Quebec should increase electricity rates, says Montreal think tank

Hydro Quebec workers work to retore power to houses and apartment buildings in Gatineau, Que. on Monday September 24, 2018 after a tornado caused extensive damage Friday to a Gatineau neighbourhood forcing hundreds of families to evacuate their homes. THE CANADIAN PRESS/Fred Chartrand

Quebec would have a better chance of improving its energy efficiency by increasing electricity rates rather than maintaining its current programs, argues the Montreal Economic Institute (MEI).

The proposal is one of the recommendations made by the think-tank associated with the economic right as part of the consultations conducted by the Ministry of Energy on the framework and development of clean energy.

Quebecers are relatively greedy when it comes to electricity consumption, where rates are lower than the North American average. An increase in rates would help to curb this appetite by sending "a price signal," explained MEI public policy analyst Gabriel Giguère in an interview.

"We look at Hydro-Québec's accounts and say to ourselves, 'If I adjust my behaviour, it will cost less,' and I think the economic logic behind that is quite clear," he said.

The MEI's proposal could, however, represent a substantial increase for households.

In 2022, Quebecers were paying an average of 7.59 cents per kilowatt-hour (kWh). This compares with an average of 14.93 cents in cities in eastern Canada, or roughly twice as much.

The think-tank is proposing to spread the increase over "10 years or so."

Giguère concedes that, without targeted mitigation measures, such an increase would hurt the less well-off.

"We need to ensure that the government puts in place a targeted financial assistance programme so that the less well-off can absorb this rate increase," he added. "If you have a big house, you're going to use a lot more electricity than someone living in a three-bedroom or four-and-a-half-bedroom, for example."

However, the MEI's proposal is likely to be unpopular.

The Legault government, which had decided to link rate changes to the consumer price index (CPI), had to backtrack in 2022 and cap the increase because of the exceptional surge in inflation and the discontent that a 5 per cent rate rise would have caused.

Higher rates to encourage households and businesses to be more energy efficient would, however, be necessary at a time when Hydro-Québec is considering the end of surpluses and the cost of new supplies will be higher than the heritage block, Giguère argues.

In its strategic plan published in the spring of 2022, Hydro-Québec estimated that the cost of new supply would be around 11 cents per kWh. This is much higher than the 3 cents for the heritage pool and the average rate of 7.59 cents per kWh.

"The rate increase would also boost Hydro-Québec's revenues, and by extension, the government's revenues. With this money, Quebec could finance targeted measures to soften the blow for the less well-off and fund a tax cut that would indirectly offset the rising cost of electricity bills," added Giguère.

MORE PRIVATE AND MORE GAS

In its brief, the MEI also reiterated the recommendation it made earlier in July in a report to open up the market more to private producers. In particular, it suggests allowing producers to sell directly to businesses and raising the 50 MW ceiling imposed on private hydroelectric dams.

The organization also restated its support for natural gas because replacing this energy source would put greater pressure on Hydro-Québec's network.

"We must be careful not to turn away from natural gas too quickly," said the analyst.

The MEI is also calling for the ban on hydrocarbon production in Quebec to be lifted, a proposal criticized by environmental groups who believe that such a decision would delay the necessary energy transition.

Giguère, for his part, argues that Quebec could help reduce European countries' dependence on Russia.

"Exporting to China, which is still opening up a huge number of coal-fired plants, would help it make the transition from coal to natural gas, which can cut greenhouse gas emissions by 50 per cent," he said. "We consume natural gas in Quebec. We import it from Western Canada and the United States. That's not a bad thing, but if we consume it, why don't we allow it to be exploited?"

This report by The Canadian Press was first published in French on July 31, 2023.