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Canada

Canada

PROSPECTS OF BORDER TRADING

Wholesale electricity wheeling between Canada and the United States -- to be greatly facilitated once the concept of regional transmission groups (RTGs) is brought to life -- could well open up a new export market for Canadian wind energy. Approval for the first RTGs is expected later this year and the Northwest Regional Transmission Association (NWRTA) and the Western Regional Transmission Association (WRTA), could become the first groups approved by the US Federal Energy Regulatory Commission (FERC). A number of western Canadian firms are actively helping create these RTGs together with US utilities and independent energy players in a major advance for Canada-US electricity co-operation and competition. RTGs are designed to help members transmit bulk power through a participatory, rather than an adversarial, system. They are being formed in response to open access provisions of the 1992 US Energy Policy Act (EPAct) to promote regional electricity trade by allowing non-discriminatory transmission access, thus avoiding FERC access orders and litigation.

The two Canadian provinces most involved in these RTGs, British Columbia (BC) and Alberta, are also leading the country towards open transmission access and wholesale electricity wheeling. Such RTGs may even become vehicles for greater inter-utility co-operation and open access within Canada. British Columbia Hydro and its electricity trade subsidiary Powerex are helping develop WRTA and NWRTA and will most likely be the first Canadian companies to enrol in an RTG. Powerex is seeking transmission service through the Bonneville Power Authority as a key benefit from WRTA and NWRTA membership.

BC Hydro recently proposed province wide wholesale wheeling to its regulator, the BC Utilities Commission (BCUC). If the idea is approved, other BC utilities and independent power producers would be able to transmit electricity on Hydro's grid to BC and Alberta, Canada's two northern territories, and the US.

This could facilitate the construction of wind farms in Canada for power exports, such as the one proposed by The Chinook Project Inc. (a subsidiary of Nor'wester Energy Systems) and Canadian Enhanced Energy Developments for southern Alberta (Windpower Monthly, October 1994). Such projects could exploit BC Hydro's transmission agreements like WRTA and NWRTA. These accords could also allow RTG members in the US to negotiate for access to BC transmission facilities. "However, state and federal wind energy production tax credits in the US may price us out of the market, and may violate the North American Free Trade Agreement," says Nor'wester's Jason Edworthy.

Both WRTA and the Southwest Regional Transmission Association (SWRTA) received conditional approval from FERC in late October 1994, subject to certain modifications of their governing agreements, and are expected to become operational after final approval from FERC. WRTA expects to be a voluntary association of about 80 members supplying much of the western United States, Canada and Mexico.

About one-third of WRTA's US members will likely be independent power producers, power marketers and power brokers. The remaining two-thirds would be utilities. Some of the marketers and brokers are affiliated with large energy companies and utilities, while others are smaller and locally based.

Open access to transmission lines seems, now, to be a foregone conclusion. BC Hydro at the end of 1994 solicited 300 MW of non-utility generation supply from Canada or the US -- an amount roughly equal to that cancelled with the ending of Alcan Aluminium's Kemano Completion Project in January, a mega hydro project much criticised on environmental grounds. And Calgary based TransAlta Utilities Corporation (TAU), Canada's largest investor-owned utility, recently had rates approved that allow independents to wheel power within Alberta and export to other provinces and to the US. Alberta's two other major utilities are actively seeking similar rates.

"Through WRTA, we seek fair terms to ensure access to the US power market," says Doug Little, inter-utility issues manager at Powerex. "Membership will allow fast dispute resolution and help enhance our sales to California and other western states. In the process, we agree to provide wholesale transmission access at reasonable and non-discriminatory prices to US and Canadian utilities and independent power producers which might join the WRTA." Since BC Hydro and Alberta utilities are considered low cost producers, most of the trade would likely flow from north to south.

Canada's National Energy Board (NEB) has cautioned that full participation by Canadian utilities in RTGs could raise legal issues between the US FERC and Canadian regulators. To this end, WRTA has approved "parallel wording" in its bylaws, substituting Canadian law and regulatory authority for US law and regulation where applicable. Little expects transmission service disagreements in Canada to be resolved by WRTA members internally, with mediation and then arbitration under Canadian law and regulation. To resolve differences in the US, WRTA members would apply US law and regulation.

Canada lacks similar legislation to the EPAct, and wheeling of power between Canadian provincial utilities on third party transmission lines is not yet practised extensively. Electricity is largely a provincial responsibility and Canada is not expected to enact new legislation similar to the EPAct, or to give its NEB powers to order transmission access within Canada's provinces.

"Utility co-operation and open access requires regional agreements and solutions in Canada," says Kelly Scott of Natural Resources Canada. RTGs appear to be such a solution. They also appear to meet the concerns of the US Department of Energy about the lack of Canadian "reciprocity" (a perceived US utility inability to penetrate certain Canadian wholesale markets, while Canadian utilities actively export to the US).

A Canadian utility previously noted for antipathy to open access and wheeling has been Ontario Hydro, whose high-cost, debt burdened nuclear assets could be stranded by lower cost competition (see above). In sharp contrast to BC Hydro, Ontario Hydro froze all new wheeling arrangements in 1993. However, even Canada's largest utility is slowly restructuring towards eventual open access and full competition. In 1994 it internally split its generation and transmission into two separate business units. It also created an internal spot market for competitive electricity supply in its 1995 Transfer Pricing Scheme, and recently launched a Renewable Energy Technologies (RETs) program calling for the purchase of up to 125 MW of nameplate independent renewable electricity from 1995 to 1999.

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