Energy affordability is a growing concern for many residents and businesses across Atlantic Canada (source). At the same time, multi-billion dollar investments must be made in the region over the next decade to replace aging assets and meet growing demand, especially for electricity.

How should these investments be funded? And, importantly, who should pay?

These questions impact the ability for residents and businesses to pay for energy use. They also influence the types of energy available, how reliable the system is, and what economic benefits come from the projects being developed.

To understand potential solutions to these problems, it is helpful to first understand the difference between the ratepayers and taxpayers funding Atlantic Canada’s energy system.

What is an energy ratepayer?

An energy ratepayer is an individual or business paying for a specific energy service or source, such as electricity or natural gas. These services are usually provided by utilities, nearly all of which across Atlantic Canada are regulated (see Energy 101 Series: Regulated Petroleum Prices).

Ratepayers pay a combination of services fees and usage fees to gas and electrical utilities. Service fees help cover costs related to delivering services to all ratepayers such as transmission lines and pipes. Usage fees depend on how much energy a ratepayer uses (e.g. cents per kilowatt-hour (kWh)). These fees help pay for some deliver costs (like building new generation or paying staff), but also help cover operational costs, such as fuel the utilities use or deliver.

Provincial governments or regulators help determine the rates different groups pay for a specific type of energy (e.g. residential electricity customers may pay less or more than small commercial businesses).

In some cases, usage fees also depend on when a customer uses energy, such as charging higher rates for energy used during periods of high energy demand.

Source: Crux Energy Consulting, Energy Affordability Across Atlantic Canada

In Atlantic Canada, nearly all utilities operate in regulated markets where they can charge ratepayers the cost of service, plus an additional fixed return for their own profit (for private utilities). Provincial regulators must approve any large investments to ensure ratepayers are protected from unjust price increase.

What is a taxpayer?

Taxpayer is a catch-all term used to describe all individuals and businesses who contribute to the revenue of federal, provincial (and territorial), and municipal governments. The taxpayer contributes to this revenue through personal and corporate income taxes, sales taxes, property taxes, and royalties, among many other government revenue sources.

Governments in turn use this revenue to help pay for important services such as healthcare, education, social programs and road infrastructure. Taxpayer funding also often supports investments in energy systems, from subsidizing development costs to accelerating research and lowering costs for certain demographic groups. Legislative, regulatory and public finance systems govern how the revenue is spent.

How do energy ratepayers and taxpayers differ across Atlantic Canada?

In general, electrical and natural gas ratepayers within each Atlantic province pay the same general service fees as others in their rate class. Most households have the same basic monthly bill, but different based on how much energy they use. For example, a low-income family may use more energy and have a higher bill than a high-income individual. Similarly, energy-intensive businesses will have relatively high bills, so the cost of energy becomes a significant business expense.

In contrast, taxpayers are more likely to be charged based on their income or disposable income. A high-income individual may pay more with income taxes, sales taxes and property taxes, than a low-income family, for example.

Why do taxpayers help fund the energy system?

Taxpayer funding is often used by governments to limit differences based on demographics (like income) and geography. This is also the case for energy systems. Taxpayer funding is also often used to help subsidize other societal goals such as decarbonization, accelerating innovation and research, and supporting jobs and economic development opportunities. Energy systems receive financial support from governments (taxpayers) for all these societal goals.

Governments also have more flexible tools and mandates than utilities to support these societal goals.

It is important to recognize how affordability fits into paying for energy systems. Low-income households may be both taxpayers and ratepayers, but cost impacts differ depending on the mechanism.

How do taxpayers help fund the energy system?

There are many different tools governments (taxpayers) use to help subsidize the energy system.

  • Loans: Governments and Crown corporations help directly finance projects, often at a lower rate than what would be available through the market.
  • Loan guarantees: Governments promise lenders that it will repay a project’s debt if the borrower cannot.
  • Direct grants: Governments can offer direct grants or forgivable loans to help subsidize project costs.
  • Tax credits: Governments can offer tax rebates, reduced or forgivable tax rates to help lower project costs.
  • Equity ownership: Governments can purchase an ownership stake in a project or development company.
  • Research and development funding: Governments can fund research and development for new technologies for a project directly or to help fund early-stage innovation. Governments can also fund assessments of natural resources to help lower development costs and uncertainty for development companies.
  • Training and wage subsidies: Governments can subsidize training and retraining programs to help build the workforce to support projects or directly subsidize wages for existing staff.
  • Infrastructure spending: Government spend hundreds of millions of dollars each year to build and maintain infrastructure, including energy infrastructure. This is in addition to what utilities invest in energy assets through ratepayer revenues.

Ratepayers and taxpayers have also historically supported energy efficiency programming, and emission reduction equipment for energy users, such as free heat pump installations or subsidized EV charging equipment.

In contrast, governments can also use financial tools to disincentivize some types of energy, such as carbon pricing for industrial emitters (Output-Based Pricing Systems).

How and why New Brunswick built Canada’s first CANDU-6 reactor

The Point Lepreau Nuclear Generating Station (PLNGS) in New Brunswick is a CANDU-6 (CANada Deuterium Uranium) reactor, with 705 MW of installed capacity. It is the only CANDU-6 reactor operating in Canada outside of Ontario. 

But how and why did it end up in New Brunswick? 

In the early 1970s, NB Power's electricity generation had a heavy reliance on oil, highlighted by the 1973 oil crisis. At the same time (1974), the federal government was interested in supporting Canada's first nuclear plant with financing (a 50% loan guarantee).  

While NB Power and the province had been exploring nuclear energy for several years, the project agreement was signed later in 1974 and construction began that Fall. 

By 1977, roughly 3,100 people were involved with the construction of the project, and the Station was commissioned in 1983. PLNGS was further refurbished between 2008 and 2012. The Generating Station continues to employ hundreds of skilled staff in southern New Brunswick.  

Taxpayer and ratepayer funding has supported PLNGS, which remains a vital component of NB Power's energy system and an important economic driver, especially in southern New Brunswick. A combination of government financing, loan guarantees and other financial tools since have helped support the project and its continued operations. 

What is the role for energy ratepayers and taxpayers in Atlantic Canada’s net-zero future?

Ratepayers and taxpayers both will need to invest in energy systems across Atlantic Canada to help meet a net-zero future. While governments and utilities need to invest to reach net-zero emissions, let’s focus on the path for electricity:

  • Atlantic Canada’s energy transition requires utilities and governments to invest in aging renewable or non-emitting electricity assets, such as refurbishing the Mactaquac Generating Station in New Brunswick or transitioning existing coal generating stations in Nova Scotia to use cleaner burning fuels.
  • Growing electricity demand will require investments in new generation, such as more onshore wind turbines and expanding transmission capacity across the region (like from New Brunswick to Prince Edward Island).
  • Governments (taxpayers) are already positioned with several financial tools to help limit cost growth for ratepayers including government financing, loan guarantees and tax credits for select projects, investing in EV charging infrastructure and efficiency upgrades for industry.
  • At the same time, utilities may look to new revenue models, such as using time of use billing, to help limit the affordability burden for some ratepayers.

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