Re-regulate the Alberta power grid? Yes, says the Alberta Federation of Labour

Markham interviews Gil McGowan, president of the Alberta Federation of Labour, about the AFL's new report, Power in the Public Interest: Re-regulation and increased public ownership in Alberta’s electricity sector.

What is Energi Talks?

Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.

Markham: 00:04

Welcome to episode 385 of the Energy Talks podcast. I'm energy journalist, Markham Hislop. Alberta's electricity sector is under the microscope these days because of recent high prices and grid alerts. The system was deregulated 25 years ago. Power generation and retail operations are fully regulated, while transmission and distribution remained regulated.

Markham: 00:29

With the exception of Ontario, all other provinces have regulated systems dominated by a government owned utility. The Canadian grid is clean with 84% zero emissions, reliable, and low cost with the exception of Alberta. The Alberta Federation of Labor recently released a report calling for the power sector to be reregulated or to be regulated once more. I'm joined by its president, Gil McGowan. So welcome to Energy Talks, Gil.

Gil: 00:58

Hey, Markham. Thanks for inviting me.

Markham: 00:59

Well, this is a fascinating, topic. I never thought the power sector would be this controversial, but it has been. I mean, there there's been a lot of talk, and the government has, kneecapped wind and solar through its moratorium soft moratorium approach. It has promised market, restructuring, it's calling it. And, you know, now it looks like that's just gonna be tinkering around the edges and probably work to the advantage of the utilities, the incumbents.

Gil: 01:28

Yep.

Markham: 01:29

And so everybody's everybody's, advocating or promoting, minor adjustments to the system, and you're the only one that I know of that wants a wholesale change. And so maybe you could just kinda give us an overview of the AFL's argument in this report.

Gil: 01:48

Sure. And maybe I'll just start by explaining why we, as a labor group, have put this report together. It's called power in the public interest. And as you said at the outset, we are calling for reregulation of the power sis sector in Alberta. And the reason we jumped into this, is because affordability is a worker issue.

Gil: 02:12

The cost of everything has gone up, whether it's groceries, gas at the pump, rent, mortgage. But here in Alberta, power prices have been particularly high. In fact, over the last 2 years, we saw a spike in the price that consumers pay for power by up to a 130%. And so from our perspective, given that affordability is a core worker issue, we we've come to what we think is the obvious conclusion that if you wanna bring prices down, if you wanna help control costs for an area working in Albertans, one of the easiest things to do is to reregulate the power system. And, we say that because we have more than 20 years of experience with the deregulated market.

Gil: 03:01

As many of your listeners probably know, it was back in, 2,001 when we, as a province, engaged in what I would describe as a radical ideological experiment. We decided to deregulate power, and, it has been, you know, an experiment an ideological experiment that has failed. And what our report shows and and I wanna make it clear that we actually went outside of our office. We went out of our circle to find an expert, who and so we hired this guy named Edgardo Sepulveda, who is a well known and respected, utilities economist, energy economist, and we asked him to crunch the numbers and make some recommendations. And what he found and what's outlined in the report is that, Albertans have overpaid by to the tune of $24,000,000,000, over the last 20 years, for their for their power.

Gil: 04:03

So this is residential consumers and commercial consumers. So, and that's compared to what we would have paid if we had maintained a regulated system. So that's a lot of money. It breaks down to about 604 $690 per household every year for 20 years. And that's a that's a lot of money, you know, at a time when people are concerned about cost.

Gil: 04:24

So that's why we did the report. That's the main finding. It's a costly ideological failure. And so while others are talking about tinkering around the edges, we think that we should stop Alberta from being an outlier among Canadian provinces and go back to what works, which is a regulated power system that regulates prices, corporate profits, and stops corporate price gouging.

Markham: 04:49

You made a very interesting or Eduardo made a very interesting argument, in the report, and that is electricity is not a normal commodity that responds well to pricing. And I assume that that's because of the market power of the incumbent utilities, the power generators. Would that be correct?

Gil: 05:10

Yeah. That's that's true wherever you go, but it's particularly true in a small power market like Alberta. And, you know, I think most people know this. We only have a handful of big private sector private profit seeking, corporations who are responsible for about 60, 65 percent of power generation. So, you know, those companies include ATCO, TransAlta, Capital Power, and a smaller company called Heartland.

Gil: 05:41

Interestingly, Heartland is in the process of being acquired by TransAlta to make the number even smaller. And, when companies have that kind of stranglehold on a market, they they it's no surprise to people that they'll use that stranglehold to jack up prices. And that's exactly what they've done over the last, 20, 20, 22, 23 years under the privatized, deregulated system.

Markham: 06:06

Let's talk about how they do it because I've had, Dave Gray who's an energy economist and was involved in the design of this market there, you know, almost 30 years ago, and I've had him on to talk about economic withholding.

Gil: 06:21

Yep.

Markham: 06:21

And economic withholding as I understand it is basically a big generator like one of these private companies can withhold some of its power generation, from the wholesale market, thereby creating an artificial scarcity driving the price up. So they they don't sell as much, but what they do sell, they sell at a much higher price, and retail prices were as high as 30¢ a kilowatt hour, not too long ago. I pay 9 and a half cents in BC, so three times what I pay. And and this economic withholding is perfectly legal within the the, within the Alberta system. Is economic withholding the major problem, or are there other issues as well?

Gil: 07:08

It's, it's certainly the biggest problem, and it goes back to what I was talking about. And and the problem is market power, that is concentrated in the hands of a small number of large profit seeking corporations. And, you know, that that's that's a you know, the their ability to game the system, by withholding generating capacity to jack up prices, that's a feature, not a bug of the, of the privatized, deregulated power market that was introduced here in Alberta, in the in 20 in 2,000 and 2,001. And that's that that by itself is the reason why, we have higher prices than any other Canadian jurisdiction. I would also point out that, you know, like, the promise when they deregulated is that prices would go down, and capacity would go up and there would be less volatility.

Gil: 08:06

But guess what? The opposite has happened on all three scores. So as I've said in our report, we we demonstrate that we've overpaid, under this deregulated system to tune up $24,000,000,000 over the last 20 plus years. But we also, have had the most volatile prices going up and down, and we also have the the most fragile, grid. So the these companies are not only gouging, customers, and I would point out it's not just residential customers.

Gil: 08:36

They've they've overcharged residential customers about $1,000,000,000 every year, but they actually overcharged commercial and industrial customers even more. So this is this is actually hurting the broader economy, everyone who's not a stakeholder or a stockholder in one of these private utilities. So so we have a more expensive grid. We have a more volatile grid. It's hurting consumers.

Gil: 08:58

It's hurting the broader economy, but we also have the most fragile grid because, under the privatized system that we have and the deregulated system we have, we have we've we've stripped our regulator of the ability that regulators and other provinces have to demand investment and capacity. And so they're they're price gouging, making record profits, but they're not putting that. They're not compelled under the deregulation system to put money back into capacity. And so, so that's why, you know, last winter, we had, a series of, emergency alerts on our grid where we came, like, this close, to having rolling blackouts across the province, in January when it was minus 40. So it could have been a life or death situation.

Gil: 09:42

And the only reason we avoided that is because, the the market operator, called out to Albertans to reduce their power. They did, but and this is not a one off as we show in our report. You know, the, the Alberta market is only about 2% of the North American grid between Canada and the United States. But over the last 2 years, we've had 35% of the, the grid alerts, where we could come close to brownouts or blackouts. 35% of the grid alerts on the entire North American grid because these companies have not been, through regulation, compelled to invest in capacity.

Gil: 10:20

So that that so when I say that this is a is is a costly failure, costly ideological failure that needs to be reversed, it's also a dangerous ideological, failure that needs to be reversed.

Markham: 10:31

I have to point out that back in January, it was actually minus 57 with the wind chill. And as a northern boy myself, I remember how cold that was. So

Gil: 10:44

that Yeah. And, you know, at the time that the UCP tried to blame this somehow on the new democrats that have been out of office for five and a half years and the cold phase out, but, experts have said that's clearly not the reason. It's because these, these private utilities, many of whom of whom were very, very close politically to the UCP, have been taking the money and running. They they've used their market power, the deregulated market to price gouge consumers. They make record profits.

Gil: 11:13

They're not plowing it back into new capacity investment even as the province grows and the demand on the grid increases. And, so it's it's the system. It's the deregulated system that has caused these potentially deadly problems, not anything that Rachel Notley did a few years ago.

Markham: 11:32

Let's talk about, renewables because in Alberta, despite the recent moratorium, Alberta now gets 14% of its power from wind and solar, 12% from from wind and 2% from solar, and it was going great guns up until the time that the the the provincial government kneecapped it. But when these grid alerts have have happened, premier Danielle Smith blames renewables.

Gil: 12:02

Yeah.

Markham: 12:03

And in fact, it's not renewables. I mean, you know, there were, like, when it was minus 57, yes. You know, wind was not wind was not generating much and solar was not generating much, but that was, you know, kind of anticipated. The grid planners anticipate that. But a lot the bigger, problem was gas plants tripping off.

Markham: 12:26

And and so the utilities that have these gas plants, they tout them and the premier touts them all the time. We're gonna do more and more gas. It's gonna be reliable. It's the backup. And it that that doesn't seem to be the case, does it?

Gil: 12:40

No. I I mean, blaming you know, it's it's it's fun and easy for conservative politicians to blame, the problems that they've created through deregulation on on other things, especially if those are the things that are championed by their their political opponents. And, you know, so, you know, when it comes to the grid alerts and the high cost, you know, they point at the NDP, they point at environmentalists, they talk they they they point at renewable energy, but this is a failure of the deregulated market. And and as I've said, what we show in our report is that, that that a small number of of, of UCP connected utilities led by ATCO and TransAlta, are using their market power to, you know, to to do 2 things, to gouge consumers and, and and then also to, you know, to under invest in capacity. Right?

Gil: 13:40

So that the real problem is that that these these whether whether the capacity is is is natural gas or coal or renewables, they're not investing in it because they're not compelled to. And I think that this is one of the the the central points that we're trying to make in in in our report and why we're calling for reregulation. Because in a regulated system, like we had here in Alberta, before 2000 and like every other province has, and including Ontario, you meant you said you suggested Ontario was was not regulated. They actually do have a a a regular a different kind of regulation. They do have some privatization.

Gil: 14:18

They have some deregulation. But in every other Canadian jurisdiction, other than Alberta and in most American jurisdictions, even where there are relatively large private sector operators. The, you know, the the regulator does a number of things. They they they regulate price so that, that that things are manageable for residential and and consumer, customers. They prohibit price gouging, so that companies can't, you just simply move use their market power to charge as much as they want.

Gil: 14:54

And they also, regulate investment and capacity. And this is the important part. Right? Like, you know, like like like in other jurisdictions, and and you're seeing this more and more where they have a more regulated system, the regulator can say, you know what? We the population is growing by, you know, such and such amount.

Gil: 15:12

We're expecting demand to increase, you know, by, you know, 2 or 3 times or whatever. They can plan, for, capacity expansion. And what we're seeing in most of the other regulated jurisdictions is that they are increasingly including, investments in renewables to help meet that capacity demand. But here in Alberta, it's the Wild West. It's like the decision is about price, decisions about profit, and decisions about capacity investment are all in the hands of the private operators.

Gil: 15:44

And what we've seen is that they, they wanna jack up their prices and they're much less concerned about, investing in capacity. In fact, you know, some of the defenders of the market system will say, well, look, prices are going down in Alberta now, and they are. But just last week, what did TransAlta do? In in the face of declining prices, they decided to do what has been so profitable for them over the last couple of years. They've been pulling capacity off the market.

Gil: 16:13

So they actually mothballed, Sundance 6, which one is is one of the, big power plants outside of Edmonton. And, why are they doing that? Well, first, because they can, because it's all in their hands. It's not regulated. But they're withdrawing, capacity so that, they can jack up price.

Gil: 16:30

And that's that's what led to increases of price of by a 100 and a 130 percent spike last year. And they're doing it again even though the government promises that they'll tweak the market system, they'll tweak the deregulated system, everything will be fine. But, you know, the you know, these are this is tinkering around the edges. That's why we're calling for reregulation because, you know and this is not radical. I mean, I know I know sometimes those people will say, oh, the Federation of Labor is left wing organization and that their proposals are radical.

Gil: 17:02

But guess what? What was radical was taking this ideological leap of faith in 2,021,001 on a deregulated market system that was sold to us, by the con artist from companies like Enron. They actually came up here and sold this deregulated market to Alberta. It failed here as it failed there. That was the radical thing.

Gil: 17:24

The the more conservative pragmatic thing would be to return back to the tried and true what worked for us before 2,000, what works for every province right now, and go back to a regulated, market system in the public interest. That's not radical. That's pragmatic. It's practical, and it's what's needed to, help, both Alberta consumers and Alberta, businesses, frankly, deal with the affordability crisis.

Markham: 17:50

Let's talk about the future, because you and I have had this conversation, in private and and on on this podcast in the past, and I think we both agree that the the world is electrifying. The demand for, electricity, is, is going to, increase. I mean, right next door in, BC, the BC Hydro is forecasting 2% growth per year, as people adopt, heat pumps and electric vehicles and electric industrial processes. So hydro was directed to spend, I forget it, 1,000,000,000 of dollars building out some transmission. They're going to contract with wind and solar, providers on they have a plan to expand the grid over time to meet that anticipated growth.

Markham: 18:44

And it's given what you argue today, it would appear that Alberta does not have that kind of plan. And it's not clear that the private companies will expand power generation to keep up with electrification because it'll come to Alberta. Alberta might be a little slower than other provinces, but it can't isolate itself from global trends like that. So it's gonna electrify. And that's a serious problem, is not modernizing the grid and modernizing generation because electricity will increasingly be a competitive advantage.

Markham: 19:22

And if you don't have a good grid, it becomes an economic disadvantage competitive disadvantage.

Gil: 19:29

Yeah. I I I think you hit the nail on the head, whether it's because of increasing demand from growing population, expanding economy, or, you know, increasing demand be because the world is electrifying. You know, Alberta, like any other jurisdiction, is gonna have to expand its grid. And, I think the BC example is a good one because, expanding the grid, building the infrastructure, that's a this is a public interest question. Right?

Gil: 19:59

And so, you know, you can hope that the market will, you know, do what's necessary to meet the public interest, or you can, use your regulatory levers to make sure that the public interest is met. And that's what's happening in BC. The the BC government sees what's coming. They they have a a public utility, BC Hydro. They have a regulated system so they can plan for the future.

Gil: 20:26

But in a deregulated market like ours, that we can't plan for the future. We we just hope and pray that the the the private companies will make the necessary investments. But what the last 20 years plus have shown us under the data regulated system is that they're not gonna do that. They'll put their narrow interest before the broader public interest. And especially when you have only a handful of, of generators like we do, ATCO and TransAlta in particular, their interests are not aligned with public interest.

Gil: 20:55

And so that's why one of the many reasons we're calling for us to reregulate to and we're and the second big thing that we're calling for in our report is the introduction of a public power corporation. We're calling it Alberta Power. And and I wanna make it clear that and and there has been some confusion on this point. We are not calling for the creation of a crown corporation that would nationalize the assets of companies like ATCO and TransAlta and Capital Power. Instead, what we're saying is that, we should pair the introduction of a new Alberta Crown Corporation with regulation to build that plan for building out the capacity in the future.

Gil: 21:36

And that Alberta Power would partner with, same municipalities, might even partner with private business, but specifically to meet the public interest needs of expanding the, the grid for future demand, you know, as the world electrifies as the population grows. And so we're not gonna, you know, spend 1,000,000,000 of dollars buying TransAlta or or or, or Adco. Instead, we're just gonna start doing what they're not doing, which is, investing in renewables, you know, sort of democratizing decisions about, how we build out a grid and actually having you know, using it as a tool, you know, backed by public money, to to make sure that we're building the infrastructure for the future. And, so this so we it it would be competing with, the transaltives and the and the adcos of the world, but specifically doing what they're not. And so it would be new generation capacity not taking over existing generation capacity.

Markham: 22:40

Let's talk about workers. I was interested to see in your report that unionization in Alberta's electricity sec sector is lower than the rest of Canada, and and fewer workers are employed. Why is that? I can you and and how should and how should it be fixed if it should be fixed?

Gil: 23:03

Yeah. I mean, one of the one of the things that we did and this is no surprise. We're we're a worker organization, so we did take a look at trends in employment in the utility sector, both in terms of number of jobs, the wages, and also their level of unionization. And and what we found was that, the the you know, power jobs in in electrical utilities generally are unionized and well paid in most other provinces, but there's a there's a big, difference in Alberta. Right?

Gil: 23:35

So, like, our utilities are less likely to be unionized. Employees are less are more likely to be lower paid. This is particularly true, frankly, in the the renewable sector. And, you know, that's that that's an issue. Right?

Gil: 23:50

Because, like, if the the the, you know, what I always say is that the economy is people. And if people aren't paid well, and if they don't have security, then the economy suffers. And so if you're gonna if, you know, if if you're a government, then you're gonna be using your policy levers to help create employment. Let's let's try to make those jobs as, you know, to be as well paying and secure as possible. That's in the interest of the workers, but it's also in in the interest of, of the broader economy.

Gil: 24:18

Because if workers have more money in their pocket, they spend more money in the economy, and it's it's this virtuous cycle. So so if we're gonna create jobs, let's make them as good as possible. And, and I think most people would agree that unionized jobs, tend to be better in terms of wages, benefits, security, all that stuff. They're middle class jobs. That's what we wanna create.

Gil: 24:37

So, so acknowledging that if that's the goal or one of the goals is, you know, so then that's, you know, what we've seen between the provinces is that if you've got a public utility like BC Hydro or, Quebec Hydro, they they tend to be more unionized. And, so that's you know, like, if we if we were to create an Albertic power here, you know, frankly, we would like it to be a unionized company that, that treats its workers well, pays them well, and, and gives back to the community. That's not happening with these big privatized utilities, or at least not as much as we'd like. And there is the question about, you know, the new generation capacity that's coming from renewables. Right now, a lot of it's coming from, you know, frankly, privatized companies, and, they're not as big price gougers as the ATCOs and TransAlta's of the world, but they do tend to pay their their people pretty poorly.

Gil: 25:35

And, if the public if if the public is gonna be investing money and building out the infrastructure, if this is about the public interest, then we should be making sure that as many of those, those jobs in in the new new energy, renewables are are good paying jobs, family sustaining community sustaining jobs as possible. And that means, you know, making sure that as many of them as are unionized as possible.

Markham: 26:01

Well, Gil, thank you very much for this. A very interesting report and a very interesting argument because as you point out, the majority of of jurisdictions in Canada are regulated, the same in the in the United States. This is not like some radical wing that wild, and crazy kind of proposal. It's just going back to what has worked in the past, but doesn't seem to be working now. So thank you very much for this.

Markham: 26:26

Really appreciate it.

Gil: 26:27

Yeah. Thanks very much, Markham. Take care.