Thursday, 6 October 2011

Canadian idiots - power price edition

Seamus notes the ridiculousness of exempting electricity and home heating from GST. But it's worse than he's letting on.


Canadian electricity is already massively subsidized.

Take Manitoba. The current residential power rate is $0.062/kWh. They can export that power to the States. Here's what Manitoba Hydro has to say:
We export electricity into a wholesale market, where customers are largely other utilities. The electricity is delivered at a very high voltage and the utility is responsible for any additional costs associated with supplying that energy to their own retail customers.

A comparison can be made with rates paid by large industrial customers here in Manitoba who, like our export customers, take delivery of electricity at a high voltage and then are responsible for any internal distribution costs.

Wholesale electricity sold to U.S. customers at fixed rates is currently priced 50 per cent higher than what large industrial customers in Manitoba pay.
If Manitoba Hydro can get an export price that's fifty percent higher than the domestic price, then the prices in Manitoba are massively subsidized. This isn't price discrimination that leaves Manitoba Hydro better off; this is just political constraint stupidity.

In a sane state of the world, Manitoba Hydro would charge the same price in the States as in Canada, return a larger dividend to the government, and the government would give bigger transfers to low income households that would leave them better off than under the (cheap power plus lower transfers) equilibrium.

Why is power policy stuck on stupid?
  1. Equalization payments mean that the Federal government would claw back additional hydroelectric generation revenues, so the provincial government couldn't use that money to compensate Manitoba low income households;
  2. Voters don't understand the first and second welfare theorems. I blame this guy.
So instead of charging Manitobans more, Manitoba Hydro has to pay Manitobans to get rid of old fridges - to do the kinds of things that prices would have induced them to do if we'd only let prices work.

What are the other costs? Manitoba and Ontario use a lot of hydroelectric power generation. In Manitoba, it's pretty much all hydro. Hydroelectric power generation is far less damaging in carbon accounts than is coal-fire generation. Every kilowatt hour that Manitoba cuts back to send to the States is a kilowatt hour that wouldn't be generated by American coal. That's in addition to the obvious screwups you get when domestic power use is subsidized.

Manitobans all smug about how their power use is clean and green need to remember that every bit of power they use means another bit of power is produced by coal south of the border. Your smugs aren't free. There's No Such Thing As A Free Smug.

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