The energy crisis: Ideology trumps common sense

Free trade chickens come home to roost for energy consumers

By: Murray Dobbin

  There is a delicious free trade irony in the energy deregulation fiascos unfolding in California and Alberta - especially in the stunned disbelief coming from business. Here we have Jayson Myers, chief economist for the Canadian Manufacturers and Exporters Association (CMEA) on Alberta's sky-rocketing natural gas prices: "I think it's a major crisis. If companies have to cut costs, there will be an impact on their employment."
  Earth to Mr Myers: What did you think the FTA was about?
  The Canada-US free trade agreement (FTA) handed the United States guaranteed access to Canadian oil and gas. During the 1988 election the CMEA was one of the most aggressive promoters of the agreement - a deal which virtually wrote in stone that Canadian prices for natural gas would be determined by peak American demand.
 

In California, the North American pioneer in electricity deregulation, prices have actually tripled in many areas and doubled in most

  But, of course, it doesn't stop there - it's the nature of ideology that the more you swallow the hungrier you get. Having given the US guaranteed access to our oil and gas (we can't reduce exports to increase domestic supply or use differential pricing) the Canadian government and the provinces are hell bent on giving up all regulatory influence over electricity prices through massive deregulation.
  In California, the North American pioneer in electricity deregulation, prices have actually tripled in many areas and doubled in most, prompting the politicians to scamble for their political lives and put a cap on prices. This desperate effort to shut the barn door after the horses have escaped has brought once powerful corporations to the brink of bankruptcy: Pacific Gas and Electric and Edison face the prospect of eating $8 billion in energy costs they can't pass on to consumers.
  Kaiser Aluminum has shut its two US smelters because they can make more money by selling their electricity, and several fertilizer companies have shut down plants. Major shortages of those products are predicted for next year.
  Ralph Klein is having night sweats over his political future, too, as his deregulation experiment careens out of control. The Alberta Power Pool auction of electricity in early December pushed generation prices from $40 per megawatt hour to more than $130. The Industrial Power Consumers Association are in full panic mode: "For some of my members it is catastrophic," said president Dan Macnamara. "These new price levels are downright scary."
  Ontario's move to a deregulated market and the dismantling of Ontario Hydro has prompted power generators and marketers to talk openly about getting substantially higher prices in adjacent American jurisdictions. This will inevitably result in higher prices in Ontario.
  It is a neo-liberal article of faith that deregulation increases "choice" and reduces prices. In practice it is doing neither, but when the medicine fails, the prescription is to give even stronger medicine.
  Canadian governments are thus pursuing even more deregulation through more trade deals. First, there is the Agreement on Internal Trade (AIT), and then there is the services negotiations at the WTO which would make global energy deregulation literally irreversible.
  AIT negotiators will present provincial trade ministers with an energy chapter in February next year. If agreed to, it will most likely to lead to what is called "retail wheeling" - in effect creating electricity spot markets in every province and a virtual futures' market for electricity speculators. This is a formula for wild price volatility and would make the goal of long term price stability virtually unachievable.
  And what the AIT is hinting at, the WTO agreement on services - the GATS - will make irreversible. The US released its services negotiating position on energy on December 21st. It is clear that the Americans intend to press with all their might for new WTO rules over energy. They are proposing: "Non-discriminatory third-party access to and interconnection with energy networks and grids, where they are dominated by government entities or dominant suppliers." In other words, the California model applied worldwide.
  This little holiday announcement is like the Grinch who stole Christmas for hard-pressed Californians threatened with the potential collapse of their entire electrical system. Yet with no appreciation of the irony involved, the US claims that this new energy regime will make energy supplies "reliable" and "... benefit residential consumers and social services, as well as employment..."
  Canada is apparently supporting the US position.
  Electricity and gas are not just products like toasters and light bulbs. They are critical elements in the functioning of the economy. If you list all the factors that contribute to competitiveness, and to economic stability, predictable energy prices rank high on the list. Actively pursuing policies that create price volatility is ideology run amok. Imagine interest rates being decided not by the Bank of Canada, but by picking the rate from a hat every two weeks.
  The CMEA's Mr. Myers told me he wasn't familiar with the GATS energy negotiations. Maybe he should pick up the phone and call Canada's negotiators - before it's too late.

Murray Dobbin is a freelance writer and author based in Vancouver. His latest book is The Myth of the Good Corporate Citizen. This article originally appeared in The Financial Post.

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