(Part 2 of a three-part look at the deregulation of the electricity industry and how it is affecting business.)
Alberta’s business community is dealing with a limited hand when it comes to electricity deregulation, as the number of participants, and not just power prices, continues to fluctuate.
They’re also faced with one resonating question – what is the best way to deal with the impending changes that are being brought about?
With the transitional Regulated Rate Option (RRO) expiring at the end of this year for most of the province’s small and medium-sized business – those who use less than 250,000 kWh per year – two basic options are in play.
One is opting for a fixed-term contract for electricity purchases. The other is remaining with the current service provider and accepting a pool price flow-through rate (PPFT), meaning electricity charges will be based on an average of the hourly spot price set by the Power Pool of Alberta. Costs will vary from month to month depending on market conditions.
Selecting a PPFT rate won’t restrict a company’s choices. At any point, that business can shop around for electricity contracts. Should a contract be signed, the user can switch back to the flow-through once the term expires.
However, while contract terms, length and incentives, if any, will vary among retailers, for the moment there are just two licensed players – ENMAX Energy and iQ2 Power Corp. – actively pursuing the small and medium-sized business market.
Nexen Marketing and Gibson Energy Marketing Ltd., at one point listed on the province’s electricity retailer registry as providers to small- and medium-sized companies, are now targeting large commercial and industrial operators instead – those using more than 250,000 kWh per year.
Meanwhile, EPCOR has already exited from this part of the contract sector, citing a decision to concentrate its national energy business on growth opportunities in the large commercial, industrial and wholesale markets as well as generation.
EPCOR will still offer fixed-price electricity and natural gas to these heavier electricity users.
It will also continue to serve the 600,000 Edmonton and Aquila Networks Canada territory electricity customers in Alberta who have not signed competitive contracts and remain on an RRO.
But it is no longer offering competitive contracts to residential, farm and small commercial natural gas and electricity customers. Those who already have a contract will still receive service according to their EPCOR agreement.
“From a North American perspective, we need to see more markets (jurisdictions) opening up,” said EPCOR’s Doug Downs, claiming the mass markets as they now stand “don’t provide the growth we need to see to stay in that side in the business.”
There is one new player on the horizon, Direct Energy Marketing Ltd. But Direct Energy’s entry hinges on the Alberta Energy and Utilities Board’s (EUB) approval of its purchase of the rights and obligations to service ATCO gas and electric customers.
That means ATCO will be out if the EUB approves the sale, tentatively valued at $130 million. The actual amount will be determined once and if the sale is finalized by the EUB.
“We had a hard look at the retail business about three years ago and really decided we’re a company that didn’t want to get into that part of the business,” said Dick Frey, managing director of the utilities business group with the ATCO Group of Companies.
“Our history is building and operating facilities, and getting into the retail marketing aspect didn’t really fit for us. We’re moving to becoming a transportation company – moving the gas through our pipes and the electricity over our wires. We will simply charge the retailer for the use of our pipes and wires and the retailer will in turn add that charge to the customer. We become carriers of energy as opposed to the sellers of energy.”
Small businesses served by ATCO have already been switched to the PPFT, and for now, ATCO customers will continue to be served by ATCO until the Direct Energy deal gets the green light.
For the time being, Direct Energy Marketing will not begin signing up customers until the ATCO deal is approved, even though it is licensed for the Alberta market, said Peter Symons, media relations manager for the western region.
Part of the reason for that is the market’s competitive nature, he said.
The company, a wholly owned subsidiary of Centrica plc, a United Kingdom-based supplier of energy and home services, with 44 million customers worldwide, sees Alberta as one of its core markets.
“We anticipate being in the market for Q4 2003, but this is subject to regulatory approval,” said Symons.
“Our target markets, on the regulated side, are to serve Albertans in the ATCO gas and electric service territories, through Direct Energy Regulated Services.”
On the deregulated side, Direct Energy Preferred will offer fixed-price retail energy services provincewide to small commercial, residential and farm customer segments.
As to what contract plans are currently available for commercial operations using less than 250,000 kWh per year, ENMAX has sent out an initial salvo with an energy price protection plan for small business.
‘Protected if prices go up and rewarded if prices go down’ is the campaign’s tagline. Price protection is established by signing a contract for a three- or five-year period.
The ‘reward’ is a one-time free change if ENMAX offers a lower contract energy rate during the first six months of the agreement.
As an added incentive, customers receive a sign-up bonus of up to $200.
Direct Energy would only say that Air Miles reward miles, to be available to its residential customers, will not be offered to business concerns.
For its part, Calgary-based iQ2 Power, established in September 2000, is concentrating on bulk buys, bringing individual businesses together through their respective organizations to service their power needs. This could be called a third electricity option, and it’s one that’s working for the Alberta Hotel and Lodging Association.
Bulk power buys have enabled the association to keep costs down for its members. Representing 80 per cent of the hotel rooms in Alberta, with about 500 members, it became concerned about the potential effects of electricity deregulation and the fact that some industry members might not be aware of the privatization process.
“We contacted a number of suppliers and had them give us an overview of what they felt would be happening,” said Jim Hansen, president and CEO of the hotel and lodging association.
While Hansen would not reveal prices on the multi-year contract that took effect on January 1, 2001, he points out that individual hotels “couldn’t even begin to get the price we got. We’re one of EPCOR’s top five contracts in Alberta.”
The association purchases the power and bills the hotels for their usage, taking on the responsibility of the total EPCOR bill.
“It was a process that was not without its problems,” said Hansen. “We had some problems getting billing information, but over the first year we were able to clean up most of the billing issues. Our members through this first year didn’t see the number of problems the normal consumer would see – they were cleaned up (by us) before the bills were sent out.”
Not to point a finger solely at EPCOR, Hansen notes that the billing issues were largely related to other utilities in the province.
“It’s an extra layer of bureaucracy, but when you take on this responsibility, you have all the data at your fingertips. When we go to shop this in 2005, we’ll have complete control on all our data and it will allow us to do a better deal,” said Hansen, who expects to be able to lower his rates once more and bring in more of his members on the buy.
* Next week: In Part 3, we examine how the province is moving to quell electricity concerns.
