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Alberta Power Market overview

Alberta’s Electricity Market: Deregulated Since 1996

Alberta currently operates a wholesale power market that sets a price for electricity in each and every hour of the year, and this market is commonly referred to as a ‘power pool’. This market is operated by the Alberta Electric System Operator (AESO), which was established by provincial legislation known as the Alberta Electric Utilities Act. The large majority of power produced and consumed within Alberta notionally (financially) flows through this pool, and the hourly price determines the revenue for generators, as well as the cost for consumers.

Generally, the electricity market can be broken down into three distinct areas: generation, transmission/distribution, and retail. Though there is some overlap between the areas, generation is basically completely deregulated, transmission and distribution almost fully regulated and retail is a mix between regulated and deregulated.

Alberta Power

The Power Generation Market

The generation industry in Alberta is largely an open, deregulated market. The AUC approves generation at the facility level.

Historically, generation was fully regulated under a cost of service regulatory model. Generators built and operated plants, and customers received a regulated power price that covered the costs plus a reasonable rate of return. New plants were approved by the regulator on the basis of economic need. This process continued until 1996, although no new substantial plants were added after 1994.

Alberta began to deregulate the generation market in 1996. Consumers and generators had previously had a relationship that guaranteed cost recovery for owners and access to power for consumers. To maintain the relationship between consumers and generators while developing an open market, a set of complex arrangements known as Power Purchase Arrangements, or PPA’s, were developed that guaranteed cost recovery for the original owners, but would also capture the excess value created by these assets for consumers once the market was deregulated.

The PPA’s were put up for auction in 2000 and went into effect on January 1, 2001 and the last of the PPA’s expires in 2020. PPA buyers received financial rights to energy produced by the formerly regulated assets; the original owners received guaranteed returns and customers received the proceeds from the auction.

The end result as of today is that generation is largely a deregulated market, and all units compete for the right to sell energy into the market for the competitively determined price. New plants are built with private capital, and generation owners are financially at risk for their decisions.

Source: Alberta Utilities Commission