Ian McKinnon
Financial Post
December 1, 2000

Richest market: Alberta, California act as models of what not to do

Chaos in Alberta and a possible taxpayer revolt in California are instructive examples in how not to deregulate a multi-billion-dollar industry, but participants in Ontario’s soon-to-be competitive electrical sector are split over whether the lessons are being learned as the province opens up Canada’s largest and richest market.

The most important lesson from controversial programs in Alberta and the Golden State is the need for clear and consistent rules, something missing from both areas, Tom Adams, executive director of Toronto-based Energy Probe, said yesterday.

"The best protection for consumers is to have a reliable, secure investment climate for the generators," Mr. Adams said. "If generators are nervous because there are artificial barriers to entry, a lot of confusion or threats to real competition, then it’s consumers who ultimately pay. We’ve seen it in Alberta, we’ve seen it in California and we’re not getting the message in Ontario."

Blair Peberdy, a vice-president with Toronto Hydro, agreed regulatory stability and clarity are critical to ensure a smooth transition as Ontario breaks up a 100-year-old monopoly. Originally scheduled to occur this month before being delayed last June, Ontario has promised to introduce competition in electricity sales in 2001.

Shane Pospisil, a spokesman for the Ontario Ministry of Science, Energy and Technology, said the province is tweaking its regulations, but not making any major changes. However, he said it is paying attention to developments in Alberta and California, where soaring utility bills have generated a considerable political backlash.

"Ontario’s healthy electricity supply outlook and investment outlook for new generation projects put us in a much different situation," he said. "We always try to learn from the other jurisdictions that have gone first, and I guess one of the things that we’ve learned here is that we need to make sure that we take the time to do it right."

Ralph Klein, Premier of Alberta, on Tuesday unexpectedly froze electricity rates for 2001 while the province reviewed the fairness of rising prices, which have nearly tripled this year as Alberta prepares to open the market starting Jan. 1.

In California, some consumer activists are pushing to put an initiative favouring regulation of the electrical sector on the 2002 ballot.

Dale Hildebrand, a vice-president with Optimum Energy Management Inc., a Calgary consultancy, said California and Alberta both tried to deregulate the wholesale and retail sides of the electrical industry at the same time, a mistake he hopes Ontario will not repeat.

"Retailers and marketers have to have the ability to buy and sell electricity in a competitive market before you then expose consumers to that market," he said. "Now [Alberta officials] are opening it up to retail competition at the same time they’re opening up the wholesale market, and it’s just chaos. It’s the same thing that happened in California. If you try to do them both at the same time, it doesn’t work."