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Energy: Cross-subsidization is costly to small businesses

What is cross-subsidization?
Cross-subsidization occurs when the rates paid by one class of customers, such as business customers, are higher than the energy distribution costs, producing an advantage for another class of customers, such as residential consumers.

For a very long time, CFIB has been speaking out against cross-subsidization between various classes of customers as practiced by Hydro-Québec or Gaz Métro – to the detriment of small businesses.

A problem that hits SMEs especially hard
Hydro-Québec acknowledges the situation and is applying a cross-subsidization index to measure this inequity between its various customer classes:

  • An index of 100 represents an equitable rate, and indicates that the client is paying its fair share based on the cost of delivering energy to that client.
  • In 2016, most small businesses pay at Rate G or Rate M, which sit at 119 and 128 in the index respectively. In other words, these customers are paying, respectively, 19% and 28% more than if billing were equitable.

 

Unsurprisingly, a majority of our members have spoken out in favour of adjusting electricity rates. What they want is to pay a fair price for the services they receive. Below are the results of a member survey on the issue of cross-subsidization:

Should electricity rates for businesses be reduced to better reflect the actual cost of electricity delivery

A solution that requires political leadership

Currently, the Régie de l’énergie Act expressly prohibits putting an end to Hydro-Québec’s unfair rates for SMEs. Article 52.1 of this Act stipulates that “The Régie shall not modify the rates applicable to a class of consumers in order to alleviate the cross-subsidization of rates applicable to classes of consumers.”

For many years now, we have spared no effort to convince the government to remove this article from the legislation. We have issued media news releases, had direct dealings with the Régie de l’énergie, published briefs and reports, and conducted presentations to National Assembly committee members.

Cross-subsidization has a negative impact on SMEs. We will continue to pressure the Quebec government until we achieve a fair rate structure. It is crucial that Hydro-Québec put an end to cross-subsidization for the sake of small and medium businesses, which are unfairly billed under the current practice.

SME customers of Gaz Métro and Gazifère run into the same problem; in their case, however, cross-subsidization is not imposed by law. CFIB is also working to rectify this situation.

For more details: