Energy companies are manipulating Alberta’s deregulated electricity markets, and consumers are paying the price. According to the Alberta Power Pool, the body charged with monitoring the provincial electricity market, companies have been using loopholes in existing laws to drive up prices.

Meanwhile, California Attorney-General Bill Lockyer has filed civil actions in San Francisco naming Calgary-based TransAlta Corp. and TransCanada Pipelines Ltd. in connection with illegal price gouging during the California power crisis of 2000 and 2001. During that crisis wholesale electricity prices jumped from $30 (US) per megawatt hour to as much as $1,000.

At the same time, power shortages caused disruptions and blackouts across the state. In February 2001, the state government had to step in and take over the role of purchasing power for the grid. The cost to the taxpayers is estimated to have been more than $10 billion (US).

TransAlta denies any illegal role in the California debacle, although it admits doing so-called "megawatt laundering" in order to increase profits. Other prominent players in the California market included now-bankrupt Enron, and B.C. Hydro.

In Alberta, deregulation has created a group of brokers, who purchase power from producers like TransAlta, Atco and Epcor, and sell it to the provincial power grid. These brokers commit to deliver blocks of power to the grid at specific times. By reneging on these commit-ments at the last minute (currently a perfectly legal tactic) they can cause drastic surges in the price of power.

While consumer energy prices in Alberta are still regulated, the effect of increases in wholesale costs has been to put upward pressure on the regulated rate. Consumers in the province now spend about twice what they did three years ago for power.

Many observers wonder what will happen when the province ends the regulation of consumer prices in January, 2006. The latest issue of Consumer Reports magazine cites a study by the Federal Reserve Bank of New York suggesting that consumers in deregulated energy markets "can expect more volatile price swings and spikes..." Unfortunately the higher costs involved won’t guarantee stability of supply, as California’s experience demonstrates.

The Consumer Reports story covers five industries (airlines, banking, telephones, cable TV, and electricity) that have undergone deregulation since 1972. The authors conclude that: "While consumers have made some gains under deregulation, on the balance they’ve lost ground. Service has typically deteriorated. Consumer rights have sometimes suffered. Claimed price cuts are often not all they seem. And when free markets have gone bad, deregulated industries have seen no contradiction in getting multibillion-dollar government bailouts."

The problem is that deregulating utilities places tremendous economic power in the hands of a few power producers, brokers, and marketers. Consumers typically have little real choice in a market dominated by a small group of suppliers. This often leads to widespread abuse. As the Consumer Reports article notes: "Broken promises, deceptive marketing and dreadful service have become accepted business practices in an increasingly Wild West marketplace…"

It’s worth remembering that once upon a time, electricity in Alberta was delivered largely by publicly owned utilities and (in rural areas) cooperatives. They managed to supply reliable power at a reasonable and stable price. By 2006, we will be receiving our electricity from private producers and marketers operating in a fully deregulated market. On the evidence so far, it seems unlikely that this will be a positive experience.

The full economic effects of energy deregulation are also likely to be felt in coming years. Already some manufacturing companies (who already face full unregulated market prices for power) have indicated they may have to leave the province.

The push to deregulate utilities in Alberta rests on politics, not common sense. And the Klein government seems determined to carry on, despite evidence from Alberta and from the US experience that consumers and the economy will suffer.