ENMAX Corporation

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ENMAX Corporation

141-50th Avenue SE
Calgary, Alberta T2G 4S7
Canada
Telephone: (403) 514-3000
Toll Free: (877) 571-7111
Fax: (403) 514-3365
Web site: http://www.enmax.com

Government Owned Company
Founded: 1905 as The City of Calgary Electric System
Employees: 1,087
Operating Revenues: CAD 1.3 billion (2005)
NAIC: 221122 Electric Power Distribution

ENMAX Corporation, a wholly owned subsidiary of the City of Calgary, currently operates in a competitive environment. For decades, however, ENMAX's predecessor was the sole provider of electric services to the area. Restructuring of the industry in the 1990s precipitated the transformation from city department to corporation. ENMAX Power handles electrical distribution and transmission systems and related services. ENMAX Energy manages the acquisition and sale of electricity and natural gas. A third corporate subsidiary, ENMAX Envision, offers data communication products.

CITY SERVICE ORIGINS

The arrival of electric power in the town of Calgary in 1889 inspired competition. The municipal government contracted both Calgary Electric Lighting Company and Calgary Water Power Company Limited to provide streetlights. Calgary Electric lost the head-to-head battle, closing its doors in 1894; Calgary Water served the city's downtown area for approximately 34 more years.

Meanwhile, the City of Calgary, a status it gained in 1894, built its own electric light plant and initiated operation on December 2, 1905. The City of Calgary Electric System took on several small coal-fired power plants, as well, during its first 20 years in business.

The city purchased power from Calgary Power Limited beginning in 1911. The private electric-generating company later took over Calgary Water Power and ultimately became TransAlta Corporation. The municipality completely pulled out of the power generation business in 1928, buying all its power from a wholesaler and concentrating on transmission and distribution.

The City of Calgary Electric System remained the exclusive distributor of electricity in Calgary and the surrounding area for decades. In the 1990s, however, the provincial government of Alberta shook up the electric utility industry.

END OF STATUS QUO

Historically, three large utilities generated 90 percent of Alberta's energy and participated in transmission and distribution to consumers with a few municipalities managing their own distribution systems. The Alberta Department of Energy oversaw electricity generation. New investments and rates were subject to the Alberta Energy and Utilities Board's review and approval.

The Electric Utilities Act, passed May 1995, restructured the industry. Electric generation was deregulated and separated from transmission. The city began buying electricity from the Power Pool of Alberta (later Alberta Electric System Operator) beginning in January1996. The province's generated and imported energy was pooled and sold to distributors and exporters in a spot market; prices were set hourly, based on supply and demand. Corresponding changes occurred in transmission and distribution, including the areas of oversight and tariffs. The Electric Utilities Amendment Act of April 1998 fine-tuned the new system and separated the distribution from the retail functions. Beginning in 2001, Alberta consumers would have a choice of electric retailers for the first time.

In response to the new electric industry environment, Calgary's city council implemented its own series of changes. ENMAX Corporation was established in July 1997 as a wholly owned subsidiary of the City of Calgary. On January 1, 1998, ENMAX received nearly all the assets and liabilities of the city's electricity business. ENMAX Power Corporation was created by the new entity to carry out all the wire services functions. In April 1999, ENMAX Energy was established to carry out all energy services functions, in preparation for a 2001 restructured marketplace.

Just as Calgary's electricity department changed to ENMAX in 1998, Edmonton, to the north, took similar action. Edmonton Power changed to a municipal corporation, EPCOR, in 1999. Both ENMAX and EPCOR moved to establish brand name recognition: first among their respective customer base and then throughout Alberta. Other companies generated electricity in the western Canadian province at the onset of the 21st century, but ENMAX and EPCOR were the only retailers.

As regulated monopolies the companies had been granted the right and obligation to service a specific geographic area, Holly Quan explained in a Marketing Magazine article. ENMAX and EPCOR, as municipal power departments of Calgary and Edmonton, respectively, served residential, commercial, and industrial customers in their home cities and surrounding areas. In January 1996, the Alberta Electric Utilities Act came into effect, giving electric retailers five years to prepare to compete on the open market.

THE SHOWDOWN: 2000–03

With deregulation slated to go into effect on January 1, 2001, ENMAX, no longer a government monopoly but a competitor in an open market, launched a brand campaign to inform the public of its new identity. The strategic plan included a media campaign, proclaiming it had "The power to do anything," and involvement in professional and amateur sports, arts, and education.

"We want to be top-of-mind with our customers in advance of deregulation, and as the incumbent, we have some opportunities," ENMAX Director of Marketing and Communication Janet Gilmore said, in a 2000 news release. "But we're going to be competing with giants. We want our customers to know we're fiercely competitive, customer-focused and innovative—qualities they may not have associated with us before now."

ENMAX sponsored the Labour Day Classic, a pitting between Canadian Football League teams the Edmonton Eskimos and Calgary Stampeders, and the National Hockey League's Calgary Flames, raising name recognition among sports fans. On the community level, ENMAX gave a lighting bill rebate to a local arena and sponsored the Kids Cancer Care Foundation of Alberta. The activities gleaned ENMAX 99 percent name recognition in Calgary, according to Gilmore, in Marketing Magazine.

While EPCOR participated in similar activities to get its name in the public eye in the Edmonton area, ENMAX's competitor also sponsored the "Eco File." The program broadcast province-wide on Alberta's listener-supported CKUA.

The next phase for both companies was educating customers regarding deregulation and their new option of choosing among retailers for electric service. ENMAX and EPCOR would also begin courting consumers outside their established business areas. In mid-July 2000, EPCOR began promoting a package combining both electricity and natural gas. Alberta's natural gas industry had been deregulated.

COMPANY PERSPECTIVES

For nearly 100 years, ENMAX Corporation and its predecessor, The Calgary Electric System, have provided electricity to Calgary and the surrounding areas. Today, ENMAX Corporation is a billion dollar company serving the energy needs of customers across the province of Alberta. We've grown alongside the evolving competitive energy market, expanding our roots in electricity to offer customers managed network services, natural gas and expertise in electronic communications.

Trepidation about the new electric service environment was anticipated by some: "Consumers have the debacle of airline deregulation as an example, so sure, they're cautious about deregulation in the electric utility business," Ruth Kelly, editor of Alberta Venture, said in Marketing Magazine. "However, telecommunications is perhaps a better model. In five years' time, I think we'll see the same kind of diversity of service with a similar level of competition, mergers and acquisitions in utilities as we're seeing in telcos."

ENMAX, which served the entire city of Calgary, pulled in about $500 million in annual revenue. By comparison independent power producer Maxim Power Corp. had an estimated $6.7 million in revenue during 2000. Yet Maxim lured aboard ENMAX's chief financial officer, John Bobenic, also a 12-year veteran of the large power producer TransAlta, to become the new president and CEO. Independent producers had multiplied with the advent of deregulation, an increased interest in green energy, and growing demand for power by the businesses and residents of the province.

Well aware of the broad scale implications surrounding deregulation, Calgary's city council in July 2001 agreed to consider divestiture of ENMAX Corporation. Eleven companies from around Canada and the world had expressed interest in acquiring all or part of the operation by September. Estimated sale value was determined to be CAD 1.2 to CAD 2 billion, while an initial public offering to divest was expected to bring in CAD 1.1 to CAD 1.3 billion to the city. As the city mulled over its future, ENMAX continued to wind though the maze that was the new era of electric energy.

One effort included a partnership with Vision Quest Windelectric and the City of Calgary to power Calgary's 29-kilometer light rail transit line. Twelve Danish-made wind turbines on a southern Alberta wind farm set the "Ride the Wind" in motion in September 2001. The program established a North American president.

When deregulation opened the door for wind power in Alberta, Calgary-based Vision Quest erected two of the Vesta wind turbines and hoped for the best. "A BC power company quickly scooped up all the firm's emission reductions (25 tons), proving the value-added nature of wind. Then the federal government, deciding to run its Alberta offices on renewables, signed a long-term deal. That, in turn, enticed ENMAX, Calgary's utility, to offer its consumers the option of buying green power at a premium price. Much to ENMAX's surprise, more than a thousand customers signed up within three months, and its Greenmax program became an instant success," Andrew Nikiforuk reported for Canadian Business. TransAlta, Canada's largest non-regulated power generator then got aboard the green machine, funding additional Vision Quest wind turbines and powering its head office with the renewable energy.

A year and a half of deliberation by the Calgary City Council ended in May 2002; ownership of ENMAX remained in city hands. That uncertainty aside, ENMAX could concentrate more fully on challenges within the new marketplace, including declining electricity prices and the integration of new operating processes.

Toward year-end 2002, construction of the McBride Lake Wind Farm, a 50-50 joint venture with Vision Quest, commenced. The $100 million project, Canada's largest wind farm with 114 wind turbines producing 75 megawatts of power, was completed in July 2003. ENMAX's Greenmax program had grown to include more than 4,000 residential and 200 commercial customers. Vision Quest, a subsidiary of TransAlta, was the country's largest wind energy supplier.

The McBride Lake Project received assistance from the Wind Power Production Incentive Program, a $260 million federal initiative aimed at increasing the amount of wind power in Canada by 500 percent. Approximately $33 million was earmarked for McBride over a ten-year period. The Canadian government was investing in climate change programs and the development of related technologies.

KEY DATES

1889:: Town of Calgary receives electricity for the first time.
1905:: A city-built electric light plant begins operation.
1928:: Calgary quits power generation business, retains transmission and distribution.
1995:: Electric Utilities Act changes status quo in Alberta.
1997:: ENMAX Corporation is incorporated.
1998:: Wire services subsidiary is created.
1999:: Energy services subsidiary is established.
2002:: After lengthy consideration by the city council, Calgary retains possession of ENMAX.

ENMAX ended 2003 outperforming its peer average return on equity: a feat accomplished each year beginning since 1999.

BEGINNING A NEW CENTURY OF
OPERATION: 2004–06

As ENMAX ended its first hundred years of operation, it continued to build on its leadership position in energy of the future. During 2004, 33 McDonald's restaurants signed on for its renewable energy program, as did the new Calgary IKEA store, and six of the largest shopping malls in Alberta. In another small niche, ENMAX Envision, the company's high-speed data services business, increased its revenue by 50 percent. The operation, which served the Calgary market, doubled its customer base during the year.

During 2005, ENMAX announced expansion plans for its green power portfolio: a 99 percent interest in a run-of-river electric facility outside Vancouver and a joint venture to develop additional hydroelectric facilities in British Columbia. Run-of-river technology used the natural flow of the river, eschewing large-scale dams or reservoirs. Early in 2006, ENMAX received approval for the Taber Wind Power Project using advanced German technology. The City of Calgary committed to purchase 100 percent of the electricity produced for 20 years, using it to power municipal government operations.

ENMAX reported net earnings growth in 2005, largely driven by growth in its overall customer base. The successful new EasyMax program afforded customers an alternative to complicated long-term energy contracts or the provincial regulated rate option.

The good news continued into 2006. Low-cost electricity generation from its coal-fired plant output contracts helped ENMAX provide the best prices in the province during the first half of the year. Growth in its customer base, moreover, contributed to another bump upward in net earnings.

Kathleen Peippo