Alberta’s Deregulated Electricity Market to Blame for High Power Prices

In most provinces, the power grid is simple: a government-owned utility generates power, transmits that power where it needs to go, and controls the wires to your house or business. Those grids are low-cost and reliable. Then there is the Alberta grid. We have the highest electricity costs of all the provinces and narrowly missed a province-wide outage during a recent cold snap. Now Premier Danielle Smith is doubling down on Alberta’s Enron-style electricity system. It’s time to change direction.

Economists have been talking for years about how to improve that system. On March 6, 2024, the UCP government proclaimed Bill 22, which enables big customers – such as oil and gas producers – to generate their own electricity and store it on-site using batteries, perhaps even unplugging from the grid. A few days later, the government accepted recommendations from the grid operator for new market rules that, once again, are supposed to protect consumers and lower prices.

These changes are taking place against a backdrop of rapidly changing technology that is transforming the global power sector.

Most Albertans are familiar with wind and solar energy. These are intermittent. The wind doesn’t always blow, and the sun doesn’t always shine, as status quo cheerleaders never fail to remind us. But they are by far the lowest cost way to make electricity. And they can be quickly brought online, unlike gas, nuclear, or hydro.

Premier Smith dealt a serious blow to renewables last August by declaring a moratorium on new wind and solar development while the regulator considered ways to prevent losing prime farmland to developers and require them to properly reclaim old solar panels and wind turbines. Never mind that existing rules were perfectly fine for addressing these legitimate issues. The rules introduced by the UCP government in February will have negative impacts on future development.

While every other jurisdiction on the planet is encouraging more wind and solar, Premier Smith’s government is doing the opposite by doubling down on natural gas.

The second group of new technologies is more technical and less obvious to consumers, but no less important. These include battery storage, power electronics, digital controls, artificial intelligence, transmission enhancing technologies, and many others. Once a grid has more than a few percentage points of wind and solar generation, operators and utilities use these technologies to “balance” the system and keep it reliable.

Alberta has been quick to adopt wind and solar generation, going back to the 1990s with wind farms in the Pincher Creek area. By 2023, wind and solar power had grown to comprise 20% of net-to-grid in Alberta (AESO 2023, page 15). But we have been slow to integrate the other new technologies, especially battery storage, which is extremely important for modern grids. This is one of the reasons that our provincial grid has had some reliability problems.

Premier Smith’s solution is to slap some Band-Aids on a system that has never worked as intended and hope that this time the market designers will get it right. The problem is that “grid modernization,” as it’s often called, is paid for by users. You, the consumer. And consumers are already concerned about the multitude of fees they see on their bills. The Alberta Federation of Labour (AFL) is worried that the cost of electricity may go down a bit, but those fees will keep rising to pay for the necessary updates to the power grid.

De-regulation was supposed to bring down costs by introducing competition. Instead, adopting an Enron-style market led to a big problem similar to the one behind the collapse of US-based Enron over 20 years ago: gaming the system.

Take “economic withholding.” This is the practice of big electric generators (like utilities) to withhold some of their power supply from the market. This creates an artificial scarcity, which leads to higher prices. The generators sell less power, but make more money on the power they do sell. Consumers lose, big corporations benefit.

Economic withholding is actually designed into the Alberta system. The goal is to compensate generators that lost money when wholesale prices are low. But what happens when economic withholding lasts for months on end? Then the big players make out like bandits and Albertans are stuck with outrageous bills.

Not good. Not good at all. The Alberta Federation of Labour has a different approach.

We propose to create a provincial Crown corporation that will consolidate authorities currently spread over a number of agencies and bring back some order (and lower prices for consumers) to the system. The Crown corporation might eventually oversee re-regulation of the sector, providing Albertans with long-promised low power rates.

Exactly how Alberta’s power system can be fixed and how long it will take is yet to be determined. The technical details of Premier Smith’s new rules for the grid are still being determined. Roll out will take place over the next few years. But what is clear is that allowing more of what created high consumer prices and reliability concerns is not the answer.

Alberta needs a power grid that serves the needs of Albertans, not a few big electricity generators.