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Resource Ownership Shields Albertans From High Gas Prices

Resource Ownership Shields Albertans From High Gas Prices

By a quirk of political fate, made possible by a national difference in resource ownership, consumers in Alberta, the chief Canadian producing province, will pay less for natural gas in January than they did in December -- and pocket the savings because wholesale prices went up across North America.

In northern Alberta and the provincial capital of Edmonton, the retail price of gas will drop 3% to C$5.08 per GJ (US$4.10 per MMBtu) for January from C$5.24 (US$4.23) for December. In southern Alberta and the Canadian gas capital of Calgary, the January price drops 8% to C$4.82 (US$3.89) from C$5.26 (US$4.25) in December.

As a result, Albertans will barely notice frigid weather that arrived with the new year -- or at least be able to afford extra mittens and hats. Despite increased consumption expected to be generated by the cold, typical monthly household gas bills for January are expected to be C$176.50 (US$135.75) in northern Alberta compared to C$169 (US$130) in December, and C$187.50 (US$144.25) in southern Alberta compared to C$182 (US$140) in December.

All other "core-market" consumers-- condominium associations, landlords, farms, small businesses, municipal and community buildings, non-profit operations, schools and hospitals -- will experience similar reductions in gas prices. Matching winter savings will also got to core-market energy users in remote Alberta areas which lack gas service and have to rely on propane, kerosene and heating oil.

Altogether, more than one million Alberta gas-consuming sites will be shielded against the economic reality of winters in the new era of tight supplies felt everywhere else. The savings flow virtually automatically under a rebate program inaugurated during an early-2001 provincial election, when the ruling Conservatives took the sting out of the period's North America-wide spike in gas prices for Alberta voters.

The money starts flowing as soon as the Alberta Energy and Utilities Board approves requests to pass on increased wholesale gas prices by the province's principal distributors, Atco Gas North and Atco Gas South (formerly Northwest Utilities and Canadian Western Natural Gas).

For a period ending March 31, 2006, or well after the next Alberta election, the program pays a sliding scale of rebates: C$1.50 per gigajoule (US$1.20 per MMBtu) when prices rise to C$5.50-$7.50 (US$4.44 $6.06), C$2.50 (US$2.02) at prices of C$7.50-$9.00 (US$6.06-$7.27), C$3.25 (US2.62) at prices of C$9.00-$12.00 (US$7.27-$9.69).

If the market spikes beyond C$12 per gigajoule, (US$9.69), the province pays the maximum formula rebate of C$3.25 (US$2.62), plus all the additional price increase.

The program is made possible by a Canadian pattern of resource ownership which has been enshrined in the national constitution and put into practice for most of the time since the country was formed by Confederation in 1867.

Since the late 19th Century, the provincial governments have reserved ownership of mineral rights for themselves by exempting them from land title transfers when property has been sold or granted to private owners. In Alberta, which was mostly settled after 1867 and only became a province in 1905, about four-fifths of mineral rights belong to the government and are parceled out to the production industry as leases with built-in royalty arrangements.

Along with a level of regulation and public disclosure of industry activity unknown in most of the United States, the results have been rich streams of royalty revenues for the provincial treasuries -- and in Alberta's case, a long history of shielding residents against market fluctuations.

The current rebate program resurrected one that prevailed for most of the 1970s, when previous editions of the provincial Conservative government likewise shielded Alberta gas users against price hikes of the "energy-crisis" era. The regime's avowedly diehard free-enterprisers, who take a back seat to no one in the U.S. in advocating the rule of markets in economic matters, justify the program as a case of sharing benefits of public resource ownership. The phenomenon is stoutly defended as preserving provincial and national "heritage."

The Alberta government expects to spend C$100 million (US$77 million) a month or more on the 2003-04 round of the winter gas rebate program.

Provincial gas royalties are typically about one-fifth of production revenues but at times go higher under a sliding-scale formula that generates increased rates as prices rise. For the current fiscal year ending March 31, the provincial treasury conservatively forecasts its gas royalties to be C$4.8 billion (US$3.7 billion) on an average production price of C$5.15 (US$3.95) per thousand cubic feet.

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