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Power deregulation takes another hit in Alberta Tuesday March 27, 6:29 PM EST

By Jeffrey Jones

CALGARY, Alberta, March 27 (Reuters) - Alberta's embattled power deregulation process took another hit on Tuesday when a respected consultancy said deregulation had leeched C$3 billion ($1.9 billion) from consumers and that prices would stay high for the next few years.

At the start of this year, when a power deregulation and supply crisis was jolting California and just as prices hit historical highs, Alberta became the first Canadian province to toss its electricity industry into the throes of the free market.

A new report by Calgary-based Optimum Energy Management Inc. concluded benefits of competition in the oil- and gas-rich province of 3 million people won't be felt any time soon.

"The consumers of Alberta have paid a premium in order to achieve competition in the electric energy market," Optimum vice-president Dale Hildebrand said in a statement. "It is no longer clear that the prices consumers will pay are going to be lower as a result of deregulation."

The report estimated that C$3 billion of value was lost as a result of restructuring. The figure was derived by comparing the electricity cost under the old regulated system, using today's market fundamentals, with the cost under the new regime, Duane Reid-Carlson, another Optimum executive, told Reuters.

Alberta's system of auctioning rights to sell power to competitors while leaving ownership of plants to the traditional generating firms took too long, which created uncertainty in the market and halted the addition of new capacity, Reid-Carlson said.

Alberta and California are being watched closely by other jurisdictions, notably Ontario, which plans to restructure its immense government-controlled power sector later this year.

The Optimum study followed another released in late February by FirstEnergy Capital Corp., which also said prices would stay high, adding that political interference only added uncertainty to the market.

The provincial government of Premier Ralph Klein has jumped into the market often in efforts to shield consumers from the ravages of sky-high electricity and natural gas prices, shelling out C$4.1 billion in rebates ahead of his landslide re-election earlier this month.

The government also froze retail electricity rates, but powerful industrial groups have remained sharply critical of the process, introduced as demand in the booming province grew but generating capacity remained stagnant.

They have also charged that not enough players are active in the market to allow the benefits of competition.

Last week, agrifood giant Archer Daniels Midland (ADM) said it was mothballing its canola crushing plant in Lloydminster, Alberta, due partly to skyrocketing power costs, adding to a growing list of disgruntled commercial consumers.

Spot power prices in Alberta ballooned to C$133 a megawatt hour late last year from C$43 in 1999. Optimum estimated prices this year to range from C$75 to C$132 a megawatt hour "with significant upside risk and continued high price volatility."

"Retail competition, while providing the opportunity for many tangible benefits with respect to new supply, increased efficiency, innovation and consumer choice, may not realize prices low enough (and) soon enough to offset the high costs already experienced by consumers in 2000 and 2001," Hildebrand said.

The report predicted power demand in Alberta would grow by 2.1 to 3.2 percent annually over the next 15 years. That meant 5,300 to 7,400 new megawatts of capacity will be needed to meet the demand and replace aging generators, it said.

Several generating companies have recently announced new plants to meet growing demand, although only half of the capacity announced for between now and 2006, roughly 2,000-3,000 megawatts, will likely get built, the report said.

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=reu-n27650615&feed=reu&date=20010327&cat=INDUSTRY

($1=$1.57 Canadian)

-- Martin Thompson (mthom1927@aol.com), March 28, 2001

Answers

Okay, Martin, you win. I'm yapping again.

Strange that this organization didn't issue its report prior to the March 12 election, in which Albertans voted 60% (thus allocating 90% of the seats to the deregulating party) to retain the present regime. Other reports issued prior to the election did, indeed, say virtually the same thing, but many Albertans appear to have ignored the warning signs--or were focused on something entirely different.

We're solidly in this deregulation thing now; there's no going back. We will indeed pay much higher prices in future, especially once the provincial rebates are removed (no need for them now, the election's over.)

I'm more interested in learning why two plants have been totally non-operating and one plant only partially operating for some time. Odd that none of the reporters nor report issuers seem to be examining their situation.

-- Rachel Gibson (rgibson@hotmail.com), March 28, 2001.