Tom Adams
November 6, 2005

Winnipeg Free Press  

Already overseeing the world’s most inefficient electricity consuming economy, Manitoba’s NDP government’s speech from the Throne sets a course to promote natural gas wastage as well.

Kicking off this session of the legislature on October 27th, the government committed to introduce legislation to end Manitoba’s longstanding and wise practice of offering natural gas to distribution customers of Centra Gas Manitoba at floating market rates. Instead, the legislation will allow the provincially-owned gas utility to defer rate increases it would otherwise implement to capture increases in the commodity cost of natural gas in the continental market.

The government’s policy follows a recent decision on the Manitoba Public Utilities Board. In deciding the most recent rate adjustment to reflect rising continental gas prices, the Board created a complex shell game to temporarily shield residential consumers from the full effect of higher costs. Other classes of customers like businesses will continue to pay the real cost.

Noting the hardship energy bills represent for low income households, the Board decided to confer rate relief upon all households, including the well to do. At best, this is an inefficient method of protecting the poor.

Selecting one rate class over others for relief sends the regulatory process down a slippery slope. Having established the precedent of considering the relative degree of hardship, the Board may in future find itself inundated with businesses making their own pleas of special need.

The utility’s losses associated with residential underpayment will be paid by borrowing. 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.

Until Wednesday, Saskatchewan, whose government has historically encouraged wasteful consumption by underpricing natural gas by its Crown gas utility SaskEnergy, often with disastrous consequences for the provincial government budgets, appeared to be on the verge waking up to the problems this creates.

SaskEnergy, the Crown gas utility, has been underpricing gas most of the time this decade. SaskEnergy’s loses on commodity sales to distribution customers in the period 2001-2003 alone totaled $430 per customer. On Wednesday, the government decided to up this amount by a further $400 per customer.

Ironically, the gas rate subsidization initiative of the Manitoba regulator and the government mitigates slightly the negative economic and environmental implications of Manitoba’s current waste-encouraging electricity pricing policies. This winter it will be cheaper for Manitoba households to turn off their furnaces and plug in electric baseboard heaters. Without subsidized gas rates, the urge to switch from gas to electricity would be even greater.

Power usage in Manitoba, identified in a 2003 study by Energy Probe for Winnipeg’s Frontier Centre for Public Policy as the highest electricity consumption in the world per unit of economic output, is likely to soar to new records.

Manitoba and all the jurisdictions around it rely on coal and gas to supply electricity during the winter. Gas furnaces are typically three times as efficient as gas-fired electricity in delivering home heat. Through their baseboard heaters, Manitobans will be throwing away a fortune this winter that the province and its citizens could be earning by charging all customers market prices for electricity, drastically cutting power usage, eliminating Manitoba Hydro’s gas and coal usage, and selling the surplus power to neighbors.

Prices reflecting the real value of Manitoba’s electricity would be higher in winter to reflect expensive fossil-fired power and would also reflect the costs of forgone electricity export sales

Efficiently pricing electricity and gas, particularly when the competing sources are becoming more expensive, provides Manitoba with an opportunity to leave behind its status as an economic “have not” region.

Without subsidizing conventional fuels, the province would be well placed to develop renewable heating options. Manitoba has some of the lowest hay prices in North America, reflecting vast agricultural capacity to produce crops suitable for low cost home heating, such as switchgrass and other prairie grass species. Combined with Manitoba’s large demand for heating fuels, the province could be leading a transition away from conventional heating fuels.

Manitoba’s NDP government appears to be cribbing its gas pricing policy from Ontario’s former Tory premier, Ernie Eves, who slashed and froze electricity rates three years ago. The Eves policy is not only a financial disaster but now threatens Ontario consumers with blackouts.

Manitoba has the potential to make vast economic and environmental gains by charging customers energy prices that reflect real costs. The government’s Throne speech sets a course in the opposite direction.

Tom Adams is Executive Director of Energy Probe, a Toronto-based think tank.