Power companies pull in nearly five times the profit during winter rate spike: U of C economist

Alberta's electricity generating companies pulled in nearly five times the usual profits during last winter's rate hike, according to a new report from the University of Calgary's School of Public Policy.

As power prices hit record highs, customers blamed everything from fees to the carbon tax. But the research shows private profits were by far the largest driver, said economist Blake Shaffer, who released the data analysis Wednesday.

"It's going to take some time for new entrants to come in... and bring down prices," he said.

This past winter was Alberta's first under a new phase of deregulation. It was the end of two decades of power purchase agreements — a tool the former Progressive Conservatives introduced to ease the transition into a market-based system. But the market is still dominated by just a couple big players.

That's why this increase hit now, says Shaffer.

He said the report isn't taking a stance on whether companies' market activity was sufficient to cover their investment costs or whether or not what they earned in 2021 was excessive. But he said it's fair to say that for a few years prices were unquestionably low — especially from 2015 to 2017.

"[Companies] weren't recouping their investment costs," he said. "They recovered somewhat 2018 to 2020. They were there in the range of historical averages around there. But 2021 is a return to very high prices."

The companies went from making about $9/MWh as their market markup in 2020, to making $35/MWh in 2021, said Shaffer. His team determined this by creating a model to measure what prices would have been if all the companies simply bid at cost. 

"There's a lot of finger pointing as to the reasons behind the high power prices. This shows that some of the commonly pointed to reasons really aren't the reason for the high prices," he said.

The high utility fees hit many Calgary residents hard, especially since they occurred alongside the rising cost of food and gas. In CBC Calgary's texting community, many residents asked why rates rose so much, who is controlling the costs and who is benefiting.

Shaffer's team started by measuring the total increase in power costs — the wholesale price, which went from about $48 per MWh in 2020, to more than $105 in 2021.

Then they broke that increase down. The NDP's phase out of coal played a part, as did a province wide three-per cent increase in demand. The increase in gas prices also played a part; so did the increased carbon tax. But all of that only makes up $22 of the $57 increase.

That's in addition to infrastructure fees more than doubling since 2010.

Shaffer says the biggest impact is the change in bidding behaviour from the largest firms in the power market, now that the power purchase agreements are gone.