Québec's Minister of Finance, Raymond Bachand, today tabled the province's 2010-2011 Budget. Among the measures that should be of interest to those in the energy world are the following:
Setting the tone for his energy-related announcements, Minister Bachand declared that: "the rates Quebecers pay for their electricity are lower than almost anywhere else in North America. Electricity prices in New York and Boston are at least three times higher than in Québec. In Toronto, the price of electricity is 66% higher than in Québec. The low rate has caused Québec consumers to undervalue this precious resource. There is little incentive for Quebecers to improve their energy efficiency,"
In this context, and to mitigate the impact of announced higher prices for so-called "heritage pool electricity" (i.e. a block of up to 165 terawatt-hours of energy at a set price of 2.79¢ per kilowatt-hour) discussed further, the government announced that it would require Hydro-Québec to establish enhanced energy efficiency objectives in the coming months. According to the minister, greater energy efficiency will mean savings for consumers.
On building a green economy in Québec, Minister Bachand then declared that "Sustainable development will be an important thrust and a signature feature of our economy for the next 20 years at least. It is important to continue the green shift initiated by our government in 2006. Tackling climate change will provide Québec with new opportunities and openings for developing a green economy,"
In that regard, the government announced a series of measures, namely:
- the implementation of the Industrial Policy for the Development of an Electric Vehicle Sector;
- the introduction of financial assistance of $24 million over 3 years to encourage the commercialization of products made in Québec that have obtained carbon footprint certification;
- $57 million over 3 years for the Northern Plan to ensure the smooth functioning of the current process and encourage initiatives that will meet the needs expressed by local communities;
- the introduction, as of January 1, 2011, of a royalty on water used as an input or in production processes;
- the implementation of a temporary financial assistance program for wind energy projects that must be implemented between 2010 and 2012;
- sustainable funding for the road and public transit infrastructure fund through an increase in the fuel tax;
- a gradual increase, as of 2014, in the price of heritage pool electricity supplied by Hydro-Québec.
As for the last measure regarding the gradual increase in the price of heritage pool electricity supplied by Hydro-Québec, such additional funds would constitute a new source of funding to the Generations Fund, which had been created in 2006 to ensure that the province's children and grandchildren would only assume their fair share of the province's indebtedness. The minister noted that although part of that indebtedness represents quality assets, that the economy is diversified and that there are abundant natural resources, there was indeed cause for concern, as Québec's indebtedness is the highest of all the Canadian provinces.
Going into the details of the rate hike, the Minister explained that as of 2014, i.e. once public finances will have been balanced, the government would gradually raise the price of heritage pool electricity supplied by Hydro-Québec to reach an increase of 1 cent per kilowatt hour in 2018. The increase would result in an average rate increase of 3.7% a year for almost all of Hydro-Québec's customers, with commercial consumers to absorb approximately half the impact of the increase. Less affluent households are to be shielded from the impact of the rate increases as a result of a new solidarity tax credit, which would be adjusted to account for the higher rates.
Minister Bachand was quoted as saying "Quebecers are proud of the hydroelectric development carried on in Québec [...] it has played a major role in developing our economy, our regions and our society. It is a source of wealth that we will rely on to pay down our debt. When fully implemented, in 2018, the increase in the price of heritage pool electricity will represent additional revenues of $1.6 billion annually. All of these revenues will go directly into the Generations Fund to pay down the debt. They will enable us to attain our indebtedness objectives. By agreeing to pay a little more for electricity, which will remain exceptionally cheap, Quebecers and Québec businesses will discharge their responsibility to future generations."
Minister Bachand was careful to add that maintaining the province's competitiveness would remain a priority. therefore, he explained that industrial customers paying the large-power rate (the "L" tariff) would be exempt from the increase in the price of heritage pool electricity, but not from Hydro-Québec's normal rate increases so that they continue to pay a competitive rate.
For these customers, which include 150 large industrial companies, electricity accounts for a large portion of production costs. Many of these companies are located in the regions, where their contribution to the economy and employment is vital. Higher electricity costs would considerably reduce their profitability and could even cause some of them to close. The minister explained that several energy-intensive companies concluded special supply contracts with Hydro-Québec in the 1980s and that many of these contracts expire between 2014 and 2016. The Minister announced that these contracts would not be renewed and that as a result thereof, Hydro-Québec expects to be able to bring in an additional $160 million a year.