If the market is supposed to be deregulated, why is the Government of Alberta stepping in again? Is this "re-regulation"? Does this mean that restructuring is a failed experiment?

Not necessarily. But, recent government actions to cap some retail prices sends a bad signal that is counter to the single most important issue in today's market: SUPPLY. The single most important factor contributing to high prices today is a shortage of supply. The single most important element of a successful restructuring of the electricity industry, and the source of most of the potential benefits, is a competitive supply market. The government has to do everything it can to encourage investment in supply, and as a result competition in the market. This means making investment in this market attractive to potential generators. These potential investors can handle market risks and uncertainty. That's why they are in the market and that's how they make money. Policy uncertainty, on the other hand, is harder to deal with. When the rules aren't clear, when the government appears to be developing policy on the fly, investors hang onto their dollars.

The underlying problem with Alberta's electricity market is that supply has grown too slowly over the past 5 years. Because there is too little supply at the present time, prices in the wholesale market are high. Sure we can point to ill advised or poorly timed policy to explain much of this problem. But that's not very productive at this point. The damage is done. What should be the focus of 99% of the attention of policy makers is increasing supply as quickly as possible. If more investment is not undertaken in generation equipment, then the problem will just get worse and comparisons with California's current woeful electricity market will become truer. If this new market cannot provide adequate incentives for new generation, and provide these incentives quickly, then this will indeed be a failed experiment.

So, what can be said regarding the current state of restructuring in Alberta?

If competition in the market is to be the basis for capacity expansion and investment decisions, then the market has to transmit clear signals regarding the value of investments. At the present time, Alberta's high wholesale prices do appear to be a result of tight supply. All else being equal, this is good. Tight supply should lead to high prices, which should attract investment. Why then is capping retail prices a bad thing to do? Capping retail prices, even though the wholesale price remains unconstrained, does not serve the market well for (at least) two reasons. Prices should signal the value of the good being produced. When consumers face "relatively" low prices, they have no incentive to reduce their consumption. If Alberta's residential consumers see a price that is below the cost of electricity, they will in effect over consume. Increased demand is not something we should be encouraging at this time. But more importantly, capping retail prices sends a very bad signal to potential generators. If the Government of Alberta steps into the market now, what might it do in the future? Uncertainty is the foe of investment. Even with high wholesale prices, this type of government intervention will likely tend to discourage rather than encourage investment in new generation. That is certainly not the signal that the Government wants to send at this time.

So what is a government to do? Again, the short answer is supply. The government must do everything that it can to encourage and facilitate substantial and rapid investment in generation. This may mean some tough choices. But hey, that's what they were elected for. It's not supposed to be easy. It's time to accept and recognize that some mistakes were made. But more importantly, it's time to clearly and intelligently chart the path forward. Only then will this restructuring initiative stand a chance of being successful in the long term.