Transmission Line Losses – The End of a Saga?

October 9, 2020

On September 23, 2020, the Alberta Utilities Commission (Commission) issued a decision approving the Alberta Electric System Operator (AESO) compliance filing for the Module C payment plan concerning the collection and reimbursement of line loss charges calculated for an 11 year period (January 1, 2006, to December 31, 2016) (the historical period).[1] This latest and final line loss decision from the Commission concludes a long and complex regulatory process dealing with a complaint advanced more than 15 years ago respecting the calculation of transmission line losses in Alberta.

Background

When energy is transmitted over the transmission system, some of it is lost, usually in the form of heat. This lost energy is known as transmission line losses and is quantified as the difference between the energy put on the system and the energy ultimately received for consumption. In Alberta, the cost of line losses is recovered from generating facilities by establishing a percentage loss factor for each generating facility that reflects its location and contribution to transmission line losses. Every generator is required to have a supply transmission service (STS) contract with the AESO, which provides system access service to the generator in exchange for payment of the line loss charge. The AESO is responsible for calculating and collecting line losses. 

The methodology to determine each generator’s contribution to line losses was the subject of a complaint originally brought forward by Milner Power Inc., culminating in numerous decisions from the Commission and its predecessor, the Alberta Energy and Utilities Board, and numerous applications before the Alberta Court of Appeal.

The Commission bifurcated the proceeding to ultimately consider the complaint. In Phase 1, the Commission found that the then current line loss methodology was unlawful (AUC Decision 2012-104). Phase 2 of the proceeding involved three modules: Module A included determinations regarding the Commission’s jurisdiction to grant a retroactive remedy for the historical period in which the unlawful methodology was applied (AUC Decision 790-D02-2015); Module B addressed the determination of a compliant methodology to be applied on a go-forward basis (AUC Decision 790-D03-2015); and Module C addressed the nature of the retroactive remedy for the historical period (AUC Decision 790-D06-2017[2]).

Retroactive Remedy (Module C)

The calculation of line losses using the unlawful methodology for the historical period resulted in some generators overpaying and some underpaying. In the Module C decision, the Commission determined the methodology to be used to recalculate line losses for the historical period and determined what generators would be reinvoiced for recalculated charges and credits for that period. 

In doing so, the Commission directed the use of the modified Module B methodology for the recalculation of line losses – that is, the methodology that was determined to be compliant and utilized on a go-forward basis (i.e. for the period following the historical period) in the Module B decision was modified to utilize actual historical data rather than forecast data to ultimately determine line loss charges and credits for the historical period. Since the Module C decision, the AESO has recalculated line losses for part of the historical period, with the expectation that recalculated line losses for the years 2014, 2015 and 2016 will be financially settled in December 2020.

Additionally, the invoices for the adjustments relating to recalculated line losses are to be issued to the STS contract holders at the time the line losses where incurred and not to any subsequent interest holder in the applicable STS contract. This results in the liability for historical line losses remaining with the original STS contract holder, regardless if any assignment of that contract during the intervening period between the first charge or credit being issued and the recalculated charge or credit being issued. 

Commission Decision

Payment Plan

As noted in the Module C decision, in some cases, the amount owing from recalculated loss factors could be substantial enough to adversely affect the cash flow of, or cause harm to the financial stability to, some market participants. [3] Therefore, the Commission agreed that a due date delay may not provide sufficient relief to those market participants. Instead the Commission supported the AESO’s efforts develop a payment plan in instances where the financial stability of the market participant is compromised, thereby mitigating the risk of the market participant defaulting on the amount owing. [4]

In approving the payment plan, the Commission found that it complied with each of the directions set out in the Module C decision, including:

  • applicability to parties who held the STS contracts at the time the losses were incurred;
  • implementation of three settlement periods for the historical period; and
  • establishment of the structure, terms and eligibility criteria of the payment plan.

The eligibility criteria for the payment plan includes a demonstration of financial hardship that is met if the applicant has insufficient liquidity, a lack of available financing and an inability to obtain financing.

Default Shortfalls

In the Module C decision, the Commission directed the AESO to collect any payment default shortfalls from all market participants paying charges or receiving refunds for the historical period using Rider E of the AESO Tariff, but only after the AESO exhausts all reasonable means to collect outstanding amounts before resorting to recovery through Rider E.[5]

In the latest decision, the Commission recognized that its direction in the Module C decision remains outstanding. It is still unclear whether the direction will be required and when it may be utilized, as shortfalls will only become known once all recalculations are completed; invoices are issued; and the AESO is unable to collect on amounts owing.

Comment

Payment Plan

Throughout the regulatory process, the Commission did not receive any substantive submissions on the terms and eligibility criteria from market participants, nor did any participants indicate an intention to utilize the payment plan. Therefore, it remains to be seen how widely the payment plan will be utilized and what evidence the market participants will have to provide to the AESO in order to satisfy the eligibility criteria.

Default Shortfalls

Given that the magnitude of any shortfall or surplus resulting from the settlement process will not be known until the final invoices for charges and refunds have been issued and financially settled, all parties who were market participants in the historical period will continue to have uncertainty with respect to their financial exposure to historical line losses.

Further, before the AESO includes any shortfalls through Rider E, the AESO must exhaust all reasonable means to collect outstanding amounts. The efforts of the AESO to collect will likely be of interest to market participants given the potential financial impacts to those participants.

Commercial Disputes

While the Commission has directed the AESO to reissue invoices for historical line losses to the original STS contract holders, commercial disputes may arise once the liability for historical line losses has crystallized. Parties may have contractual arrangements regarding the allocation of historical liabilities, and, as noted by the Commission, would be free to pursue a remedy outside of the statutory scheme and Commission’s purview.[6]

Despite the regulatory saga of line losses coming to a close, given the length of the historical period, the financial sums associated with the re-allocation of line losses, and intervening commercial events, there remains ongoing regulatory and commercial issues that will continue to engage those current and past market participants who have significant financial interests in play.


[1] Alberta Utilities Commission, Decision 790-D08-2020: Milner Power Inc. and ATCO Power Ltd. Complaints Regarding the ISO Transmission Loss Factor Rule and Loss Factor Methodology, Phase 2 Module C, Compliance Filing 2.

[2] As modified by Decision 25150-D02-2020.

[3] Alberta Utilities Commission, Decision 790-D06-2017: Milner Power Inc. and ATCO Power Ltd. Complaints Regarding the ISO Transmission Loss Factor Rule and Loss Factor Methodology, Phase 2 Module C at 168 (Decision 790-D06-2017).

[4] Decision 790-D06-2017 at 174.

[5] Decision 790-D06-2017 at 193-194.

[6] Decision 790-D06-2017 at 126.

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