Electric system watchdog to review Alberta power shortage

By Keith Gerein and Sheila Pratt, edmontonjournal.com July 10, 2012

EDMONTON – Alberta’s electric system watchdog is planning a full review of Monday’s power shortage in which the unexpected failure of six generating stations on one of the hottest days of the year led to rotating blackouts across much of the province.

Harry Chandler, head of Alberta’s Market System Administrator, said Tuesday his probe will try to “pick apart the day,” by looking into the legitimacy of the plant shutdowns and whether all market rules were followed. Critics have said the failure of so many major generators on a day of record electricity demand is suspicious, raising the question of whether market manipulation was at play to drive up the price of power.

“Those are legitimate questions, people should be asking those questions and it’s up to us to respond to that,” Chandler said. “Like everybody else, we noticed this one. We’re looking at it, but I wouldn’t take it any further than that at this point.”

Consumer groups are calling for new rules to help prevent electricity brownouts.

Under the current system, power companies must signal a day ahead the amount of energy they will supply and at what price. But neither the price nor the amount of power is binding.

Under a binding, day-ahead market mechanism, generators would pay a penalty if they did not meet their supply offer or they would have to buy power to meet their pledge, said Jim Wachowich, lawyer for the Alberta Consumers’ Association.

The potential of paying a penalty would reduce the risk of sudden power shortages like the one that occurred Monday that briefly sent prices soaring to the maximum rate of $1,000 per kilowatt hour.

“In this market, what is the penalty to the generator who does not show up?” Wachowich asked.

“In Alberta’s market, there is incentive for generators to pull out and the price goes up, but if they had to pay a penalty, they would be less likely to pull out.”

While the electricity industry has said the shutdowns were the result of an unfortunate series of mechanical mishaps, some critics have asked how the public can know for sure.

Last December, Calgary-based TransAlta Corp. was fined $370,000 for manipulating the market in November 2010. TransAlta created an artificial power shortage, causing consumers to pay an extra $5. 5 million on their bills.

Sheldon Fulton, formerly executive director of the Industrial Power Consumers Association, said the big generators are resistant to a binding day-ahead market because it shifts some risk to them and prevents them from pushing up the price.

“It’s similar to a situation if you order a fridge from Costco at one price and next day, when it is delivered, you are told the price just went up. What kind of market is that?”

Doug Simpson, director of market operations for the Alberta Electric System Operator, said a binding, day-ahead market has been contemplated twice, but the provincial government preferred the current setup. He said while the current system does not hold power companies to prearranged prices and volumes, such companies are required to at all times offer all the energy that’s available from their plants.

“There is nothing that suggests to me there was any collusion or any wrongdoing (Monday),” Simpson said. “It’s not unusual that we have multiple generator outages on the same day. It is a little unusual we have six of them on a high peak day, but it will happen from time to time.”The last time the province experienced such shortages occurred in the summer of 2006.

Chandler said results of his review could be posted on the administrator’s website within weeks if there is widespread public interest, or it could be included in the agency’s quarterly report due this fall.

He said the system administrator has several powers to get to the truth —visiting generating stations, interviewing witnesses, seizing records, obtaining search warrants and compelling testimony — though he wouldn’t say if any of those actions were contemplated.

“It’s important to recognize we are dealing with Alberta companies here,” he said. “It’s not in their interests to be pulling shenanigans. This is a marketplace. You compete to the line. We try to make it pretty clear what that line is and if it goes over, then we take action.“Every organized electricity market has a group like this to watch for these kinds of things, not because we’re dealing with a bunch of crooks, but because it’s a complicated business and markets need to have that assurance of legitimacy that things are on the up and up.”

Alberta Energy Minister Ken Hughes promised to look into the issue, though he said he would be surprised if any of the shutdowns were not legitimate.

“I can understand people might question how it can happen, but Albertans can rest assured that there are processes in place to monitor and track competitive behaviours within the system,” Hughes said. “I am looking to have a full understanding of what happened over the last 24 hours in Alberta and I will be looking to see if the institutions we have in place are conducting themselves the way they were designed to be performing.”

Simpson said power demand in Alberta reached a record peak of 9,885 megawatts on Monday as air conditioning units and irrigation systems were cranked up to deal with hot temperatures. That’s about 300 megawatts above the previous high set last year on July 14.

Simpson said AESO was ready for a high demand day but was not prepared to lose six major generators. One generator was scheduled to be down, but then five more went off-line during the late morning and early afternoon, including three plants in a 45-minute span after 1:30 p.m.

The operator compensated by importing more than 600 megawatts from B.C. and Saskatchewan, but with power reserves strained to their limit, they ordered regional distributors such as Enmax and Epcor to help shave 200 megawatts of demand off the system.

In Edmonton, Epcor responded shortly after 2 p.m. by instituting rotating blackouts around the city, a move that affected about 35,380 customers. Spokesman Tim le Riche said the company typically has some advance notice about power shortages, but in this case the demand from AESO came suddenly and gave no time to warn the public.

“Under regulations we have to respond immediately.”

The loss of supply in the system caused power prices to shoot up from $11 to the maximum of $1,000 per kilowatt hour for about three hours. Prices were again high on Tuesday as demand continued to be strong.

While those costs will be passed onto consumers, Simpson said final bills will reflect a range of prices.

Rob Spragins, the province’s Consumers Utilities Advocate, an office in Service Alberta, said it’s hard to know whether the higher prices will have an impact on household electricity bills next month. Prices are set 45 days ahead for household consumers.

Spragins said it is possible there will “not be much impact.”

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