On November 10, 2022, the Alberta Utilities Commission (AUC) rejected an application regarding the proposed regional and bulk transmission rate design of the Alberta Electric System Operator (AESO). In essence, the application before AUC sought to recoup electrical grid infrastructure costs and redefine how large-load users like forestry operators pay for power.
The November 10 ruling by the Commission means that there will be no changes to how electricity rates are calculated. The specific language of the order is as follows:
It is hereby ordered that:
(1) The Alberta Electric System Operator’s current rate design continues until further order or decision of the Commission.
(2) The Alberta Electric System Operator shall file a compliance filing that reflects the findings and directions in this decision regarding payment in lieu of notice provisions in the ISO tariff terms and conditions by January 15, 2023.
(3) The Alberta Electric System Operator shall update the Commission on how it proposes to deal with the remaining three ISO tariff modules that address the Commission’s directions from Decision 22942-D02-2019, by June 30, 2023.
(4) The Alberta Electric System Operator shall refile its Phase 2 ISO tariff application to reflect the guidance, findings and directions in this decision by January 31, 2025.
The Meat of the Matter
Presently, Alberta’s regional and bulk transmission rate design recovers transmission costs through energy and coincident peak (CP) demand billing determinants. However, it is a commonly-held belief that the associated CP charge overstates the cost of using the grid at peak times, allowing some customers to lower their bills by strategically reducing consumption. In its recently-defeated application, the AESO had proposed a new formula to eliminate this workaround: lower the influence of the CP charge and raise the energy charge.
The AESO submission entitled Bulk, Regional and Modernized Demand Opportunity Service Rate Design Application, went through several years of planning, engagement, technical sessions and refinements before being submitted to the AUC on October 15, 2021. In parallel with these activities to push the plan forward, companies including West Fraser, AltaSteel, Air Liquide and Millar Western Forest Products raised concerns over fundamental flaws in this application and the potential impacts to their operations. Advocacy groups like the Alberta Forest Products Association also voiced their opposition to the proposed changes.
Stakeholders and Community Leaders Weigh In
In early 2022, MD Council was approached by Brock Mulligan, Senior Vice President of the Alberta Forest Products Association (AFPA). Following Mr. Mulligan's presentation on issues at hand — including industry fallout should the application move forward — Councillor Brad Pearson moved that a letter be sent to the Alberta Utilities Commission expressing Council’s concerns over proceeding with the proposed tariff redesign.
In the months leading up to its review and decision, the Alberta Utilities Commission received similar letters of dissent from Woodlands County; the Cities of Lethbridge and Red Deer; the towns of Edson, High Prairie and Slave Lake; and Paul McLauchlin, President of the Rural Municipalities of Alberta.
“I sincerely thank Council for their tremendous support on this matter,” shared Mr. Mulligan. “When Alberta’s forest industry needed advocacy support on this critical issue, the MD was there for us. The recent AUC ruling is a major win for regional forestry, and I acknowledge the Council of Lesser Slave River for the part they played in getting us there.”
The AUC ultimately denied the AESO application, noting that it was a significant departure from historical applications of its kind. The Commission also noted that none of the participating stakeholders supported AESO’s proposed rate design.
“We are pleased that logic prevailed in the recent AUC ruling,” added MD Reeve Murray Kerik. “Council will continue to support initiatives and activities that benefit our region’s mills and forestry operations. These businesses contribute to the economic and social sustainability of our communities, and many others across Alberta.”
Background Information
The Players
Alberta Utilities Commission (AUC): The AUC is a is a quasi-judicial independent agency established by the Government of Alberta, responsible to ensure that the delivery of Alberta's utility service takes place in a manner that is fair, responsible and in the public interest. They regulate electricity in Alberta.
Alberta Electric System Operator (AESO): The Alberta Electric System Operator (AESO) manages and operates the provincial power grid. They steward existing power grid needs and plan for future systems and infrastructure.
Alberta Forest Products Association (AFPA): The AFPA is a lumber certification and industry advocacy body. They work with Alberta’s forestry and forest products industries to develop and manage public awareness of the industry.
The Positions
AESO Position: The Bulk and Regional Tariff is how the AESO captures fifty percent of the costs necessary to pay for ongoing investments in Alberta’s electricity transmission system. In early 2021, AESO proposed a redesign of this tariff to address the following issues:
- The current tariff relies upon 12-CP (peak hour) rate for cost recovery for transmission costs, which has increased substantially.
- The increase to the 12-CP rate has caused some customers to avoid paying peak hour charges by changing when they consume power.
- Customers that can change when they consume power are not paying for the same sunk transmission costs, resulting in other customers paying greater transmission costs.
- The tariff needs to be redesigned so future investments to the transmission system reflect how it is being used and so costs can be recovered accordingly.
AFPA Position: AFPA rejects any proposal that imposes significantly higher costs on large-load users. Further, AESO needs to conduct a broader and more rigorous socioeconomic analysis before any new measures or tariffs are implemented. Specific areas of concern with the AESO application include:
- AESO has failed to demonstrate that their proposal would not cause significant harm to Alberta’s forest industry and forest communities. Given the integrated nature of forestry business, the negative consequences of this proposal could ripple through the entire sector.
- There has been no accounting for the trade-exposed nature of forestry.
- There has been no cost benchmarking of competing jurisdictions. Loss of competitiveness could lead to mill closures; such closures would affect the broader Alberta economy.
AUC Determination: The AUC has denied AESO’s proposed regional tariff application, citing that on its face it constituted a significant departure from historical applications. Specific AUC directions include: .
- AESO is directed to refile its bulk and regional rate design application, considering the Commission’s guidance, findings and directions, by January 31, 2025.
- AESO is directed to refile its bulk and regional rate design application considering the guidance, directions and findings provided in the AUC decision by January 31, 2025.
Given that AESO’s proposed bulk and regional tariff rate redesign proposal is denied, there will be no change to how electricity rates are presently calculated.