Jolt of Reality: Alberta’s deregulated electricity market wins high praise from former Ontario Power CEO

Energy, Frontier Centre, Uncategorized, Worth A Look (historic)

When the mercury drops and utility bills go higher, the critics of Alberta's experiment in deregulating power can be counted on to come out of the government-must-run-things closet to criticize Alberta's private sector power companies.

Those critics, as predictable as snow this time of year, have long been off base, and another example of why arrived recently with an article written by the former chief executive of the government-owned Ontario Power Authority, Jan Carr. Carr, writing in the Financial Post, points out that while Ontario and Alberta looked broadly similar in 1998-2002, a period when they were trying to get away from "century-old monopoly electricity" arrangements, their paths diverged after 2002.

In Ontario, a succession of governments couldn't resist messing up an already poorly designed electricity system even more. As Carr writes: "The combination of direct government ownership and a less-than-level competitive playing field increased government involvement, beginning with freezing prices to counter high and erratic prices created by feeble competition. Each fix created more problems than it solved, leading to ever more prescriptions, each involving ever greater detail."

In contrast, Carr notes that in Alberta, our reforms worked better. One part of the reforms ensured that decades-old investors were given pricing guarantees expected when they first decided to invest in them. After all, it is always a bad idea to change the terms of a contract after it's signed. However, that guarantee was counter-balanced as Alberta also "levelled the competitive playing field between incumbent owners and new investors in generation," writes Carr.

Carr points out how Alberta's design encouraged both new technology and innovative efficiencies, which in turn means "robust competition and better pricing for consumers."

That's why the Independent Power Producers Society of Alberta (IPPSA) is forecasting total rate increases of one per cent per year out to 2015, while Ontarians might pay 20 per cent higher prices, or even more. The Ontario government itself predicts a 46 per cent increase in power prices between 2010-2015.

On another positive for Alberta, on green energy, Carr writes that "Alberta has become the hub of Canada's commercial electricity business and the country's biggest embracer of wind power without detailed government prescriptions like the targets for job creation or subsidies for particular renewable technologies which typify Ontario's approach." Amen to that.

Another two Ontario analysts, Glenn Fox, a professor of natural resource economics at the University of Guelph, and retired banker Parker Gallant, have also criticized Ontario's approach to generating electricity. Last year, Fox and Gallant poured cold water on even the Ontario government estimate of "just" a 46 per cent rise in electricity rates in that province.

Instead, Fox and Gallant argued that the average Ontario ratepayer will see their annual electricity bill soar from $1,700 per year to $2,800 by 2015, and then to "over $4,000 annually" by 2018.

When Alberta's at-home critics point to other provinces with supposedly better power systems, often government-owned ones, they forget that such government-owned power companies are at the mercy of politicians. That often means politicized decisions on rates and electricity supplies, leading to under-investment in infrastructure, or massive borrowing, bills that eventually come due for either ratepayers, or taxpayers or both.

Consider Liberal Ontario Premier Dalton McGuinty's decision to scrap two gas-fired plants recently. Energy industry watchdog Tom Adams told the National Post recently that McGuinty's political decision will cost Ontario taxpayers at least $1.3 billion. McGuinty disagrees with that figure, countering it will cost $230 million.

In Alberta, with the exception of two city-owned utilities, the risks for every other company are borne by that company's shareholders, as it should be.

The next time somebody causes static about electricity generation and prices in Alberta, someone should give them a jolt of reality by reminding them of the three Ontario critics of Ontario's debt-laden, high-priced, government-owned and politicized power experiment. Unlike the expensive Ontario power boondoggle, Alberta's electricity model looks much better.