Shifting Currents: Modernizing Alberta’s Electricity Grid

Background

On March 6, 2024, the Government of Alberta proclaimed the Electricity Statutes (Modernizing Alberta’s Electricity Grid) Amendment Act (the “Act”). The Act originally received Royal Assent on May 31, 2022; however, proclamation was delayed until March 6, 2024 to allow for the development and implementation of new regulations.

The Act amends the Alberta Utilities Commission Act (“AUCA”), the Electric Utilities Act (“EUA”), and the Hydro and Electric Energy Act (“HEEA”). The Act, formerly Bill 22, and the accompanying regulations represent another step towards modernizing Alberta’s electric system. Overall, the hope is that these developments bring long term savings to Alberta’s electric system, ensuring the province’s power grid remains affordable, reliable, and sustainable.

Summary of New Changes Introduced by the Act

Clarity in legislation and regulatory framework regarding energy storage: The Act provides clear definitions for “energy storage facility” and “energy storage resources” in the HEAA and EUA respectively. Another key change is the expansion of the definition of “Distributed Generation”, which now include both generating units as well as energy storage resources.

The new section 13.01 of the HEEA titled “Energy Storage Facility” establishes when parties seeking to develop storage facilities will be required to seek commission approval and along with changes to the Hydro and Electric Energy Regulation clarify that energy storage facilities will be required to be permitted and approved in accordance with AUC Rule 007.

This new process provides additional clarity and certainty to the industry on the regulatory requirements for building energy storage facilities in the province, which had previously been approved on an ad hoc basis in the absence of defined regulatory treatment of storage assets.

Self-Generation and Sale of Excess Power: The Act clarifies the rules associated with the practice of “self supply with export”. These changes stem from the regulatory uncertainty arising from the AUC’s E.L. Smith Decision[1] (and the others which followed),[2] which concluded that the owner of a generating unit is prohibited from serving on-site load and exporting excess electricity to the grid (i.e. self supply and export), unless a statutory exemption applies.

The Act amends Section 2(1)(b) of the EUA by exempting the portion of electric energy produced by a generating unit that is “self-supply” from application of the EUA in certain conditions and broadly enables market participants to choose self supply and export, subject to the requirement that self-supply with export facilities pay their fair share of system costs through the Alberta Electric System Operator’s (“AESO”) tariff.

The AESO tariff treatment of self supply with export has yet to be determined and will be included in future application to the AUC which will be subject to the Commission’s review and ultimate approval. This change will allow for on site generators to calculate their transmission connection costs when they assess the economics of investing in on-site generation with export and provides further certainty to parties who had been engaged in self supply and export prior to the release of the E.L Smith decision.

The enhancement of Transmission and Distribution Planning: Prior to the Act’s implementation, the AESO’s ability to procure non-wires services in its system planning was subject to “specific and limited” exceptions. This “specific and limited” language contained in section 15 of the Transmission Regulation (“T Reg”) limited the AESO’s, ability to consider non wires solutions to address system planning needs. The “specific and limited” language under section 15(3) of the T-Reg has now been removed, thereby enabling AESO to consider non-wires services, such as energy storage.

Pursuant to the amended T-Reg, the AESO can choose to procure non wires services. However, it must be done competitively except for when there is only one electricity market participant available; if competitively procuring a non-wires service is not feasible or appropriate or it would be more suitable for technical reasons that the non wires service be provided by the owner of a transmission facility.

Ultimately, this change may enhance reliability and limit costs by providing mechanisms to manage periods of high demand or constraints on the transmission system and could limit the requirement to invest in additional transmission infrastructure.

In addition to the current amendments of the T-Reg, the Government of Alberta has signaled in the 2023 Green Paper that there will be additional changes to the province’s transmission policy.[3]These changes will likely include additional amendments to the Transmission Regulation regarding the procurement of traditional wires and non-wires solutions in the province.

Winding down the balancing pool: The Act enables the formal winding down of the Balancing Pool. Many of the responsibilities of the Balancing Pool became redundant when the remaining Power Purchase Arrangements (“PPAs”) expired in 2020. The Act transfers the Balancing Pool’s responsibilities to other entities.

It is estimated that consumers will pay between $786 million and $1.1 billion to wrap up the pool’s activities, meaning the current consumer rate rider, which covers the Balancing Pool’s operations, will continue to apply up until at least 2027. Order in Council 045/2024 amends the Payment in Lieu of Tax Regulation, to allow for this transition, which will come into force January 1, 2025. While the Balancing Pool was originally an effective tool in assisting the province’s transition to a deregulated electricity market; as it has now largely served its purpose, the winding down of the Balancing Pool broadly aligns with the aims of the Act.

Takeaways

Overall, the amendments contemplated by the Act respond to the new realities and the increase in demand by consumers and a more modern grid. The amendments provide clearer definitions to ensure that self supply with export shares the cost of the transmission system, facilitate energy storage, and allow for the contracting by the AESO of non wires services to keep up with the increase in electricity demand in Alberta.

Proclamation of the Act and regulations is consistent with the government’s objective of providing reliable and affordable electricity and meeting the continued needs of Albertans. Developments to watch going forward include how storage will factor into transmission and distribution planning, as well as how the costs associated with self supply and export are reflected in the AESO tariff.

If you have any questions regarding Electricity Statutes (Modernizing Alberta’s Electricity Grid) Amendment Act, please contact a member of the McLennan Ross Environmental & Energy group.