The electricity policy of Alberta, enacted through several agencies, is to create an electricity sector with a competitive market that attracts investors, while providing consumers with reliable and affordable electricity, as well as reducing harmful pollution to protect the environment and the health of Albertans, according to their 2022 website.
The underlying framework for the regulation of Alberta's electric industry is the Electric Utilities Act. The Act began Alberta's deregulated electricity market in 1996, where the province began to restructure its electricity market away from traditional cost-of-service regulation to a market-based system. The Act established arms-length agencies that oversee the province's electricity systemthe Alberta Electric System Operator (AESO), the Balancing Pool, the Alberta Utilities Commission (AUC), Utilities Consumer Advocate (UCA), and the Market Surveillance Administrator (MSA).
Coal used to account for 80% of all electricity generated in Alberta. By the end of 2019, with coal representing 36% of the generation mix and natural gas accounting for 54%, 89% of Alberta's electricity in Alberta was produced from fossil fuels. Eleven per cent is generated with renewables, including wind turbines, hydroelectric, geothermal, and biomass.
From 2000 until 2021, the average wholesale pool price on-peak times was approximately CA$70/MWh and CA$70/MWh during off peak times. On August 12, 2021, the average wholesale daily pool price was CA$142/MWh representing the highest price in 20 years, according to AESO data.
Escalating prices The price of electricity had dropped in 2015 to below 4 cents/KWh for the first time since 2003, during the economic recession when oil prices, and therefore commodity prices, had decreased. The last time electricity rates were this low, was in 2003. In 2017 another historic low was reached, 2.88 cents/kWh. By 2018 prices began to rise to the prices experienced before the 2014 economic downturn. Since the regulated rate option (RRO) which placed a price cap of 6.8 cents/kWh on electricity was scrapped by the UCP government in their fall 2019 budget, electricity rates and bills have spiked considerably. By January 2022, electricity rates and bills reached their highest price evermore than 16 cents/kWh in Edmonton and Calgary, which did not include fees for distribution and transmission.
On January 22, 2021, EDC Associates reported twenty years of success in retail competition in Alberta's electricity sector. On-peak pool prices averaged $70/MWh over the 20-year period and off-peak prices averaged $31 per megawatt-hour (MWh). The Alberta Electric System Operator (AESO) administers the Power Pool, which is the only market for all electricity sales and purchases in the province. The highest price in the Power Pool in the two decades from 2000 through 2020, was $90/MWh.
In August 2021, based on AESO data, wholesale power prices in the province increased sharply to over twice the average 2020 Alberta Power Pool price. From January to August 2021 the average pool price was $103.51/MWh; in August it was $142/MWh representing the highest annual price of electricity in twenty years.
On March 7, 2022, Premier Kenney announced an electricity rebate of $150. NDP energy critic, Kathleen Ganley, said that this was not sufficient and called on the UCP government to consider capping electricity rates, implementing a "rebate program or a reverse rate rider". Ganley said the government should amend the 2022 budget to "provide real relief". The UCP Minister of Natural Gas and Electricity responded that rate caps, which had been used previously did not increase future capacity and only provided short-term relief. They said that they were not fiscally responsible as future generations would pay a high cost for their implementation.
When considering potential hourly power pool prices, the AESO considers market fundamentals such as the impacts of carbon pricing, the retirement of electricity generators and conversions of coal generators to gas, the price of natural gas, additions of renewable energy forms to the supply and power outages in generation units or in electricity transmission. The forecast for 2021 was $98/MWh and in 2022 it was expected to decrease by 25% to $74/MWh. In making forecasts, AESO considers Alberta Internal Load (AIL). It was projected to be higher in 2021 than 2020 because of anticipated extreme weather, pandemic recovery, oil price increase, and the province's economic growth because of oil sands production.
From September 30 to December 31, 2021, TransAlta, which is one of the utility companies that dominate Alberta's generation sector, reported an increase of $405 million in profits compared to the same period in 2020.
Early history prior to deregulation Compared to the rest of Canada, Alberta's cities were not large enough to be able to afford electrical systems until the 1880s and 1890s. Calgary became the first city to have an electrical system when the Calgary Electric Lighting Company (ELC) installed lights in 1887. Entrepreneurs received a permit for the construction of the Edmonton Electric Lighting and Power Company on October 23, 1891, and less than two months later on December 22 sections of Edmonton had electrical light for the first time. The permit was set to expire in 1909.
In 1921, the United Farmers of Alberta (UFA) party, with origins in a small populist movement of farmers calling for publicly owned rural electrification, won a majority government, and remained in power until 1935. The estimated cost of CA$200 million was prohibitive in the 1920s. In the 1930s, Prairies were the hardest hit because of the combination of the Dust Bowl drought and the Great Depression so any plans for electrification were paused. Although all across Canada, only one in five farms had electricity by 1945, the situation for rural Albertans was complicated by the fact that the existing private power monopolies had no motivation or interest in rural electrification given the steep cost.
In 1938, the Energy Utilities Board (EUB) succeeded the Petroleum and Natural Gas Conservation Board. The AEUB later became the Energy Resources Conservation Board (ERCB) and the Alberta Energy Regulator (AER). On June 17, 2013. The AER took over energy resource development's oversight in terms of full-lifecycle regulations.
In both the oil and gas sector and the electricity sector there were advocates of public ownership to promote, and facilitate the sectors' development while protecting them from potential private interests. The province's 1940 Royal Commission on Petroleum recommended government intervention in the embryonic oil and gas industry to promote, speed up, and expand the energy sector's development while preventing "fortune hunters" from causing "chaos" through over-production. Similarly, as in the oil and gas sector, the electricity sector had its advocates of public ownership in order to accelerate and spread electrification across the province.
By 1948, electrification was a highly charged issue in Alberta as the installation of new electricity lines was slower and more costly in rural areas than in the denser cities. Alberta's governing party, the Social Credit, added a electrification plebiscite to the ballot in the 1948 Alberta general election. The two referendum choices were the existing model in which municipal power plants and privately owned firms provided electricity or a publicly owned system that would be under the administration of an Alberta Government Power Commission. This was the fourth plebiscite in Alberta's history. Those supporting the existing model with private companies against government ownership won 50.03% to 49.97% with a "razor-thin" margin.The two major cities in Alberta, Calgary and the capital, Edmonton disagreed; the majority of voters in Edmonton supported provincial control, while an even larger majority in Calgary supported the existing mix of private and municipal companies.A Report on Alberta Elections The People's Weekly, August 14, Sept. 4, 1948 Despite the referendum result, the government sponsored the creation of many Rural Electrification Associations, of which some still exist today."Alberta Power Market" website, accessed May 16, 2020
The municipality of Edmonton, was one of the early electricity facilities to convert to natural gas from coal, when its Rossdale plant made the switch in 1955.
In 1970, construction began on the Clover Bar generating station which was owned by the newly created Edmonton Power in a merger of "Edmonton's electrical distribution and power plant departments".
In order to "achieve equalization of electrical rates by averaging the price of generation and transmission across the province", the Electric Energy Marketing Agency was established in 1982 with the Public Utilities Board setting the "price at which utilities sell electric energy to the agency".
In a provincial-federal agreement the price of natural gas was deregulated in 1986 which resulted in a drop in the price of natural gas. Alberta let the Natural Gas Protection Plan expire. In the same year, two new departments—Energy, and Forestry and Lands and Wildlife were established replacing the Alberta Department of Energy and Natural Resources.
The first coal-fired steam turbine in Alberta was the Genesee generation unit, Genesee 2, which was built in 1989 with a capacity of 410 megawatts.
Deregulation Alberta has never owned and operated its own provincial power company, unlike most other Canadian provinces. In the 1990s, in response to power brownouts, the Alberta government under the premiership of Ralph Klein believed that competition would increase and prices decrease if more companies were producing power in the province. He believed that deregulation would make Alberta more attractive to business. The government created a strategy of power purchase agreements (PPAs) through which the winning bids in an auction would acquire the right to provide a portion of all the power produced in Alberta from 1996 to 2016. The PPAs would make all the decisions and cover costs of constructing power generation plants as well as bearing responsibility for all the financial risks. They would sell the power back to the grid with the "risks and rewards of fluctuating prices."
The restructuring of the electric utility industry began in the 1996. Through the restructuring process Alberta became the first Canadian province to implement a deregulated electricity market.The legislation that provided the new framework to regulate the electric utility industry was the Electric Utilities Act (EUA). Further restructuring took place through amendments to the 1996 Act, in the 1997 Electric Utilities Amendment Act. In 2003, provisions under the Act established new agencies that restructured the way the industry operates. This included the Alberta Electric System Operator (AESO), the Alberta Utilities Commission (AUC), and the Market Surveillance Administrator.
With electricity generation in this deregulated market, there is competition to sell energy in the electricity market at a price that is competitively determined. Private capital builds new generation plants and owners take on financial risks. This contrasts with the vertically integrated provincial government Crown corporations in other Canadian provinces, such as BC Hydro, SaskPower, Manitoba Hydro, Hydro-Québec and, historically, Ontario Hydro, that provide some utility services, In most Canadian provinces there is a conventional cost of service regulated power system.