It shocks me to discover that some readers thought my column about Albertans in Saudi Arabia somehow endorsed torture, or sympathized with the Saudi regime there.

I must set the record straight.

But before I do that, I need to update my last column, in which I anticipated the recent announcement of how the newly adapted natural gas rebate program will work. As I feared, the changes risk turning the program into the “Natural Gas Price Exacerbation Act.”

Last week, Energy Minister Murray Smith announced how the revised Natural Gas Price Protection Act will “shelter” consumers and small- to medium-sized businesses from spikes in the price of natural gas. It may partly do that if prices stay moderate, but even then it will have some nasty side effects.



Smith said the rebates will grow as the price of gas increases, starting at $5.50 per gigajoule (GJ). At the high end, the proposed regulations specify that if natural gas reaches $12 per gigajoule (GJ), Albertans can rest “assured” that we will never pay more than $8.75/GJ. Albertans under long-term contracts will get the same benefit.

But that also means that when gas exceeds the $12 threshold, Alberta consumers will have no new incentive to cut down usage, with those on contract even encouraged to increase usage. Can you believe that? It’s amazingly foolish policymaking.

The plan will actually boost prices more if they spike dramatically. Imagine what will happen to consumers on long-term contracts, and there are thousands of them in this province. They will have an incentive to ramp up usage and build up credits if gas hits about $17/GJ (depending on their contract rate), making their rebate large enough to cover their gas costs as well as all taxes and transportation fees. Any informed consumer in such a situation would have a powerful incentive to open the windows, crank up the furnace and let credits accumulate.

If you think a spike over $15/GJ is unlikely, I would have to agree, but that does not mean it’s impossible. Long-term contracts in Ontario today already can cost over $12/GJ.

So the theoretical possibility of substantial price spikes is potentially destructive and real. And I would not be surprised to learn that gas companies are hedging against that possibility by making sure that they keep their long-term contract rates high enough to shelter them from having to cover the spread between the long-term rate and the subsidized rate, if it ever came to that. So the current rebate may well put upward pressure on long-term contract rates. This, in turn, discourages people from taking these contracts and further reduces competition in the natural gas marketplace, which also drives up prices. So much for “price protection.”

But one other reason to hate this rebate program is because, under it, gas will effectively cost more at $4.55/GJ than at $5.55/GJ (and also more at $7.25/GJ than at $8.00/GJ). Imagine the political pressure and economic incentive for the gas providers to price their gas at the higher rate to help their customers pay less for gas.

Yes, you heard me right. In some scenarios, you are going to pay less when the price of gas increases.

This can happen because the new plan involves a tiered trigger price (or strike price). At $4.50/GJ we get no rebates; at $5.50/GJ and up we get a $1.50/GJ credit on the bill; at $7.50/GJ and up we get $2.50/GJ; and so on.

This is the “simple” solution we were promised. Fair rebates, however, by definition cannot be simple. Fortunately, we can all understand trigger pricing, since it’s based on the average regulated rate we actually pay, not some arcane yearly average.

But through this new plan the government has created one of those complex beasts known as a derivative.

Pricing derivatives can be challenging. Developers and analysts need high-level math degrees to construct and measure them. But it’s enough to know that we will pay dearly, as a province, if there is a spike in natural gas prices, because the incentive to conserve in a high-price environment will be blunted and the people on long-term contracts will have an incentive to consume MORE. Meantime, a potential provincial windfall (which is our kids’ inheritance) goes into our own pockets.

As I said last week, rebates are crazy. And no rebate program could possibly work, despite the comfort we will feel using our children’s money to pay our gas bills.

The fact is: bills will be higher AND the gas will disappear faster than would otherwise have been the case.

Meanwhile, our treasury could be depleted faster than it ought to be.

Nobody wins.

* * * *

Several readers have accused me of showing sympathy for a tyrannical regime in Saudi Arabia and showing too little sympathy for William Sampson, who accuses the authorities there of torturing him.

While I stand by everything I said in my column two weeks ago, let me emphasize that nothing, absolutely nothing excuses torture. William Sampson has shown strength under extreme conditions that few people possess. My deep sympathies go out to him and his family for what he has, and still is, enduring.

As far as the regime in Saudi Arabia is concerned, it is reprehensible. My sympathy, in that regard, is reserved for the poor Saudis who face torture on a daily basis, living in that jail of a country with no way to escape.

My point, though, was fairly simple, and still holds true: we need to extend respect and compassion to oppressed Saudis as much as we do to Sampson.