The government finally decided to cap increases in electricity tariffs at 3%. The pressure was strong for him to reconsider his choice of linking the increase in Hydro-Québec rates to inflation. A choice which, let us remember, has been criticized by almost all of the stakeholders in the field.
Posted yesterday at 2:00 p.m.
The increases recently announced are only due to inflation and not to additional expenses that the company would have incurred. In fact, the prices for the production and distribution of electricity in Québec are not affected by the international supply problems which largely explain the current inflation. If we go by what was presented by the Crown corporation, there is therefore nothing to justify a marked increase in rates. However, according to Hydro-Québec’s latest rate case, each 1% increase in rates brings about $120 million to the Crown corporation. Upcoming rate increases will therefore lead to a sudden increase in Hydro-Québec’s revenues and, incidentally, in its profits.
Knowing that 75% of Hydro-Québec’s profits end up in the coffers of the State in the form of dividends (not counting water royalties), we understand a little better François Legault’s desire to maintain the present increase. tariff.
For example, if the government effectively freezes the Hydro-Québec rate increase at 3%, it will still secure recurring revenues of approximately $270 million directly related to its law tabled in 2019. Remember that between 2007 and 2019, the average annual increase in electricity rates granted by the Régie de l’énergie du Québec was less than 1.5%.
The increase in electricity distribution tariffs, even capped at 3%, will contribute to reducing the purchasing power of households and, in the current context, to keeping inflation on the rise.
The more the increase in tariffs unduly exceeds the true price of distribution, the more companies will have to increase their prices, the more inflation will increase. On the contrary, an increase based on real distribution prices, which would certainly be below the 3% mark, would contribute to containing inflation in the years to come. In this sense, the CAQ’s choices will actively contribute to fueling the current spiral of rising prices.
The role of the Régie
In the past, and before the establishment of the Régie de l’énergie, Hydro-Québec reported only to parliamentary committees. Members’ poor knowledge of pricing left excessive power to the state corporation. Moreover, when she announced high tariff increases, her request occupied all the political debates and could even become a major electoral issue. This imbalance was corrected by the creation of the Régie de l’énergie, a legal tribunal that determines increases in electricity transmission and distribution rates based on information filed publicly by the state-owned company. The Régie must consider the issue of price setting from the point of view of residential, commercial and institutional customers, as well as environmental groups. The establishment of this mechanism has thus contributed to depoliticizing decisions relating to the setting of electricity tariffs.
While the government has determined that it is withdrawing Hydro-Québec from the authority of the Régie four out of five years by setting increases based on inflation, it is actively participating in repoliticizing this issue and weakening Quebec’s democratic institutions. .
It is moreover to bet that the subject will return within the framework of the next elections.
However, the CAQ had the opportunity to change its mind. No one would have held it against him in the context of the socio-sanitary crisis and the inflation crisis that it caused. On the contrary, the Prime Minister stubbornly kept Hydro-Québec rates higher than if the Régie de l’énergie had set them.
It is therefore unfortunate to see the CAQ take credit for the rate freeze when the current increase stems from one of its own past arbitrary decisions – a practice that seems to be in line with those of the party of Maurice Duplessis.