The Long Road Towards Clarity on Power Plant Self-Supply and Export

August 03, 2020

Written By Deirdre Sheehan and Keely Cameron

On July 29, 2020, the Alberta Utilities Commission (AUC) released its discussion paper exploring the question of the extent to which on-site generators should be permitted to self-supply power and export excess energy produced to the grid. In several recent AUC decisions (Decision 23418-D01-2019, Decision 23756-D01-2019, Decision 24393-D01-2019, Decision 24519-D01-2019, Decision 24126-D01-2019, Decision 24674-D01-2019 and Decision 24979-D01-2020, the "E.L. Smith Decisions"), the AUC concluded that in the absence of a statutory exemption, on-site generators are prohibited from serving on-site load and exporting excess electricity produced on-site for exchange through the power pool. The E.L. Smith Decisions were a shift in policy as the AUC had previously approved applications that permitted self-supply and export. The discussion paper was developed as part of the request of the Alberta Department of Energy (DoE) that the AUC conduct stakeholder engagement on the issue of self-supply and export.

Background

The discussion paper summarizes the results of its stakeholder consultation and explores whether the opportunity for on-site generators to export excess power to the grid pursuant to the Electric Utilities Act should be extended beyond current exemptions for electricity generated by: (i) industrial operations with an industrial system designation (ISD); (ii) small-scale renewable energy sources; (iii) oil and gas facilities using natural gas that would otherwise be flared; and (iv) certain municipally owned generators. The majority of self-supply and export is currently associated with ISDs, which is expressly permitted by the existing statutory scheme. However, there are legacy facilities (self-supply and export plants approved and operating before the E.L. Smith Decisions), which do not fall within any of the current statutory exemptions.

The current requirements, which apply with few exemptions, provide that: (1) electric energy entering or leaving the interconnected system is to be exchanged through the power pool; and (2) persons wishing to receive electric energy must take service from the distribution system. The discussion paper sets out the underlying policy associated with the existing requirements.

The AUC's consultation considered the following three options for when self-supply and export should be permitted:

• Option 1: Status quo.
• Option 2: Limited self-supply and export, for instance allowing on-site generators to size their plant to meet internal need on an annual basis but being permitted to export excess energy to the grid to a certain percentage of annual production.
• Option 3: Unlimited self-supply and export.

The majority of stakeholders engaged by the AUC, appeared to be in support of the third option of unlimited self-supply and export on the basis that it would create regulatory certainty, would reduce power costs, improve system reliability and support the development of a fair, efficient, and openly competitive electricity market while incentivizing investment, growth and innovation in Alberta's economy. However, other stakeholders raised concerns that such an approach would reduce market visibility and encourage uneconomic bypass or unnecessary duplication of the transmission system, with the result of shifting transmission costs to other consumers. A point of controversy amongst the stakeholders was whether current transmission tariff design reasonably allocates transmission costs amongst electricity consumers and avoids cross-subsidization of grid-connected self-supplying generators should unlimited self-supply and export be adopted.

With respect to legacy facilities, the discussion paper recognizes that such facilities have been operating based upon reasonable reliance on the approvals granted to them and both the AUC and Market Surveillance Administrator have confirmed that they will not investigate any market participants in relation to these issues while the consultation is ongoing. The discussion paper also states that the AUC is prepared to work directly with the operators of the legacy facilities to assess ISD qualification. While there is no stated intention to investigate at this time, there may be an expectation in the future that these legacy facilities will no longer be grandfathered.

Recommendations

Regardless of the DoE's ultimate decision on the limits, if any, that ought to be placed on self-supply and export, the discussion paper recommends that the current statutory scheme be amended to clarify when self-supply and export is expressly permitted.

The discussion paper recommends that the DoE decide from a policy perspective whether to allow on-site generators that do not qualify as ISDs, or other limited exemption, to self-supply and export. The discussion paper recognizes that in determining these issues, the DoE must balance the potential benefits of unlimited self-supply and export, with maintaining the ongoing viability of the transmission system. The discussion paper further provides that if the DoE does decide to favour unlimited self-supply and export, that it must consider whether such generators should be required to pay some form of transmission avoidance tariff or fee to ensure they are paying a just and reasonable share of transmission costs and whether such a fee would be adverse to fair and open participation in the power pool.

In the interim, while we await further direction from the DoE, there continues to be uncertainty for legacy facilities and those seeking exemptions from the current requirements. Once the DoE determines its favoured approach, if it ultimately moves towards adopting the preferred Option 3 (unlimited self-supply and export), legislative amendments would be required and the AUC has suggested that questions regarding how transmission costs should be addressed, could best be addressed through two proceedings, the distribution system inquiry and the AESO tariff application. All of which to say, while the recommendations in the discussion paper are welcome, we appear to be a long way away from any clarity on this matter.

If you have any questions regarding the discussion paper, or the implications of the current statutory regimes regarding self-supply and export, please contact a member of the Bennett Jones Regulatory group.

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