Albertans stuck with $3B tab

Consumers unlikely to recoup losses in deregulation of power, report concludes

Calgary Herald - March 28, 2001
by Stephen Ewart

Albertans are unlikely to recoup $3 billion lost in the transition to a deregulated power industry even though soaring electricity rates will moderate after 2001, warns a new study by a Calgary-based energy consultancy.

A report by Optimum Energy Management Inc. concludes that consumers are paying a premium for competition in the electricity market despite government pledges of big benefits under deregulation.

"The prices are not going to drop low enough (or) soon enough to offset future dollar savings with today's real dollar costs," Optimum vice-president Duane Reid-Carlson said Monday.

The $3 billion that Optimum concluded consumers will lose includes the impact of the $2 billion the Alberta government pledged in electricity rebates to consumers as power prices spiked last fall.

Former Treasurer Steve West, the driving force in the government for market-driven power prices, conceded earlier this month that there were timing flaws in the plan to deregulate but insisted the market will right itself.

The Optimum report said although prices will moderate, consumers will continue to pay more than historical levels due to a continued tight supply-demand balance and higher priced natural gas and import energy.

"The money that is being paid for electricity or even natural gas is a wealth transfer from consumers to energy companies and we're not going to get that money back," said Jim Wachowich of the Consumers Coalition of Alberta.

The province first launched electricity deregulation in 1996 and it only became official Jan. 1.

Reid-Carlson agreed with West that the lag in implementing deregulation was part of the problem and noted other provinces and states, most notably California, are facing similar electricity problems.

He said the lag meant that power companies didn't build new generation in the three or four years when power demand grew steadily in Alberta's booming economy and rising population.

Wholesale power prices more than tripled last year from 1999 and Optimum's study predicted prices will remain near that same level through the end of 2001 when new lost-cost generation starts to come on stream.

Prices will likely range between 7.5 and 13.2 cents per kilowatt this year, but there is potential they will climb significantly higher, Optimum warned. While it concluded prices will decline steadily from the current levels until at least 2005, Optimum didn't reveal any specific numbers.

A study by investment firm FirstEnergy Capital released earlier this month predicted power prices will remain high until 2004, although it also agreed they should start to moderate next year.

"What deregulation is resulting in," said Wachowich, "is a cyclical commodity price for an essential commodity and that's very disturbing for end-use consumers like householders."

The Optimum report predicts Alberta electricity demand will increase by an average of 2.1 to 3.2 per cent per year over the next 15 years.

The report also said electricity generating capacity could exceed demand by the end of 2006 since more than 4,200 new megawatts of power is expected to be in-service by then.

But Reid-Carlson said with only 2,000 to 3,000 megawatts required in that period, it is not likely all projects will go ahead.

In the long term, the report said 5,300 to 7,400 megawatts of new generating capacity will be required within 15 years to meet rising demand and to replace aging units likely to be retired.

While the report appeared to be a blow to proponents of electricity deregulation, Reid-Carlson maintained that retail competition provides the opportunity for many tangible benefits with respect to new supply, increased efficiency, innovation and consumer choice.

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