Alberta's deregulated electricity market is working to lower power prices, spur renewable energy development and increase competition among wholesale power suppliers and retailers, industry leaders and regulators say.

But electricity deregulation in the province could also be short-circuited unless more transmission lines are built to encourage new generation and wary consumers are educated about the benefits, experts told the 2004 Canadian Energy Research Institute (CERI) electricity conference in Calgary last week.

"There is a lot that's working" in the restructured market, said Cheryl Terry, director of market development for the Alberta Electric System Operator, which operates the provincial grid and runs the wholesale electricity market.

Evan Bahry, executive director of the Independent Power Producers Society of Alberta (IPPSA), agreed.

Larry MacDougal file photo, Business Edge
Wind-power generators at the Castle River Wind Farm take advantage of strong Chinook winds west of Pincher Creek.

Bahry said that about 3,500 megawatts (mw) of generating capacity, or about $4 billion worth, have been added in the province since deregulation started in the late 1990s.

Alberta now has about 12,000 MW of generating capacity, giving it a comfortable surplus of power compared with this year's estimated average consumption of 7,000 MW.

Wholesale power prices also have fallen over the past year, Bahry noted. IPPSA expects the wholesale price of electricity to average about $65 per megawatt-hour this year - down 16 per cent from $63 per MW-h in 2003 and 25 per cent less than the 2001 peak of $71.

But Roger Jackson, the province's utilities consumer advocate, says the calls his office gets from consumers are still "99 to 1 opposed" to the restructured electricity market.

Residential power customers aren't getting adequate information on how the market works and what its benefits are, Jackson said.

"They're looking at their (electricity) bills and they're very uncomfortable about it.”

But Bahry pointed to a technical review, done for IPPSA by Tabors Caramanis & Associates, a Massachusetts-based engineering and economics consulting firm, which concluded that Alberta electricity customers wouldn't have been better off under continued regulation.

Lori Topp, senior vice-president, western region for electricity retailer Direct Energy Marketing Ltd., said about 30 per cent of small commercial and industrial customers - representing about half of Alberta's power load - have switched to more competitive electricity contracts offered in the deregulated market.

"We are absolutely finding that there is a real appetite for choice right across Alberta," Topp said.

Only a fraction of Alberta's residential and farm electricity customers, however, have abandoned the regulated electricity rate for contract options being offered by Direct Energy and competitors such as Epcor, Enmax Energy and Energy Savings Income Fund.

"Consumer education is a key to competition taking off," Topp said.

The regulated rate will be in effect until July 1, 2006, after which all electricity customers will pay prices based on the retailers' actual costs of buying power on the wholesale market.

Joseph Doucet, H&R Drilling professor of regulatory economics at the University of Alberta's business school, says his research shows that for most consumers, where they get their electricity isn't like choosing among specialty coffees or cellphone options.

Most consumers don't understand or like the deregulated market, Doucet said. "Public perception is really negative.”

Wholesale electricity prices aren't sufficient to attract new power plants to Alberta, and there are no incentives for the private sector to build more transmission lines, he added.

This creates the risk of a "boom-and-bust" cycle in power generation that could push electricity rates significantly higher in the future before the supply-and-demand gap can be closed with new generators, Doucet said.

Kelly Fluckiger, executive director of Alberta Energy's electricity division, says the province won't realize the full benefits of deregulation unless more transmission infrastructure is built.

Fluckiger is co-chair of a Department of Energy-led review of the Alberta electricity market that is scheduled to be completed by the end of May, 2005. It will likely include recommendations for adjusting the market to ensure it continues to stimulate competition and attract new power generators before prices start climbing too high, he said.

There is some evidence, such as the independent study done for IPPSA, that electricity rates are at or better than they would have been under a regulated system, Fluckiger said.

But whether Alberta had moved to deregulation or stayed with a regulated system, "(electricity) prices would have risen from then to now and from now into the future," he said.

Fred Gallagher, managing director and CEO of Vision Quest Windelectric Inc., a Calgary-based division of TransAlta, told the CERI conference that one of deregulation's biggest benefits has been to boost the amount of wind-generated electricity in Alberta.

The province now has nearly 280 megawatts of installed wind power - the highest in Canada and more than 60 per cent of the country's total installed wind-generation capacity of about 450 MW. "It is one of the few sectors in the electricity business that's actually growing," Gallagher noted.

Brian Purdy, research analyst at FirstEnergy Capital Corp., said the cost of building wind generation has dropped to less than five cents per kilowatt-hour from more than 30 cents per kWh in 1980.

The high cost of natural gas, along with a federal financial incentive to encourage wind power development, is expected to increase installed wind generation in Canada by 40 per cent by the end of 2006, Purdy said.

Gordon Kyle, executive vice-president of market and strategic initiatives for the Alberta Electric System Operator (AESO), said there are 279 megawatts of wind generation connected to the provincial grid and applications for another 560 MW to come on line by the end of 2006.

However, the industry will stall unless more transmission lines are built in southern Alberta where new wind farms are being built and more are planned, Kyle warned.

AESO's proposed Southwest Alberta Project, to cost an estimated $75 million to $80 million, would provide sufficient new transmission to transport at least 760 MW of new wind power expected to be produced in the region, he said.

AESO is awaiting a decision expected next year by the Alberta Energy and Utilities Board on whether the new transmission project will be approved. "If we don't connect these folks down in southwestern or southeastern Alberta, we're not going to be able to support more wind-power development," Kyle said.