November 12, 2000
Clint Dunford
Minister of Human Resources
MLA Lethbridge West
Dear Clint,
Re: Electrical Market Update
The new information on participation in the bidding auction released on Friday, November 10 is positive. Monthly payments will now be permitted. There is a requirement for a security bond valued at one to two months usage which we hope can be mitigated in some manner.
There is still a problem for individual industries who do not consistently consume 2MW of electricity. We are meeting with some potential retailers on Wednesday and will ask them to bid on behalf of groups of companies.
Attached is the data developed by John Davies. The information is very disturbing and confirms our fears about obscene profits. The numbers reflect just three months data and demonstrate selling values far in excess of production costs, proving that energy prices are not the main culprit behind current high electrical prices.
We had hoped that by now our government would have begun implementing some of the recommendations contained in the Market Surveillance Administrator's report that was issued on October 13th.
Very specifically, we would like to see the following issues addressed:
We are concerned that Albertans are truly being taken advantage of and that many are suffering unnecessary financial pain because of a market that is defective. We believe that Albertans are unlikely to accept the situation when the profit information becomes widely understood. They will be even less tolerant when they understand that the problem has been identified by the Market Surveillance Administrator and the government has not moved to protect the interests of Albertans.
We believe that the market must be corrected before implementation of Deregulation on January 1, 2001. December 1st is our suggested date for implementation of new rules to govern pricing and behaviour in the electrical market.
We are frustrated by the department of Resource Development's delays and lack of commitment to a course of action. Does the department accept the MSA report? Will it act on the report? If so, when will the department act and announce new market rules ? Would be appropriate to monitor the implementation of the new rules and the effect on prices?
How is our government going to deal with the shortage of supply? Increasing the Tie-Line capacity, as proposed in the 10-Point Plan, may be a short term solution to avoid outages but it is not the solution for achieving lower prices on a long term basis and is likely to contribute to even higher prices.
Given the projected growth in powerpool electrical demand, will the government be doing anything else to encourage significant new electrical generating capacity? Fast-tracking applications for new projects is just one component of what is needed.
We remain unconvinced that significant new development will take place. We would like our government to explain how they are going to encourage investment in new electrical generating capacity in order to bring prices down. We wonder why generators would invest money in order to drive prices down and reduce the current level of their profits?
The lack of response and leadership is puzzling. Vague initiatives, like the 10-Point Plan, with no commitment to dates are not going to be effective in reducing prices. Everyone is wondering what the government is going to do? The prevailing and growing perception is that the government does not know what to do or is indifferent.
When school boards and other government funded institutions begin incurring operating deficits and canceling ongoing maintenance due to lack of adequate funding, the issue will come back to bite the government in another way.
If our government is prepared to allow a few companies make extraordinary profits at the expense of Alberta's consumers and employers, I suspect that the memory of the rebate cheques will fade very quickly.
This issue needs to be our government's number one priority until electrical rates can be seen to stabilize. It is still not clear whether the government is interested or concerned. When Albertans learn the facts and the reasons for our high electrical prices, it is not likely that they will be forgiving or patient.
Best wishes
Chris Spearman
Chairman
Industrial Association of Southern Alberta