By Stephen Ewart, Calgary Herald, November 12, 2011
In a letter TransAlta president Steve Snyder wrote for today's Herald to explain how his company didn't "intentionally breach any rules or regulations" when it manipulated Alberta's electricity market last fall, he was adamant they simply "misinterpreted" the rules.
Traders for TransAlta artificially inflated the price Alberta consumers paid for electricity 31 separate times over an eight-day period last November, Snyder says, "in response to what we thought were similar scheduling practices by other companies."
After initially stumbling over the everybody-elsewas-doing-it line of defence, the statement raised the question of whether other companies had breached the rules governing the province's open market for wholesale electricity . . . whether intentionally or not.
It's tough to know. There have been no news releases from companies to acknowledge penalties by the Market Surveillance Administrator (MSA) or the Alberta Utilities Board (AUB) or awareness some of their activities "would likely restrict or prevent the ability of another market participant."
We didn't even see a statement like that from TransAlta.
TransAlta didn't make any perceptible effort to inform the public it agreed on Nov. 4 to pay a $125,000 penalty and return $245,073 in ill-gotten financial gains for driving up the price that Albertans paid for electricity by $5.5 million last November.
The Herald was first made aware of it from an anonymous tip.
To be clear, TransAlta didn't rake in $5.5 million. That was spread across all players in the market in those particular hours. TransAlta made a relative pittance.
For a company that earned $219 million last year, maybe returning $370,000 wasn't a material event.
The issue raises questions about the entire electricity market in Alberta and whether a system that was hastily put together in the rush to deregulate in the 1990s is working as promised by Ralph Klein, who was premier at the time.
The Klein Conservatives were committed to having a competitive market by 2001 to ensure that power generation would keep pace with booming oilsands development and population growth.
The task of transforming the old regulated system proved immense and some of the new rules had to be rewritten on the fly.
Over the years, companies found loopholes in the large grey area in the legislation. It's that grey area where companies say they inadvertently get caught up, or, critics contend, they purposely exploit and hope they avoid detection.
Just who is protecting the consumer in this electricity market was a topic of discussion when Alberta Premier Alison Redford met with the Herald's editorial board Thursday. Redford said the TransAlta penalty shows the system is working.
"While there was a breach in the protocol, we caught it, and that's what we're supposed to do," Redford said.
"The company was fined and we move on from that isolated instance."
Except, is it an isolated instance?
In 2010, NorthPoint Energy, an arm of Sask-Power, was levied a record $655,000 penalty.
Two years earlier, Enmax was cited for trying to stymie an MSA investigation and, prior to that, corrupt energy giant Enron manipulated electricity prices in Alberta, although it wasn't proven until the company was dragged through the U.S. courts.
Proving wrongdoing is difficult in the greyness between what is illegal or just unethical.
Snyder says TransAlta operates in a "complex real-time industry" with a lot of rules and regulations. However, there were no specific rules about actions its traders used to curb the flow of electricity on the B.C.-Alberta transmission lines.
Here is what TransAlta acknowledged in the agreed statement of fact:
- "Timing of the export e-tags created by TransAlta was such that it was not reasonably possible for another participant to then schedule an import."
- "TransAlta was aware the timing of the export e-tags would likely restrict or prevent the ability of another market participant."
- "TransAlta was aware that other market participants were or would likely be seeking to schedule of electric energy into Alberta."
- "TransAlta expected to derive an economic benefit from the timing of the export e-tags."
The MSA watches for suspicious trading patterns, but a major part of its surveillance is self reporting by the companies or complaints by other companies.
That's what happened to TransAlta.
The MSA noted the trading patterns to drive up prices but the investigation gained momentum when another company complained.
The settlements are typically subject to confidentiality agreements.
It doesn't take a forensic account to see flaws in the policing system.
It relies on co-operation of other players who, if they are selling into the market when the price spikes due to questionable activity, also receive the higher price.
The MSA's penalties in 2010 went as low as $250 with many below $1,500.
The violations clearly are not deemed major, but the companies include industrial giants the likes of ATCO, Cargill, Cenovus, Dow Chemical, Syncrude and TransCanada.
It would be a stretch to characterize the penalties as even a slap on the wrist for a multibillion-dollar company.
And its likely not enough to deter a bonus-driven employee from doing the math on the risk versus the reward of a potential windfall transaction.
In its 2010 compliance report, the MSA notes that in addition to the record NorthPoint penalty, it levied $75,000 in penalties on 46 incidents and negotiated $26,000 in settlements on seven others. In 2009, it levied 57 penalties totalling $149,000.
In the wake of Trans-Alta's penalty, and power prices spiking to $999 per megawatt hour on unplanned outages again this week, opposition politicians of all stripes in the province called for a review of the electricity markets.
Redford is prepared to look at the matter, but wants to review the entire spectrum of electricity issues facing Alberta from the market system to the need for more generation and transmission to support a growing provincial economy.
"What we need to do is ensure we have a system in place so that Albertans understand they flick on the light that they are being charged fairly for the energy that they're using," Redford said, before cautioning, "there are a lot of factors in what charged fairly means."
She has assigned Energy Minister Ted Morton the electricity file and says he will introduce a plan to address issues from supply to pricing.
Maybe Redford is correct and the MSA is catching and punishing noncompliers, but it's hard to have a lot of confidence in a system that is largely closed to public scrutiny, but remains open for potential abuse.
I suspect the consultation process, whenever it begins, will see Alberta consumers be forthcoming and transparent in their opinions after a decade of deregulation.
Stephen Ewart is a Calgary Herald columnist
sewart@calgaryherald.com
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