Electricity 101
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When you switch on the power in your home or small business, you see the result of four major steps in Alberta’s electricity market, some of which is deregulated.
GENERATION (SOURCE): Privatized and controlled by the Alberta Electric System Operator (AESO)
TRANSMISSION: Regulated by the Alberta Utilities Commission (AUC) and the AESO
DISTRIBUTION: Regulated by the AUC
RETAIL: A blend of regulated and competitive services
With the deregulation of the electric industry in Alberta, the price paid for electric generation is no longer regulated. Generators sell their power to the Alberta Electric System Operator (AESO) following the concept which is called an “Energy Only Market”.
A number of new facilities have been built since 2000.
Electricity is sent from the generating plants over high-voltage transmission lines to substations that use transformers to reduce the voltage level. Regulated rates for transmission are set by the Alberta Utilities Commission (AUC) and are managed by the Alberta Electric System Operator (AESO). The AUC approves the construction and operation of all transmission facilities in Alberta. They also establish Regulated Transmission Rates. The AESO administers the rates and oversees the transmission system so there is equal access for all Market Participants. Distribution companies then flow through these transmission charges to Retailers in their service area. Distribution companies’ transmission charges are based on rates approved by the AUC, and on each consumer’s individual energy usage. Retailers in turn pass these transmission charges on to the consumer as part of their monthly retail bill. The need for new transmission lines is normally analyzed by the AESO and reviewed in public hearings before the AUC. The Government of Alberta has recently changed the electric industry legislation, allowing the cabinet to mandate the construction of critical transmission infrastructure. This change has proven to be highly controversial.
Alberta has built very little transmission in the past 20 years, and the need for substantial system reinforcement is widely recognized. However, the size, timing and technology of these transmission additions is unprecedented.
The removal of the public need assessment process, and its replacement by a closed-door cabinet decision-making process, is of concern to many parties, particularly since all costs of the bulk transmission system are paid by customers and no bulk transmission system costs are paid by generators.
Others observe that expanding transmission capacity will facilitate green power development, increase generator competition, and open up new internal and external supply options for customers within and outside of Alberta.
The controversy continues…
Once the transformers have reduced the high-voltage electricity from the transmission lines, the electricity then travels over the utility’s low-voltage distribution wire lines to customers. The Wires Operators (distributors) and franchise territories include:
MUNICIPAL: Calgary, Edmonton, Red Deer, Lethbridge, Cardston, Fort Macleod, Ponoka, Crowsnest Pass
REGIONAL: ATCO and Fortis Alberta
CO-OPS: Rural Electrification Association (REAs)
These utilities are responsible for the delivery of electricity and reading the consumer’s meter.
Excluding the wire rates posted by operating REAs, the AUC is responsible for the approval of the Wire Operators’ Tariff Rates, reviewing fees to be just and reasonable. The Tariff Rate recovers the utility’s costs to design, maintain, construct and finance the distribution electric system and read consumers’ meters. The Rate also includes a reasonable profit to the utility.
The Retailer must be registered with the Wires Operator and is invoiced for all regulated wires services. This cost is passed to the consumer as part of the Retailer’s monthly customer bill.
In Alberta, customers can choose to buy electricity from a Regulated Retailer whose rates are set based on a government formula or a Competitive Retailer. Competitive Retailers are licensed by Alberta Government Services (AGS). For consumers who have not chosen to sign up with a competitive supplier, the Regulated Rate Option (RRO) is available as a default supply option. Over the last 5 years, the formula used in calculating the RRO has gradually changed. On July 1, 2010, the calculation will be based on 100% month-ahead projected pricing instead of a blend of short-term and long-term hedges. Competitive electricity retailers will often purchase electricity for their customers through a combination of long-term or short-term contracts with the generation companies. They can also buy electricity directly from the wholesale spot market based on the published hourly price. This allows consumers to get as close as possible to wholesale prices, which are often well below other competitive retail or RRO prices. For more information on Competitive Retailers in Alberta visit the Utilities Consumer Advocate’s website.
While the market is a blend of both regulated and unregulated entities, the Government of Alberta is responsible for the orderly and fair proper operation of the province’s electric system, including generation, transmission, distribution and retailing.
AESO – Alberta Electric Systems Operator
AUC – Alberta Utilities Commission
MSA – Market Surveillance Administrator
UCA – Utilities Consumers Advocate
AGS – Alberta Government Services
ADOE- Alberta Department of Energy