Rural Electrification Associations: Unique Distributors of Electricity in Alberta

Rural electrification in Alberta started in the 1940s, when utilities first began providing electric service to farms that were located close to the transmission lines that connected larger urban centers. However, for those rural areas located far from existing transmission lines the cost of installing a distribution network made serving them uneconomic for these Alberta utilities. In 1948, the provincial government passed legislation enabling the creation of farmer-owned not-for-profit rural electrification associations (REAs). It also provided a government guarantee for loans to the REAs, so that the associations could finance the capital cost of constructing a distribution network and, following construction, take ownership of and operate the lines, transformers and substations.

A detailed history of REAs is set out in AUC Decision 2012-181, found here,  a proceeding we were involved in.  Over the last 65 years, through a series of contracts between REAs and utilities, which contracts were supported and required by the regulatory framework in effect, and along with varying forms of government subsidies, REAs have played a critical role in distributing electricity to their rural members.  Today, there are 31 REAs operating in Alberta, the majority of which are members of the Alberta Federation of Rural Electrification Associations.

REAs are therefore a unique, made in Alberta, creation. Essentially, they provide power for consumers in rural communities within a specific geographic boundary. Each REA has an elected board of directors that handles the business operations of the REA. There are two types of REAs in Alberta. The first are operating REAs. These REAs manage their lines and deliver electricity to members using their own distribution lines. The second are non-operating REAs which offer electricity contracts for members through an electricity marketer who operates in their territory.

In a particular REA service area, a consumer must enter into a Member Service Contract (MSC) with that REA before the consumer can obtain electric service. Specifically, all registered land owners enter into a MSC with the REA. REA members can choose to purchase electricity at the REA’s regulated rate for the amount outlined in a contract with the relevant REA or an electricity marketer operating in the relevant area.

REAs are now within the scope of the Rural Utilities Act. The Rural Utilities Branch of Alberta Agriculture and Forestry is responsible for review of this Act.

However, as a result of high maintenance and operating costs as well as onerous safety regulations and a membership based in aging rural communities, some REAs are economically challenged. In fact, some are choosing to either amalgamate or to sell their systems to other Alberta utilities – notably to ATCO.  In north and east-central Alberta, ATCO Electric now constructs, operates and maintains the electric systems on behalf of the REAs’ boards and memberships.  ATCO Electric provides power pursuant to its REA delivery tariffs. As a result, ATCO has a lot more control on how power in the area should be expanded and maintained, as it no longer needs to seek REA board approval on these decisions.  It remains to be seen whether REAs could in the future be potential purchase targets for non-incumbent utilities wanting to get into the electric distribution business in Alberta.

The Alberta Utilities Commission (AUC) is currently undertaking a broad review into matters around distributed generation in Alberta, which includes small scale technologies used to produce electricity at or close to the end users of power, such as solar, wind and hydro. The goal of the AUC’s final report, due December 29, 2017, is to provide insight into how distributed generation can help the province achieve its target of 30% of Alberta’s electricity coming from renewable sources by 2030.   The review will provide insight into how to improve processes for connecting alternative and renewable distribution connected generation. It is possible that REAs could play a role in Alberta’s push into local distributed connected generation. We may also see REAs at some point move into generation, such as solar, and other community-based power generation projects, as there is no reason why REAs could not join in this market and contribute to building a more sustainable power grid in Alberta.

Alan Ross and Joelle Dudelzak

Alan and Joelle both practice law in the Electricity Markets Group at the Calgary, Alberta office of the national law firm Borden Ladner Gervais LLP. They are regular contributors to the postings made each Monday morning to AlbertaPowerMarket.com.

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