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ALBERTA DEREGULATION UPDATE
Alberta's Power Sector Restructuring
From A Speech Given by Murray Smith, Minister of Energy, to the CERI Conference in October
Alberta has moved farther than many jurisdictions to restructure its electricity sector. Promoting new generation, particularly from independent sources, was one of our driving purposes. We recognize certain challenges ahead of us including the need for substantial new transmission capacity.
New transmission capacity, both to serve the domestic needs of a growing province and to create new business opportunities in outside markets, could add value to Alberta's primary energy production. This will require major upgrade of our transmission lines. We are now considering what mix of assets Alberta will need, and how best to bring them about.
Alberta's Electricity Restructuring
The major elements of Alberta's restructuring are in place. What remains is fine tuning, much of it by industry. We have had strong success with new generating capacity. From 1998 through 2001 the restructured industry brought more than 2,000 megawatts of new capacity on-line. This new generation came online without adding to the public debt, in contrast to the $7 billion public debt in British Columbia, the $32 billion public debt in Ontario and the $7.2 billion public debt in Manitoba. It includes a broad range of widely distributed sources, from coal and natural gas to wind, biomass and small hydro. And there are thousands of additional megawatts in various stages of planning and development -- including cogeneration, wind and coal.
A sound electricity sector is part of the foundation for a sound economy, so it's important to consider the broader context. Since restructuring began, we have had no major power outages. Alberta's economy has generated continuous, strong growth in GDP.
Evidence to date confirms that price is responding to competitive pressures. Thanks in no small part to investors showing confidence in our new electric marketplace by increasing the supply of electricity; prices that averaged 13.1 cents per kilowatt-hour in January 2001 are currently averaging 3.8 cents per kilowatt-hour.
Retail Competition For Large Customers
Alberta has introduced competition at the retail level. It is working very well for larger-scale customers. The electricity industry has responded (as) there are now more than 20 service providers. Large-scale consumers have so many options, they can virtually tailor make their service. This is an economically functional market in which the freedom to compete is spurring innovations in pricing and services. There is a new segment of industry offering energy services to larger consumers, including: consumption management programs that allow customers to react quickly to changing prices, and energy audits that help customers understand their consumption patterns and find ways to save money.
Current Concerns Over Billing and Customer Service
In the mass retail market, there are still challenges. There are only two major retailers to homeowners, farmers and small business customers. The biggest concern for thousands of these customers is the clarity and accuracy of their electricity bills. As a former business owner, I can say that the number-one priority of any company must be keeping your customers happy. Retail electricity customers, large or small, deserve good service. I recognize that we've gone through a period of transition over the last 20 to 22 months. When we began this restructuring, industry participants were involved at every stage. In much of the province, service is good. But in one service area, there's a big gap between what the retailer was promising and what it's delivering. Companies are responsible for the consequences of who they decide to do business with. And it's the company's job to meet customer expectations.
The government is also looking at the overall handling of customer complaints. There are currently six separate bodies that might hear a customer's complaint. The EUB has proposed creating a single watchdog for the electricity industry, which would be a final arbiter for consumer concerns. The EUB recently talked about imposing financial penalties for failure to meet performance standards. This would be developed by the EUB and we support it.
Government's Role
The government of Alberta is determined to play a constructive role. We also support the recommendations of the Task Force on Electricity Billing Issues. The task force, which had full industry participation, recommended 28 performance measures for service categories including handling of customer calls, accuracy of bills, meter readings, reliability and customer satisfaction. We are not out to re-regulate the market but we are keen to see good customer service. Specific ideas included plain language and standardized line items on bills, a common consumer complaint process and perhaps creating a ratepayers' advocate. And we vow to find solutions, not just talk about the problems.
Some refinements to Alberta's electric industry structure have recently been proposed which, we believe, will enhance the clarity of roles and responsibilities of the organization that oversee Alberta's restructured electricity industry. Next spring, we will be reviewing the Electric Utilities Act. One proposed refinement that we're already acting on is bringing regulation of municipally-owned utilities under the Energy and Utilities Board. In addition, I also support strengthening the code of conduct for market participants, including defining the relationship between distributor and affiliated retailer, which could create a barrier to entry by new market participants.
Mass-Market Retail Competition
I've said before that I'd like to see at least three strong retailers in Alberta. A more smoothly functioning market should help attract new players. And I'm pleased to say I understand negotiations are in progress to bring a new participant to Alberta's market. A new entrant need not be strictly an electricity company. It could be a company in the customer service business, which has a competitive advantage in mass marketing and believes it can create new value by adding electricity retailing to its suite of services. This has been done in the U.K. and New Zealand. Whatever happens, we are not going to leave small customers vulnerable. After expiry of the regulated rate option, we will protect customers from any potential market abuses by allowing them to obtain regulated service based on the monthly average pool price.
Kyoto - The Science
As someone who lived through days of the National Energy Program, I am very bullish about Alberta's future. Partly, that's because I'm positive by nature. Partly, it's because I have confidence in Alberta's tradition of individuals, companies, organizations and government working together to make this a better, more prosperous province. Our history proves it. Our prospects are strong. But there is one thing that threatens our ability to continue on this positive path -- the Kyoto Protocol. Canada should not ratify Kyoto. According to the federal government's own projections, implementing Kyoto could cost Canada billions of dollars and hundreds of thousands of jobs. And I'd say they're "low-balling" the projections. The federal government has projected overall economic growth will fall by just point four per cent, should their most recent plan be implemented. They say that Kyoto will mean up to 244,000 fewer jobs created by 2010 and it will cost about $21 billion to implement Kyoto.
I would like to stress the difference between carbon dioxide or CO2, as so-called "pollution," "toxins" or "smog." Smog is the stuff you see in brown clouds over Toronto and, occasionally, Calgary. Smog is bad, and our environmental policies are working to get rid of it. The most prevalent greenhouse gases are neither smog nor even pollutants. Ninety-seven per cent of all greenhouse gas in the atmosphere is water vapour. CO2 makes up part of the remaining three per cent. It is not on the Environmental Protection Agency's list of common air pollutants. CO2 is part of Mother Nature, essential to plant life. Only three per cent of the CO2 in the atmosphere comes from human activities. Canada produces just two per cent of that three per cent.
Kyoto - Recent Developments
Does it make sense for Canada to undermine its economy to make a tiny impact on the production of something that forms a tiny proportion of greenhouse gases? Yet that is the course the Liberal federal government is pursuing. New reasons not to ratify the Kyoto Protocol emerge almost daily.
The worldwide negative economic impact of Kyoto is now estimated at up to US$8 trillion. By contrast, a few tens of billions of dollars could deliver sanitation and safe drinking water to every single poor person on the globe.
Economic progress is the foundation for nearly all other forms of progress. I know of no poor country with a good health record, a good environmental record and a high education level. Economic progress is based largely on affordable energy.
Interestingly, a recent analysis by the International Energy Agency (IEA) found that the European Union will not be able to meet its Kyoto targets. It's the world's best-positioned region to meet its objectives. It can mix and match among members with varying levels of industrialization. Places like the former East Germany can simply shut down dirty old plants that are virtually bankrupt anyway. The IEA's analysis concluded that even after adopting quite strenuous measures, the EU will fall short of its Kyoto targets. It will be interesting to see just how the EU intends to punish itself for that. By that time, Kyoto might have done tens of billions of dollars of needless economic damage to Canada. Russia is sending tankers of oil to the US, Mexico has no tax and Venezuela is not a signatory to Kyoto.
Under a cap-and-trade CO2 reduction scenario, any new project will either have to be offset by the shutting down of some other enterprise, or it will have to buy emissions credits. Every input into any economic activity will be similarly affected. Hydro producers may think of themselves as clean energy. But building a new dam uses massive volumes of cement, steel and manufactured goods. Producing and shipping those supplies will mean major emissions of CO2. The costs of your inputs will shoot up, as will the construction process itself. Your energy production will be less competitive in US markets, which are not bound by Kyoto.
A new poll shows that Albertans are recognizing the grave harm Kyoto would do to our province. The poll found that 91 per cent of Albertans have heard of Kyoto, 70 per cent believe Kyoto would hurt Alberta's economy, 72 per cent oppose ratification and only 16 per cent approve of the way Jean Chretien is handling this issue. Albertans are right to be concerned.
In the last few months, planned oil sands projects worth a combined $14 billion have been placed at risk. We are being told that uncertainty over Kyoto is already rippling into other industries, like real estate and banking. Thousands of new jobs are in danger even before Kyoto is ratified. How many thousands more jobs will be lost when companies have to start ratcheting down their CO2 emissions? ET
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