Smith's plan dictates that consumers will pay, through a single, postage-stamp transmission rate for improvements to transmission lines in remote areas where generation opportunities would have been burdened by the cost of the upgrades. It overrules a decision by the province's independent regulator, released in November after months of stakeholder hearings, to impose a so-called Zonal Interconnection Charge (ZIC) on generators locating in areas that would require transmission upgrades.
"A policy of generator-pays would bias our system increasingly to gas fired combined-cycle plants located at load centres," says Smith. "Alberta would forego forever many opportunities to tap diverse sources within its energy reservoir."
One of those opportunities is the further development of southern Alberta's wind resources, where 170 MW of independent wind power is already installed or under construction, and a further 870 MW is proposed. Canadian Hydro Developers has 47 MW of wind generation installed close to the community of Pincher Creek and plans to increase its installed capacity by as much as 100 MW if long term customers can be found.
While a lot of wind generation could be built in the region, development "is extremely limited because of the grid," says CEO John Keating. "It won't be moving forward if you're going to put up a C$30 million wind installation, and you have to put up an additional C$20 million transmission tab for a project already at the high end of the generation scale," he says. "ZIC would have probably meant no more wind power."
While wind power producers will benefit from Smith's new policy, the real focus of his plan are the cogeneration plants providing power and steam to energy-intensive oil sands operations in northern Alberta, which is also on the periphery of the transmission system and subject to zonal charges. By 2005, Alberta oil sands production is expected to represent 50% of Canada's total crude oil output, and 10% of North American production. The potential for on-site natural gas cogeneration has been estimated at 5000 MW by 2010.
"New transmission from Fort McMurray will enable natural gas cogeneration plants at new oil sands projects," says Smith. "The cogeneration plants at those projects will be the most efficient thermal generation in North America. When that power hits consuming markets, it will help deliver competitive prices."
Minister under fire
Smith's decision to intervene and free the economic constraints on new transmission has come under fire from a number of power producers, consumer groups and politicians, who argue the ZIC plan would have provided market signals for the efficient siting of plants and minimised transmission costs. Calgary's mayor, Dave Bronconnier, says it constitutes "a government return to picking marketplace winners and losers, in many cases after investments have been made." He also believes that by overriding the Energy and Utilities Board, which is supposed to handle these decisions at an arm's length from government, Smith could undermine investor confidence.
Dick Way, TransAlta's vice president of regulatory affairs, says while his company is loath to endorse government intervention in the industry, it was struggling to accept the regulator's transmission decision. The company's subsidiary, Vision Quest Windelectric, owns or has a share in 120 MW of wind turbines operating or under construction in southern Alberta and has filed letters of interest under the federal government's wind power production incentive program for 234 MW more.
TransAlta also operates a 350 MW cogeneration plant at Suncor Energy's oil sands mine in the far north. "I think the pitfalls of having a constrained network where power cannot get from one area to another is where people can really start to collect high prices for their power, because competitors will be isolated," says Way. "I believe this will lead to better competition and a more competitive market, and the pluses of that will easily outweigh the minuses."
A study by Alberta's former transmission administrator found the grid, which has seen no new investment in 15 years, requires about C$1.5 billion in upgrades to handle predicted growth in generation capacity and load.