Electricity deregulation is increasing costs for Lethbridge Iron Works to the point where the company's continued existence in Alberta is becoming questionable. The company has been in Alberta for 102 years and was incorporated in the city of Regina under the Northwest Territories Act before the province of Alberta came into existence. The provincial government's ill-conceived move to electricity deregulation has put the company's future in jeopardy.
Electricity is a major input cost for Lethbridge Iron Works, comprising about 5% of total costs. Concerned about the rising electricity prices and impending deregulation, the company began seeking competitive bids for electrical energy in September of this year. At that time, the company contacted all of the retailers listed on the government's retailer registry website. Requests for quotation were sent out to 10 potential suppliers. Only 3 responded. John Davies, Vice-President Engineering & Operations says that "reception to our request was lukewarm, to say the least. Companies were not prepared to offer prices in September, due to the uncertainty in the market created by the government's failure to sell one third of the province's generation at the PPA auction in August." The prices that were quoted were extremely high, reflecting the uncertainty in the market. The company then chose to wait for the government to decide how it was going to get the rest of the province's generation into the marketplace, before selecting an electricity supplier.
On November 3 the province announced their Market Achievement Plan (MAP) to sell the remaining generation into the marketplace. Two and a half months had elapsed since the completion of the original PPA auction. The MAP auction was scheduled for November 29, only 32 days before deregulation comes into effect. "Once again the government dragged its feet, leaving consumers with very little time in which to make decisions" says Davies. The MAP auction was then delayed until December 4, and ultimately completed on December 5. Exactly 26 days before deregulation comes into effect, electricity suppliers and consumers finally had access to the regulated generation that had been paid for over the years by all Albertans. "The government had 5 years to put deregulation into place, yet everything came down to the final few days" says Davies. "Businesses have been expected to make major decisions about their electricity purchases with only a few days to investigate their options."
On December 3 Lethbridge Iron Works sent out a second request for quotation to 17 potential retailers throughout the province. Only 7 companies bothered to respond. All 7 companies declined to offer a price to supply the company's electricity requirements. "I was shocked" said Davies. "The government has been extolling the virtues of electricity deregulation, they have been saying it will bring competition to the marketplace and lead to lower prices." Davies says that his company's experience has been the exact opposite. "No one has been knocking on our door" he says. "Therefore, we made the first move and contacted potential retailers directly. Not one company expressed interest in supplying our needs."
Lethbridge Iron Works believed it still had one option open to it. Enmax Energy had developed a standard pricing structure which was available to all businesses that were not eligible for the regulated price being offered to homeowners and very small businesses. The pricing plan was offered on November 30 and was available until December 11. Enmax stated that "if you don't choose a plan by December 11, the deadline date specified by the Alberta government, you will be assigned the Flex Plan." Davies contacted Enmax on Wednesday, December 6 and was informed that the pricing plan had been put on hold, pending discussion by Enmax executives. On December 7 Davies again contacted Enmax and was told that the prices offered by Enmax were no longer available. "I was told that Enmax was no longer offering prices of any kind, and all customers without a contract in place would be forced to accept the Flex Plan" says Davies. The Flex Plan carries an electricity price of 15.6 ¢/kWh for January, higher than any of the contract prices that had been offered. Prices in February are unknown, but expected to rise. Davies says that "Enmax has us backed into a corner, and they know it. They know that we have no other alternatives but to pay whatever price they choose. They are taking advantage of the situation, and making us pay dearly."
Lethbridge Iron Works will pay over $200,000.00 for electricity in January. Last year, their January bill was about $70,000.00. Electricity will rise from 5% of total costs to almost 15% of total costs. "We would have to raise our prices by 10% next year just to break even" says Davies. However, raising prices is not an option for the company. Competitors throughout Western Canada are not faced with skyrocketing electricity prices. If Lethbridge Iron Works raises prices, customers will simply buy their castings from another foundry. "This is a made in Alberta problem" says Davies, "and it requires a made in Alberta solution. We need a solution fast, or Alberta businesses and their employees will suffer the consequences."
The government moved to shield homeowners and very small businesses from escalating prices on November 30 when it put a price cap of 8¢ on the cost of electricity for these consumers. However, Davies says that "small and medium sized businesses have been hung out to dry by the government." In fact, it now appears that when the government blindsided Enmax by capping the regulated rate at 8¢, Enmax reacted by withdrawing all offers it had out to consumers. Enmax will now charge those consumers its highest possible rates, in an effort to recoup some of the exorbitant profits it had planned to collect from homeowners. "The situation right now is downright scary" says Davies. "Alberta companies and Alberta employees will now suffer the consequences of the government's mismanagement of electricity deregulation. If the government does not act swiftly to protect consumers, the effects will be sweeping and devastating."
The future looks grim for Lethbridge Iron Works. After 102 years in Alberta, the company is now looking at its options. "The choices in front of us are limited and unappealing" says Davies. The company is looking at moving out of Alberta, most likely to Manitoba where electricity prices remain low. Economic development officials in Manitoba have already contacted the company. Davies says that "Manitoba appears to be eager to have our business locate there. Alberta, on the other hand, doesn't seem to give a damn." Davies says that "I have corresponded with the Premier, the Minister (Mike Cardinal) and my local MLA (Clint Dunford) on numerous occasions. While they appear to be listening, their lack of action to fix the problems facing my company speaks volumes." Other alternatives that the company is looking into include purchasing their own generation, or moving production from days to nights, when electricity costs are somewhat lower. Davies does not like the thought of changing to a night shift. "We are a family business with a tremendous bunch of employees" he says. "The thought of forcing our employees onto a night shift, where their personal lives will be adversely affected, makes me angry. Why should my employees have to suffer because the government botched deregulation?" Davies asks.
Deregulation has been a monumental failure in Alberta, just as it has been in California. "It is time for this government to own up to their mistake" says Davies. "This government needs to make rapid, sweeping changes to electricity deregulation to prevent the Alberta Advantage from becoming the Alberta Exodus, as companies leave the province en masse." Without immediate action, the Klein Electricity Plan (KEP) will go down in infamy in Alberta, on par with the National Energy Program (NEP) of the 1970s.
Background:
Lethbridge Iron Works was established in 1898 in Lethbridge, Alberta, Canada as a metalworking business providing many services to the burgeoning coal mining industry in Lethbridge. Over the past century the company has narrowed its scope of business, becoming an industry leader as a jobbing iron foundry supplying iron castings to various customer segments throughout North America.
Still located in Lethbridge after more than 100 years, the company currently operates a modern production foundry of over 85,000 square feet on 7 acres in the city's industrial park. The facility was constructed in 1975 and has been expanded 4 times since. Numerous capital projects have been undertaken in the past decade, outfitting the foundry with modern, automated high production equipment in all departments. An ISO 9002 Certified Quality Assurance Program ensures castings consistently exceed customer specifications.
Contact:
John R. Davies, P.Eng. MBA
Vice-President Engineering & Operations
403/380-1555