The 'silent majority'. When it comes to the electric power industry, the term applies to the bulk of electricity consumers. They who do not have a voice simply live their lives unaware of the product -- unless electricity prices are skyrocketing or they are sitting in darkness,. (I consider electricity a manufactured product not just a source of energy.) As long as our modern life continues without interruption, the silent majority really couldn't care less about the loftier issues of power planning philosophy and public vs private ownership, or the technical details and advances of generation, transmission and distribution systems.
I've written several times now about the fact that 99.9 per cent of all electricity consumers don't have a real input into the planning of a power system that governs and drives their lives. The silent majority expects utilities ,and eventually government, to look after power production and maybe even now it's become cynical enough to understand that government looks after its own interest first.
And what is the interest of the silent majority of electricity consumers: Price and reliability and then quality. And what about large power consumers? In Ontario, 100 power consuming companies consume 50 per cent of the electricity and in Alberta, the same percentage of electricity is consumed by less than 40 companies. This is really the group of consumers that rely heaviest on electricity at the least possible cost. As a group, large power consuming companies employ tens of thousands of employees and their competitiveness and financial performance are directly related to the cost of production, and low electricity rates have always been a rationale for investing in Canada.
It's ironic that even though most, if not all, large electricity consumers have time-of-use metering and exercise diligent energy management, spot market prices in Alberta (and soon in Ontario) are determined by peak demand and the peak is driven mostly by small electricity consumers.
For small electricity consumers, low electricity prices and traditional kWh metering have given little or no incentive for energy management because there was no direct, perceived, immediate benefit.
But low electricity prices, and utility responsibility and ownership of meters, have made the average electricity consumer in Canada and the United States unsophisticated consumers; ignorant of what it takes to supply electricity and deliver it and what role he/she can play in how he/she are charged.
And it is the silent majority that is contributing to the crisis in California and Alberta, especially when it is protected and rebated by government through artificial price caps, rate freezes and rebate cheques.
But, this is not a considered, intentional contribution. Electricity consumers, for all the promise of 'greater choice' have in reality little choice because they have little benefit which motivates choice.
Electricity deregulation is good for power producers ONLY if there is a profit to be made and therefore electricity deregulation can only be good for consumers if there is also an economic incentive.
What's needed for power consumers are time-of-use rates and metering in homes and businesses. Then there will be true and honest 'deregulation' because consumers hit by market-driven pricing will be able to respond with a true choice: how and when to use electricity. As it stands, electricity deregulation has meant a loosening of the controls over pricing and rate setting, and the supplier, but not in how electricity is metered and hence consumed.
Personally, the only way that I can best deal with the demand pricing tactics of oil retailers in my town is not to buy my gasoline from Thursday to Sunday. And, for my home, I would like the choice of not only the electricity retailer but also when and how and how much electricity to use and I want to be in charge of the cost savings at my meter.
Are private power producers and deregulated electricity retailers selling meters that will give consumers a real choice? No, because it is not in their interest. They are looking for safety, security, long term contracts, and a guaranteed level of return.
Give a consumer the tool to enact a true choice of when to use electricity when prices go up, then the market will naturally respond and there will be true deregulation. Right now, the electricity market that independent power producers and innovative regulators are promoting is not a true market.
The state government of California is protecting electricity consumers from the predatory practices that would otherwise have bankrupted two successful utilities but in the long run this is costing electricity consumers more than had they had to pay real market prices. There is a whole school that believes that the best protection for electricity consumers facing high electricity prices are energy conservation practices, energy-efficient appliances and time-of-use metering -- better protection than the billions being spent on government bonds to bail out PG&E and SDG&E and to secure long term import contracts.
In Alberta, the answer for that market may be for both EPCOR and TransAlta to go ahead with their plans to build their future units (a total of 1,300MW) to ensure there will be a greater base load generation and less reliance on small scale, natural gas fired, intermediate and peaking generation. Then the government should give rebates to electricity consumers to purchase time-of-use meters.
Never mind giving them a choice of retailer when all the retailers are buying from the same pool price and there are no long-term wholesale contracts when supply is short. In the California situation, there were many power producers holding back on supply in order to drive up the price. That's the OPEC principal. And in Alberta and eventually Ontario, private electricity producers will never build capacity in a surplus market situation because their will be less economic return for their investment than in a high demand market.
Left to private industry, there will never be a surplus. There will only be enough investment made in electricity production to leave the market short and keep the market wanting more and that will keep the price high enough to make the investment worthwhile. (That's what happened in the natural gas business. Low rates discouraged exploration and production. Today's high prices are driving new exploration and drilling.)
In California, had PG&E and San Diego Gas & Electric had unlimited deep pockets, there would have been no complaint from private power producers outside the state. The only time they complained was when it was uncertain they would get paid their astronomical windfall revenue, and the first thing they did when the cash ran out was turn off the supply. I call it OPEC marketing. Others call it the supply/demand market.
I've had the opportunity twice in the past month to attend electricity deregulation conferences in Alberta and Ontario, both leading Canadian jurisdictions dealing with the latest trends in power planning.
Although both provinces are very different in generation mix and size and demand and supply, there are some striking similarities when it comes to electricity deregulation.
What's striking? First of all, the silent majority of ratepayers and taxpayers who ultimately finance the whole industry were not represented in the same degree as those who have a financial interest in electricity deregulation. I am not against making money, but I see the electricity deregulation course being promoted by those who stand to earn money, not those whom it is going to cost. I see merchant bankers and consultants and developers and equipment suppliers and natural gas producers and electricity retailers. It is this group now that is blaming government and its perceived inaction for high electricity prices and the dire consequences of not planning ahead and, in the meantime, running short of supply.
Ironically, the Ontario deregulation community is now faced with government delays (and the inherent costs thereof) in the same way that the government repeatedly delayed the commissioning of nuclear units at Pickering and Darlington in the 1980s. Those delays cost Ontario Hydro and the people of Ontario billions of dollars in additional financing charges. And the rate freeze over the past 7 years has only served to drive up the stranded debt by hundreds of millions of dollars. It is exactly that kind of politically-motivated tinkering that makes power planning and execution more difficult. I would even go so far as to suggest that had the Ontario government never meddled in Ontario Hydro affairs and imposed programs on the utility that had little to do with generation, transmission and distribution, and kept out of the scheduling and commissioning of plants, the whole system would be healthier today and in a lot less debt.
In both these Canadian provinces, Alberta and Ontario governments are being blamed for the shortcomings of electricity. So long as government has its hand on the throttle, it will not easily relinquish control when it knows that it will be expected to answer with rebates for the failings, if and when they occur.
There will never be one single independent power producer who will take the heat for higher prices and offer rebates to cushion the blow. Success has a thousand fathers and failure is an orphan. And this orphan is a ward of the state.
In Alberta, even after two auctions, there are really only two retailers and neither is signing up customers with long term, price fixed, contracts -- and prices there are the highest in North America outside of California. In Ontario, the government is not about to relinquish control and open the market when there is no guarantee that the government (and the public) will get what it was promised.
Randy Hurst
Publisher/Executive Editor
rwh@istar.ca