Where has all the competition gone? Is there no one out there with the guts and ingenuity to take on the ancient Enmax and Epcor?
Forgive me for criticizing such a popular government, but I think Klein and his cronies are at least partly to blame for the chill in the competitive air.
I really have to think Alberta is not as friendly to business as we like to pretend. We are certainly inviting for big business, but sometimes we act more like an old-boys’ club than an entrepreneurial spawning ground. And over the past year we have paid the price. Hopefully, we won’t have to pay it much longer.
In this new year, I am reminded of a sad recent chapter in Alberta’s deregulation experiment – a pathetic tale.
This week, the rebates from Alberta’s government to offset high electricity prices were pulled. Electricity providers can now charge residential consumers and businesses alike whatever price they think the market can bear.
Unfortunately to date, no new competitors have joined the residential electricity fray, and I think this sad fact relates to a scrappy tale that involves door-to-door soliciting in the gas markets.
First, let me say that door-to-door soliciting is inherently seedy. I practically grew up in the circulation department of an Alberta newspaper. At that time, if we had accepted only new subscriptions from door-to-door canvassers who told the truth, I don’t think we would have had a 10th of the starts that we did. (I know, because I was in charge of auditing them.)
Two years ago, the Klein government made a colossal miscalculation, and we are still suffering for it now. I am not talking about the Alberta power auction, which, arguably, was mismanaged. I am not referring to electrical deregulation in principle, as people – many misinformed – do. I am not even talking about the market transition credits (the generous subsidy that essentially excluded, and hence penalized, those companies that were smart enough to sign long-term electricity contracts).
No, I’m referring to our government’s handling of the three natural gas retailers who disappeared from the radar about two years ago: Apollo Gas Inc, Alberta Natural Gas Savings Corp. and Priority Gas Marketing Inc. – the daredevils who tried to wrestle with the big incumbent, ATCO, for residential market share.
To cut a long story short, on August 1, 1999, ATCO decided its image was being tarnished by its combined-bill arrangement with the three independent marketers, and it told them to start sending their customers separate invoices by Feb. 1, 2000.
Since ATCO’s decision gave the three competitors only six months to put all the necessary systems in place, this move took the three by surprise, and essentially made it untenable for them to continue doing business in the province. Two of them gave up almost immediately.
Alberta Natural Gas was purchased by Epcor – giving the Edmonton electrical utility a leg up on Calgary’s Enmax in the form of 30,000 or so residential natural gas customers, both in Calgary and Edmonton.
Priority Gas, the smallest player, closed shop.
But Apollo Gas, the first and biggest entrant, decided to fight.
Of the three, Apollo Gas might have had the worst reputation as a marketer (its licence had already been suspended once by the time ATCO got PO’d with it), but, like all super-successful enterprises, it had the fortuitous combination of extraordinary luck and prescience in betting that natural gas price spikes would be hitting Alberta hard in 2000.
The company convinced many customers of this theory, and starting in late 1998 sold five-year natural gas contracts in the $3.30-$3.89 per gigajoule range, at a price slightly greater than the spot rate at the time. In its short life, Apollo Gas had lined up more than 30,000 contracts.
Its marketing message was correct. The official line was that new pipeline capacity to the United States would make Alberta vulnerable to American prices and purchasing power. It also pointed out that global economic growth combined with sluggish drilling was setting the stage for a price spike. Two years ago, Apollo Gas was the only company in the province offering long-term contracts to residences. And no one was forecasting just how high the price of gas would soar that year – into the $17 per gigajoule range.
Only in hindsight can we know how good the Apollo Gas timing was. No one in government paid it any heed, except to note that they had received dozens of complaints.
The door-to-door sales techniques that Apollo Gas was using had landed it in hot water. Some of the solicitors were violating the new Fair Trading Act by claiming that there was an affiliation between Apollo Gas and ATCO and promising price breaks that were impossible to guarantee.
Hence, when Apollo Gas joined forces with Epcor and took ATCO to the Alberta Energy and Utilities Board for allegedly monopolistic practices, regarding their separate-bill deadline, Apollo was not backed by our provincial government, which had grown weary of the complaints. The new president of Apollo Gas during the hearings, Gordon Jarvis, tells me that it seemed as if the EUB was looking for an excuse not to hear his case.
But the EUB heard him out. In late February, it gave Apollo a reprieve from ATCO’s deadline, ruling more time was needed to integrate ATCO’s billing data with both Apollo’s and Epcor’s. Jarvis applauded the decision.
“It would give me time to get our billing processes in place and sort out the credit issues. So I thought the ruling was pretty positive, in terms of the ability it gave us and the government to move through the next year and get everybody’s act together,” he said.
But it was not to be. Citing more than 200 complaints from October 1999 through March 2000, the government announced that Apollo Gas was permanently barred from doing natural gas marketing in Alberta.
It was March 31, only a few weeks after the EUB’s favourable ruling had come down. The licence denial also came despite Apollo’s self-initiated decision to cease all door-to-door sales pitches as of March 18.
“I was extremely surprised,” said Jarvis. “In fact, I heard it from the media basically – they didn’t tell me directly – that I had a month to get out of town.”
On April 14, the last non-utility to supply service to residential customers in Alberta announced that it was history. Apollo’s 30,000 Alberta customers reverted to ATCO.
Klein’s government can certainly not be blamed for Apollo’s marketing techniques, which were wrong. But what it should take the heat for is not defending a business that attempted to stand up to powerful incumbents in this province.
If Apollo Gas can be kicked out of this province for door-to-door marketing, the same standards should apply to anybody selling products door-to-door.
Not everyone agrees with my prognosis. Dr. Joseph Doucet, a professor of economics in the University of Alberta School of Business, says that little players simply have the odds stacked against them in the deregulated market place.
“If you look at what is required for a retail marketplace to be competitive in terms of the number of players, and if you think about what is the minimum efficient size necessary for a firm, you realize that the market is really too small, I think, to sustain a really robust competitive market at the residential level.”
Doucet thinks that uncertainty in our neighbouring provinces is also a factor that prevents the economies of scale necessary to make a reasonable go of it. It’s still not clear how and when they will move toward market-based retail electricity, B.C. especially.
But no matter how you judge its odds of survival, Apollo was not given a fair shake. When ATCO is allowed to trounce on a little guy, and the Klein government trounces on top of the little guy again while he’s down, who can blame other small players from avoiding the enormous risk of venturing into Alberta in either the natural gas or electricity arena?
In my conversation with Mike Robinson, a spokesman for Dynegy Canada, a firm with an excellent reputation brokering electricity for large commercial/industrial clients, he made it clear that the unmanageable risks involved in serving residential customers and small businesses is too great, for the moment.
“(The incumbents) have a huge advantage. They have systems in place already. Billing systems. And really that’s the real difficulty. Think of all the customers you have to bill and collect from. It’s a huge job. It’s tremendously daunting to try and have a system that can handle that many customers with that small usage.”
If the Klein government is not going to make it a point to stand up for the little guy in the face of adversity, we may have to wait until the incumbent providers either get lazy enough, or unprofitable enough, for someone to start picking off their disgruntled customers.
Either that or another “perfect storm” of high gas prices and electricity shortages may get people out of complacency mode. Either way, consumers and small businesses lose.
Until then, in the words of Gordon Jarvis to the Edmonton Journal shortly after the fiasco: “Why would anyone come in if this is how they’re going to be treated?”
Web Watch:
To check out your options as a consumer, visit:
www.energyshop.com
www.customerchoice.gov.ab.ca
