 | the Power Pool and it's place in the industry |
Manager - Customer & Corporate Services, Power Pool of Alberta
Power Pool of Alberta - History
Stakeholder discussions contributed to recommendations in October 1994, followed by legislation (The Electric Utilities Act) in May 1995. These discussions led to decisions that encouraged a move from a government regulated electrical market to an open, competitive, pool market. This new Pool would also act to decrease administrative costs of providing and generating electricity in Alberta.
Alberta has opted for a gradual move towards competition in the electric industry. The Electric Utilities Act (which replaced EEMA) separated, for regulatory purposes:
Alberta's evolving electricity market
The Power Pool of Alberta, a not-for-profit corporation, operates a spot market for the exchange of electric energy in Alberta, Canada and coordinates operation of the province's interconnected power system. All electric energy bought and sold in Alberta, along with energy imported and exported through the province, is exchanged through the Power Pool of Alberta. The Power Pool performs two key functions: operation of the energy market and real-time coordination of the provincial power system. The Power Pool is responsible for ensuring that the electricity market operates fairly, efficiently and in an openly competitive manner.
Operating much like a commodity exchange, the Power Pool establishes a market price for electricity by matching supply with demand. The market works on a day-ahead basis, with Pool participants submitting offers to sell and bids to purchase electricity for the following day. This information allows the Power Pool to provide forecasts of electricity supply, demand, and spot market price for the next day. Both forecast prices and actual prices (established in real time) are published on the Web site.
Governance of the Power Pool
The Power Pool Council is responsible for establishing the rules that govern Power Pool operations and for appointing the Power Pool Administrator and System Controller.
The Power Pool Council also has responsibility and authority to establish and operate the Balancing Pool. The Balancing Pool, which was established in 1999 and early 2000, has two primary roles.
How the spot market works
All buyers and sellers have access to the real-time spot market operated by the Power Pool of Alberta. As an alternative to buying electricity at the spot price, power purchasers can also contract directly with generators to buy a specific amount of power at a fixed price over a specified time in the future. These direct sales agreements offer stable pricing arrangements that customers and generators can use to hedge against fluctuating electricity prices. As well, an independent organization operates a forwards markets that provides additional options for buying and selling electricity and managing price risk - Alberta Watt Exchange Limited.
Deregulation of the generation market
Stakeholders and the Alberta government wanted to develop a replacement for the Electric Energy Marketing Act (EEMA) which was established in 1982 to average the generation and transmission costs of Alberta Power Limited, Edmonton Power, and TransAlta Utilities.
The legislation established a Power Pool to allow for development of an efficient market for electricity based on fair and open competition. The Electric Utilities Act also included a replacement for the EEMA cost averaging mechanism. Legislated contracts were set up between electricity distributors and regulated generators so that all consumers continued to share costs and benefits of existing electricity generating units. These regulations provided distributors with an amount of output at a regulated price. Under these regulations, distributors were hedged against the spot market price for most of their existing load. Any additional electrical supply would be developed through a competitive process. New generation would also be procured on an as needed basis as the load increases. For further background about Alberta's electric industry and the development of the Power Pool, see the Alberta Department of Resource Development's publication, Power of Competition
Alberta, like many other jurisdictions around the world, is opening its electric power industry to competition. In this province, the shift to competition began with the Electric Utilities Act, which took effect in January 1996. This legislation created the Power Pool of Alberta, which has been operating an open access, competitive market for electric energy since January 1996. The Act also established an independent Transmission Administrator to manage the province-wide transmission system and set tariffs for system access.
The Power Pool is governed by an independent council appointed by the Alberta Minister of Energy. The Power Pool Council has a mandate to work in the public interest and ensure Alberta's electricity market operates fairly, openly and efficiently. Council members, collectively, have extensive experience in business, law, finance and technology. The Council oversees standing committees in key areas such as operations, finance and audit, human resources and the Balancing Pool. These committees provide a mechanism for the Council to hear the views of stakeholders as an important input in influencing the evolution and operation of Alberta's electricity market.
One member of the Council is appointed Market Surveillance Administrator. The MSA monitors market activity, investigates complaints and makes recommendations to the Council such as changes to rules and procedures. These processes ensure that market operations are efficient and equitable, that market participants comply with relevant rules and regulations, and that the rules governing Alberta's electric industry work to discourage anti-competitive practices.
The Power Pool receives electricity supply offers and demand bids from market participants and determines a market price that reflects supply and demand. The market price for any given hour is the time-weighted average of 60 System Marginal Prices set in that hour. The System Marginal Price is published on the Power Pool Web site and updated every five minutes.
Prior to January 2001, power from the formerly regulated thermal generating units in Alberta was sold into the Power Pool by the owners of these units. To advance the transition to a competitive market with many buyers and sellers, the right to sell this power has been opened to other market players. In an August 2000 auction of Power Purchase Arrangements, five buyers purchased the rights to generation capacity totaling 4,249 megawatts. Power Purchase Arrangements that did not sell during the August 2000 auction are held by the Balancing Pool and were offered for sale, in the form of short-term contracts, during an auction in December 2000. In the December auction, more than 2,800 megawatts of one, two and three-year electricity contracts were sold to 45 successful bidders.
First published May 2001
