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DEREGULATION UPDATE
Alberta Government Proceeds With Refinements To Energy Marketplace
Proposed changes to Alberta's energy marketplace will deal with industry structure, leveling the competitive playing field, and aligning electricity and natural gas policy.
"Market refinements are a necessary step in the ongoing transition of Alberta's electricity and natural gas sectors. We want to ensure continued development of a fair and competitive electricity and natural gas marketplace for consumers," said Energy Minister Murray Smith.
The initiatives:
o Establish an Independent System Operator with an independent Governance Board;
o Increase the independence of the Balancing Pool;
o Expand the responsibility of the Market Surveillance Administrator;
o Have the Alberta Energy and Utilities Board approve distribution and Regulated Rate Option tariffs for municipally-owned utilities with affiliates operating outside their municipal boundaries;
o Include Medicine Hat's energy trades under the Payment in Lieu of Taxes regulation;
o Establish a Regulated Rate Option flow-through; and
o Better align natural gas and electricity customer choice.
These policy directions have been approved by government and are proposed for implementation through introduction of a revised Electric Utilities Act and amendments to the Gas Utilities Act and related legislation in the Spring 2003 Session of the Legislature. Stakeholders have been extensively consulted on these changes and will continue to be consulted as the necessary legislation is developed. This consultation includes the Advisory Council on Electricity, which is comprised primarily of consumer representatives. As Alberta's restructured electricity market evolves, refinements are needed to ensure it continues to develop for the benefit of all consumers. With experience over the past year and a half, and after consultation with stakeholders, changes will contribute to greater independence, accountability and market competitiveness while building on the current strong framework.
THE INITATIVES
o Independent System Operator (ISO) To Be Established - A new market operator will assume responsibility for market operations including the Power Pool, system control, long-term transmission system planning and management, and load settlement. Creation of a Governance Board is part of the establishment of an Independent System Operator. Board members will be independent of government and industry.
o Balancing Pool To Become More Independent and Governed By Its Own Board - A more independent Balancing Pool will be governed by a board of independent, professional members.
o Market Surveillance Administrator (MSA) To Report To The Alberta Energy and Utilities Board (EUB) - The MSA currently reports to the Power Pool Council. This change will provide the MSA with more independence to undertake its duties in all electricity markets. The MSA will have expanded responsibility in the retail market to give consumers greater confidence that retail functions are competitive.
o Alberta Energy and Utilities Board (EUB) To Approve Distribution and Regulated Rate Option (RRO) Tariffs For Any Municipally-owned Utilities With Affiliates That Operate Outside Their Boundaries - Both EPCOR and ENMAX have expanded beyond their municipal service areas to serve other customers in competition with private corporations. Therefore, the EUB will approve the distribution and RRO tariffs for both cities to ensure an open, transparent, conflict-free approval process. The Department of Energy currently approves transmission tariffs for Calgary, Lethbridge and Red Deer. All transmission tariffs would be approved by the EUB in the future. EUB approval of transmission, distribution and RRO tariffs for Edmonton and Calgary provides for consistent treatment of all market participants and a more even playing field for investor-owned and municipally-owned utilities.
o Medicine Hat's Energy Trades To Be Subject To Payment In Lieu Of Tax (PILOT) - PILOT requires that tax-exempt municipal entities make payments in-lieu of income tax to the Balancing Pool. Including the City of Medicine Hat in PILOT for their energy trades is consistent with leveling the playing field so electric market participants may compete fairly.
o Regulated Rate Option (RRO) Flow-Through - A "flow-through" RRO will be introduced once the current RRO model expires. This flow-through option will be introduced in 2004 for small commercial customers and 2006 for residential and farm customers to provide these customers with an electric energy charge that is connected to the Power Pool of Alberta "spot" price.
o Consumers benefit from a flow-through RRO by having access to competitive wholesale market prices for electricity and natural gas. This represents a new retail choice.
o Those consumers who do not choose a new natural gas retailer will continue to benefit from the existing flow-through of wholesale natural gas prices.
o If consumers prefer price certainty for their electricity or natural gas, they may choose to sign a contract.
o Natural Gas and Electricity Customer Choice - Better aligning natural gas and electricity customer choice will strengthen the competitive retail gas and electricity markets and provide consumers with a greater choice of energy suppliers and a variety of new product offerings.
o By enhancing customer choice, consumers should see better customer service, lower costs and greater choice of energy suppliers.
o The market can serve customers best if ownership of the retail market is separate from ownership of the wires and pipelines. The government will not mandate the separation but will remove systemic barriers, which inhibit separate ownership. For example, the EUB will regulate cities' wires where there is not a separation of ownership. Separate ownership may increase the overall billing charge in the short term, since the wires or pipelines owner will bill all the retailers at the wholesale level while retailers are responsible to provide a single bill for their customers. The EUB will continue to regulate RRO billing charges.
STAKEHOLDER CONSULTATION
Contributing to the development of these refinements, stakeholders, including consumers, were consulted on a number of projects conducted by Alberta Energy in 2001 and 2002 to review Alberta's electricity market. These projects included:
o Industry Structural Review - reviewed market governance, functions and responsibilities
o Retail Market Competitiveness Review - reviewed the state of retail competition
o Level Playing Field Review - assessed how municipal and cooperatively owned utilities are participating in the restructured electricity market
o Liability Review - reviewed the future liability policy for Alberta's electric industry (status quo continues)
This information was provided by the Government of Alberta. For more information, contact Lynn Hutchings-Mah from Alberta Energy at (780) 422-5597. ET
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