Can the Problems in Alberta’s Electricity Market be Fixed?

NewGen Energy is an electricity and natural gas retail division of the Utility Network & Partners group of companies, the foundation of which dates back to 2011.

As a private company in Alberta’s energy industry, the DNA of electricity is in our blood. We have lived through numerous energy crisis, the pendulum swings of provincial politics, and the ups and downs that impacted our industry through the tenure of Lougheed, Getty, Klein, Stelmach, Redford, Hancock, Prentice, and with Premier Notley over the last four years.

If you watched the 2019 Alberta Leaders televised debate, you will know that many important topics were covered, from education to healthcare, to pipelines, the carbon tax, and balancing the budget. Unfortunately, what was missing from this important event was a discussion on Alberta’s electricity industry. If you missed the debate, you can watch the recording here.

Welcome to our Virtual Town Hall Debate

The televised debate may be over, but in the weeks and years ahead, whomever is elected needs to focus on the problems the energy industry faces. It impacts everyone who flips the switch and pays the bill.

What are the possible solutions that will help us return to the well balanced, subsidy free and fairly priced market we enjoyed in previous years? To continue the debate, you are invited to participate in this discussion. It is an open forum – so wage in on our post on Facebook.

Here is the question: Can problems in Alberta’s electricity industry be fixed? Or, is it too fractured and broken? Albertans should ask this question of the political candidates in their riding and gauge their opinions. Debate the issues.

Alberta Competitiveness

Why should we care about what our future leaders have planned for Alberta’s electricity industry?

One of the building blocks of a prosperous and competitive economy is a healthy energy and natural resources industry. This includes in part, affordable and stable electricity prices. It should not be based on band aids and subsidies.

In Alberta, during 2016, the cost of energy was at the lowest point ever since deregulation and the energy only market was adopted by the province. In fact, our province had among the lowest energy prices for electricity generation in North America.

In four short years prices have increased dramatically. This negatively impacts every consumer and business in the province and will have a long-term impact on our economy and recovery.

If our leaders want to increase the competitiveness of our industries, it needs to solve the problems within Alberta’s power supply. It needs to do so without subsidies and without paying generators to simply standby in case generation is needed. Additionally, it needs to continue to invest in alternative and renewable energy but not at the expense of going to war against our core industries who built the province.

The cost of electricity to our Oil and Gas sector is one of the major line items on their operating budget. Increase the cost of electricity and you reduce the profitability of their production facilities. It is no different for a homeowner – or other industries. If your monthly electricity invoice goes up, it hits you in the pocket book.

We were recently asked what the biggest risk to our business was. There are two pieces to our answer to this question. Unfortunately, one is the lack of trust of the government and the war they have waged on industry. At the same time, the cost of electricity has gone up dramatically over the last four years. We are just one small company in Alberta but cost increases hurt most companies in the business community.

Electricity prices have gone up and are increasingly volatile. It is because of the policies, actions, and band aids applied to problems by our current government. Can the problems be fixed? And if so, who can fix it?

What caused the problem?

To answer this question, it is essential to understand the root of the problem. The electricity market has changed in a number of significant ways over the last few years. The government cancelled Power Purchase Agreements (PPAs) and generation plants have closed before new generation was made available, causing a shortage of supply in the market. Power prices have increased and subsidies are being used to mask the high prices from consumers.

A number of other industry players recently published their thoughts on the subject, and paint a similar picture to what we have laid out above.

Robert Hemstock was the Executive Vice-President of Regulatory, Legal and Public Policy at ENMAX Corporation from 2006 to 2016. He tells the story of how Alberta electricity consumers have been saddled with an estimated $2 billion in unnecessary costs related to the Power Purchase Agreement (PPA) issue.

The story is not just about the PPAs though. It’s also about how our elected representatives in the Alberta Government used their position of power and access to taxpayer funds to avoid accountability for having poorly managed the PPA issue. Below are some direct quotes from Hemstock’s website.

“The first mistake was, without first doing some basic homework, the Minister of Environment and Parks announced a decision to increase the carbon tax on large emitters, including all coal-fired electricity generators.”

“It would have been prudent for the new Government to understand the financial impact of raising the carbon tax on coal-fired generation. It would have been prudent for them to understand how an increase in the carbon tax may cause all four of the PPA Buyers (Capital Power, ENMAX, TransCanada, and ASTC Partnership) to respond…. leaving electricity consumers with PPAs that were estimated to incur a $2 billion loss.”

“Instead of taking accountability for the first two mistakes and working in good faith with PPA Buyers, as there was still time to resolve the problem, the Government came up with a plan to actually go on the offensive. It created what I refer to as the PPA Advocacy Plan…. The Plan would see the Government deflect blame for the estimated $2 billion in PPA costs that would be borne by Alberta electricity consumers away from the Government and onto the PPA Buyers, the former PC Government, The Alberta Energy and Utilities Board, and eventually a small number of individuals, including me.”

To read the full text by Hemstock click here.

Greg Clark, Alberta Party Candidate for Calgary-Elbow was recently quoted in a Calgary Herald article saying if he had his way, he would hold a royal commission into the Alberta “NDP government’s single biggest scandal” — its meddling with Alberta’s electricity system that led to the en-masse resignation of all but one member from the electricity balancing pool and has cost Alberta taxpayers $2 billion while getting nothing in return.

“…the NDP doubled down in their ideological view and sued all of those power producers…. They ultimately settled out of court in every case, but make no mistake, the government lost those lawsuits. But the people who really lost are Albertans, because that cost us literally billions of dollars as a result of the NDP’s ideological driven disastrous decision.”

The increase in the Carbon Tax caused a ripple effect of unintended consequences in the market. The Government was focused on announcing a Climate Leadership Plan in time for the COP 21 Climate Conference in Copenhagen. The planning was rushed. Electricity policy is very complicated. Politicians need to listen to those with more expertise, and not base billion-dollar decisions solely on their limited and ideological knowledge base. This should not be about votes and egos, but rather sound business decisions.

The common theme from the above quotes is that the government made mistakes, and rather than work on solutions, it pushed the blame to others.

One such examples of this type of behaviour can be found on page 23 of the NDP 2019 election platform.

‘We placed a cap on electricity prices to make sure families are not gouged by power companies.’

This is a false and misleading statement. Power companies were not gouging consumers, prices were at all time lows. As explained earlier in this article, prices rose because coal plants were closed before new generation was available, consumers are now seeing a charge on their bill from the balancing pool that previously was a credit because of the PPA issue. The cap on regulated electricity rates is not a cap, but a subsidy, paid out of the Carbon Tax as a way to mask the problems that came out of the implementation of the Climate Leadership Plan. Subsidizing the profit margins of the government regulated utilities does nothing to address climate change.

Who has the solutions?

We need a solution to the problems in the industry. Subsidies and Capacity Payments, in our mind, are not the solution. The Carbon Tax is a false promise. The problems are far more serious. Ontario went through this pain and so many people had to suffer with “Energy Poverty”. We are starting to see the same symptoms happening in Alberta today.

Both the UCP and the NDP have recently published election platforms, both of which touch on the topic of electricity. View the full election platforms here: UCP / NDP

At the time of publishing this blog, neither the Alberta Party nor the Liberal Party had publicly stated their position on Alberta’s electricity market.

It is important that the debate continues, and we discuss what the future of our industry looks like. We have emailed the leaders or each party to participate in this discussion and we look forward to hearing what solutions they have for Albertans.

Understanding the Market

Over the last year we have been publishing a number of blogs, all focused on putting up warning flags and trying to educate consumers to the problems in our industry. To help you understand a little about what has happened in Alberta’s energy industry – you may find some of the past blogs of general interest.