Who won, who lost in deregulation?

Brenda Schimke
ECA Review Journalist

There are winners and losers from the government’s 1995 decision to deregulate electricity in Alberta.  The biggest winners are four industry groups.
The first group was those companies who owned the coal-generating plants in Alberta before deregulation; namely, TransAlta (generator of two-thirds of Alberta’s power at that time), City of Edmonton-owned Epcor (now Capital Power), and Atco Group. Unlike other jurisdictions that de-regulated electricity, Alberta’s major generators were not forced to divest big chunks of their assets to the competition. The Alberta Government instead chose to leave these plants as a regulated industry with guaranteed rates of return.

The second group of companies that benefited was the three successful Canadian companies, TransCanada, City of Calgary-owned Enmax and Epcor who purchased the 20-year supply of electricity generated from Sheerness, Battle River, Genessee, Wabmun and Keephills, at approximately .04 cents per kilowatt-hour.
The third group was large industrial consumers who could negotiate long-term, purchase agreements at preferential rates with the now-owners of a 20-year supply of cheap electricity.
The final group was companies owning major industrial projects with co-generation plants. Their excess electricity could now be sent into a competitive wholesale market where prices could rise as high as $1.00 per kilowatt-hour.  Companies who are benefiting include Imperial Oil, Penn West, Cenovus, Atco Group, Husky Oil, Canadian Natural Resources Ltd., Syncrude, Nova Chemicals and Capital Power.
Market Economy
Deregulation versus regulation means that industry now take on more of the risks and expect higher profits for that risk. Given that Alberta is a relatively small market for electricity, even with its growth, there has been and continues to be much pressure on government to allow large-scale export of electricity. Although Alberta’s growth does require some expansion in transmission lines, it is argued that the approval of two major new transmission lines from north to south is overkill for Alberta’s needs but will support exports.
Transmission lines continue to be regulated. As such, consumers of electricity will see their bills increase to cover the cost of construction, operations and a reasonable rate of return for AltaLink and Atco Group, owners of the proposed new transmission lines.
The biggest losers are residential, farm and small corporate consumers.
Consumers, small and big, used to pay one price per KWh of electricity.  Today different consumers pay different prices based on their purchasing power and on the number of players that need to recover overhead costs and profits. For small consumers in rural Alberta that could mean up to five different companies, where once it was one.
Today, small consumers face more than 55 per cent fixed costs on their electricity bill, where once it was almost 100 per cent variable.
The roll-out of partial deregulation of electricity also meant the creation of a number of bureaucratic agencies to manage and control the complexity of the new system.  Consumer electricity bills must now support the staffing and overheads of the Balancing Pool, the Alberta Electric System Operator (AESO), the Utility Consumer Advocate, the Independent System Operator and finally the Market Surveillance Administrator who keeps an eye on what’s happening now that the system is vulnerable to market manipulation.
Just 10 months ago, TransAlta was fined $370,000 for creating an artificial energy shortage and inflating electricity prices. Given that it is estimated TransAlta benefited a total of $5.5 million from this manipulation, the penalty is hardly a deterrent. Under the system, electricity users pick up the tab for the inflated prices and then receive a credit for the fine collected.
Smaller consumers of electricity have little or no protection from ever-increasing electricity rates and market manipulation. Long-term contracts offered at, say $0.08 per kilowatt-hour, look good when prices peak at $0.16 per kilowatt-hour. But eight cents pales in comparison to what large electricity users are able to negotiate and is a far cry from the 2.5 cents per kilowatt-hour consumers paid pre-deregulation.

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