How transmission rates are set

Regulated transmission service providers in Alberta are able to recover reasonable and necessary costs, including a fair return on its capital investment, necessary to provide safe and reliable utility service to customers.

Transmission charges cover the cost of moving energy from generation and production facilities through transmission systems to distribution systems.

Transmission service providers are regulated by the AUC. The AUC reviews applications from transmission owners to consider and decide on the reasonable and necessary costs that a regulated utility can recover, including a reasonable return on its capital investment, necessary to provide safe and reliable utility service to customers.

Electric transmission

Transmission lines are required to deliver electricity from the sources of generation, through high-voltage power lines, to the distribution companies, which in turn supply end-use customers. All customers connected to the Alberta Interconnected Electric System, roughly 26,000 kilometres of lines, are required to pay for this service, which is identified as the transmission charge on your bill.

Transmission facility owners own, operate, build and maintain the system of high-voltage power lines and other electrical equipment that moves power from generators to towns, cities and large industrial customers 24 hours a day, seven days a week, when needed. The transmission facility owners are able to recover reasonable and necessary costs, including a reasonable return on its capital investment, necessary to provide safe and reliable utility service to customers. Transmission facility owners recover costs through a transmission tariff, which is shared by all transmission users according to their proportionate use of electricity, which is primarily industry funded. The Alberta Electric System Operator (AESO) tariff requires approval by the AUC.

The AESO oversees Alberta’s transmission system and determines where transmission enhancements or replacements are needed and then assigns a transmission development project to the transmission facility owner. The projects are assigned based on the location of the need and is assigned to the transmission facility owner by the AESO based on designated service territories.

Given that transmission facility owners provide transmission services exclusively within a designated service territory, the transmission system is what economists define as a natural monopoly where it is more efficient to have one company in the market. Due to a non-competitive nature and high fixed costs, transmission companies are regulated to ensure just and reasonable rates and safe and reliable service.

Once a transmission facility owner’s tariff is approved by the AUC, the AESO will pay the full amount of the tariff in equal monthly instalments to the transmission facility owner. The AESO recovers the costs it incurs to plan, maintain and operate Alberta’s electricity transmission system through the ISO (independent system operator) tariff. The ISO tariff covers the AESO’s payments to transmission facility owners, costs associated with transmission losses, system support services (such as operating reserves) and administrative costs. The ISO tariff is reviewed and approved by the AUC in a public proceeding.

The ISO tariff applies province-wide and defines the rates that are charged to the electric distribution companies and to large industrial consumers of electricity. The distribution company will determine how to recover its costs, including the charges under the ISO tariff from its customer base. It does so by designing different rates for different rate classes, depending on the class’ consumption and use of the system. For example, a large commercial customer would have a higher contribution to the distribution company’s transmission cost recovery than a residential customer. Distribution companies are also considered a natural monopoly, are regulated, and must apply to the AUC for approval of their rates.

Natural gas transmission

Transmission pipelines are required to transport natural gas from sources of production and other pipelines, through high-pressure pipelines, to the distribution companies and gas co-ops that supply end-use customers, and to electric power generators and major industries. All customers are required to pay for this service, which is incorporated into the delivery charges on your natural gas bill.

The physical assets of the two rate regulated natural gas transmission companies (ATCO Pipelines and NOVA Gas Transmission Ltd.) that serve Alberta customers are combined under a single rate and service structure. ATCO Pipelines’ revenue requirement (costs) are approved by the AUC in a public proceeding. The approved costs are charged on a monthly basis to NOVA Gas Transmission for inclusion in its revenue requirement. Nova Gas Transmission’s rate design, cost allocation and rates fall under the jurisdiction of and are approved by the National Energy Board, Canada’s federal energy regulator. In this integrated approach, only NOVA Gas Transmission collects payment directly from customers using the Alberta system.

ATCO Pipelines and Nova Gas Transmission own and operate assets within distinct operating territories. These territories also establish areas for future facility investment by each company.

Natural gas transmission rates are calculated based on the assets required to deliver natural gas from producers to industrial companies, distribution utilities, gas co-ops, etc. and the costs of operating those assets. Rates are set with the specific goal to ensure that the utility and its shareholders have an opportunity to earn a fair return on their investment, while ensuring that customers receive safe and reliable service at just and reasonable rates.

The distribution facility owners that are under the AUC’s rate setting jurisdiction include ATCO Gas and Apex Utilities.