Aug
31
2009
New Twists on Old Stories
Author: Alberta Venture
David Gray has been talking. And talking. For many, it’s unseemly that the former Utilities Consumer Advocate should come out trash-talking the deregulated electrical and gas market he was supposed to oversee. Obviously the guy won’t be looking for another Alberta government appointment until, oh, Brian Mason becomes premier.
But I think he’s done the province a service by bringing the power market’s flaws back onto the agenda. To be fair, not all of them can be laid at either the companies’ or the government’s feet. When power contracts were introduced (indeed, until last year) the best minds in energy figured that the price of natural gas in North America – which ultimately affects power prices – was going to stay high, on a historical basis. Since then the recession and unexpectedly vast new supplies of shale gas have conspired to push gas prices down, well below the hedged prices factored into five-year utility contracts. And given the abundance on the supply side, they’re likely to stay down, recovery or no.
Still, the end result is that Albertans are paying more for power than they ought to be paying, more than consumers in provinces where power prices are still fully regulated. The only “good” contract on offer, Gray has said in interviews, is Enmax’s EasyMax option, which is linked to the regulated rate, advertised rather than sold door-to-door and, most importantly, breakable without penalty. Other power retailers have howled that Enmax can do that only because it is a government-owned utility with a lower cost of capital and less profit-seeking impetus, but our conclusion after reporting on this last year (“The Power Play,” July 2008) was that Enmax was simply introducing just the kind of competition that the retail power market has hitherto lacked.
Gray’s point is taken: the 70% of consumers who have stuck with the regulated rate option (now 80% tied to the month-to-month market price) have done better than those who locked in for five years — so far. But when the RRO eventually trends (or spikes) upward, the government is going to have a real problem on its hands. Better to fix retail deregulation before that happens.
The fines and other penalties handed out to officers and directors of Afexa Life Sciences (formerly CV Technologies) by the Alberta Securities Commission last month brought to mind the story we ran in our January 2007 issue (“Trust the Ambition”) – precisely the period in question when the company became aware that its United States launch of Cold-fX was not going as planned (inventory was being returned unsold by retailers) but was not yet reporting those facts in its financial statements or communications with investors.
CVT had topped our Fast Growth 50 list of companies with more than $20 million in revenues. Yet already there were red flags, noted in the story: the company’s health claims were under attack, the marketing campaign was overly reliant on public relations and celebrity endorsement (one of the company’s earliest and most influential executives was former VP, communications Warren Michaels, formerly a PR man and later disciplined by the ASC for insider trading of CVT stock) and institutional investors still shunned its stock. Though we asked, the company refused to report any results of its U.S. launch, which had begun the previous October.
Sad, more than anything else, because this company wasn’t, and isn’t, a fraud. It created and marketed, without licensing it away to big pharma, a real product that became the number one selling cold and flu remedy in Canada, up against the likes of Tylenol. A lot of that brand equity has been dissipated now, though the company still tallied a profit in fiscal 2008 (the last two quarters have been dreadful).
The take-away, though, is that Alberta is not lacking for scientists and inventors (like Jacqueline Shan, the former star CEO who has been relegated to chief scientific officer and who is banned from serving as a director of a public company in Alberta for five years) with marketable ideas and passion, but rather those with the business experience and skills to take those ideas past the goal line.
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Further to our story about the quest for a new downtown arena in Edmonton (”City Needs Champion,” Sept. 2008), Daryl Katz seems to be stepping into the void (as he should, in my mind, seeing as his NHL team would be the chief beneficiary of such a move). The Oilers confirmed on Aug. 31 that his company, the Katz Group, had negotiated the option to buy 19 acres of mostly vacant downtown real estate at the corner of 104 Avenue and 101 Street, opposite the new Epcor Tower. They’re saying this might not be the final site and ownership of the building is to be determined, but….
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