In the face of projections indicating Alberta needed C$14.5 billion in transmission investment between 2009 and 2019, the Alberta government decided that major transmission facilities would be procured using a different business model from that used by AESO when assigning incumbent utilities the responsibility to develop, own and operate such facilities, with costs subject to a prudency review by the Alberta Utilities Commission. In 2010, the Alberta government issued a mandate requiring AESO to develop and implement a competitive process for specified major transmission facilities. AESO’s objectives for the competitive process included:
- Minimising life-cycle costs through the use of competitive pricing.
- Creating opportunity for maximum innovation throughout the life-cycle of the facilities.
- Creating opportunity for new market entry.
- Allocating risk to most efficiently and effectively mitigate it and reduce costs.4
In determining the most effective model to meet its objectives, AESO considered several possible structures but settled on a ‘single owner’ model in which Project Co is responsible for all development activities, engineering, procurement, construction and financing for a project and will own, operate and maintain the project for a specified term. AESO selected the single owner model because in its view, this model delivers (among other benefits) the greatest degree of cost optimisation (since Project Co can optimise costs across the life cycle), and promotes innovation and accountability.5 By selecting this model, AESO moved away from the traditional process for delivering new transmission infrastructure in Alberta to a greenfield PPP type process.
A PPP is frequently defined as “a long-term contract between a private party and government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance.”6 While the competitive process developed by AESO falls within that definition, AESO’s process, in several respects, departed significantly from PPP precedents used in Alberta and other jurisdictions. Some of these differences are discussed below.