the costs of any rate cap that's instituted.
"The utility's losses associated with residential underpayment will be paid by borrowing," Adams wrote. "Business customers not benefiting from subsidized rates might be at risk when payback time rolls around because, if market prices don't plunge, payback time will be painful for vote-rich households. Interest costs on the borrowing to cover unpaid amounts will make the pain worse."
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