Report urges Alberta to hike electricity price cap – Critic says move opens door to market manipulation

By Darcy Henton, Calgary Herald March 23, 2013

EDMONTON — Alberta should hike its $1,000 electricity price cap three to seven times higher to encourage big consumers of electricity to shut down during periods of short supply, says a report commissioned by the Alberta Electric System Operator.

But a senior AESO official said Friday the recommendation by the Brattle Group is not likely to be implemented anytime soon.

“We will consider it,” said AESO’s director of forecasting, John Esaiw. “It’s not a priority for us, currently.”

He said AESO, an arms-length government agency, would have to analyze the impact of the move on electricity pricing, but it has no plans to look at adjusting the cap this year.

Power prices in Alberta — the only province with a fully deregulated electricity market — are set on an hourly basis through bids from suppliers, but even in periods of high demand and short supply the price cannot by law exceed $999 per megawatt-hour.

But Johannes Pfeifenberger, one of the report’s authors, said raising the cap would bring Alberta more in line with Texas, which has set its maximum electricity price at $4,500 per megawatt-hour and plans to raise it to $9,000 over the next two years.

“This would be a good time to implement something like this because you want some kind of mechanism in place before you need it,” he said.

Pfeifenberger suggested it may have prevented the rolling blackouts that swept through the province last July when several generating plants inadvertently went off-line almost simultaneously.

He noted the system was only short 200 megawatts of supply when the blackouts were initiated.

Having a higher cap, which could only be raised above $1,000 by the system operator when there is a scarcity of supply, would have enabled AESO to gradually raise the price of electricity to encourage large consumers to reduce their energy consumption, he explained.

“With the reserve levels we have today, you would almost never encounter these operating reserve deficiencies … but what it would do is create a safety valve,” he said.

“There are a lot of studies that say that customers are just not responding at $1,000 a MWh, but once you get into $2,000 to $3,000 a MWh, you see more customers responding.”

The recommendation was immediately slammed by industry watchers as unnecessary and likely to encourage manipulation of Alberta’s deregulated market.

“It would be an incentive to manipulate,” said Wildrose electricity critic Joe Anglin.

“All of these costs are eventually passed on to consumers. They will see prices take off in leaps and bounds.”

Electricity consultant Sheldon Fulton said he didn’t see any value in the proposal.

“It brings back the argument that we should have a higher price cap and even the generators say no to that,” he said.

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