Power prices marching higher – Consumers urged to lock into contracts to avoid worst of hike

By Trevor Howell, Calgary Herald August 6, 2013 6:00 AM

Surging wholesale electricity prices should shock Albertans into abandoning regulated-rate options for a more stable contract deal with a power provider, warns the province’s former consumer advocate.

“The way our market is going to exhibit high prices in the future is with these sort of events,” said David Gray, an electricity consultant who previously worked for the province’s Utilities Consumer Advocate.

Those “events” were laid out in a new report from the province’s electricity watchdog, which found average wholesale prices for electricity spiked 207 per cent during the second quarter of 2013 over the same period last year.

In its report, the Market Surveillance Administrator notes the triple-digit spike was a result of a low supply cushion, higher demand, lower imports, as well as planned and forced outages.

The average pool price for power was $123 per megawatt-hour compared with $40 per MW-h in 2012, amid a 28 per cent drop in supply reserve year-over-year.

One week in April saw the pool price average $324 per MW-h, up from $77 per MW-h the previous week, and the second-highest weekly average since October 2000.

“This is the new normal,” predicted Gray, who advised signing onto fixed-rate contracts for electricity, but floating-rate agreements for natural gas.

But Richard Penn, senior adviser for the Market Surveillance Administrator and author of the recent report, said volatility during this year’s second quarter was largely due to planned and forced outages, which choked the supply.

“Come the springtime, when the demand is falling and lower, then generators start to take outages,” Penn said. “They’re maintaining them for the next big season, which is summer. So you end up with a lot of outages in a small period of time.

“Had there been one or two less forced outages, then we probably wouldn’t have seen those prices,” he added.

Penn said residential consumers who aren’t locked into a contract with a retail supplier will feel the brunt of the recent volatility.

About two-thirds of Albertans have not signed contracts with a provider, and instead pay what is called the monthly regulated rate option, which is procured 45 days in advance by the province’s three major utilities.

An Enmax spokeswoman said about 38 per cent of its residential customers have already signed onto a contract.

But customers on the regulated rate option are already paying higher prices because the company purchases electricity on the wholesale market, said Doris Kaufmann-Woodcock.

Enmax’s website shows its regulated rate has increased from $0.07 KW-h in March (before the spike) to $0.11 KW-h in August. Epcor saw comparable increases to its regulated rate.

“The wholesale market is working as designed and the market reacts to changes in supply and demand drivers and this causes variances in wholesale market prices,” Kaufmann-Woodcock said in an e-mail.

Gray said the more volatile regulated rate option is a problem for Albertan’s who can least afford wild price fluctuations.

“Part of the problem is you need to have good credit to get on a contract,” said Gray. “There are some new programs for people if they can put up a deposit, but it has typically been an issue.”

Wildrose electricity critic Joe Anglin blasted the current system as being “extremely destructive” to Alberta’s economy, and to consumers.

“It is critical in the sense of economic stability that we don’t have spiking,” said Anglin. “Because eventually all these costs get paid for and they catch up to us in one form or another.

“It’s going to be devastating on seniors with fixed income, it’s going to be just unbearable on the poor, and we have real problem in the marketplace.”

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