Central Alberta REA Ltd (CAREA)

Lakeland REA

South Alta REA

February 14, 2012 09:00 ET

Rural Electrification Associations (REAs) Question Multinational Utilities Buying REAs With Customer Money

INNISFAIL, ALBERTA--(Marketwire - Feb. 14, 2012) - Rural Electrification Associations are uniquely Albertan - they do not exist elsewhere in Canada but they were, and remain today, the backbone and driving force that delivers electricity to thousands of rural Albertans, farmers and business owners alike. However, the REAs continued existence is threatened.

The rules in Alberta are working against the REAs because of the increased investment levels and the profit-maximizing investment of the multinational utilities. Government needs to thoroughly review the current legislation and revise the recent changes in legislation that have allowed this to happen.

When multinational utility companies in Alberta apply for rate increases, they receive a guaranteed rate of return on their investment - currently in excess of 9% per year. They earn this rate of return on the amount the Alberta Utilities Commission says they are deemed to invest in their rate base. The guaranteed rate of return goes to the stockholders of the multinational utility companies.

The multinational utility companies are allowed, through government legislation, to "invest" in their distribution system. They heavily subsidize the costs of new and other construction through this "investment." In other words, for new construction, the consumer requiring the work pays little if anything; and the rest of the utility customers pay for the new consumer. All multinational utility company customers pay for this investment through rates and all profits, including the rate of return, go to stockholders and those profits do not necessarily stay in Alberta. Their customers also pay for a rate of return to the stockholders on top of the approved costs of construction.

These multinational utility companies have the added advantage of benefiting from their own defined, protected service areas under current legislation, where they operate as a monopoly providing an essential service to consumers without a choice. Correspondingly, the ability of the multinational utility companies to raise their investment levels in the past couple of years now effectively allows them to also utilize these levels to purchase REAs and rewards them for doing so.

How is it rewarding? The multinational utility passes the costs for the purchase of the REAs onto their Alberta customers as an "investment," while their stockholders reap the rewards by way of increased stock value and the additional guaranteed profits. This business practice is vehemently opposed by REAs, who believe legislation created this unintended consequence for Albertans. In other words, the multinational is eliminating their competition without risk to stockholders and making an additional profit while spending their Alberta customers' money - not their own money! What other environment do you know of where a company, that has a monopoly within a defined, protected service area, is permitted to systematically buy out the competition in other areas without risk to stockholders, include the cost of those buy-outs in their approved customer rates and then receive a guaranteed return on the investment expense to buy out their competition?

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