Electricity deregulation in Alberta

By Chris Beauchamp

Students have a tough enough time keeping up with their studies, so it’s no wonder an issue as convoluted as electricity deregulation continues to be misunderstood. However, deregulation directly affects anyone who pays for electricity.

Alberta’s electric industry was restructured on Jan. 1, 2001. Before which, the sale, generation, transmission, and distribution of electricity were generally all owned and operated by one company. After the restructuring, generation and sales became deregulated while transmission and distribution remain regulated industries. Now the sale of electricity can be marketed by different companies. For residential customers, this means they have a choice in who they buy power from–at least in theory.

“In the regulated world, you didn’t have any choice,” said Enmax representative Tony McCallum. “One company owned the facilities and that was the company you bought the power from. Now deregulation allows people to buy their power from other companies through contractual arrangements.”

Unfortunately for customers, there still is not much real choice. Epcor–an Edmonton-based utility provider–was offering contracts to residential customers throughout the province, but have stopped as of Oct. 1, 2003.

“Since then it’s only been Enmax,” said McCallum. “So the choice for consumers has been either to stay on the regulated rate or sign a contract, but both options are being provided by one company–Enmax.”

Another company, Direct Energy Preferred, has recently established itself in the Alberta market. Offering fixed-rate one, three, or five year contracts, DEP is the only competition Enmax has in the Calgary residential market. Enmax is currently offering only three or five year contracts.

Customers wishing to withdraw early from fixed-rate contracts generally face an early termination fee, as well as further charges based on the number of months remaining.

“You can take that contract with you anywhere in Alberta so it only becomes an issue if you’re moving out of the province,” said McCallum. “But I can imagine a lot of university students end up doing just that. Like any contract there are penalties for breaking it.”

Advocates of deregulation have argued that increased competition will result in lower consumer prices, but McCallum suggests that new companies might be leery of entering Alberta’s volatile marketplace.

“Business needs to understand the environment in which it is operating, and when that environment is in flux it can have a significant effect on whatever it is you’re looking at,” noted McCallum. “The government has already demonstrated a willingness to change the rules.”

The deadline for residential customers to choose a contract provider is Jul. 1, 2006. Until then, customers can continue with their current provider at a regulated rate, but after that date, customers must choose a fixed-rate contract or gamble with the frequently fluctuating open market rate.

According to Dr. Alan MacFadyen, a University of Calgary Economics Professor, fixed prices remove the risk for consumers, but students tempted by contract marketers would be wise to ask a lot of questions.

“Of course, the marketer now faces the price risk, and he must be compensated for this and the costs of writing up such contracts,” said Dr. MacFadyen. “In this case the consumer is likely to face a price for electricity under the contract which is somewhat higher than the average expected price over the life of the contract, but he gains the security that, if prices in the market rise far above the expected price, he is protected.

“I suspect many students would probably like this insurance against price rises. On the other hand, many students are quite mobile, so may not gain the full benefit of a long-term contract,” he added.

Both the Alberta Liberal Opposition and the Alberta New Democrats have strictly condemned deregulation since it was first proposed in the mid-1990s.

“Students are, in some ways, particularly affected and, in other ways, not affected more than anyone else, in that nobody–students or otherwise–should sign one of these long-term contracts,” said Lou Arab, Director of Communications for the Alberta New Democrats. “They offer some of the benefits of a regulated system in that prices are controlled, but it’s worse than a regulated system because prices are higher.

“Every consumer has to make their own choice. There’s nobody in the cabinet who is able to predict whether prices are going up or down, so why should students be able to predict that?”