How much do companies pay for our electricity?
Real Tremblay
How much do businesses in Quebec pay for our electricity? Dearer than you and me, Mr. Tremblay.
In fact, they partially subsidize the very low electricity bills of Québec residential customers. Businesses are charged a higher rate than the actual cost of their electricity, which helps fund discounted rates for residential customers.
There are basically four electricity rates in Quebec. At 1er April 2022, the residential tariff was 7.59 cents/kWh (tariff D), the tariff for commercial customers (e.g. institutional customers, offices), 8.37 cents/kWh (tariff M), and the tariff for large-power industrial customers, 5.33 cents/kWh (Rate L). There is a fourth tariff for aluminum smelters, which varies according to the price of aluminum under long-term contracts. Between 2015 and 2022, it averaged 3.87 cents/kWh.1
But wait: isn’t the tariff of 5.33 cents/kWh for large industrial customers less than the residential tariff of 7.59 cents/kWh? Yes and no.
This is because electricity costs less to produce for large industrial customers, for two reasons. They consume more regularly during the day, while residential customers consume mainly at peak times. For a network, it always costs more to produce more electricity at peak times. The other reason is because the distribution of electricity costs less for industrial customers, who are easier to connect to the network than all residential customers.
In 2021, residential customers paid 14% less than it cost Hydro-Québec to supply them. While commercial customers paid 28% more than the actual cost of their electricity, and industrial customers 13% more.
The companies indirectly subsidize the electricity rate for residential customers in Quebec. This is the principle of cross-subsidization.
“We have the chance, a perverse chance, in my opinion, of paying less as a residential customer because commercial and industrial customers pay more,” explains Professor Pierre-Olivier Pineau, holder of the energy at HEC Montreal.
That said, residential customers as well as commercial and industrial customers pay much less for their electricity in Quebec than elsewhere in Canada and the United States.
For a residential customer, Montreal is the Canadian or American city where electricity is the least expensive, by far, according to a comparative study by Hydro-Quebec. It costs 50% more in Vancouver, 83% more in Toronto, 163% more in Calgary, 397% more in Boston and 444% more in San Francisco, the most expensive among the 22 cities in the analysis compared.
For a business customer, Montreal is the second cheapest city among the 22 cities, behind Winnipeg (7% cheaper). It costs 7% more in Vancouver, 52% more in Toronto, 79% more in Calgary, 215% more in Boston and 250% more in San Francisco.
For an industrial customer, Montreal is also the least expensive city among the 22 cities. It costs 46% more in Vancouver, 83% more in Toronto, 147% more in Calgary, 254% more in San Francisco and 314% more in Boston.
According to Professor Pierre-Olivier Pineau, Quebec residential customers are “subsidized twice”. First, we pay less thanks to commercial and industrial customers. Second, we take advantage of electricity rates well below the North American market, because Quebec produces low-cost electricity thanks to its hydroelectric dams and the contract with Churchill Falls, in Labrador.
On average, it costs Hydro-Québec 2.1 cents/kWh to produce electricity on its entire network (about 2.5 cents/kWh must be added for residential distribution).
On the other hand, any new electricity production is much more expensive. The last major project, the Romaine complex on the North Shore, commissioned from 2014 to 2022, produces electricity at a cost of 6.4 cents/kWh.
As the demand for our green (and low-cost) hydroelectricity will increase with the fight against climate change, one must ask whether our low tariffs are inducing us to waste our electricity. “It’s a very bad incentive to reduce our consumption,” illustrates Professor Pierre-Olivier Pineau.
It is in this context that the Legault government is beginning to reflect on what we want to do with our electricity, both for our consumption and our production and our rates.
In this reflection, we should not forget that the most profitable kWh of electricity is always the one that we do not use.
1. In this paragraph, it is about tariffs per 1er April 2022.