Women in Power – Better Together

  • Home
  • Women in Power – Better Together

By: Darren Chu

Dear Premier Smith, Ms. Notley, and Mayor Gondek:

You know, only too well, that many Albertans are struggling under the weight of inflation, and many have been plagued with high energy bills. As the leaders of the Government of Alberta, the Official Opposition, and the City of Calgary, you each are important influencers and have a loyal following of constituents. Right now, it is important to put your political and ideological differences aside and think critically about the influence of industry lobbyists. Let’s put “People over Politics” and focus on reducing the monthly cost of natural gas and electricity utility bills. Together, you can make an immediate and significant difference.

First Item on the agenda: Over the next 12 months, Calgarians can save at least $100 million to $150 million if the City restructures the Local Access Fees on electricity and Franchise Fees collected on natural gas. We also want to offer recommendations that could help the City increase its income to help offset this reduction in revenue when these fees are removed from utility bills.

Who Are We, and Why Are We Writing to You?

Utility Network & Partners Inc. (“UTILITYnet”) is a private, local, family Alberta business founded in 1978 and owned by Madeline Low and Nick Clark. For over 45 years, we have been providing energy management, load settlement, financial services and data analytics to a wide spectrum of clients in Albrta’s O&G industry. When the market deregulated in 2000, many of our clients, by leveraging our in-house IT systems, became Self-Retilers. In 2008, we expanded and entered the deregulated market as a small local retailer of electricity and launched Spot Power. We continued to invest heavily in an IT retailing solution, which is being used today to manage an innovative network of 32 Community Retailers across Alberta.

To put our presence in the province into perspective: In 1978, our first client was Imperial Oil, and they remain a valued customer to this day. Today, we manage in excess of 50,000 oil and gas, industrial, commercial, residential, and farm accounts located in over 450 towns, villages, and cities throughout the province. We have lived through every aspect of Alberta’s deregulated market, including competitive retailing of electricity and natural gas, and we founded the Solar Club™. In aggregate, micro-generation members of the Solar Club account for a quarter of all solar photovoltaic (PV) roof-top installations in the province. Solar Club members represent a virtual distributed solar farm with an aggregated generation capacity of 75MW, making our Hummingbird Virtual Solar Community the third largest solar farm in Alberta.

The market is in turmoil, but we do not presume to have answers for you on how to fix it. We will share our knowledge of the market and put forward a series of questions that we think you should focus on asking and finding the answers to. With our help, you may discover answers to help you make better-informed decisions and avoid unintended consequences.

Below, you will find sections addressed to each of you, but the collective picture is important so that you can all work together.

Dear Premier Smith:

In your mandate letter from July 2023, you tasked Minister Neudorf with addressing a number of issues, including the high cost of Distribution and Transmission, plus other administration add-on charges that result in higher utility bills. He cannot address every item at once. Today, we recommend that he focus on two quick wins: (a) Municipal Franchise Fees on natural gas and (b) Local Access Fees for electricity charged by many municipalities, and in particular, the City of Calgary.

We also suggest that Minister Neudorf ask Derek Ostead, CEO of Alberta’s Market Surveillance Administrator (MSA), together with Ric McIver, the Minister of Municipal Affairs, to look at all other municipalities in the province that are charging these two additional taxes. If this item is put under the magnifying glass, you may find it possible to help many other people in the province cut the cost of their monthly utility bills.

Until Minister Neudorf can address all the various issues that have caused the regulated portion of a consumer’s utility bill to balloon over the last few years, consumers should be encouraged to simply get off the Regulated Rate Option (RRO.) They will immediately reduce their utility costs. The current promotional program being run by the government, letting consumers know that there are lower retail prices available from competitive retailers, is a good start. Consumers should be encouraged to contact the Utilities Consumer Advocate (UCA) at https://ucahelps.alberta.ca/ and comparison shop online.

In the coming weeks, UTILITYnet will launch a new website focused on a number of industry-related topics to help Minister Neudorf address larger systemic issues. These articles are intended to raise questions to help the Minister and his department staff better understand the detailed complexities of the deregulated market. UTILITYnet’s strength is in data management, and we will freely share aggregate data with the Minister, MLAs, and consumers as needed. We will also put forward recommendations to help vulnerable Albertans or those with poor credit who might not be able to sign up with a competitive retailer and, by default, are stuck on the RRO.

AffordableEnergyRates.ca will be launched later in October and is intended to complement the UCA website. The new service will be apolitical and will give consumers an unvarnished perspective of the market, upon which consumers can formulate their own opinions and decisions. Most importantly, it will raise many questions about Alberta’s deregulated market and the players within it (the good, the bad, and the ugly). We hope this new approach will spark the interest of our political leaders. If you know which questions to ask, the solutions are obvious.

Dear Mayor Gondek:

Of the three leaders, you have the most challenging job and potentially the most rewarding. The Local Access Fee problem is something you inherited and can easily be fixed, which will immediately help lower Calgarians’ utility bills.

You are already aware of the issues surrounding Calgary’s Local Access Fee (LAF) and the burden it is placing on residents and businesses alike. The LAF charged through ENMAX is not the only burdensome line item on utility invoices. The Municipal Franchise Fee also charged through ATCO Gas to consumers (approved by the City) is also problematic.

Calgary is one of the most expensive cities in our province to do business because of these needless add-on fees. Not only does it inflate the cost of utilities for consumers, but it is also unreasonable for vulnerable Calgarians and apartment renters (who do not own their properties) to be saddled with these add-on property taxes. The Calgary Chamber of Commerce has also voiced its concerns about the LAF, as it negatively impacts the cost of doing business in Calgary.

One of your City Council members commented that this change in the rate structure would take months to get approved through the Alberta Utility Commission (AUC). We discussed the issue with the AUC, and assuming no one objects to reducing the consumer’s utility bill, they can approve a formal request from the City for a rate reduction in less than a month. You could actually implement this change prior to Christmas if you so desired. Why wait? Keep it simple – just copy the formula used by the City of Edmonton.

We know that the City Council feels very strongly about this revenue, so we suggest a two-step approach. The current calculation uses 11.11% of the distribution tariff charges plus 11.11% of the monthly RRO energy charge per kWh of energy delivered. We suggest that the City reduce the percentage calculation to 5.55% for the first six months, which will give ENMAX time to adjust their systems to uncouple the Local Access Fee from the RRO and implement a flat calculation similar to EPCOR. (For reference, EPCOR uses a flat calculation of $0.0049/kWh that is set in January each year and does not fluctuate monthly.)

Once you reduce the natural gas and electricity franchise and access fee tax burden on consumers, the question you, the City Administrator, and City Council Members undoubtedly will be focused on is how you will replace the money that you are collecting today from this tax.

The simple answer is to “Follow the Money.”

While addressing this issue, we prepared a KPI Financial Metrics Report on the performance of ENMAX CORPORATION 2018 – 2022. Reviewing this analysis should spark many questions which your team might want to address. For financial information on LAF – please see pages 5, 8, 9, 22, 22, and 23.

The City (aka Calgarians) owns a multi-billion dollar, vertically integrated and very successful energy enterprise, including a number of successful generation facilities operating under the banner of ENMAX. We suggest that you might want to consider the investment in generation as your natural hedge against inflation. The profits and cash flow could be used to offset the reduction in LAF and municipal taxes on natural gas.

In summary, ENMAX Energy and its subsidiaries own and operate two wind farms (Taber Wind Farm and Kettles Hill) plus interest in the McBride Lake Wind Farm. They also operate the Cavalier Energy Centre, the Crossfield Energy Centre, and the Calgary Energy Centre. Plus jointly owns the Balzac Facility and the Shepard Energy Centre (Alberta’s largest natural gas-fuelled power generating facility).

Over the last couple of years, power prices have been spiking. While generators are reported to be making record profits, the dividends being paid to the city have only increased by $4 million year over year. Why isn’t this value higher?

Let’s look at the history of ENMAX. In 2010, on revenue of $2.4 billion, the dividend paid to the City was $62 million. It dropped below $60 million per year during the period 2014 to 2020. Last year, on revenue of $3.7 billion in 2022, the dividend bounced back to $62 million. Granted, 2023 is forecasted to increase to $82 million. Are you satisfied with such a low rate of return?

The dividends being by ENMAX to the City should be one of your prime sources of income. For financial information on dividends paid to the City by ENMAX, please see page 47 of the attached Financial Metrics Report.

University of Calgary economist Blake Shaffer, who specializes in electricity markets, reported on CBC News that “power companies [pulled] in nearly five times the profit” in 2022. Mayor Gondek, with the massive investments that have been made in generation facilities by ENMAX Energy, maybe you need to ask: where is the money? When we analyzed the annual ENMAX financial statements, they did not show the operating costs, cash reserves and profits of the energy generation division of the corporation. You may want to ask for the details.

Additionally, the City, under Mayor Nenshi, approved the purchase of a utility in Maine, USA. He authorized the payment of $1.8 billion for the acquisition of Versant Power. The investment yielded an operating profit of $62 million in 2020, $80 million in 2021, and $72 million in 2022. Many would question the wisdom of investing in Maine, especially when Calgarians are fighting inflation. Have you considered liquidating this asset?

From many of the comments made by our City Councillors, we are left to wonder if they actually understand the complexities when it comes to the stewardship of a multi-billion dollar conglomerate. We hope the attached Financial Metrics Report will help them focus their attention on other questions that they may want to ask.

For example, on page 10, even though revenue increased by half a billion dollars from 2021 to 2022, operating profits declined. On page 47, you’ll see that ENMAX has been operating with a negative working capital for the last three years. Is the growing Debt-to-Equity ratio a concern?

Now is the time to ensure that the City of Calgary, as ENMAX’s sole shareholder, is maximizing their dividends and that there is open transparency when it comes to the cash and investments being made by the City. With Power Pool prices increasing so dramatically over the last couple of years, how much profit did the facilities make?

Based on this information, it is very possible that you can immediately resolve the shortfall in income to offset the reduction in Local Access Fees collected on electricity and Franchise Fees on natural gas.

Dear Ms. Notley:

There is no question you have a stellar reputation when it comes to promoting social programs, and we know you care about the welfare of those in need. In the past, your team has been fixated on trying to help consumers through subsidies and rate caps, but these do not work and were only a band-aid being offered to consumers on the Regulated Rate Option (RRO). The UCP did the same with the deferral program this year, and the cost to fund these caps was paid for by all consumers.

Band-aids can’t stop the bleeding. The subsidy to cover the rate cap had it been allowed to continue, would have cost all consumers as much as $301 million to finance, even though the only beneficiaries were consumers on the RRO. You are not alone: Minister Jones, under the direction of Premier Smith, did effectively same thing by creating a deferral rate cap at 13.5 cents/kWh earlier this year. The $201 million deferral sits squarely on the shoulders of existing RRO customers and is further crushing their budgets. The government gave the RRO providers, ENMAX, EPCOR, and Direct Energy, a zero-interest loan to fund the $201 million cap, while vulnerable Albertans suffer the consequences.

Let’s be clear: the cap was not a cap on rates but rather a zero-interest loan subsidy paid by the government to the RRO providers. The cost of which was funded by the government, which came from provincial funds (our tax dollars) to subsidize ENMAX, EPCOR and Direct Energy.

Here is our take on rebates, subsidies, and caps: The first time you give somebody something for free, “you are creating appreciation”. The second time you give somebody something for free, “you create anticipation”. The third time, “expectation”. By the fourth time you give somebody something for free, “you are creating entitlement”. By the fifth time you give somebody something for free, “you’ve created dependency”. If by the sixth time, you don’t give it to them, “you create resentment and hatred”. Moreover, when you stop the subsidy, you are still left with the same problem.

Today, there are roughly 500,000 Albertans who are required to pay back the deferral charge in addition to the already high RRO prices. One and a half million Albertans have moved off the RRO and are paying less. The solution is simple: we ask you to tell your constituents to go shopping on the Utilities Consumer Advocate website and sign up for a lower rate. Furthermore, consumers should check out the advantages small independent Community Retailers can offer.

Did you know that for approximately 70 consecutive months, our network of Community Retailers has been able to offer “Price-Locked” guaranteed retail prices below the RRO? No cancellation fees, and customers are never handcuffed to a contract. What’s more, Ms. Notley, our business model supports a number of Community Partners in that profits are donated to deserving local causes and charitable organizations. In addition to lower prices, giving back to those in need is just one of the true value propositions that small local retailers in our network offer.

Here are just a few examples for you to consider and a major point of differentiation that sets our retail program apart from the big utilities.

You have the power and influence to help thousands of your followers immediately reduce their monthly utility bills. All you have to do is take a stand, use your influence and encourage your constituents to get off the RRO. They will save money, and if they opt to sign up with a Community Retailer, they will help a number of important local causes that need support, especially in today’s tough economic times.