Re-Regulation of Alberta’s Electricity Market is Not The Solution
As a competitive retailer in Alberta’s deregulated electricity market, we often face comments about “the failure of deregulation.” These comments align with the Alberta Federation of Labour’s recent report suggesting that Alberta consider “re-regulating” the electricity market. Reports like these are misleading and don’t paint the full picture.
Alberta’s electricity market is complex, to say the least. Generation, transmission, distribution, retailers, it’s a complicated web of entities, each with its own part to play in the delivery of reliable and affordable energy to Albertans. Most of us recall the emergency alert on January 13, 2024, when temperatures plummeted, and the Alberta Emergency Management Agency issued an alert to our phones asking everyone to reduce their consumption and alleviate the strain on our grid.
Thanks to the Alberta Electric System Operator (AESO) and its fast-acting staff, they were able to avert a crisis and prevent rolling blackouts. The Market Surveillance Administrator (MSA) has since published an in-depth analysis of the factors leading up to that day on their website. As the MSA notes in its report, “rising demand and unanticipated generation outages led to Energy Emergency Alert notices from the AESO and imminent load shed.” In short, a number of generators were offline, some were forced offline, and there was low wind generation (which is not unusual during cold snaps). Nevertheless, the MSA’s recommendations are being integrated into the AESO’s Restructured Energy Market (REM) design.
All of that to say, a regulated market would not have prevented this scenario from occurring, nor does it point to so-called fragility of Alberta’s grid. Does it highlight areas for improvement? Absolutely. Does it mean the system doesn’t work? Absolutely not.
Deregulation Works
Competition drives down energy prices. It’s a simple market concept and we’re seeing it in real time. Earlier this year, Direct Energy offered a 7.77 cents/kWh rate available for two months (then prices would bounce up to 10.69 cents/kWh in September). That was followed by ATCOenergy who started offering their “GR888” energy bundle at 8.88 cents/kWh (with no change in rate). Another retailer started offering 7.69 cents/kWh rates. Our Winter Introductory Rate is priced at 6.69 cents/kWh.
This is a game of “rates limbo” where every retailer is undercutting the others. The important part is that customers benefit from lower rates. When you consider that customers can also cancel and switch from rate to rate with no penalties (a concept we introduced in 2008 and is now an industry staple), there really is no downside to a competitive market.
But when discussing this industry, it’s important to note that “power companies” is a blanket misnomer that is often unfairly used. Retailers, like ourselves, are completely separate from generators. Case in point: ENMAX maintains separate corporate entities that delineate the differences between their generation (ENMAX Energy) arm and the retail arm (ENMAX Power).
Why is this important? Your bill is the end result of charges that flow through different market participants, including the AESO, Balancing Pool, wires companies, and the retailer itself. In the case of natural gas, the federal government also plays a role.
Every invoice is made up of three sections:
Energy charges: This is your cost of energy in cents/kWh.
Regulated charges: These are your distribution and transmission (D&T) charges.
Retailer charges: These include admin fees and any other charges from the retailer.
A typical bill is roughly 40% energy charges, 55% regulated charges, and 5% retailer charges.
Even though energy charges make up a smaller percentage of the bill, that’s not to say that there aren’t savings to be found. The average household consumes 650 kWh/month. If a customer switched from a 9 cents/kWh rate down to our 6.69 cents/kWh rate, they would save an average of $15 per month or $180 per year. The numbers don’t lie; savings are savings, and customers benefit.
Let’s take that one step further. If you install solar panels on your home, you can directly impact your D&T charges. A solar PV system allows your home to consume energy generated on-site directly, thereby reducing your imports from the grid. Reducing imports lowers the variable portion of your D&T charges, specifically the charges based on your consumption.
So Why All The Fuss?
Distribution and transmission charges are often the culprits in these scenarios. But wait a minute, aren’t those also called “regulated” charges? Indeed they are.
D&T charges are approved by the Alberta Utilities Commission (AUC) and only vary between wires providers. Wires providers are location dependent: Calgary residents use ENMAX, Edmonton residents use EPCOR, Southern Alberta belongs to FortisAlberta, and Northern Alberta goes to ATCO. Switching between retailers has no bearing on your D&T charges, only moving from one territory to another would do that.
Wires companies have to charge for the infrastructure to service your home. When a storm rolls through and power lines go down, wires companies are the ones to dispatch technicians to do the repairs. Alberta’s geography also plays a role in these costs. As you can imagine, rural Alberta is vast, and it takes kilometres of transmission and distribution lines to bring power from generation stations to your home. Short of turning Alberta’s agricultural land into one province-wide urban city, there’s just no getting around the fact that the distance between rural homes is measured in kilometres instead of meters.
Which brings us to the generators. Historically, generators have been allowed under regulation to economically withhold generation and increase prices. Alberta uses a market design concept called the merit stacking order, which we’ve written about here, here, here, and here. But the issues with economic withholding really stem from the Power Purchase Arrangements (PPAs), changes introduced by the Alberta NDP, and the closure of the Balancing Pool.
Initially, there was a net income which appeared as a credit from the Balancing Pool on a consumer’s monthly utility bill. When the Alberta NDP introduced their carbon tax in 2015, they triggered something called the “Change in Law” clause, which led the PPA buyers to terminate the Power Purchase Arrangements and turn them back over to the Balancing Pool. According to the Power Purchase Agreement Review report by Deloitte, the combined total estimated Balancing Pool (BP) loss was pegged at $2.2 billion. The result was that the Balancing Pool line item on Albertans’ utility bills changed from a credit to a charge. This monthly charge will be added to a consumer’s utility bill until 2030 to pay off the debt incurred.
In short, the Balancing Pool was a stabilizing force in Alberta’s market, and without it, economic withholding led to higher Power Pool prices. These prices don’t typically affect customers in a direct way unless they’re on variable rates or the formerly-known Regulated Rate Option, or RRO (now officially known as the Rate of Last Resort, or RoLR). Economic withholding is allowed because it encourages generators to invest in Alberta’s market so that they can recoup their costs.
The crux of the matter is that the RRO experienced new highs last summer when it peaked at 32 cents/kWh. Because the RRO serves as the “default” retail option to customers who cannot obtain a competitive retail contract, the most vulnerable are exposed to such high prices. Alberta’s government is implementing two solutions:
They’ve introduced the Utility Affordability Statutes Amendment Act, which changes the RRO to the Rate of Last Resort. This new RoLR stabilizes prices for vulnerable consumers by setting a price that will not change for 2 years, unlike the RRO, which fluctuates monthly.
They’ve introduced the Market Power Mitigation Regulation, which prevents generators from creating the volatility we saw in Alberta’s market over the period from 2021 to 2023.
Both of these legislative changes are aimed at stabilizing and reducing the volatility that led to arguments such as the AFL has put forward. Moreover, the AESO’s Restructured Energy Market design process is not a small undertaking. All of that to say, all markets will eventually require some degree of intervention to continue functioning effectively and efficiently. Some big changes are happening in Alberta’s market, and customers will benefit in the long run.
The Alberta Advantage
You often hear about the “Alberta Advantage,” but what that really means is different from person to person. To us, it’s the success of deregulation in Alberta’s electricity market. Deregulation led to the boom of renewable energy generators, such as the Travers Solar Project at 465 MW. Deregulation means we can sell and export energy to our neighbours in BC, Saskatchewan, and the Northwestern United States. Deregulation means that consumers have the best micro-generation (solar) regulation in the country. Most importantly, deregulation means that Albertans have choice.
At present, the Utilities Consumer Advocate (UCA) website lists 59 retailers. Compare that to the telecommunications industry, where customers realistically only have a handful of companies to choose from, and the distinction is clear.
All retail brands in the UTILITYnet group of companies have been able to offer fixed prices below the RRO for well over 80 consecutive months. Our brands have donated over $500,000 to local charities and invested thousands of dollars into local economic development funds provincewide. Our Solar Club™ program has given back over $20 million in value to micro-generators since 2019. These are success stories that showcase the true value of Alberta’s market.