Alberta government announces new rules for power generators aimed at lowering utility bills

Alberta's government is updating its electricity market rules with new temporary measures it says will help lower consumers' utility bills.

The new measures are aimed at the practice of "economic withholding," a strategy regularly used by power generators in Alberta's unique-to-Canada free-market electricity system.

Under Alberta's competitive market design, electricity suppliers submit offers into the energy market known as the power pool every hour.

The Alberta Electric System Operator then dispatches the suppliers' electricity, starting with the lowest-priced offers and moving higher until the province's power needs for that hour are met.

Economic withholding is when power producers deliberately hold back some of their supply, offering it at a higher price. It's a gamble that can pay off if the operator needs that power, since the producer makes more money. It backfires if the province's power needs are met before it gets to the higher-priced offer.

The practice is not illegal but has been highly criticized recently as one of the factors contributing to soaring consumer power bills in the province, as well as a growing number of occurrences where power prices in the province have been higher during off-peak periods than during periods of peak demand.

"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," said Utilities Minister Nathan Neudorf in a news release.

"This will truly make a difference by helping lower Albertans' utility bills."

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, as directed by the AESO, in certain circumstances such as extreme weather and other times of peak demand.

The government said the changes will still allow generators to earn revenue while ensuring Albertans have access to affordable and reliable power.

Joel MacDonald, founder of electricity price comparison site energyrates.ca, said Alberta is one of only two jurisdictions in North America to have an energy-only electricity market, in which generators are not paid to have standby generating capacity. Instead, they are only paid for the electricity they actually dispatch to the grid.

That means, MacDonald said, that if the government sets the ceiling for economic withholding too low, power producers will feel the impact on their bottom line and may be more hesitant to invest in building new generating capacity.

"It will, in the short-term, reduce those high prices during peak periods but we're going to have, long-term, less generation. Less power plants are going to be built," he said.

"If a lot of Albertans were very concerned about rolling brownouts mid-winter, this would actually make that potential crisis more likely to happen."