Canada: The Alberta Electricity Market Today

This evolution has created the current Alberta Electricity Market with the usual four components.

1. Generation

Generation is an openly competitive component of the Alberta Electricity Market. The generators choose the form of energy they will convert into the electricity they offer into the "energy only" Power Pool. If dispatched, the generators are paid the competitively determined Pool Price for the hour in which they are delivering their electricity into the AIES. New generation is built with private capital that takes the investment risk over the life of the project. This risk has to be managed because it is not backstopped by customers. There is also no central planning of generation in Alberta – at least there wasn't until Alberta recently announced its new climate change policies.

Apart from a price cap ($999.99) and a price floor ($0), outcomes in the real-time Power Pool are determined solely by the forces of competition. Participants are free to engage in unilateral strategies in an attempt to mitigate the Pool Price risk, as long as they do not impede competition or physically withhold generation from the market. Generators with plants of 5MW or more must also comply with the "must offer, must comply" rule, which requires them to offer all of their power, that they do not consume on site, to the AIES through the Power Pool. The physical withholding of supply is therefore prohibited, although it can be priced in the supply offer at the discretion of the generator subject to the price cap and the price floor.

In order to sell or buy power through the Power Pool, one must become a Power Pool Participant. A Power Pool Participant must sign an agreement to abide by the ISO Rules (sometimes called the Pool Rules) and the Pool Codes, meet the Power Pool's prudential, technical control, and communication requirements, pay an annual Power Pool Participant fee, and arrange for transmission or distribution access.

Under the EUA, offers to supply power into the Power Pool and bids to purchase power from the Power Pool determine in a spot market, on an hourly basis, the wholesale market price for electricity in Alberta. We explain in more detail below how this works in the section titled "Determining the Pool Price."

2. Transmission

Transmission (high voltage from 72KV to 500KV) is generally regulated in Alberta under a cost-of-service model. Customers (commercial and residential) pay the owners of the transmission systems ("Transmission Facility Owners" or "TFOs") their capital and operating costs, plus a reasonable rate of return.

The TFOs are generally large corporations that operate to transmit electricity long distances in franchised service territories. The use of dedicated service territories in Alberta is slowly changing for new stand-alone transmission projects. For example, Alberta recently used a competitive process to contract for a new transmission line called the Fort McMurray West Transmission Project that will run from Wabamun (west of Edmonton) to Fort McMurray, Alberta.

There are currently four main TFOs in Alberta, namely AltaLink, ATCO, EPCOR and ENMAX.

Notwithstanding that the TFOs own the transmission system in Alberta, the AESO oversees the design and use of Alberta's transmission system to ensure non-discriminatory access for market participants and the safe and reliable operation of the AIES. It provides system access for market participants to the transmission system within the constructs of the Western Electricity Coordinating Council or WECC that governs the interconnected systems of Alberta, British Columbia and 14 of the western United States. Though the AESO determines and develops a need application for new transmission upgrades, it is actually the AUC that approves the AESO need application work and authorizes a new transmission project. The AESO then assigns the project to a TFO. The AESO pays the TFO based on a cost-of-service model. The transmission tariff setting out the costs that the TFO will charge the AESO for the use of its transmission assets must be approved by the AUC. The transmission rate in Alberta is "postage stamp."

As noted above, system access to the transmission system owned by the TFOs is controlled by the AESO. Accordingly, new Alberta generation that will be transmission connected will have to follow the interconnection process that the AESO has designed in order for that new generation to be built and connected to the Alberta transmission system.

3. Distribution

The local distribution (low voltage of less than 25 KVs) at the load centres is also regulated under a cost-of-service model. Customers (commercial and residential) pay the owners of the distribution systems ("Distribution Facility Owners" or "DFOs") their capital and operating costs, plus a reasonable rate of return.

The DFOs deliver electricity to most consumers in Alberta – all except for very large industrial consumers which are connected directly to the transmission lines. These DFOs include ATCO, FortisAlberta, EPCOR (Edmonton), ENMAX (Calgary), approximately 30 Rural Electrification Associations ("REAs") that are cooperatives that distribute electricity to rural areas of Alberta, and municipalities like Red Deer and Lethbridge. The DFOs operate within specific service areas.

The AUC approves the distribution rates in a tariff for investor-owned and certain municipally-owned DFOs. The REAs and some municipalities determine their own tariffs. These tariffs cover the cost of connecting and disconnecting customers, providing new services, operating and maintaining the distribution system and providing meter-reading services. Retailers bill this distribution tariff on consumers' bills.

Unlike the transmission system where access is controlled by the AESO, system access to the distribution system is managed by the DFOs. Accordingly, new distributed generation will have to follow the interconnection process that the DFO in that territory has designed in order for that new generation to be built and connected to its local distribution system.

4. Retail

Retail of electricity in Alberta has been deregulated and is competitive for large consumers, while small consumers (less than 250,000 kWh per annum), mostly residential, have a choice of either signing a contract with a competitive retailer or choosing a regulated rate with their default supplier. The RRO price is set by the AUC based on the Pool Price for the service areas of ATCO, FortisAlberta, ENMAX and EPCOR, while other municipalities and REAs that own distribution systems determine their own RRO price.

There are also some very large industrial customers who act as self-retailers and participate directly in the Power Pool instead of using a third party retailer.

All retailers and self-retailers buy electricity in the Power Pool.

Footnote

1 www.auc.ab.ca/about-the-auc/auc-information/Documents/AUC_Information/AUC_information_electricityAndtheAUC_02.pdf

About BLG

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