A business case for rural electricity co-ops

By Patricia Bourne, CEO, EQUS

Rural Albertans are a hardy bunch. Accustomed to encountering obstacles and challenges, they have learned to adapt, innovate, defy, and work around whatever stands between them and their goal. This is how rural electricity co-ops began in the 1940s, when farmers decided they would have electricity, even if it meant they had to build the system on their own.

They defied the investor-owned utilities of the day who had declared that rural electricity was simply too costly to supply for too few customers.

They innovated and adapted, forming co-operatives to help share the cost.

Together they worked around the obstacles they encountered in building the distribution system that would power their family farms for generations to come.

Today, some of those original co-operatives still exist. Many of them merged over the years to form EQUS, which is now Canada’s largest member-owned utility, retaining ownership of their distribution system while benefitting from economies of scale that are necessary to maintain the system.

Distribution: the real cost of electricity

Our electricity market is not a particularly glamorous subject. It’s complicated and confusing and, at the end of the day, what matters most to ordinary Albertans is how it affects their monthly bills. What they may not realize is that the cost of their actual electricity used is often just a small fraction of their bill. Most of the average electricity bill is the cost of delivering that electricity from the generator to your house. Charges for transmission, distribution, and franchise and admin fees are quickly pushing many Alberta households to the limit with soaring bills.

According to data from the Alberta Utility Consumer Advocate, in 2004, the average monthly transmission costs for residential regulated rate customers was below $2. In 2018, that cost was averaging nearly $27 a month for those same consumers. The increase is equally dramatic in distribution rates which, according to the same data, have more than doubled across the province and range wildly, averaging from as low as $10 a month in 2004 to over $80 a month for some residential regulated rate customers in 2018.

Where you live in Alberta determines who delivers your electricity. In Alberta’s biggest cities and a handful of others, the distribution systems are municipally owned and operated. Outside of those select municipalities, the majority of Alberta’s electricity is delivered by two private companies that operate as a regulated duopoly. In fact, two investor-owned utilities deliver power to over 95 per cent of rural Alberta and they continue to increase their share by purchasing the few rural electricity co-ops that remain, their only competition in the market. The cost of buying out their competition is then passed on to the consumers, driving rates even higher.

As the CEO of Alberta’s largest remaining electricity co-op, I know very well that, as the price of materials, equipment and skilled labour increase, the cost of operating follows. Rural electricity also costs more because more lines and poles are needed to serve fewer consumers spread over significant distances.  If it costs more to build and maintain an electricity distribution system, there will inevitably be a cost increase passed on to the consumer. The question Albertans should be asking is how much is too much, and where is all that money going with these private, investor-owned utilities?

The co-operative advantage

With co-operative electricity, services are delivered at-cost and members elect a Board of Directors to approve rates, ensuring accountability and representation for the membership. With co-operative rates set on an at-cost basis, these rates can provide a benchmark within the industry, keeping costs low, and with member-ownership, ensuring that money stays in rural Alberta.

Some rural Albertans enjoy the unique advantage of having a choice in their electricity distribution provider, but most rural residents don’t have a choice. The legislation and regulations that govern rural electricity distribution in Alberta continue to facilitate and even encourage the concentration of ownership among two players, which is certainly not in the interests of rural Albertans. Lack of competition leads to inflated pricing and leaves no motivation for innovation that could benefit consumers. Researching, testing and implementing innovative technologies and work practices can cost money. When an organization is driven solely to generate profits for shareholders there is no motivation or appetite for innovation that doesn’t lead to financial gain.

Rural Albertans are innovative. They have to be. Our member-owners know that innovation doesn’t have to generate profit or have a short-term return on investment. Innovation can create operational efficiencies, it can create savings in the long-term, it can improve reliability, support sustainability, and create independence from external providers. Rural residents and business owners know that there is so much more than the bottom line to consider.

According to a 2018 study conducted for the Rural Municipalities of Alberta (RMA), rural Alberta currently accounts for 18 per cent of the population while attracting 41 per cent of the total capital investment and producing 26 per cent of the province’s wealth. Consumers in rural Alberta need electricity to produce the goods that power our biggest industries including agriculture, oil and gas, forestry, and more. Instead of regulating and approving continued rate increases from private multi-national corporations, we need to drive competition and innovation that can push rates down and encourage growth and investment in rural-based industries and communities.

Support energy competition

As Albertans, we need to be encouraging our government regulators to investigate and review the dramatic increases in distribution fees, find out why Albertans outside of the urban areas are being disproportionately impacted and, most importantly, what can be done to ensure they can continue contributing to our economy because all of Alberta is relying on their contributions.

We need to take a stand and support rural residents, farms, and businesses by encouraging, and allowing for, free and open competition in this industry that will benefit all Albertans.

Patricia Bourne is the CEO of EQUS. Powering rural Alberta for over 70 years, EQUS is Canada’s largest member-owned utility.  As the electrical experts in rural Alberta, EQUS provides safe and reliable electrical distribution services to over 12,000 homes, businesses, and farms in 26 municipal districts and counties. Learn more about EQUS at equs.ca.