November 29, 2023

La Ronge Northerner

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Electricity at discount |  Unfair, reviews?

Electricity at discount | Unfair, reviews?

François Legault finds criticism against electricity tariff rebates for some energy-intensive companies “unfair”. He feels that these criticisms do not take into account the benefits the government is hoping for.

Allow me to add my two cents? I will show you that this type of pricing strategy has been far more expensive than it has been profitable for our economy in the past. Would such discounts still cost $44,000 to $369,000 per job created each year?

The Prime Minister told reporters on Wednesday. He responded to many economists and columnists, including myself, that it was right to sell our electricity at a discount in a climate of energy scarcity.

His government is not fooled, he explains. For example, by creating $100,000 worth of jobs, this will ensure that beneficiary companies bring in more than the rebates we’ve been given. He took the example of the electric batteries sector in full development at Pekankor.

What exactly would that be? To judge, what better than to compare with the aluminum industry. Just like the battery industry today, it was seen as the industry of the future when our governments gave us the same kind of price cuts for the past 50 years.

What is a discount? Essentially, it is sold to Hydro-Québec for other purposes at a lower price than electricity it could obtain elsewhere.

Two points can be used as a guide to estimate the fee discount. For industrial projects there is a rate considered profitable by Hydro-Québec, namely rate L (4.6 to 5 cents per kilowatt hour).

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Or the price that Hydro-Québec could get for exports, for example 13.2 cents for a recent contract with New York (or an estimate of 10 cents by deducting the partners’ portion).

According to data provided to me by the Crown corporation, over 8 years, aluminum smelters have paid the equivalent of 3.87 cents per kilowatt hour to Hydro-Québec. This discount is 0.7 percent per kilowatt hour compared to the 4.6 cent price L.

The rebate equates to a subsidy of about $180 million for annual consumption of 25 terawatt hours (TWh) by aluminum smelters.

Knowing that 4,150 jobs in the sector are related to Hydro-Québec’s energy, it can be estimated that each job costs the government about $44,000 per year in tariff subsidies. All the same!

Yes, but the employees are making big salaries, say $100,000, you might say. Very good. But in this case, the share of taxes that Quebec recovers is $15,200, which is significantly less than the $44,000 in tax rebates.1.

The comparison with exports is worse. The rate discount rises to 6 cents/kW (10 cents – 3.87 cents), which costs Hydro-Québec – and the government – more than $1.5 billion in lost annual revenue, or $369,000 per job and year! Alas!

In other words, if the government shuts down aluminum smelters and pays $100,000 in workers’ wages out of pocket, it would be a winner with more profits than the contract in New York (369). $000 per job).

Of course, the numbers are orders of magnitude. Of course, there are other elements to take into account, such as regional development and economic diversification, among others, and there is no question of closing aluminum smelters.

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However, practice demonstrates the enormous costs of these discounts, especially in times of full employment and energy shortages.

Economist Jean-Thomas Bernard of the University of Ottawa has done this exercise in the past, and he thinks my demonstration is “very coherent.” Governments often advertise the impact of their grants, but they don’t say that every expenditure has an impact.

So, if the government doesn’t provide 180 million to 1.5 billion in rate cuts, elected officials can choose to fix our roads or our schools or invest in healthcare. The government may further reduce taxes or increase assistance to the most disadvantaged, which will create spin-offs as taxpayers will spend the funds on their needs in one way or another.

Admittedly, long-term electricity export projects are not easy to complete, as we can clearly see in the Massachusetts project. But there are others, like offshore companies, at good prices to help get rid of coal, which is strongly supported by the federal government. We are not talking about local projects that are cheaper than exports, but they have the advantage of greening our economy.

We don’t yet know the price the electric batteries will be paid to manufacturers or the number of paying jobs that will be created. Pier Fitzgibbon’s overall strategy – from mining to production to recycling – will create synergies and become economically attractive, which will justify some price reductions.

Personally, I think the strategy is not crazy, given the future outlook of this industry, its impact on the decarbonisation of the transport sector and strong subsidy competition from other states.

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But we still have to look at the extent of our public assistance and, given the great strategic value of this industry on the North American continent, we hope that the federal government will also be involved. Why should we only pay?

Jean-Thomas Bernard believes that in addition to direct subsidies or payments, it is necessary to take into account the impact of companies losing employees hired by the new industry – as a result of labor shortages – at the expense of the state. Training of new employees.

So, are the reviews unfair?

1. Again, with full employment, the aluminum workers would have been paid elsewhere, possibly less, and paid taxes, which reduces the government’s tax revenue by $15,167.