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Transmission line costs spark concern in Alberta

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VANCOUVER — A year ago the Alberta government appointed a critical transmission review committee to determine whether the Alberta Electric System Operator’s proposal that two high voltage direct current (HVDC) north-south transmission lines be built because of occasional congestion on the Edmonton to Calgary corridor.

In spite of the availability of lower-cost alternatives, the committee agreed with the operators’ proposal, the Redford government accepted the committee’s recommendation, and AltaLink and ATCO Electric are now in the throes of planning to commence construction.

Unfortunately, the committee’s recommendation was not based on careful analysis. In fact, the recommended construction will result in overbuilding transmission lines at considerable and unnecessary expense to Alberta electricity consumers. For this reason, further work should be put on hold until a cost-effective solution is identified.

The process by which the committee sought to fulfill its mandate was inadequate and incomplete. Interested parties were granted only one hour to present their views to the committee, including discussion, compared with the great many hours that the commission presumably spent interacting with AESO officials. Following a compressed hearing process given the importance of its task, the committee simply summarized what it had "heard" before providing two pages of "analysis" which regurgitated the AESO’s main arguments and concluding that the AESO’s proposal was "reasonable."

The committee failed to assess the benefits and costs to consumers pertaining to the recommendation that two north-south HVDC transmission lines are needed. With an estimated capital cost of $3 billion, two north-south HVDC lines is by far the most expensive of available options. The AESO itself recently indicated that annual transmission system revenue requirements will jump from under $1 billion in 2011 to $2.7 billion by 2016 largely as a result this decision. Given the impact that this will have on electricity costs, one can only wonder whose interest the committee (and the government) is serving.

Based on AltaLink’s estimate that the annual cost of the two HVDC lines would be $344 million, every Albertan will pay an average of $75 a year for these lines. While the committee suggests that the cost on the average residential electricity bill will only be a few dollars per month, it misses the point that Albertans will ultimately also have to cover the higher costs faced by municipalities, hospitals, schools, restaurants, etc. Because of the cost, every effort should have been made to determine whether there are feasible alternatives to what the AESO recommended — such as building a single 500 kilovolt AC line or seeking solutions that avoid construction of major new transmission lines.

The committee accepted the AESO’s recommendation that DC lines be built in spite of costing an estimated $1 billion more than AC lines. Again, there was no attempt to justify the extra expense via cost-benefit analysis. Further, building two 500 kilovolt DC lines with a transfer capacity of 2,000 MW each would increase the Edmonton to Calgary transfer capacity from about 2,150 MW to approximately 4,000 MW. This is quite remarkable given that congestion has occurred very infrequently during the past six or seven years and that the committee heard that the volume of north-south transfers is likely to decline in the future as ageing coal-fired generators near Edmonton are retired and new gas-fired generation capacity such as the 800 MW Shepherd Energy Centre is built in the south.

The cost-benefit analysis provided in the University of Calgary school of public policy’s submission to the committee concluded that "the proposed construction of the two HVDC lines appears to be an over build of transmission capacity" which cannot be justified. Further, because of the location of new electric generation facilities, TransCanada suggested that "a review of the critical designation of some of the transmission lines should be conducted and perhaps deferral of one or both HVDC transmission lines may be warranted."

Because the AESO and the Committee failed to demonstrate that building two north-south HVDC transmission lines constitutes a cost-effective approach for addressing the transmission congestion challenges that the AESO claims need to be addressed, the Alberta government should immediately turn this important matter over to the Alberta Utilities Commission. The government has already acted on the committee’s recommendation that the Electric Statutes Amendment Act, 2009 be amended to give the Commission responsibility for approving transmission lines that are proposed in the future. The commission should now also be asked to decide whether the benefits and costs of building the two HVDC north-south lines indicated as "critical" in the Electric Statutes Amendment Act, 2009 justify their construction when examined alongside possible alternatives. If not, it should be left to the Commission to suggest solutions that best fit the needs of Albertans.

 

Gerry Angevine is a senior economist in the Fraser Institute’s centre for energy policy studies.

 

—Troy Media

 

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