The UCP government is changing electricity market rules to overcome one of the biggest criticisms of Alberta’s deregulated market it says is designed to prevent price spikes and increase affordability.On Monday, Affordability and Utilities Minister Nathan Neudorf said his department would modify the rules around so-called ‘economic with holding’ of power into the electricity grid to recoup losses from higher-cost sources.Economic withholding occurs when power producers deliberately hold back all of their electricity supply by offering it into the market at higher prices, with the aim of raising the overall pool price..”The market’s rules were designed 25 years ago and some are no longer optimal for the system today.”Affordability and Utilities Minister Nathan Neudorf.In Alberta’s competitive, energy-only market design, electricity suppliers submit offers into the power pool every hour. The Alberta Electric System Operator then dispatches the power starting with the lowest-priced offers and selecting progressively higher-priced energy until the supply for that hour meets Alberta’s demand.Because suppliers are only paid when the energy they produce is actually dispatched, they forecast competitive prices for their electricity before offering it into the power pool. Once the total demand for power is met, the market pays all suppliers the price of the highest dispatched offers.But an energy-only market, like in Alberta, only compensates generators for the volume of power they generate. Because power prices can change by the minute, it’s a way of reducing costs. If the AESO is unable to meet the supply-and-demand balance with lower-priced offers from other suppliers, progressively higher-priced electricity will be dispatched and increase the pool price for that hour. When done by large generators, it can result in higher prices for consumers.While not illegal, the practice is widely criticized as one of the reasons for higher prices paid by Albertans compared to other parts of the country..That’s not withstanding that electricity prices are extremely volatile and can change by the minute. Longer periods of higher prices, such as Albertans have seen over this past year, signal the need to increase competition in the province’s electricity market and help lower prices again, Neudorf said.The new rules will limit the offer price of natural gas generating units owned by large providers, if net revenues cross a predefined threshold. They will also require natural gas generating assets to be made available in certain circumstances such as extreme weather and other times of peak demand.Neudorf said the changes will still allow generators to earn revenue while ensuring Albertans have access to affordable and reliable power. The changes were made in consultation with the Alberta Electric System Operator (AESO) and the Alberta Market Surveillance Administrator.Alberta has the only deregulated electricity market in the country that isn’t directly government-owned and some of the negative consequences have been tolerated in exchange for free markets.“Our government is committed to Alberta’s unique and investor-driven energy-only market. However, the market’s rules were designed 25 years ago and some are no longer optimal for the system today. This will truly make a difference by helping lower Albertans’ utility bills,” Neudorf said.
