Objectives

• Maintain stable and competitive pricing while allowing a deregulated market to operate simultaneously with minimal but increasing influence on pricing.
• Provide a market structure that encourages new generation through development of a pricing system which generates the correct signals to investors.
• Provide a market that operates in a manner that is fair to generators, retailers and customers and which does not require government intervention or subsidies.
• Allow opportunities for the deregulated market to mature and develop by encouraging a forward market so that buyers and sellers can minimize risk and price uncertainty and which preserves the Alberta Advantage.

Specific Recommendations:

1. Recapture the full residual value of the generating assets for Albertans who paid for the generating plants under a regulated environment by canceling the PPA auction and refunding the proceeds to the bidders.
   1. The PPA auction was a failure. Treasurer Steve West had predicted revenues of $4 billion in the spring of 2000. Net proceeds were $1.1 billion for 4300MW with retail rights for 20 years. By comparison the M.A.P. auction generated $1 billion in proceeds for 1900 MW for one year (and substantially smaller amounts for years 2 and 3)
   2. Take back the Power Purchase Arrangements (PPAs) from marketers by triggering the change of law clause in the PPA agreements. By taking back PPAs, cost efficient coal and hydro assets are recaptured for Albertans.
   3. Honour existing MAP auction contracts with industrial and commercial customers. Approximately 1,100 megawatts in existing contracts would be flowed to industrial and commercial customers.
   4. Provide transition assistance to equitable rates from windfall royalty revenues for MAP auction customers but cancel plans for further M.A.P. auctions.
2. Ensure lower prices and stability for all customers by re-instituting legislated hedges and entitlements for the aggregate provincial baseload demand as it existed in 1996 so that Albertans receive almost 80% of their electricity at a rate of 5 cents per kwh.
   1. Implement a system of obligations and entitlements for consumer groups and by extension, to individual customers in all customer groups.
   2. A notice period would be required for customers who wish to voluntarily leave the grid and take or pay provisions would apply if the effect of leaving is negative on remaining customers.
3. Growth in demand since 1996 will continue to be subject to Power Pool pricing but the Power Pool rules would be amended to provide a level playing field.
   1. The remaining 20% of all consumers bills would be subject to Power Pool pricing.
   2. As electrical demand continues to grow, a larger proportion of customer billings would be subject to Power Pool pricing.
   3. Amend Power Pool rules to provide for transparency in bidding and to implement weighted average pricing for consumers.
   4. The Power Pool would continue to provide incentive for new generation since all new generation would be subject to Power Pool pricing.
4. Encourage efficiencies and technological improvements in electrical generation and pass on those savings to customers in the form of lower prices.
   1. Increase research and development (R&D) funding for clean coal technologies, as well as alternative fuel technologies and renewable energy sources in order to stimulate new generation supply. (New research shows that new coal technology reduces CO2 emission by 15% more than with natural gas)
5. Maintain a high profile and aggressive conservation program in conjunction with stakeholders to reduce peak demand load on the Alberta electricity system.
   1. Fund consumer education program through a minimal surcharge on billings
   2. Develop a consumer education and conservation program to minimize electrical usage by Albertans during peak price periods.
   3. Provide incentives to implement time of use billing by encouraging gradual transition to time of use metering and by providing incentives for doing so in the rate structure.
   4. Work in conjunction with utility companies to provide incentives for consumers to go towards interval metering or time-of-use metering. Interval or time-of-use metering is a method that measures energy consumption for consumers in 15-minute intervals. This will allow customers to manage their consumption more effectively. Through interval metering, customers can be incented to reduce their consumption during periods of peak load on the system, through the offering of preferential rates at off-peak times.
6. Create a functioning competitive retail market where large industrial and commercial customers can enter into short-term and long-term forward contracts.
   1. Allow marketers to enter into forward contracts with the Power Pool so they can sell energy to large commercial and industrial customers
   2. Make the Power Pool and the Transmission Administrator a single entity responsible for the forwards market system.
7. Create a climate of price stability and certainty as a means of attracting significant new base load supply to Alberta on a priority basis.
   1. Encourage large scale coal-fired projects that are more economical than natural gas into today's environment. Years of identified coal supply is many times that of natural gas and the price for coal is more stable. Price is also a local market price.
   2. Encourage co-generation projects by providing exemptions from royalties and taxes for fuels used for co-generation.
   3. Introduce legislation to fast-track the approval process for new generation before the EUB, with due concern given to environmental factors. For example, if a project meets certain criteria for emissions under the Environmental Protection and Enhancement Act (EPEA), the regulatory compliance burden could be reduced in order to fast-track projects.
   4. Explore the possibility of a tie line to the United States to enhance Alberta's ability to export clean coal and to attract new investment into the Alberta electricity marketplace.
8. Provide Leadership by investing and sharing the risk in large scale Hydro generation projects that tend to have longer term paybacks.
   1. Issue Requests for Proposal (RFP) to potential investors in large scale new generation with longer term paybacks and storage capability.
   2. Use new technology which encourages re-use of water resources.
   3. Take an equity position to reduce investment risk and to provide ownership benefits to Albertans.
   4. Negotiate with B.C. and Manitoba to diversify Alberta's power supply, through the use of hydro power as a source of electricity generation in Alberta. and invest in new tie-lines if satisfactory arrangements can be made to secure long term supply or equity participation at reasonable prices.
   5. Make Alberta more "electricity independent" by reducing our reliance on high-priced spot market power imported from B.C. Hydro (Powerex) and Saskatchewan Power.
9. Protect consumers from inappropriate use of market power and market behaviour by market participants.
   1. Introduce amendments to the Electric Utilities Act to allow Alberta's Market Surveillance Administrator to prosecute instances of price gouging by distributors.
   2. Establish clear criteria for the exercise of market power and gaming of the Power Pool. Impose strict penalties for the abuse of market power and manipulation of the Power Pool price.
   3. Establish an Electricity Ombudsman to ensure that retailers contracting practices are competitive and fair and in the best interests of Alberta consumers.
   4. Implement the recommendations of the October 2000 report of Alberta's Market Surveillance Administrator by deadline of June 30, 2001.
   5. Require that retailers offer contracts of varying duration -- monthly, winter and summer strips, one year, two years, three years, four years -- to ensure fair and open competition.
   6. Level the playing field for existing generators and new generators as it relates to liability for accidental damages. Existing generators have no liability. New generators are liable for accidental damage. New generators will not enter the marketplace without some adjustment to the liability provisions. Liability should be the same for all generators when there is gross or willful negligence.
   7. Establish clear code of conduct rules for the relationship between an owner of a regulated monopoly service and unregulated business entities that it owns or is affiliated with, or a provider of a regulated monopoly service and unregulated business entities that it owns or is affiliated with, in order to ensure a level playing field for all market participants.
10. Consumers must become the focus of deregulation. Throughout the process the concerns of utilities have been addressed, while customers have been ignored.
    1. deregulation was supposed to be for the benefit of consumers
    2. to date consumers have not benefited, but utilities and generators have
    3. consumers must be consulted
    4. recent meetings between the Premier and Epcor and Enmax, followed by the increase in the regulated rate, demonstrate that the government is most concerned with the utilities, not consumers
    5. utilities such as the City of Lethbridge are able to collect massive profits from electricity, equal to those collected in a regulated environment, even though they are no longer a retailer of electricity and will see their revenues decrease substantially
    6. new players in the market are moving cautiously to protect themselves, to the detriment of customers
11. Demand side response must be developed.
    1. demand side response is still nonexistent
    2. the government has made no apparent effort to create a demand side response
    3. the government has, in fact, greatly harmed the situation by fixing homeowner prices at historic levels, causing homeowners to be indifferent to pricing and therefore unconcerned about consumption patterns
    4. on-line reserves add a large expense and overhead to the system that should be replaced by interruptible load at a lower cost
    5. specify time-of-use meters for ALL new non residential applications
    6. commit to converting every consumer to time-of-use meters over the next 5 years
12. Supply must be rapidly increased
    1. the recent 3.6¢ rebate is actually a disincentive to build and operate on-site industrial generation, since the rebate will be foregone for power generated and consumed internally, and therefore the rebate should be made available for all consumption whether from the grid or from in-house generation
    2. fast tracked (under 1 year) new projects for generation should be subsidized either with government grants, interest free loans, guaranteed minimum pricing, or by eliminating all municipal and provincial taxes and fees on fuels used to generate power, or any combination
    3. streamline the process for approval of new generation, which currently requires the approval of 5 government entities, and establish a standard set of parameters under which small projects receive automatic, immediate approval
    4. establish a department to provide support for potential small generation project developers, helping them to receive regulatory approval and connecting them with other necessary resources
    5. provide assistance to stimulate alternate fuel technologies (e.g. burning wood waste, bio-gas, flare gas, coal) to diversify away from a dependence on natural gas fired generation
    6. ensure sufficient supply within Alberta to reduce dependency on imports
13. A level playing field must be established. Small businesses must be able to participate in deregulation, both as consumers and potential generators, without requiring the level of sophistication only available in large corporations.
    1. ensure that small and large customers alike find deregulation easy to deal with
    2. contracts proposed by retailers can be 50 or more pages long, and aren't even understood by typical lawyers
    3. the PPA auction was truly not accessible to small businesses, nor was the MAP auction, due to their small size and lack of sophistication
    4. ensure a wide array of representation from small business in all future decision processes
    5. the government should assist small businesses in working through the maze of such things as becoming a self retailer and other tasks too onerous for small businesses
    6. prudential requirements at the pool and by distribution companies prevent small businesses from becoming self retailers or pool participants due to their onerous nature and should be waived
14. The dysfunctional market must be repaired. Other than fixing the supply and demand imbalance, the biggest problem today is that a functional market has not developed. On October 17th the Power Pool stated that "from what was originally intended as a temporary framework, we have amended our rules on a case by case basis." It is time to build a new framework that has been developed from scratch with consumers in mind. The Power Pool also stated that "there are a number of real time market rules which provide generous flexibility and may accordingly provide the opportunity for market manipulation." The rules need to be changed to ensure customers are getting the benefits of deregulation. The government must ensure that the market is not skewed towards generators, and is not skewed towards the spot market.
    1. moving from a regulated monopoly to an unregulated oligopoly is not of benefit
    2. very few retailers are active in the province, only 3 are registered in Lethbridge
    3. work with retailers and small business customers jointly to establish why retailers are not offering competitive products to small businesses, what the needs of small businesses are, and to work out a solution -- quit simply consulting with Enmax and Epcor, they are nobody's friends
    4. the Power Pool MUST immediately move away from the System Marginal Price and move to a Weighted Average Price, which would force generators to bid in at the price they really want, preventing them from copping out and saying that they aren't responsible for setting prices if they aren't the marginal unit
    5. the Power Pool MUST begin publishing the names associated with all hourly supply offers, so that Albertans will know where to point the finger when prices are unreasonably high
    6. currently, suppliers have no fear of consumer backlash because they can hide in anonymity when making supply offers
    7. suppliers will say that their bids must be secret due to their competitive nature, but it is a fact that all suppliers will be on an equally competitive footing as long as ALL names are published
    8. the Power Pool MUST establish a system whereby day ahead, six day ahead, and real time forecasts are accurate, to allow customers with pool price exposure to manage their operations other than in real time
    9. currently, Power Pool forecasts are utterly useless, since they are frequently out by several hundred percent
    10. rules must be put in place to ensure suppliers are not able to game the market to raise prices
    11. supply offers should be submitted a day in advance and not be allowed to change thereafter (supply unavailable due to breakdown can be withdrawn, but is subject to review by the MSA)
    12. the ability to become a price taker must be removed, thereby ensuring generators are penalized if they bid too high
    13. supply from single units should be offered into the pool in a single block and not divided up to take advantage of a tight supply situation
    14. suppliers should be forced out of the spot market and into the forwards market
    15. a simple rule such as that no more than 10% of a unit's generation can be traded in the real time market will help develop active forwards markets
    16. forcing suppliers out of the highly speculative, but potentially lucrative, spot market will help ensure that long term contracts are available to consumers
    17. keep the focus on rules that benefit customers, not suppliers