On May 31, 2022, Bill 22: Electricity Statutes (Modernizing Alberta's Electricity Grid) Amendment Act, 2022 [PDF] (Bill 22) received Royal Assent and was passed by the Legislative Assembly of Alberta. The legislative amendments contained in Bill 22 will come into force on proclamation. The Government of Alberta has indicated that the amendments contained in Bill 22 will be proclaimed at the same time as the related regulations are brought into force, currently expected by the end of 2022. Given that Bill 22 is amendment legislation, we have published unofficial comparison versions of the affected legislation to aid in reviewing the amendments:
- Hydro and Electric Energy Act with Bill 22 amendments
- Electric Utilities Act with Bill 22 amendments
- Alberta Utilities Commission Act with Bill 22 amendments
Bill 22 includes substantially the same amendments first introduced in Bill 86: the Electricity Statutes Amendment Act, 2021 (Bill 86), summarized in our previous Update, which was introduced in the previous legislative session but not passed during that session.
Bill 22 includes substantially the same amendments as Bill 86 to the Alberta Utilities Commission Act (AUCA), Electric Utilities Act (EUA), and the Hydro and Electric Energy Act (HEEA) intended to facilitate greater participation by energy storage resources in the Alberta electricity market, to allow for unlimited self-supply and export, and to facilitate the modernization of the distribution systems through greater integration of new technologies, distribution-connected generation, and long-term planning by distribution facility owners (DFOs).
Bill 22 introduces new provisions that will provide legacy self-suppliers with export a specific path towards obtaining an Industrial System Designation (ISD).
In addition, Bill 22 includes new provisions that will lay the legislative foundation to begin the process of winding down the Balancing Pool by redistributing its remaining responsibilities and laying the groundwork for its complete dissolution in the coming years.
Bill 22 contains substantially the same proposed amendments as Bill 86, which died on the floor in the previous legislative session. These amendments, resurrected in Bill 22, are intended to modernize Alberta's electricity legislation and facilitate participation by energy storage resources in both the competitive energy market and as service providers to meet the needs of Alberta's distribution and transmission systems. As we commented in our earlier Update, the greater allowance for self-supply with export may assist commercial and industrial customers in managing electricity costs, depending on future decisions by regulatory authorities regarding how these customers should be allocated a "just and reasonable" share of transmission costs.
Industrial System Designation (ISD) for legacy self-supply with export
Under the current legislative scheme, the owner of a generating unit may supply on-site load on its own property (the self-supply exemption). However, in a series of Alberta Utility Commission (AUC) decisions issued in 2019 and 2020 (the E.L. Smith Decisions), the AUC concluded that, contrary to its previous interpretation of the scheme, in the absence of a specific statutory exemption, the owner of a generating unit is prohibited from serving on-site load and exporting excess electricity produced on-site for export onto the grid (i.e., self-supply with export).
There are limited exemptions from the general prohibition on self-supply with export under the EUA, the HEEA and related regulations, including municipally-owned generators, small renewable generators, and co-generation power plants that have obtained an industrial system designation (ISD) approval from the AUC. Broadly, in its current form, section 4 of HEEA permits the AUC to grant an ISD where the development of on-site generation is a component of an efficient, highly integrated industrial process where on-site generation represents the most economical source of generation for on-site operations. In particular, designated industrial systems are entitled to export the electric energy that is in excess of the industrial system's requirements because such export is expressly contemplated by subsection 4(2)(b)(ii) of HEEA.
The AUC acknowledged in the E.L. Smith Decisions that it had previously approved applications that permitted self-supply and export and acknowledged that the E.L. Smith Decisions represented a departure from those earlier approvals. The AUC has also stated that the approval holders for these power plants have been operating their plants based upon a reasonable reliance on the approvals granted to them and confirmed that it does not consider that these approval holders have engaged in any form of intentional misconduct or non-compliance. For all intents and purposes, the AUC has treated these plants as being grandfathered, i.e., they continue to self-supply and export as they did prior to the E.L. Smith Decisions.
Bill 22 includes grandfathering provisions that will provide these legacy self-supply with export power plants a specific path towards obtaining an ISD. Under the new subsection 4(5)(b) of HEEA, legacy self-supply with export generators with an in-service date on or before January 1, 2022 are eligible to apply for and be granted an ISD approval.
The grandfathering provisions for legacy self-supply with export arrangements will provide relief to owners of such operations that have been operating in a regulatory limbo, having to rely on regulatory forbearance by the AUC for conduct that would otherwise be non-compliant with the legislation (as interpreted by the AUC). Owners of such generators will still need to apply to the AUC for an ISD. The grandfathering provision provides that the AUC may approve an ISD for a self-supply with export generator that was in-service prior to January 1, 2022, indicating that the AUC retains a level of discretion to deny an ISD based on other (yet to be determined) public interest considerations.
New projects seeking to engage in self-supply and export will need to rely on the new exemption under the proposed amended section 2(1)(b) of the EUA if they do not otherwise meet the legislated criteria to be eligible for an ISD, which remain unchanged by Bill 22. Self-supply and export under the new EUA exemption will be subject to a yet-to-be determined ISO tariff rate. While the AUC may also require a designated industrial system to pay a "just and reasonable" share of transmission costs, it has not imposed such a charge as part of any ISD approval issued to date. It remains to be seen whether and to what extent an ISD would provide a cost advantage relative to reliance on the new exemption for self-supply with export.
Winding down of Balancing Pool
Bill 22 begins winding down the Balancing Pool by redistributing its remaining responsibilities, including:
- requiring the AUC to impose an administrative fee on owners of public utilities or any other person to finance the Office of the Utilities Consumer Advocate, which was previously funded through the Balancing Pool;
- moving the administration of small-scale generation from the Balancing Pool to the Alberta Electric System Operator; and
- providing for the government to designate an entity to receive payments in lieu of tax from tax-exempt municipality-owned utilities or other payments that would have gone to the Balancing Pool.
A week before Bill 22 was introduced, the Alberta government released a report, Power Purchase Agreement Review, [PDF] prepared by Deloitte LLP (Deloitte). The report, completed a year earlier in March 2021, was commissioned by the government to assess the financial performance of the Power Purchase Agreements (PPAs) held by the Balancing Pool between May 1, 2015 and April 1, 2019. Specifically, Deloitte was retained to quantify the financial loss incurred by the Balancing Pool as a result of the six PPAs that were returned to it and the subsequent termination of three of those PPAs. Deloitte concluded that, over that period, the Balancing Pool lost $1.34 billion in relation to the returned PPAs.
Notwithstanding the political rhetoric reflected in the debate on Bill 22, with the expiry of the PPAs at the end of 2020, many of the Balancing Pool's legislated duties were already eliminated. The Balancing Pool was established in 1998 by the Government of Alberta to help manage the transition to competition in Alberta's electricity industry. Although the Balancing Pool has over the years performed various other responsibilities, its raison d'être was to hold unsold PPA capacity.
Given the expiry of the PPAs, in our view, it is appropriate to begin the process of unwinding and moving towards dissolution of the Balancing Pool. The Balancing Pool was a unique and transitory element of the deregulation process of Alberta's electricity market. With the expiry of the 20-year terms of the PPAs, the Balancing Pool's core purpose has come to a natural end. Bill 22 redistributes its remaining responsibilities to other entities that have the capacity and expertise to perform those functions
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