Did Alberta overbuild its energy infrastructure? This critic thinks so, and it affects what you pay

The increasing fees on your utility bill are covering billions of dollars invested to upgrade the electricity grid over the past decade, and some question whether that was needed.

Fees charged to Calgary residents for electrical transmission and distribution more than doubled since 2010 — when Alberta embarked on a decade of upgrades.  

Consumer advocate Jim Wachowich says that's because it's overbuilt.

Wachowich is a lawyer for the independent Consumers' Coalition of Alberta, which argues on behalf of regular Albertans when companies pitch new projects and customer fees to the Alberta Utilities Commission (AUC).

He's been doing that job for almost 30 years, and says in his view, Alberta made predictions on energy demand that never panned out. So it built more than it had to. 

"Alberta went from a low-cost jurisdiction with a reliable but old system to a high-cost jurisdiction with a very new, very costly and hopefully very reliable system — but we really won't know," he said.

Big investments based on forecasts

Power companies spent $13.5 billion in last 20 years upgrading the transmission network of large power lines and related infrastructure across the province, according to the Alberta Electric Systems Operator (AESO). That includes projects quite contentious when first proposed — the twin, 500-megawatt Western Alberta Transmission Line and Eastern Alberta Transmission Line each cost nearly $2 billion.

Both the former Enmax chief executive and Calgary's mayor of the day, Dave Bronconnier, warned these projects would pass on high costs to consumers. Now, more than a decade later, high fees are a common gripe among customers.

Other investments were made to upgrade natural gas infrastructure and power lines within municipalities. Alberta's system is set up so that companies can claim back all the construction and maintenance costs through charging fees to consumers.

Wachowich says many actors in the system have an interest in building more capacity, perhaps more than Albertans need.

For the power line companies, large capital projects create work and look good on the balance sheet. And for the electrical generators in the system — the large coal and natural gas plants — they prefer a grid with more capacity, an uncongested system where they can add power at any time. 

Alberta tried to control those interests by setting up the Alberta Utilities Commission and a provincially appointed consumer advocate. But Wachowich says he doesn't believe that's working as well as it could. 

"We lost some of the checks and balances that we thought were there," he said. "We tended to, over the last 20 years or so, overbuild the transmission system. It's overbuilt and arguably underutilized."

Back in 2009, the electricity system co-ordinators predicted Alberta's demand would take off. When that's compared to actual demand, it shows a very different picture. Wachowich shows that graph to the commission when arguing for a more conservative approach.

"We can point to probably 10 projects on the transmission side that cost over $500 million each and those are now in rates," he said. "We can point to how they were based on overly optimistic forecast of the growth of the province of Alberta and the need for more electricity."

Third most expensive 

In fact, Alberta has one the most expensive electrical systems in Canada.

A 2020 report from the C.D. Howe Institute co-authored by University of Calgary economist Blake Shaffer found Alberta ranked third among the provinces at $122 a megawatt hour, behind Ontario and Nova Scotia.

But some say there are good reasons for that. 

Chris Hunt, the Alberta Utilities Consumer Advocate, says most low-cost jurisdictions rely on hydropower and dams, but Alberta doesn't have that option. 

"Here in Alberta, because we have more thermal-fired generation, we're relying on other commodities in order to produce electricity. Because of that, it automatically bumps up our costs."

Rates in the province are also different between different groups of customers, says Mike Deising, speaking for the Alberta Electric Systems Operator, which co-ordinates the system. He argues some industrial clients have high costs but residential customers use and pay amounts similar to other jurisdictions. 

"The way our system is designed, those who use more, pay more," he said. "We have a lot of large industrials in Alberta that use a lot of power … especially in the oil and gas and energy sectors."

As for those forecasts, Deising says that's based on what they know in the moment — and can change. His teams uses them to create transmission plans.

Ultimately, he says, it's his teams' job to present evidence; the job of the commission to decide what is needed.

"That's why we feel extremely confident that the system we have in Alberta is what is needed today. And it's serving the needs of our province."

Deising says Alberta's system needs at least some excess capacity to function well, but it is built out as much as it needs to be for now. He says they are keeping an eye on what the country needs to do to reach net zero. That could require another large investment to support more electric vehicles as well as solar and wind farms.

UCP says it is overbuilt; pitches energy storage

Meanwhile, Dale Nally of the governing United Conservative Party says he agrees with Wachowich that the system is overbuilt. 

"When we have parts of our electricity transmission system that are at 30 per cent capacity, I would suggest to you that that is an overbuilt system," said Nally, associate minister of natural gas and electricity.

That build stretches over multiple governments. Nally says it was based on economic forecasts that never materialized, and that his government has stopped it.

Between 2015 and 2019, about $7.5 billion worth of transmission infrastructure was completed. Nally says that in 2020, new infrastructure totalled $100 million. Last year, there was none.

Next year, some building could start again, but of a slightly different sort.

In an interview, Nally said the government plans to introduce legislation in the coming weeks that should eventually bring electricity rates down. It will introduce electricity storage, which is not allowed under current legislation. It will also focus on self-supply with export, which Nally says will encourage more generation to come online.

He's not proposing changes to the regulatory framework, as Wachowich would like.

For Nally, the solution is more companies with different projects.

"The path forward for lower costs comes through increased choice and more competition," he said.

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