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Laissez-faire Alberta jolted by free-market paranoia

If there are two things that the free-market energy bastion of Alberta has never been completely comfortable with, they are the free market and energy.

That's become clear again in the wake of Berkshire Hathaway Energy's $3.2-billion bid for AltaLink LP, the company that operates power lines serving more than four-fifths of the province. The deal has sparked heated debate about foreign ownership of "critical infrastructure" in a place where new transmission projects get embroiled in battles over property rights even when demand drives the grid close to the breaking point.

It's not that Albertans harbour any dislike for Warren Buffett, Berkshire Hathaway's chairman. There has been no push to block the Omaha-based billionaire's other businesses from investing. From Medicine Hat to Grande Prairie, Dairy Queen seems to flourish without opposition.

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Indeed, the head of his energy business, Greg Abel, was born in Edmonton, and the unit has already worked in the Alberta power sector in partnership with TransAlta Corp.

Still, the proposed sale of AltaLink to Berkshire Hathaway from current owner SNC-Lavalin Group Inc. has Albertans all along the political spectrum up in arms. Wildrose MLA Joe Anglin has warned that it amounts to handing a ratepayer-supported golden goose to a U.S. company that will simply pocket the spoils. NDP Leader Brian Mason has demanded that the Alberta regulator nix the sale, saying the power lines would become internationally traded "commodities," resulting in higher prices for consumers.

Nancy Southern, chief executive officer of Atco Ltd., weighed in, telling the Edmonton Journal this month that AltaLink should remain owned by Canadians, for whom getting lines built quickly and cutting costs to benefit consumers and homegrown businesses would be more of a priority. (That in itself is a little amusing coming from a the head of a company with its own stake in the transmission game.)

The ruling Progressive Conservatives, in the throes of a leadership race, have avoided taking a side. Energy Minister Diana McQueen has said that Industry Canada and the Alberta Utilities Commission will vet the sale, and that there is a strong regulatory system in place to make sure Albertans pay a fair price for power.

So what's everyone so afraid of? It's not as if the assets are owned by a Crown corporation with a monopoly, and now are being pawned off for pennies on the dollar. Also, although transmission costs are only part of a monthly bill, households in Calgary and Edmonton already pay the second- and third-highest rates, respectively, of any large Canadian city, according to a 2013 study by Hydro-Québec.

The fact is, the power sector has been deregulated for years, with Canadian and international players generating and distributing the juice, and it has been anything but a smooth ride.

Montreal-based SNC led a consortium that formed AltaLink in 2001 after buying 11,600 kilometres of power lines and 260 substations from TransAlta for $850-million. Although the bulk of Alberta's electricity sector had been deregulated, the transmission business's returns were still set by the regulator, as they are today.

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In the past decade, the industry struggled to keep up with booming demand in southern Alberta as most of the generating capacity was located in the central part of the province.

As threats of blackouts and fears that businesses could be turned away spurred an effort to build a major high-voltage line between Calgary and Edmonton, landowners banded together in opposition.

Then things got ugly. Public hearings turned into shouting matches, prompting the regulator of the day, the Energy and Utilities Board, to cancel oral proceedings. It later emerged that the board had hired private eyes to keep tabs on the landowners, a revelation that triggered an investigation and resignations of senior officials. All of this happened when AltaLink was Canadian-owned.

Now, its boss vows it will operate in Albertans' best interests, regardless of who owns the company. Scott Thon, AltaLink's CEO, said in a Calgary Herald op-ed on Wednesday that Berkshire Hathaway understands the company's important role in the province and pointed out that it has promised to invest all of the profit generated into AltaLink's Canadian businesses.

For better or worse, that may be the best Albertans can hope for, if they truly want to live up to self-professed free-market ideals. If there was a willing Canadian buyer for the assets, it would have stepped up and paid for them.

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About the Author
Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in mergers, acquisitions and private equity for The Globe and Mail’s Report on Business. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general topics. More


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