|Copy of e-mail message sent to various individuals and
2003 05 06.
My comments are appended after the forwarded article.
[The article was also published in the Edmonton Journal, 2003 05 06, p. A3]
http://www.canoe.ca/EdmontonNews/es.es-05-06-0012.html (The link no
longer works. Searching the Internet has no yet produced an
archived copy of a file of the Article.)
NEWS Tuesday, May 6, 2003
Power lines will cost us
Consumers are the losers again, say Liberals
BANFF -- Alberta power consumers will pay the whole cost of building new transmission
lines between Fort McMurray and Calgary, under a regulation announced yesterday by Energy
Minister Murray Smith.
Smith said the new lines will cost about $1 billion over the next two decades and will
be covered by all ratepayers in the province.
The new regulation, which Smith hopes to have approved by June, overturns an Energy and
Utilities Board decision from last November that said new transmission line costs would be
"shared equally between electricity generators and consumers."
But in his speech to energy regulators at a conference in Banff yesterday, Smith said
the new regulation would encourage the growth of new power generation in the province by
placing a "postage-stamp" policy where everybody pays.
"Ultimately, the rate base is all consumers, all part of the market - industrial,
residential, small business, petrochemical - everybody will pay," said Smith.
"But by doing that, we'll send a signal that we want lots of generation, which
increases supply, which generally puts downward pressure on prices."
Hugh MacDonald, energy critic for the Alberta Liberals, said it was "a cause for
concern" any time the province's regulatory board was overruled by the energy
"Nothing surprises in this province any more with electricity deregulation,"
"Electricity deregulation continues to have winners and losers, and the consumers
are the losers once again," MacDonald said from Edmonton.
The energy minister said the previous system was "a matrix of different
signals" whereby rates were different depending on where and what type of power was
Smith said getting rid of the "congestion-management" idea of making the
generator pay leads to the most expensive type of gas-fired electricity being generated.
"This is in fact delivers low-priced and best-use electricity generation."
"So the companies can get on with the job of building new transmission in Alberta
that will last Albertans for the next 50 years."
New Democrat energy critic Brian Mason said Smith's announcement that new transmission
lines will be covered by consumers represented "one more reason that deregulation has
not benefited consumers."
Jim Wacowich, a spokesman for the Consumers' Coalition of Alberta, said people will
unfairly be footing the bill for the facilities required to export electrical power out of
the province to other markets.
"Now, whether these companies will profit or not is hard to say, but the
expectation is that these companies, which are sophisticated commercial entities, would
like to profit. It seems to me that they lobbied government to rethink its policy and to
push costs onto the consumers' side of the equation."
---End of forwarded article---
There is nothing new about consumers paying for the costs of transmission-line
construction, and nothing is wrong with that. Consumers always paid for that. The power
companies had the consumers pay by applying to the AEUB for rate increases that would be
sufficient to cover the cost of the money (the interest costs) required for the
construction of new power generating plants, of new transmission lines and even for the
construction, upgrading and operating of distribution systems.
The AEUB ostensibly made sure that the power companies did not make excessive levels of
profit. Apparently that worked well, for as long as the energy industry was regulated. For
example, when Epcor had wanted to construct a new coal-fired power plant to increase
generating capacity that would give it a greater share of the market, the provincial
funding for it and the rate increases triggered didn't come forth for a long time, for as
long as the government felt that the plant and the additional capacity it would bring
on-line weren't needed.
When new generating capacity construction was needed, and if new transmission lines had
to be built, the need for either or both had to be demonstrated at rate-case hearings of
the AEUB, because the funding for them would ultimately be derived from the consumers'
power bills or out of all taxpayers' pockets. Generally, increased power costs were
covered through increasing [the price for] power consumption rates -- the price per kWh.
Conversely, if it was found that the estimated costs of construction were in excess of
actual costs or that capacity increases that had been added were in excess of what was
actually required, refunds to consumers were ordered by the AEUB. Those refunds would
generally be provided in the form of rate riders that would reduce the price per kWh of
energy consumed for the period of time needed to recover the cost of the excessive
construction [for which consumers had been over-charged].
That worked fairly well for as long as the AEUB had control over regulating the market
and market prices, and for as long as the AEUB felt it had the mission to ensure that
consumers paid a fair price for the energy they consumed. It is debatable whether the
composition of the AEUB in any way influenced it to make decisions biased in favour of the
producers, distributors and retailers. The vast majority of the board members were
generally products of the players in the energy market, the utility companies. However,
consumers had at least theoretically the capability to keep the play fair by being able to
intervene at rate case hearings.
That, in essence, was the nature of regulation. It was an ongoing audit of the business
of producing, transmitting, distributing and selling electrical energy, with the intention
being to keep profits for the producers and distributors within set limits. It was also
designed to prevent losses, to guarantee profits, thereby to entice producers and
distributors to operate in a secure business environment, and to ensure consumers a
secure, reliable and safe supply of electrical energy.
Deregulation was ostensibly intended to entice competition for power generation,
-transmission, -distribution and -retailing to enter the Alberta market. It was alleged
that the competitive market climate would attract new players by opening the market to new
players and by having prices based not on what it costs to provide electrical energy but
by what electrical energy is worth to consumers. Still, in
the words of Ed Stelmach, under the new scheme,
"The Alberta Government is committed to putting more money back into the
pockets of Albertans"
One of the problems with that is that in a closed market that provides no opportunities
for export, the prices would essentially still be determined through the cost of
production, delivery and fixed profit limits. Barring price fixing (which the AEUB would
curb), whatever players were in place would compete within the limits of their ability and
willingness to operate within the lowest possible profit margins and hope that no
competitor would under-bid them.
It didn't turn out that way. That was predictable, and only history and full disclosure
will eventually tell us to what extent that was design.
Along with deregulating the market, the Alberta government decided that a closed market
would not be enough of an incentive for competitors, that Alberta has an excess of energy
resources that can be exported in the form of electrical energy and thereby provide a
source of lavish revenues that cannot be exhausted within the lifetime of anyone living
Deregulation is essentially a misnomer. Our energy market had not been deregulated.
What had happened was that the market philosophy had been
changed from being constrained by reasonable cost recovery and profit margins to one
driven by what consumers are willing and able to pay.
In the 1950s, when the REAs came into existence, electrical power was considered to be
more of a luxury than a necessity. Today it is a necessity without which we cannot live.
Our homes, farms and business operations cannot function without it; they are designed to
depend on electrical power. We depend on electrical power as much as we depend on the air
we breathe, the water we drink and the food we eat.
There is nothing wrong with exporting anything, except one thing. When we export
anything, we at home, where the commodity to be exported is produced, have to live with
the fact that we then have to pay at home the full price for what the expanded market is
willing to pay for the commodity we wish to export. That is true for exporting grain,
cattle, hogs and any other farm products. It is true for exporting oil. It is true for
exporting water. It is true when the air we breathe is considered to be a world-market
commodity. It most definitely is true when we export electrical energy.
When we export anything, we no longer worry about the cost of production and reasonable
profit margins, we then must worry about whether we at home, where the commodity to be
exported is being produced, can afford to pay the world price for that commodity.
If our costs of living were to be lower than the average cost of living in the expanded
market, we would come out ahead. Our lower living costs would give us an advantage.
However, our living costs are *higher* than the average living costs in the expanded
market to which we intend to export electrical energy.
We pay more in taxes. We pay more for heating. mainly because we must on account of the
cold climate in which we live. We pay more for electricity because we consume more of it
per capita on account of our climate and geographic location (after all, we have only
eight hours of sunshine on a winter day).
We import much of our food and many consumer goods because they are cheaper to produce
elsewhere, even if we take into account the cost of transporting them to the point of
consumption. We pay more because of the large distances involved in obtaining and
transporting consumer goods and services. That is a function of our low population
density. Most of all, our dollar buys on average far less than the American dollar does.
We could theoretically still break even, overall, if we were to pay only for the costs
of producing, transmitting, delivering and selling the electrical energy we consume, but
that is not the intention of Murray Smith and the Alberta government. They want the
Alberta consumers to pay for the cost of transmitting power to the USA.
That will be a great advantage to the producers of electrical energy. It will be an
enormous handicap to Alberta consumers. It will be a greater handicap yet to rural
consumers in Alberta. It should be the consumers in the markets into which we export
electrical energy whom must pay for the cost of producing and delivering the energy that
is being delivered to them.
Is the Alberta government intent on "putting money back into the pockets of
Albertans"? Not at all. The Alberta government is intent on having Alberta consumers
pay for the ability of increasingly foreign-owned energy producers operating in Alberta to
sell electrical energy in the USA.
"Deregulation" already more than doubled our power bills, even though our
population numbers didn't grow that much by a long shot. The increase happened overnight, not gradually,
and Alberta consumers presently have to live with the highest prices for electrical energy
in all of Canada. Paying for the cost of a billion-dollar transmission line from Fort
McMurray to Calgary (and then to the Canada/US border) will increase the bottom line on
our power bills, and it won't be the last increase we will see. The investor-owned
utilities have us over the barrel because our government no longer looks out for our
interests but promotes those of the increasingly foreign-owned energy producers in
The "Alberta Advantage" is anything but that for rural Albertans.
Director, AFREAs District #7