Alberta’s New Electricity Generation Rules

The Alberta government announced a major update to the provincial electricity market on March 11th, 2024. The temporary regulatory changes were announced via two ministerial orders that will change the rules around economic withholding in the province. The regulation expires on November 30, 2027. 

Alberta currently has an energy-only market. In this system, the province only pays for the energy produced. Electricity suppliers submit offers into the power pool every hour. The lowest-priced electricity is bought and distributed first by the AESO. To recoup production costs, large generators will sometimes hold back some of their supply and offer it a higher price. This practice is known as economic withholding.   

The policy changes will be implemented as of July 2024 in two ways. Read on to learn more about what the new policies are, why they have been announced, and how they may affect energy bills.

Market Power Mitigation Regulation 

Addresses economic withholding by limiting the offer price of natural gas generating units owned by large generators, if net revenues cross a predefined threshold.  

• The secondary offer price limit is determined daily and is equal to the greater of $125/MWh or 25 times the day-ahead price of natural gas. This price cap is only applicable to generators with 5% or more market share for the remainder of a month when they recover a predetermined monthly revenue amount.  

Supply Cushion Regulation 

Addresses physical withholding by requiring natural gas generating assets to be made available, as directed by the AESO, in certain circumstances like extreme weather conditions and times of peak demand. 

Why is the government changing the rules for electricity generation in Alberta? 

The announcement followed recommendations from the Alberta Electric System Operator (AESO) in the Restructured Energy Market Recommendation (REM Recommendation) document published in January 2024.   

After years of rising electricity bills and record-breaking rates in the province, there has been a lot of pressure from Albertans regarding energy affordability. For example, in April of 2023, the EPCOR rate in Edmonton was 17.734 cents/kWh. A few months later, in August, it was at 32.539 cents/kWh, representing an 83.48% increase in four months. 

If we compare annual averages, the increase is even higher. The average regulated rate in Edmonton went from 9.826 cents/kWh in 2021 to 23.89 cents/kWh in 2023. This is a 143.1% increase. In Calgary, the increase over the same period was 143.6%. 

For consumers under the RRO, the impacts of such increases have been especially higher, as rates float every month. Due to the price fluctuations, many Albertans have left the regulated option over the past couple of years. In the last quarter of 2023, the total number of residential RRO customers fell by around 66,000, the strongest net reduction in any quarter since 2012. 

Such a big shift puts even more pressure on RRO prices, as consumers are still paying back the deferral program from early 2023. In summary, the more people leave the RRO, the burden of the price cap payment deferral gets heavier, as the amount is distributed over the remaining consumers on the Regulated Rate Option. 

Many Albertans paid special attention to the ‘energy demand vs generation’ topic in January, as the AESO issued a grid alert in response to extreme cold temperatures causing high demand across the province. The electricity grid was at high risk of rotating power outages.   

The province had a low supply to meet the high demand; several power plants were offline either because of scheduled maintenance or because of the cold temperature.  

Daily natural gas prices in Alberta reached as high as around $14/GJ during the coldest days of the deep freeze, the highest daily prices since 2014.  

Alberta’s electricity pool price reached $999.99/MWh multiple times on January 13, 14, and 15, 2024. As a comparison, the highest it reached in December 2023 was $548.78/MWh for an hour on December 14.  

On January 11, 2024, a new record for hourly peak demand) was set at 12,384 megawatts (MW). The previous record was set in December 2022: 12,193 MW. 

How the new regulation may affect energy bills 

According to the Minister of Affordability and Utilities, Nathan Neudorf, these changes will encourage competition, improve reliability and make utility bills more affordable for Albertans. The government believes these two changes still allow generators to earn revenue while ensuring Albertans have access to affordable and reliable power. 

Although the policy changes arrived at a time when energy consumers were concerned about electricity and natural gas affordability, there isn’t a lot of certainty amongst energy industry analysts about whether this change will be beneficial in the long term.  

Power generators in Alberta are only paid for the electricity they dispatch to the grid, so they are not compensated to have standby generating capacity. According to EnergyRates.ca‘s economist Joel MacDonald, if the government sets the ceiling for economic withholding too low, electricity producers could feel the impact and may be more hesitant to invest in building new generating capacity. 

This could represent a similar issue in the long term. Although prices could be lower in the short-to-medium term, this could discourage power generators from building more generation plants. In case that happens, supply could be tighter in the future, potentially making electricity in Alberta more expensive and less reliable. 

Other energy industry analysts, like Jason Wang with the Pembina Institute, have also pointed out that if power generators don’t get a lot of clarity of what the electricity market design in Alberta will look like in the future years, this could also discourage them from investing in renewable energy generation in the province and hinder the province’s net-zero goals.  

Comparing your energy options 

In Alberta, you can choose what energy retailer provides you with electricity and natural gas as both are deregulated in the province. 

To understand more about your options and check what type of energy plan makes the most sense for you, go to EnergyRates.ca for an unbiased comparison of your Alberta energy options in a single place, including fixed, floating, and regulated rate plans for your house. Business, large commercial property or industrial facility customers can get a free custom quote of the best competitive retail options for their operations.