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By rdnewsNOW Staff

SUPPLY CUSHION REGULATION

Alberta government announces changes to help prevent power price spikes

Jun 26, 2024 | 5:12 PM

The provincial government says it is ensuring Albertans have affordable and reliable power by making changes to electricity market rules.

Every hour of every day, government officials say power generators offer to sell their electricity to Alberta’s grid. In Alberta’s unique energy-only market, the province says power generators are only paid for the power they generate. According to the government, the lowest priced electricity is bought and dispatched first. To ensure generators are able to recoup their cost of production, provincial officials say generators may offer their power at prices above their marginal cost, a practice called economic withholding.

According to government officials, economic withholding was designed as a legitimate tool to encourage new investment in the province’s power market. Officials say the slightly higher prices that economic withholding causes in the short-term attracts new competitors to Alberta, leading to lower prices in the long-term.

That all changed, says the government, when the accelerated phaseout of baseload coal, and emphasis on intermittent renewables, altered Alberta’s supply mix. According to the provincial government, the negative impacts of economic withholding would normally be offset by having adequate competition in the market. However, Alberta’s government says the accelerated coal phaseout significantly increased the impact of economic withholding on ratepayers, beyond the original intent of the policy.

While Alberta’s government says it is undertaking the important work of restoring balance in Alberta’s electricity market, it is enacting temporary rules to limit the practice of economic withholding, lowering power prices.

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“Albertans need to have affordable and reliable power. That’s why our government is taking action to prevent price spikes on their utility bills, while ensuring the grid has a reliable supply of generation,” says Nathan Neudorf, Minister of Affordability and Utilities. “These new regulations are just the start of how our government is working to modernize Alberta’s electricity system.”

Provincial officials say the current market rules around economic withholding were designed two decades ago, when coal was the primary source of power generation. The government says the rules did not account for what Alberta’s power supply mix would look like today. Officials say Alberta’s accelerated coal phaseout significantly reduced the amount of reliable baseload power, decreasing the amount of competition in Alberta’s market. This is said to have led to Albertans seeing prices spike on their power bills, as competition was no longer able to offset the negative impacts of economic withholding.

Based on recommendations from Alberta’s Market Surveillance Administrator (MSA) and the Alberta Electric System Operator (AESO), Alberta’s government says it is introducing new regulations to ensure Albertans have reliable and affordable power.

Officials say the Market Power Mitigation Regulation addresses economic withholding while ensuring generators make a reasonable rate of return by limiting the offer price for large generators if their net revenues exceeds a monthly predefined threshold. According to the government, the Supply Cushion Regulation will ensure Alberta’s grid will remain reliable by requiring natural gas power plants to be online in times of high demand if there is not enough power supply to meet Alberta’s needs.

Alberta’s government says it is encouraging investment in the electricity market so that the province’s energy sector can continue to create jobs in the long-term, while making sure electricity is affordable for Albertans. Provincial officials say these two changes still allow power generators to earn revenue while ensuring Albertans have access to affordable and reliable power as Alberta’s government works to modernize the province’s electricity system.

Alberta government quick facts

• New, temporary regulations will come into effect on July 1.
• The Market Power Mitigation Regulation and the Supply Cushion Regulation were established in March 2024 and are set to expire in November 2027.
• The Market Surveillance Administrator is a public agency that protects and promotes the fair, efficient and openly competitive operation of Alberta’s electricity and retail natural gas markets.
• The AESO manages and operates the provincial power grid on behalf of the Alberta government.

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