Fuel rich Albertans face energy crisis

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Friday 22 December 2000 Fuel-rich Albertans face energy crisis

Deregulation and competition were supposed to keep prices down, but things haven't quite worked out that way in Canada's oil patch, Larry Johnsrude reports.

Larry Johnsrude The Edmonton Journal

EDMONTON - They might not be freezing in the dark just yet, but Albertans are being hit by huge energy rate increases as newly unleashed free-market forces push up prices for electricity and natural gas.

Despite the province's vast stockpiles of power-producing natural gas and coal, Alberta consumers are finding their costs for staying warm this winter are rising faster than anywhere else Canada.

The provincial government's electrical deregulation, which was supposed to keep electrical rates down by opening up the power industry to competition, is having the opposite effect and will double the price of electricity on Jan. 1.

And the price of natural gas, which had been a low-cost mainstay because the province is sitting on pools of the stuff, is also doubling due to burgeoning North American demand.

It leaves Albertans wondering why their energy-rich province is in the midst of an energy crisis while electrical rates in neighbouring provinces remain unchanged and natural gas rates don't appear to be rising as quickly.

"It is ironic," acknowledged Rob Spragins, electricity expert with the Canadian Energy Research Institute in Calgary. "Nobody could have predicted we would be in the situation we're in today."

Alberta's skyrocketing electrical rates are being blamed on power deregulation, which is to take effect Jan. 1. And although high natural gas prices affect all consumers across North America, Albertans will feel it more because they pay higher rates in the winter.

When the provincial government announced its plans five years ago to open up the electricity market competition, it envisioned a range of electrical retailers scrambling for consumers' business, keeping profits for this new layer of middlemen lean and electrical prices down.

But the government hadn't anticipated the chill the exploratory venture into the electrical marketplace would have on electrical producers, who rely on a sense of market predictability before investing billions of dollars in new generators.

Fearing the unknown, the major power producers -- all of which are either privately or municipally owned -- increased their generation capacity only marginally. But the province's hot economy has boosted power demand by three per cent a year for the past five years. It's a simple matter of supply and demand.

"The fundamental reason prices are as high as they are is the lack of generating capacity," said Mr. Spragins. "There has been uncertainty in the marketplace and as a result of that, we haven't had a lot of new capacity being built."

As a result, the price of residential electricity in Alberta is set to jump on Jan. 1 to 11 cents a kilowatt-hour from five cents. A homeowner using an average of 550 kilowatt-hours of power a month will see the power bill -- price of power, distribution charges and other fees -- more than double.

By contrast, electrical bills are expected to remain unchanged in the new year in the rest of Canada. Some rates haven't risen since 1993.

An annual power survey done by Hydro Quebec on May 1 shows that average residential rates range from a low of 6.87 cents per kilowatt-hours in Winnipeg to a high of 10.90 cents in Halifax, including distribution charges and other fees.

Alberta's average residential rate, calculated in May at 8.04 cents per kilowatt-hour, will now be the highest in the country. Quebec, British Columbia and Manitoba have lower production costs than Alberta because they rely on hydro generation that isn't affected by high natural gas prices.

Lawyer Jim Wachowich, who represents Consumers Coalition Alberta, said it's no coincidence that provinces with electrical regulation have lower rates.

"The regulated world has worked pretty well for consumers.

"Under regulation, power companies were willing to take modest profits in return for the stability of knowing what the marketplace would look like in the future.

"Without regulation, they pursue higher profits to cover off their increased risk."

The Ontario government plans to deregulate its electrical market and to privatize parts of the former Ontario Hydro, Canada's largest electrical utility, sometime in the new year.

The company has already been broken down into five smaller companies to facilitate deregulation.

"We are very concerned about the implications for the consumers, particularly residential consumers who are very vulnerable," said Ontario Liberal energy critic Sean Conway.

The natural gas market was deregulated 15 years ago, but high gas prices didn't become an issue until now, thanks in large part to Alberta's and British Columbia's success in marketing the efficient, clean-burning energy source.

The completion of the Alliance gas pipeline to Chicago from British Columbia in the last year has been a major contributor to increased North American demand.

Alberta's Atco Gas, one of the province's natural gas distributors, has applied to the Alberta Utilities Board to hike the rate on Jan. 15 to $10 a gigajoule from $5.77.

At an average use of 150 gigajoules a month, that will add $52.52 to monthly gas bills.

The proposed new Alberta rate is twice the natural gas rates in other provinces, such Ontario and Saskatchewan, which means Alberta consumers will feel a heftier hit on their gas bills in the new year.

But an Atco spokesperson said the Alberta price will average out being roughly the same as other provinces.

The Alberta winter rate is for the remaining three months of winter and will likely drop in April, when natural gas demand is lower. But rates in other provinces will apply for the entire year.



-- Cave Man (caves@are.us), December 22, 2000

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-- Cave Man (caves@are.us), December 22, 2000.

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