UCP cancels planned overhaul of Alberta electricity market

The United Conservative Party has cancelled the NDP's planned overhaul which would have changed Alberta's energy system from an energy-only to a capacity market.

"When we started these consultations we asked for specifically three areas we wanted input on: affordability, reliability of the electricity system and the ability to attract investment," Energy Minister Sonya Savage said during the announcement in Calgary late Wednesday afternoon.

"We heard from all stakeholders that an energy-only market provides more affordability and it's a simpler structure."

Savage said the government consulted with a number of stakeholders during its 90-day review, from industry to consumer groups, but didn't name any specific organizations involved in consultations. 

She said money will be saved by returning to the original system, which was established by Ralph Klein's government in 1996, but was unable to put an estimate to the savings. 

Energy-only versus capacity market

Under an energy-only market, generators are paid only for electricity they produce, not for how much capacity they can produce, based on the wholesale price of energy. Critics say this can cause wildly fluctuating price swings in cost of energy, as supply-and-demand determine the price.

A capacity market means generators are paid both for the price and the capacity, which means they ensure power is always available in a pinch.

Many governments have successfully made the switch over to capacity, but critics say if not done right it can result in both too much supply and higher prices. 

The NDP had ushered in the changes in 2016, with a planned transition date of 2021, under advice from the Alberta Electric System Operator, the not-for-profit entity that operates Alberta's grid.

The AESO had said at the time the province would need new sources of electricity to meet consumer demand, that would replace shuttered coal plants and backstop renewable energy. 

And, it said power companies and investors would be reluctant to invest in an energy-only system.

But, Savage said circumstances have changed, and that the old system provides more certainty because of its known track record (something that contradicts what AESO had said in 2016).

The AESO didn't make a spokesperson available for an interview, but provided the following emailed statement Wednesday:

"The AESO is well positioned to support the Government of Alberta in successfully implementing its policy decision on the province's electricity market. Our mandate and number one priority continues to be serving the public interest by providing Albertans with reliable, affordable power."

NDP criticizes decision

Irfan Sabir, the NDP's energy critic, called the UCP's decision rash.

"Albertans remember days of price spikes and rolling power outages — and now this government wants to send us back to that time," Sabir said in an emailed release. "This decision will make things more expensive and less predictable for Albertans.

"If the Minister won't release information about who was consulted and what information they're using to make this decision, we can only speculate as to what their motives are here — it certainly isn't affordability for Albertans."

Sabir reminded Albertans of in 2012, when rides on the Calgary Stampedes midway went dark due to rolling outages.

The capacity market change was intended to avoid a scenario like that again.

"Why would this government return us to such a failed system now?" Sabir said.

But Evan Bahry, the executive director of the Independent Power Producers Society of Alberta, said he thinks the government's decision will contribute to investor confidence.

"I think Albertans understand competition and choice, and that's something that this particular design enables the most. It enables efficiency, it welcomes in new suppliers, it enables supply to be added very quickly," he said, adding that he believes an energy-only market makes it easier for renewables to compete as well. 

UCP to review price cap on power bills

Savage also said the UCP will be reviewing the price cap on power bills, which was paid for by the province's carbon tax, in the fall.

That price cap, introduced in June 2017, ensures Albertans won't pay above 6.8 cents per kilowatt hour. If the actual market price rises above that, the difference is paid to generators from the tax's funds.

• Carbon tax is gone, but consumer price cap on electricity will remain

Some companies, like Enmax, will likely welcome the move to keep things status quo with the electricity system. 

Enmax had submitted to the Alberta Utilities Commission that a capacity market could result in too much supply, saying it could drive up costs by hundreds of millions each year.