Alberta businesses must take more control of their electricity futures if they hope to avoid the shock of fluctuating power prices that will likely zap commercial consumers for years to come, experts say.
Frank Henderson, a training associate with the Canadian Energy Research Institute (CERI) and energy industry veteran, warns commercial power users not to expect a softening of electricity prices anytime soon. Instead, he is encouraging them to be proactive and search for ways to reduce their power bills.
"Consumers have to become better informed - they have to take the responsibility," Henderson told a seminar last week in Calgary - another one was later held in Edmonton - organized by Direct Energy Business Services.
"You have to think about a price-risk management strategy," he added. "If the risk is not predictable, and if it's too expensive to insure, if the possible effects are catastrophic, then you should consider price-risk management."
Among the options for Alberta businesses to mitigate high and volatile energy prices is demand-side management - managing consumption to achieve price stability on the supply - and to lock in prices for the long term, Henderson said.
"What is the easiest way (to manage electricity prices), and one you may be already engaged in? A fixed-price arrangement is the cheapest and easiest way to do it."
Great Western Containers Inc., which manufactures and reconditions industrial packaging, is concerned about where the price of energy will go, as it constitutes one of the company's biggest expenses.
The company, which has its head office in Calgary and a large manufacturing operation in Edmonton, has entered into long-term price arrangements in the past and is eager to continue the practice as its current contract ends later this year.
"We'd like to fix our costs to have a better idea of what the market is going to be doing the next two to five years," says Eric Storey, an Edmonton-based business manager for Great Western who attended the seminar with the hope of getting a better idea what the company's next move should be.
"We have an electricity contract coming up at the end of December, so we're looking to replace that and we'd prefer to do it now."
Part of the cause of higher electricity prices is that over the last decade, Alberta's power generators have slowly been switching how they make electricity. In 1997, coal made up about 65 per cent of the province's generation capacity; today it makes up less than half the capacity, while higher priced - but cleaner burning - natural gas has increased to 40 per cent from 25 per cent of the total capacity eight years ago.
"We increased our generation, but it's mostly gas-fired.
I think natural gas is a high-value energy product and I'm not in agreement to use it for a load-value application such as electricity generation," said Henderson, noting that this was his personal opinion and not necessarily that of CERI.
More coal-generation capacity is forecast to arrive after 2007 - roughly 38 per cent of announced capacity additions in Alberta that will total about 4,300 megawatts (MW), adding to the existing capacity of almost 12,000 MW.
The Canadian Federation of Independent Businesses (CFIB) says that small and medium-sized enterprises (SMEs) are feeling the jolt of high prices.
"Our most recent survey shows that 68 per cent of Alberta small businesses (78 per cent nationwide) have said that energy prices have worsened in the last 12 months ... so the most impact on input costs was energy prices," says Brett Gartner, CFIB's economist for Western Canada.
The advocacy group says that while it is difficult to pinpoint Alberta's electricity deregulation - which started in 2001 - as a cause for soaring prices, it remains an issue.
"Our most recent information says that the No. 1 concern in the last few years since deregulation has been the significant increase in rates and lack of retail competition," Gartner says. "The benefit of competitive markets should be downward pressure on consumer prices, due to more competition. The problem is that for the small-business sector there's just not adequate competition at the retail level."
Other factors affecting the bottom line of many power consumers are the local access fees and municipal franchise fees that are tacked on to most electricity and natural gas bills and flow back to local municipal coffers via the utility.
"We continue to pressure the provincial government as well as local governments. It's a little-known thing that goes on," Gartner says. "In Calgary it's levied against the total cost of the bill, which means when natural gas or electricity costs increase, the City of Calgary will see an increase in revenues, which is completely unfair.
"In Edmonton, for instance, it's based on the volume (consumed), which is a fairer way, but just the sheer size of the fee itself still amounts to a significant charge."
With respect to strategies to lessen the effect of steep energy bills, Gartner agrees with CERI's Henderson that knowledge is power. He says according to CFIB data, half of Alberta SMEs fail to shop around for a better deal under the deregulated system, instead sticking to the regulated rate offered before the province gave them other options.
"Conducting energy audits, going to an energy consultant, looking for a better rate and locking in the price ... those are all options that each business has to weigh, and depending on consumption and the type of business they are in, there are many things they can do to mitigate the impact of higher prices."
Direct Energy says everybody wins when end-users are informed and able to act on their energy consumption.
"(Customers) should tailor the solution to their needs," says Direct Energy spokeswoman Lisa Dornan. "It's in no one's interest to be making blind decisions about their energy, it's not in our best interest nor is it in our customers' best interest."
(John Ludwick can be reached at ludwick@businessedge.ca)
