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An Electricity System in Transition: The Electricity Statutes Amendment Act, 2021

An Electricity System in Transition: The Electricity Statutes Amendment Act, 2021
December 2, 2021

On November 17, 2021, the Honourable Dale Nally, Associate Minister of Natural Gas and Electricity, introduced Bill 86, the Electricity Statutes Amendment Act, 2021 (ESAA), to the Alberta Legislature. With the ESAA, the Government of Alberta (Government) takes steps to modernize an Alberta electricity system in transition. Rapidly evolving technology, including that related to energy storage and renewable power generation, as well as a number of recent Alberta Utilities Commission (AUC) decisions and inquiry reports, have all contributed to a changing landscape for the production, transmission and distribution of electricity in Alberta.

The Government appears to recognize these challenges and opportunities, stating that the ESAA will “help build investor confidence in Alberta’s electricity grid and support a modern and innovative electricity system”. Specifically, the ESAA proposes to

  • Create a new regulatory framework specifically for energy storage;

  • Allow unlimited self-supply and export; and

  • Introduce distribution system planning.

To accomplish these goals, the ESAA will amend all three major statutes governing the electricity system in Alberta: the Alberta Utilities Commission Act, the Electric Utilities Act (EUA) and the Hydro and Electric Energy Act (HEEA).

The amendments in the ESAA will be accompanied by changes to other regulations, and possibly through new regulations, and the Government intends to have the ESAA proclaimed at the same time the related regulations are brought into force, by the end of 2022.

The changes will create new opportunities for companies in the electricity generation and storage sector. Many details are still to be worked out, particularly in new or amended regulations, and companies in the electricity industry should stay informed and active in government relations and aware of and engaged in developments at the AUC and Alberta Electric System Operator (AESO).

Although ESAA has not yet moved past first reading, for convenience, we refer here to the amendments proposed in ESAA as changes which will happen.

ENERGY STORAGE

Grid-scale energy storage, at this point largely battery energy storage, is in the early stages of growth in the Alberta market. The first grid-scale battery storage project in Alberta, TransAlta’s WindCharger Battery Storage Project, was only brought online in late last year, and most energy storage projects so far have been proposed as part of larger power plants. The AESO and the AUC are both adapting to this new technology, with engagement ongoing on the AESO’s Energy Storage Roadmap and the AUC having recently created a new section of its Rule 007, which details the information which must be included in different kinds of AUC applications, applicable to battery storage facilities.

The new provisions for energy storage in the ESAA will provide a framework for these existing processes of regulatory change. This new framework creates a completely new and separate category of energy facility for which AUC approval is required, the energy storage facility. The legislative framework for energy storage facilities will largely parallel the existing framework for power plants. The AUC’s new Rule 007 requirements for battery storage facilities may guide the kind of information required for energy storage facility applications under the ESAA, but the AUC may also develop a new section of Rule 007 more directly in line with the implementation of the ESAA.

Transmission and Distribution System Owner Ownership of Energy Storage

The ESAA will allow Distribution Facility Owners (DFOs) and Transmission Facility Owners (TFOs) to own energy storage and recover the costs of such ownership, but only under limited circumstances. These limitations will tend to prioritize competitive procurement.

In the first place, if DFOs and TFOs choose to own energy storage, the costs and expenses of that storage will be recoverable in their rates, but it is not clear whether this will be on a flow through or capitalized basis – this is yet to be determined. In addition, it is not clear whether DFOs and TFOs who own energy storage will be able to sell electricity from that storage to the grid.

Moreover, DFOs in particular will be able to own energy storage facilities only if this ownership is approved by the AUC. The AUC may only approve such an application in limited circumstances which incentivize the competitive procurement of non-wires services before, or instead of, DFO ownership of energy storage facilities, in most cases.

TFOs will not be subject to a general prohibition against the ownership of energy storage facilities. However, only energy storage facilities which are part of needs identification documents applied for by the AESO and approved by the AUC will become part of transmission lines under the HEEA, placing much of the decision making for the development of transmission system-based energy storage on the AESO.

SELF-SUPPLY AND EXPORT

Self-supply is currently prohibited by the AUC’s interpretation of the EUA and HEEA, except for designated industrial systems which generate electricity as part of an integrated industrial process, certain municipally owned sites, micro-generation facilities smaller than 5 megawatts (MW) and flare gas generators.
The ESAA will remove this prohibition, allowing any market participant to generate electricity, consume some of that electricity on-site and sell electricity to the grid through the Power Pool. This may create opportunities for electricity users to more economically supply their own power needs while exporting to the grid when they generate excess electricity or when it otherwise makes sense to do so.

Self-supplying market participants will, however, have to pay a just and reasonable portion of the costs of the transmission system, as determined by the AESO in its tariff. These costs will be charged directly to market participants who are connected to the transmission system and to DFOs with customers who self-supply. The ESAA will allow but not require the AESO to charge this tariff on a gross basis on all electricity production and consumption by a self-supplying market participant, not just on what the market participant consumes from and exports to the grid.

The ESAA will also confirm that industrial systems continue to be able to self-supply and export, and that industrial systems will not have to pay the new tariff covering self-supply.

The self-supply amendments in the ESAA reflect many of the findings of the Self-supply and export – Alberta Utilities Commission discussion paper released June 5, 2020 and, as noted there, how self-supply and export will be treated financially will ultimately be determined in a future AESO tariff proceeding.

DISTRIBUTION SYSTEM PLANNING

Connected to the issues of energy storage and self-supply, but also with broader implications, the ESAA will impose a duty on DFOs to prepare distribution system plans, presuming the Minister directs the preparation of such plans in regulation, and the duty to make decisions about “non-wires services” as part of their decisions about building, upgrading and improving the electric distribution system.

To align with this new duty, ESAA will grant the Minister the power to make regulations regarding electric distribution system plans, including with regard to their objectives and purposes, the information that must be included, and their timing, frequency and sharing. Much of the impact of the ESAA in terms of distribution system planning will be determined by these regulations.

CONCLUSION

While the amendments in the ESAA will affect both transmission and distribution systems, they address many of the concerns raised by the recent Distribution System Inquiry Final Report released February 19, 2021, which addressed the regulatory and economic challenges of distributed energy resources, including energy storage and self-supply. The Distribution System Inquiry however, while finding that the issues of self-supply, including self-supplying market participants’ contributions to the costs of the transmission, were a “principal issue”, also noted that there were positive opportunities to be gained by the integration and proper pricing treatment of distributed energy resources (Distribution System Inquiry, para 258). The ESAA begins to capitalize on those opportunities but many ideas such as value stack pricing, prioritization of non-wires alternatives and integrated system planning have yet to be addressed.

Ultimately, developing a modern electricity grid which can effectively meet intended policy goals will require input and engagement from all electricity stakeholders. As the AUC stated in the Distribution System Inquiry Report, “the continued evolution of the electric system will require thoughtful planning and actions on the part of the distribution utilities, the Commission, and other stakeholders” (Distribution System Inquiry, para 497). We will continue to monitor developments in this area.

For further information, please contact:

Terri-Lee Oleniuk        403-260-9635
Matt Hammer             403-260-9672

or any other member of our Power group.