Guide to understanding Alberta’s electricity market

Unlike most provinces in Canada, the Alberta government has never owned and operated a utility company. Historically, Alberta was primarily served by three vertically integrated utilities, covering the province in defined service territories. Electricity rates were set by a central regulator using a cost-of-service model.

The Balancing Pool exists to facilitate policy implementation to support the functioning of the electricity industry for the benefit of Albertans.

The Alberta Utilities Commission (AUC) provides adjudication on ISO rules, transmission applications, penalties and any other related market challenges.

The Market Surveillance Administrator (MSA) provides the surveillance function for the market. The AESO gathers information and suggests evaluation areas, but only the MSA can propose penalties or fines to the AUC.

The industry framework is guided by the following legislation and supporting government policies, which define the roles of agencies such as the AESO, Balancing Pool, AUC and MSA for the development, operation and management of the markets and transmission infrastructure, as well as surveillance over behaviour.

Electric Utilities Act (EUA) (2003)

Download Electric Utilities Act

Part 1, Section 5 of the EUA outlines the vision for the wholesale electricity market including a competitive power pool, with rules that govern fair, efficient and openly competitive markets and competitive investment in generation.

Part 1, Section 6 of the EUA creates an obligation for market participants to conduct themselves in a manner that supports the “fair, efficient and openly competitive” operation of the market – commonly referred to as FEOC.

Part 2, Division 4 of the EUA outlines the duties of the independent system operator with respect to the market and transmission.

Transmission Development Policy (TDP) (2003)

The TDP provides a vision for transmission in the market to facilitate competition, and an obligation for the AESO to plan and develop transmission in advance of need in order to ensure an unconstrained system.

Transmission Regulation (T-Reg) (2004, 2007, 2012)

View the Transmission Regulation

The T-Reg provides detailed obligations for transmission planning, with criteria ensuring that all anticipated in-merit energy can access the market 100 per cent of the time under normal operating conditions, and 95 per cent of the time during abnormal conditions.

This same regulation also provides details related to loss factor calculations, development of long-term transmission plans, and criteria for system access.

Alberta’s Electricity Policy Framework (Market Policy) (2005)

The Market Policy is the result of extensive consultation confirming that the wholesale markets are to remain competitive, reliable and sustainable, while instilling investor confidence and providing fair access, resulting in competitive prices.

The Market Policy supports Alberta’s current “energy-only” market, where generators are paid only for the energy they supply to the market. 

As a result of this policy, specific rules were developed for both short-term adequacy and price fidelity, as well as for long-term adequacy or reserve margins. Further, the policy provides accommodation for intermittent resources and guidance for placing interties on a level playing field with other generation.

Provincial Energy Strategy (PES) (2008)

The PES supports investment in a reliable and efficient transmission system that encourages the addition of new generation to meet long-term load growth. Similar to the Market Policy, the PES encourages strengthening the transmission system to support the development of wind generation and other renewable sources, and to build interties to other markets.

Fair, Efficient and Open Competition Regulation (FEOC Regulation) (2009)

View the Fair, Efficient and Open Competition Regulation

The FEOC Regulation provides guidance to participants on competitive behaviour, outlines limits for investment (i.e., holding restrictions) and provides for an information-rich environment.

Taken together, the essence of this policy framework is that transmission continues to be operated with only a few transmission facility owners (TFOs), and the AESO has the obligation to plan transmission to ensure system access to customers in advance of need. This “unconstrained” transmission model forms the backbone of the Alberta market model—which provides for competitive prices by having all generation, no matter its fuel type or location, compete in a single pool for energy.

Renewable Electricity Act (REA) (2017)

View the Renewable Electricity Act

Section 2 of the REA establishes a 30 per cent target for the electric energy produced in Alberta, measured on an annual basis, to be produced from renewable energy sources. The REA outlines the AESO’s role and obligations related to developing, implementing and administering the Renewable Electricity Program by 2030.

On June 10, 2019 the Government of Alberta advised the AESO that they will not be continuing with the Renewable Electricity Program (REP) and thus do not intend to proceed with additional competition rounds. The government provided direction moving forward that the AESO should continue to oversee the projects and contracts awarded under previous REP rounds.  

Transmission is essential to Alberta’s wholesale electricity market, driving economic development and ensuring competitive electricity prices through an uncongested system. The province’s power grid spans 26,000 kilometers of transmission lines, linking 235 generating units and 200 market participants.

Classified as a monopoly service, transmission is planned by the AESO, while development and operation are managed by transmission facility owners (TFOs). Development responsibilities are typically assigned to TFOs based on service territories, except for specific projects handled through competitive processes.

The T-Reg mandates that the AESO develop long-term plans to ensure sufficient transmission for a competitive electricity market, using an unconstrained injection-withdrawal model with no transmission rights assigned to participants. These plans, issued every two years, outline the AESO's vision for grid development to support Alberta's economic growth. The plans include forecasts of load, generation, and economic activity, recommending solutions to maintain a safe and reliable power system.

Non-wires solutions are limited under the regulation, prioritizing unconstrained transmission planning. Proposed projects undergo open and transparent review and approval by the AUC. 

The wholesale electricity market in Alberta operates on an “energy-only” model, compensating generators solely for the energy they produce.

• The AESO also manages an ancillary services market to maintain grid reliability.
• Suppliers submit price-quantity offers seven days ahead of delivery, with pricing adjustments permitted up to two hours prior to settlement.
• Offers are ranked in a merit order, with the lowest-cost offers dispatched first to meet demand.
• The final offer dispatched sets the system marginal price (SMP), reflecting real-time supply and demand balance. The SMP, updated minute-by-minute, determines the hourly pool price, calculated as the average of 60 one-minute SMPs and posted ex poste, ensuring prices reflect market dynamics and orderly dispatch.

Interties operate similarly to other generation types but differ in timing and the use of transmission tags. Imports are priced at $0/MWh, and exports at $999.99/MWh, with transmission access requiring coordination with jurisdictions dispatching on an hourly basis. Participants must tag transactions, which must be approved by the relevant control areas. 

The AESO manages system access in Alberta and is the sole purchaser of ancillary services (AS), which are vital for maintaining grid reliability by ensuring acceptable voltage and frequency levels as defined by the Electric Utilities Act. AS products are procured via an independent third-party platform, with related costs recovered from load customers through the AESO tariff as part of transmission costs. The main ancillary services include: 

• Operating Reserve
• Transmission Must-Run
• Load Shed Services for imports
• Blackstart services

The AESO is committed to transparency and an information-rich environment. All current and historical market data can be found on the AESO’s Market & System Reporting page.