Economic Withholding: Why Albertans Are Paying for Power That Is Not Being Used

The cost of electricity in Alberta is not merely high; it is inflated by a structural design that encourages market manipulation, costing consumers billions. Since the province deregulated its electricity generation sector in 2001, Albertans have collectively overpaid an estimated $24 billion compared to the national average, a financial catastrophe rooted in failed policy.

This extraordinary deficit is driven by the regular and deliberate suppression of supply, a practice know

n as Economic Withholding, which routinely pushes the wholesale price of electricity to the astronomical offer price cap of $999.99 per megawatt hour. This calculated mechanism of profit extraction is not theoretical; it is proven corporate misconduct, validated by the largest regulatory fine in Canadian history: a $56 million penalty imposed on a major generator for intentionally engineering outages to inflate prices. This market is not volatile; it is manipulated.

The Energy-Only Trap: A License to Create Scarcity

The foundation of Alberta’s extreme power price environment is its unique competitive structure, the energy-only market (EOM). In this system, unlike many North American jurisdictions, power suppliers are paid exclusively for the electricity they generate and flow onto the grid. 

There are no regulated payments for maintaining reliable standby capacity. Consequently, generation companies, including major players like TransAlta, Capital Power, ENMAX, Heartland Generation, and Suncor, must recover vast fixed investment costs solely during short, high-price scarcity events.

This reliance on scarcity for financial viability mandates a strategic approach to supply. The regulatory framework explicitly allows participants to unilaterally engage in strategies to attempt to move the pool price. Prices in the spot market are not administered based on cost, maximizing the generators’ ability to price their supply according to market need, rather than true incremental expenses.

Defining the Predatory Pricing Mechanism

The central mechanism enabling this profit extraction is Economic Withholding. The Market Surveillance Administrator (MSA), the independent monitoring body, formally defines this as an offer strategy where a market participant prices available capacity sufficiently in excess of its short run marginal cost and opportunity cost so that the capacity is intentionally not dispatched. By holding back available power, the generator artificially tightens the system, causing the pool price to be raised as a result.

The MSA acknowledges that, absent a capacity market, economic withholding is a fundamental element of the EOM required for generators to recover their fixed costs. This is the core flaw of the system: it structurally enshrines market power into the regulatory framework. The market design forces the generator’s objective to shift from providing efficient supply to strategically restricting supply. In effect, the system requires generators to depend on scarcity to cover costs, directly undermining the goal of fair and efficient competition.

The $999.99 Ceiling: Proof of Intentional Price Extraction

The practical manifestation of Economic Withholding is the immediate and frequent clearing of wholesale prices at the regulatory maximum. Alberta’s market operates with an astronomical offer price cap of $999.99 per megawatt hour. This figure is not a distant theoretical possibility; it is the operational ceiling routinely struck during periods of high demand, confirming that generators are intentionally stacking available supply at the highest legal limit.

Specific events demonstrate the deliberate nature of this price extraction. When system shocks occur, such as the simultaneous trip of two major Genesee Repower assets, resulting in an 881-megawatt supply loss, the System Marginal Price immediately cleared at $999.99/MWh.

This price spike occurred within minutes and persisted even while the Western Interconnection imported energy to stabilize the system, illustrating how precariously supply is positioned. In another instance, gas generator outages led to market conditions where the supply cushion reached zero, causing prices to clear at the cap for hours during the peak evening period.

These recurring, instantaneous jumps to the maximum price prove that generation capacity that could be offered lower is instead intentionally withheld or offered at the $999.99/MWh ceiling. Generators are not pricing power based on marginal cost plus a reasonable return; they are structuring their offer stacks to capture the maximum allowable revenue the instant the grid experiences any tightness, thus confirming the predatory nature of their pricing strategy.

The profound impact of this market structure on consumers is quantified in the chronic overpayment since deregulation.

Table 1: The Cost of Market Flaws: Alberta vs. Canadian Electricity Pricing

Metric	Alberta (Post-2001)	Comparison (Pre-2001/National Average)	Consequence
Consumer Price Index Increase (Annual Average)	1.8% Higher than Canadian Average	Lower, More Predictable Regulated Prices	$24 Billion Overpaid by Albertans Since Deregulation
Wholesale Offer Price Cap	$999.99 per Megawatt Hour	Varies; Often mitigated by Capacity Markets	Extreme Consumer Bill Volatility During Peak Demand

The Smoking Gun: Quantified Misconduct and Illegal Gains

The accusations of manipulation move from structural necessity to irrefutable corporate intent based on historical enforcement actions. In a landmark case that represents the largest administrative penalty of its kind in Canadian history, the Alberta Utilities Commission (AUC) approved a $56 million settlement against a major generation company.

The penalty was imposed not for passive economic withholding, but for the deliberate act of "timing outages at power plants to drive up electricity prices". This constitutes physical withholding, an intentional act of supply sabotage designed to engineer the artificial scarcity required for extreme profit.

The financial breakdown of the settlement provides the clearest evidence of intentional ill-gotten gains. The total $51.9 million administrative penalty included a $26.9 million component designated as "disgorgement".

Disgorgement is the regulatory removal of profits acquired through misconduct, meaning the regulator quantified millions of dollars in illegal earnings extracted directly from the market through these manipulative actions. Furthermore, the AUC noted that these contraventions caused "significant, widespread harm to customers and the market by negatively impacting pool prices, the forward market and customer confidence".

This multi-million-dollar penalty for deliberate sabotage destroys any remaining defense that high prices are merely a natural outcome of market forces. It proves that the market design is actively exploited by the largest players through calculated financial engineering. The fine confirms that corporate misconduct, not neutral volatility, is the engine driving Alberta’s high consumer electricity costs.

Table 2: Proven Market Misconduct: The TransAlta Precedent

Generator	Conduct	Administrative Penalty	Disgorgement (Removal of Illegal Profit)	Total Settlement
Major Alberta Generator (TransAlta)	Deliberately timing outages to drive up electricity prices	$25 Million Monetary Penalty	$26.9 Million	$56 Million (Largest in Canadian History)

Crisis Profiteering: Public Safety as a Business Opportunity

The most egregious failing of the energy-only market is its perverse incentive to maximize profit during moments of public vulnerability. This instability, which results in $24 billion in overpayments, is amplified during extreme weather.

During the severe cold snap in January 2024, the grid was pushed to the brink, forcing the Alberta Emergency Management Agency to issue an emergency alert urging citizens to cut back energy use to avoid rolling blackouts. These life critical periods of maximum strain are precisely when the generators’ $999.99/MWh pricing strategy yields peak revenue. When the difference between system stability and catastrophic collapse is measured in massive corporate profits, the incentive structure is profoundly backwards. The system rewards maximum extraction when the need for affordable, reliable supply is most critical.

Deregulation was founded on the promise that competition would lower prices, but the data proves that this ideological leap of faith failed. Instead, it created a system dependent on volatility and scarcity, where corporations are incentivized to invest in strategies that optimize profit extraction rather than bolster long term grid resilience. This inherent conflict means that the market prioritizes financial gain over public safety and essential grid stability during predictable high demand events.

The Verdict and The Urgent Call for Re-regulation

Alberta’s energy market design, which depends on prices frequently exceeding variable costs to recover fixed capital investment, necessitates and encourages Economic Withholding. The result is a cycle of structural exploitation, extreme volatility, and massive consumer financial losses.

To mitigate this systemic failure, structural reform is unavoidable. While the shift to a capacity market is more complex, such a model would pay generators for maintaining reliable capacity, potentially removing the inherent incentive to create artificial scarcity.

However, the most forceful and direct correction is re-regulation.

Electricity is a core necessity, and treating it as a speculative commodity has cost Albertans billions. Advocates argue that returning to a regulated system is necessary to prevent the continuing exercise of market power at the expense of stability and consumer security.

The choice is stark: either continue to tolerate a speculative market proven to be manipulated, or implement reforms that prioritize stable supply and affordability for all Albertans.

Frequently Asked Questions (FAQ)

1. What exactly is Economic Withholding?

It is a deliberate strategy used by major power generators to price their available electricity capacity so high, far above the actual cost of production, that the capacity is intentionally not dispatched to the grid. This action artificially limits supply, which in turn forces the overall pool price upward to the highest bidder, maximizing the generator’s revenue.

2. Is this practice legal in Alberta’s electricity market?

The practice of pricing capacity high to recover fixed costs is an accepted feature of Alberta’s energy-only market design. However, when capacity is deliberately timed for removal or priced solely to manipulate the market, it becomes illegal misconduct subject to massive penalties.

3. How much have Albertans financially suffered due to this market design?

Since electricity deregulation was implemented in 2001, analysis indicates that Albertans have paid the equivalent of $24 billion more for their electricity than they would have under a pricing structure aligned with the national average. This is the direct cost of systemic volatility and the allowed exercise of market power.

4. Who are the major companies accused of benefiting from this system?

Major generators, including TransAlta, Capital Power, ENMAX, Heartland Generation, and Suncor, control the vast majority of generation capacity and participate in setting the volatile wholesale price. They profit disproportionately during the high price events facilitated by this market structure.

5. What is the maximum price generators can charge during a scarcity event?

The maximum legal offer price cap in Alberta's wholesale electricity market is set at $999.99 per megawatt hour. Prices frequently hit this cap during periods of high demand, extreme cold snaps, or sudden generator outages, allowing generators to extract maximum profit.

6. Has any company been officially penalized for deliberate manipulation?

Yes. A major generator (TransAlta) paid a record $56 million administrative penalty for intentionally timing power plant outages to artificially drive-up prices. Of this, $26.9 million was forced disgorgement of illegal gains.

7. How does the wholesale price volatility affect monthly consumer power bills?

When the wholesale price repeatedly spikes to the $999.99/MWh cap, often during extreme weather, it flows through to consumers, particularly those on variable or floating rate plans, causing bills to soar unpredictably and dangerously.

8. What is the suggested alternative to the current market?

Many consumer and labor groups advocate for a return to a regulated market structure. Other jurisdictions use a "capacity market" that pays generators specifically to maintain reliable capacity, removing the core incentive to profit by creating artificial scarcity.

Bibliography

Alberta Electric System Operator

Alberta Utilities Commission

Alberta Utilities Commission Act

Alberta Federation of Labour Report: Power in the Public Interest

Market Surveillance Administrator Enforcement Statements and Advice to Minister

Market Surveillance Administrator Wholesale Market Reports

CTV News reporting on deregulation costs

University of Calgary analysis of energy bills

Canadian Energy Regulator data on provincial energy profiles

ATCO Key Industry Players documentation