Session 2B - Enterprise Consolidation, Mergers and Energy Consumers’ Interests: How to
Mitigate Market Power?
Mitigating Market Power: Alberta's Experience
Mr Neil McCrank
Chairman, Alberta Energy and Utilities Board, Canada
Alberta, like many other jurisdictions around the world has taken measures toward opening
its electric power industry to competition. The move toward restructuring of Alberta’s electric
industry began in 1996 with the introduction of the Electric Utilities Act. The Power Pool of
Alberta was created to allow the development of an efficient market for electricity, based on
fair and open competition. Now eight years later, steps taken in pursuit of mitigating market
power and developing effective competition are continuously evolving. At the start of
deregulation there were three regulated utilities that controlled approximately 90% of the total
Alberta electric generation capacity. The high market concentration for each of the vertically
integrated utilities, coupled with transmission congestion, has posed significant market power
issues that need to be resolved.
The purpose of this presentation is to address the options outlined below, which were
designed to mitigate market power based on the Alberta experience:
Transfer of operation control to third party while allowing the incumbent generator to
own and operate the plant. In order to alter the incentives for generators to manipulate pool
prices and quantities, the rights to the output of the formerly rate-regulated units were
auctioned to non-affiliated buyers in the form of Power Purchase Arrangements (PPA). The
three auctions held thus far resulted in 71 successful bids. Proceeds of the auctions are
passed on to customers, to mitigate higher electricity prices.
Codes of Conduct. There is a requirement for two codes of conduct. The first is to govern
the behavior of wire service providers and their affiliated retailers. The second pertains to
customer-retailer interaction.
Market Surveillance Administrator (MSA). The function of the MSA is to oversee the
wholesale and retail markets ensuring that they operate in a fair, efficient and competitive
manner. Also provides information to build awareness and resolve issues before they
become complaints. Other responsibilities include enforcement, compliance and auditing,
ensuring adherence to the codes of conduct. The Energy and Utilities Board (EUB), at the
request of the MSA, could convene a tribunal to hear unresolved complaints or could receive
and process any complaints against the MSA, a further deterrence of any market abuse.
Regulatory changes. The EUB is to approve distribution and regulated-rate option tariffs for
any municipally-owned utilities with affiliates that operate outside their boundaries. This will
provide consistent treatment and level the playing field for all market participants.
Changes in market structure, regulatory reform and advancement in technological innovation
have created new opportunities for industry players. These opportunities are now commonly
referred to as “convergence”. While difficult to define, convergence could mean many things:
acquisition or merger of two different entities, joint ventures or simply combining functions or
activities motivated by economics. The success of the wholesale market is now providing a
strong foundation for an emerging competitive retail market. Retailers in Alberta are
leveraging economies of scope between power and gas. Convergence in the form of vertical
integration is also occurring within the upstream industry. Oil and gas companies are
increasingly involved in electric generation, using gas as fuel, and offering it to the grid. An
alliance has also been emerging between once rate-regulated generation entities and
resource companies to build and operate cogeneration facilities. Perhaps the most satisfying
type of convergence from a public policy perspective is the conversion of otherwise flared
gas into electricity, providing added value not only to the shareholders but to the public at
large.