Energy Minister Mel Knight
Rob Anderson MLA.
First of all, thanks to Energy Minister Knight and Mr. Anderson for getting back to me regarding the Government's position on Bill 50, and special thanks to Richard Marz, MLA for Olds-Didsbury-Three Hills who spoke with me on the phone about it. I'd like to take this opportunity to clarify my position.
My previous letter dated October 15, 2009 was intended to provide an escape hatch so that the government could politically extract itself from Bill 50. As I will outline below, there are several philosophical problems which make passing Bill 50 a serious misstep in Alberta Government Policy.
- Bill 50 would remove the role of the regulator, theThird Party Expert panel that would determine whether the power lines are necessary, and whether the costs are justified.
- Bill 50 would provide, in effect, a massive subsidy to existing centralized power plants by reducing the cost of distance. This skews the electricity market and prevents other generation technologies from competing on their merit.
- Bill 50 would prevent adoption of green technologies by artificially depressing the price of centrally produced energy, which would price greener options out of the market.
- Bill 50 would take $8.1 Billion after-tax dollars out of the economy.
I'll discuss these issues in more detail.
Transmission is a subsidy to centralized power, and cripples the emerging green power market
Please bear with me, this is a subtle but important point.
The cost of conventional electricity is divided into two parts, the cost of generation and the cost of transmission. The cost to generate power using local renewables is higher than the cost of generation alone, but reduced transmission charges is one of its competitive advantages. Bill 50 would eliminate this competitive advantage.
Artificially reducing the cost of distance (with sponsored transmission lines) gives an unfair subsidy to the large central power plants, who don't have an incentive to reduce their delivery charges. If a private company thinks it makes sense to build high voltage, long distance power lines, and can secure the land and permits to make it so, then in a deregulated power market that would be fine.
If provincial government pushes this through it will cripple the newborn child that is the renewables market. Distributed renewable generation would take the burden away from high voltage transmission lines. Bill 50 would enshrine centralized power by forcing us to pay for the distance whether we use it or not. It would leave stillborn a clean energy industry that's poised to grow and bring investment and 'green-collar' jobs to Alberta. With Bill 50, the distributed green energy would be priced out of the market.
A large subsidy (or a forced spending, which is practically the same) on transmission infrastructure would constitute a meddling in the market that would reduce the competitiveness (and thus the functionality) of the deregulated electricity market in Alberta. This locks us into dirty centralized power, because since everyone is paying for the additional transmission infrastructure, you won't realize the savings by going to a system that saves you on your transmission bill.
Don't bypass the regulator
The Alberta Legislature is not made up of a panel of electricity experts. Bill 50 would provide the government the authority to approve the need for critical transmission infrastructure. The legislature does not have the expertise to determine which infrastructure is critical. The AESO is only allowed to consider transmission options, and that sets up a situation where if the only tool you have is a hammer, all your problems start to look like nails. If the solution isn't more transmission lines, the AESO is incapable of finding it. As a legislature, I expect you to be thorough in assessing options. This includes exploring the less glamourous options like energy conservation and getting the price signals right. Getting the price signals right means avoiding massive subsidies, including mandating particular transmission lines.
The electrical grid is a complicated beast, and despite pressure to the contrary, the Alberta Government shouldn't take control of deciding what power developments are necessary. It is an irresponsible use of Alberta Legislature time and resources to dig into the nuts and bolts of whether these projects are actually necessary. I recognize that there is a lot of money to be made by private companies on the backs of Alberta Electricity users in this regard. But allowing these companies to strong-arm you into spending someone else's money without going through the proper hearings to determine whether it is actually necessary is highly irresponsible.
I also recognize the role of advertising pressure and the media campaign that exists to try to convince people that the grid must be updated. These decisions shouldn't be based on who can buy the most persuasive advertising, but based on the facts of what is best for your constituents, the people of Alberta. If I was a company in danger of losing an $8.1 Billion contract, I'd buy a bunch of advertising to sway public opinion too, but that wouldn't make it right.
Maintaining squeaky clean justification for your decision is important here, and you get that by following the established procedures and going through the regulator, not by succumbing to power company scare tactics and ramming things through.
If you were watching your friend's house while he was on vacation, and you decided to rewire his house on his dime, it would be important to have clear third party analysis that such rewiring was necessary, otherwise he's not going to be pleased about the extra expense that he will be stuck with for a long time to come. When it's $2230 from the Alberta economy for every man, woman, and child in the province, it pays to have third party proof to show whether it's necessary.
Widget Factory Example
If I were to build a widget factory in the Northern Alberta, but my widget customers were in the south, it would be ridiculous for the government to demand that everybody pay for my transportation costs to deliver the widgets across the province.
If instead I were to build my widget factory close to the customers, it might cost me more (land costs for example) but it would cost less to deliver the widgets to my customers, as a responsible widget factory owner I would look at the costs of transportation and the costs of building near my customers and find the sweet spot.
If the government steps in and says I can build my widget factory in the cheapest place and that they'll take care of my transportation cost, there is an incentive for me to be inefficient with my resources.
You can't expect to retain the efficiencies of a free market with such meddling. Passing Bill 50 would lock in these inefficiencies.
Bill 50 is functionally a tax increase
The government would decide to spend the money of electricity users (practically everybody), without regulatory approval or oversight.
So, Bill 50 is a government bill:
-where the money goes straight to private companies
-where the need hasn't been proven at a regulatory hearing
-that destroys the competitiveness of a growing green-tech industry
-that locks us into centralized carbon-intensive sources of power generation
-that drains after-tax money from the Alberta economy.
No responsible government can pass this bill.
Please note that I don't object to upgrading the electrical grid, but please do so in a way that grows a smart grid much like the energy stimulus in the US did.
There's a solution. Developing the smart grid will put us on a much firmer footing to move into the future, rather than keeping us locked in the past. The smart grid isn't just for individuals. Industry will benefit from it too.
Build a smarter grid. Not a bigger one.
Please note, I don't have any financial interest in any solar or distributed energy technology or business. I'm a private citizen who wants a cleaner, greener tomorrow. I believe that Bill 50 is an expensive misstep that would actively work against a greener tomorrow and cost the Alberta economy dearly.
Thanks for your time and attention,
Minister of Environment Hon. Rob Renner
Richard Marz, MLA
Dr. David Swann MLA
Frank Oberle, MLA Peace River