O Canada- It Turns Out Deregulation Fails on Both Sides of the Border

It’s sometimes said that Alberta is the Texas of Canada.  When it comes to electricity deregulation, that has some truth to it.  And in case you were under the impression that the failure of electricity deregulation is an exclusively American phenomena, you need look no further than to our northern neighbors.  Alberta is the one Canadian province that most fully adopted Texas-style electricity deregulation, and like Texas, its electricity prices are surging - up 128%.  Customer bills have spiked dramatically.  Alberta now has by far the highest electricity prices of any province in Canada.

Experts are taking notice.  Junaid B. Jahangir, an Asscoiate Professor of Economics at Edmonton’s MacEwan University recently authored an article that lays the blame for the problem squarely at the feet of deregulation.  As Professor Jahangir explains, “[t]he problems of insufficient capacity and market power are characteristic of the deregulated electricity market.”

If that sounds familiar, it should.  Chronic problems with available generation capacity – combined with a tendency towards a consolidation of market power are also the defining characteristics of today’s deregulated Texas energy grid.

Professor Jahangir suggests a path towards re-regulation, which includes long-term contracts between utilities and generation plant owners, as well as implementing average cost pricing to reduce the impact of market power concerns.  Professor Jahangir wrote his doctoral thesis on electricity deregulation in Alberta, so he has more than a layman’s understanding of the market.

Will Alberta’s leaders take the advice?  It’s hard to know.  Once the decision to deregulate is made, re-regulating presents challenges.  That’s not to say it hasn’t been done successfully elsewhere.  Montana, a jurisdiction that shares a long border with Alberta, did exactly that, but it took sustained public pressure and political leadership to right the ship.

Montana Public Service Commission President Jim Brown, a Republican, recently described electricity deregulation as “the worst policy decision in the history of the state.”  That seems to be a bi-partisan sentiment in the Treasure State, where former Democratic Governor Brian Schweitzer called deregulation “an unmitigated disaster.”  Montana also proves that re-regulating and stabilizing electricity service for the benefit of consumers can be done, since it largely repealed the policy.  Perhaps Alberta will be next and show another path forward for states looking to reclaim sensible regulation of the electric utility industry.