Sticker SHOCK
ALBERTA’S POWER PRIVATIZATION BROUGHT INDUSTRY INVESTMENT BUT ALSO ROLLER-COASTER POWER BILLS FOR RESIDENTS
WHILE POLITICIANS AND PRODUCERS DEBATE THE SUCCESS OF POWER DEREGULATION, CONSUMERS ARE LEFT TO RIDE THE WAVE OF UNPREDICTABLE PRICES — AMONG THE HIGHEST IN NORTH AMERICA
Alberta’s foray into electrical deregulation is either “a raging success” or “a dismal failure,” depending on who you ask or what study you read.
While Alberta’s power producers are trumpeting the success of the move to market competition — additional generation and private investment — consumers facing skyrocketing electricity bills this winter can’t fathom how that can be.
An annual survey by Hydro Quebec suggests Alberta prices in early 2011 were among the highest in Canada and they have increased substantially since then.
Published in November, the survey suggested Calgary’s average residential price per kilowatt-hour last March was nearly 18-cents (17 cents in Edmonton) compared to 7.2 cents in Vancouver, 14.5 cents in Regina, 7.5 cents in Winnipeg. 13.4 cents in Toronto and seven cents in Montreal.
That’s based on usage of 750 kw-h and includes distribution, transmission and other fees and taxes.
A similar survey by Manitoba Hydro, which doesn’t include the fees, put the Alberta cities in the middle of the pack.
As prices rise 46 per cent this month to record highs, Alberta opposition politicians are calling on the Conservative government to launch an independent, public review by experts to assess the restructured market.
“The supply and demand marketplace system they put in place doesn’t work,” says NDP leader Brian Mason. “Power prices are going up and down like a rollercoaster, and consumers are hanging on for dear life.”
Mason says electricity is an essential service and it is not fair to force ordinary families to become experts on electricity markets and require them to hedge their electricity costs and gamble their family budget. He says deregulation should be scrapped.
Liberal MLA Hugh MacDonald believes it was just political dogma, rather than common sense, that drove the Ralph Klein government to deregulate.
“The promise was made we were going to have lower prices, more competition and better service and we now know that not to be true,” Macdonald says. “Electricity deregulation has been a major public policy failure of this government.”
He says deregulation is working great for the power companies, who are reaping windfall revenues, but not for consumers.
But Evan Bahry, executive director of the Independent Power Producers Society of Alberta, says average annual electricity prices are still comparatively low compared to gasoline prices or housing prices.
“From a producer’s perspective, we believe Alberta’s open market has worked as intended. It has shifted investment risk to developers, the market has brought on sufficient supply to meet the fastest growing demand in Canada by far . . . and wholesale prices have been below replacement cost for some of the key fuel types Alberta relies on.”
He says critics are wrong to blame the deregulated market for the current price spike, which has been caused by unanticipated breakdowns of several major coal-fired power plants.
“Re-regulation would not lower the wholesale cost of power and therefore would not lower residential prices below what Alberta’s competitive market is offering today,” Bahry says.
Alberta Party leader Glenn Taylor doesn’t buy that.
“Deregulation is due for a review,” he says. “It doesn’t appear to be working at all.”
Energy Minister Ted Morton says that’s not going to happen.
“It’s not on the agenda,” he says bluntly.
“We’re not going to step into that,” adds Premier Alison Redford.
Redford says more than a decade ago, the province “made a policy decision” to electrical restructuring and has no plans to backtrack from it.
“What Albertans wanted and what government did in setting the policy that it did is, it ensured that we were going to be able to have a market that wasn’t dependent on government intervention or political intervention,” she says.
“That, I think, was a principle that was important to Albertans at the time — and I still think it’s important to Albertans.”
Alberta’s power produc- ers contend annual average electricity prices have climbed only about 10 per cent during the past decade and it’s not fair to compare Alberta prices with those of other jurisdictions with access to cheaper hydro electricity.
Capital Power vicepresident Martin Kennedy say reports like the Hydro Quebec price comparison don’t reflect the true cost of electricity, because they ignore the fact taxpayers are on the hook in other jurisdictions for the cost of building power plants. In Alberta, private investors build the costly generators on their own dime.
“Those comparisons get completely over-simplified and have very little merit,” he says.
Power producers hired a consultant, A.J. Goulding of London Economics, last year to compare Alberta electricity prices to other provinces “on a level playing field.”
Goulding’s report said prices in other provinces “significantly underestimate the full cost of power.”
“The Alberta market, by contrast, continues ... to provide more transparent market signals and contributes to economically efficient decision making among both generators and consumers.”
But a chart in the same report shows Alberta had the third-highest prices in Canada in 2009.
Another study, by an prode-regulation organization called ABACCUS, gives the province’s residential electricity market a “good” rating, based largely on the fact 28 per cent of consumers had switched from the regulated rate to contracts.
The organization, made up of companies with a stake in competitive retail energy markets, ranked Alberta fourth out of 18 states and provinces that have ventured into electrical de- regulation.
Alberta power companies say there’s no turning back.
“By any account, the wholesale end of the business is a raging success,” says Guy Bridgeman, who helped plan the market for the Alberta government before joining Epcor.
The key advantage of the system is consumers don’t have to pay for electrical generators, he says.
“This is, in my mind, a shining example where moving to this market construct has been an absolute success.”
But Bridgeman says the retail side is not performing as well because it is a small market that it hasn’t attracted many competitors.
“I think the retail end of the market has worked pretty well. The fact the price goes up and down is probably the way the market ought to work,” says Bridgeman.
Capital Power’s Kennedy says a regulated system is much more likely to get overbuilt.
“And it pushes all the risk of building too much, too soon, onto the taxpayer. Those are the kind of issues we had in the system before deregulation.”
Consumers can hedge their exposure through contracts that have become increasingly more competitive, he notes.
But Albertans who can tolerate volatility may do better staying on the regulated rate since the rates have been as low as 6.5 cents this year and varied between 5.5 cents and nine cents last year, Kennedy says.
Jim Wachowich, who speaks for the Consumers’ Coalition of Alberta which fights rate hikes, says Albertans never received the promised benefits of deregulation and probably never will.
He believes the retail residential market is dysfunctional, which is why the price of electricity is high when the price of natural gas — the cost driver — is the lowest it has been in decades.
“The supply-demand market doesn’t appear to be working,” he says. “If the market isn’t working, more likely it’s the consumer in that market that gets hurt.”
Wildrose leader Danielle Smith says residents believe they are being protected from high prices by staying on the regulated rate option, but they are not.
“Now with the price spikes coming in January we’re going to see a lot of people hurt.”
But Smith believes opening the market to competition has not been a total failure.
“The question is what position would we have been in if we didn’t allow for competition on the generating side. I think we would have been in a worse position. It’s hard to compare what world we would have been in if we had stayed back in the 1990s versus where we are today.”
Andrew Leach, a University of Alberta energy economics associate professor, says electricity prices have increased since deregulation, but they might also have increased in the regulated system.
“It is hard to say without a crystal ball what the market would have looked like today and what consumers would be paying for electricity today if we had continued with the regulated market.”
Keith Provost doesn’t have a crystal ball, but the former Alberta Power senior vicepresident and electricity system planner does have a computer program.
Punching in generation and fuel costs compared to the average annual pool price for electricity in the province, he calculated deregulation had cost Albertans $16.9 billion by 2007 — about $270 per year per residential consumer.
He advised Premier Redford after her election in October that she could save Albertans $2 billion a year by killing deregulation. A brief letter of response from her energy minister stated: “Alberta is confident that our electricity market is operating to the benefit of Albertans.”
So as prices surge higher this winter, will there even be a discussion about the perceived problems?
Consumer spokesman Wachowich isn’t optimistic.
“Maybe the time has come to have some candid review of where we are and where we want to be, and we can only get there if we look at where we’ve been,” he says.
“Frankly I would like to have this debate in an informed and open-minded way, but there’s almost a fatigue around suggesting any change.”