Meeting the needs of Alberta's electrical consumers
How to efficiently and fairly meet the future electricity needs of Alberta’s rapidly growing population and economy. This is a major challenge facing the province and was the subject of a recent symposium organized by the Manning Centre.
Addressing this challenge in Alberta is primarily the responsibility of private sector companies operating within a legislated regulatory framework. This is quite different than the situation in most other provinces, where provincial governments are heavily involved in financing the growth of the electricity sector with taxpayers’ dollars.
So what can be done to make this unique, managed electricity market better serve the needs of Alberta consumers? Here are four suggestions:
• First, recognize that this Alberta system is superior to government-subsidized and politically directed electricity sectors (such as exists in Ontario).
As indicated in a recent report by the London Economics Group, Alberta’s electricity prices are competitive across Canada “when prices are compared fairly.” But in Alberta these competitive rates are achieved primarily through the investment of private sector dollars, not those of taxpayers.
• Second, appreciate that the most attractive aspect of the Alberta system from a consumer standpoint is its competitive nature. Different generating companies compete to meet the power needs of Alberta consumers at lowest cost, giving the consumer choices that consumers in other provinces don’t have. If many Alberta consumers do not yet fully understand the nature of those choices or how to exercise them, this suggests the need for a focused communications effort to assist consumers in making better use of their freedom of choice.
• Third, recognize the enormous amount of investment capital required to meet the future electricity demands of Alberta consumers. The Canadian Electricity Association estimates that $350 billion will be required to finance the electricity sector nationwide over the next 20 years, with Alberta requiring at least $30 billion over that same period. In provinces with heavy government involvement in the electricity sector, much of this capital comes from the taxpayer directly or through taxpayer guaranteed government debt. According to retired Ontario banker Parker Gallant, who has performed exhaustive reviews of the Ontario government-owned electrical utility, Ontario taxpayers are on the hook for $25 billion in utility-related debt, not including pension liabilities or future commitments for wind power feed-in costs. By contrast, in Alberta it is predominantly private investors who make such investments, bear the risks associated with them, and earn returns commensurate with those risks.
• Fourth, just as Alberta’s managed electricity market is characterized, to the consumers’ advantage, by minimal political interference, open competition, and freedom of choice, it is equally important that these conditions also characterize the capital markets serving the sector. Because our capital requirements are so huge, and because protectionism in capital markets (restricting responsible foreign investment) is a two-edged sword that invariably hurts more than it helps. Alberta should remain open to both foreign and domestic investment in its managed electricity sector. This is especially important when we recognize that, according to Statistics Canada, in 2013 Canadian investment in utilities abroad was $18.8 billion, more than triple what foreign investors invested in Canadian utilities during the same period. If restricting foreign investment in Canadian utilities provokes retaliatory protectionist measure in other jurisdictions, as it is sure to do, Canadians will be the losers.
Last, I should perhaps explain my own particular interest in this subject. It was during my father’s tenure as Alberta’s premier (1943 -1968) that Alberta started down this unique-in-Canada path that relies primarily on private sector companies to supply Alberta’s electricity needs and the required capital, all within a broad legislative framework provided by the province. I came to believe, and still do, that properly managed markets are the best and most efficient way to organize supply to meet demand, including demands for electricity. And while I fully appreciate the interests of Alberta’s industrial and commercial consumers of electricity, I most closely identify with the needs and concerns of Alberta’s household, farm, and small business consumers because I have most often been in their shoes myself.
We need to ensure, through problem-solving research and positive advocacy, that the present and future needs of Alberta’s electricity consumers are met as efficiently and fairly as possible via Alberta’s unique managed market system.
This column was published by the Calgary Herald on July 29, 2014