Alberta Plans Legal Challenge Over Canceled Power Dealsby
Current system shifts risk to consumers, Hoffman says
Canceled contracts may cost $1.5 billion through 2020
Alberta’s provincial government plans to legally challenge electricity producers’ ability to terminate power-purchase arrangements in an effort to minimize losses to consumers.
Four buyers’ applications to terminate power purchase arrangements, or PPAs, they call uneconomic are “unlawful,” the government said Monday in a prepared statement. The cost to consumers of returning the contracts to the balancing pool, an agency that acts as a backstop to risks in the system, will be C$2 billion ($1.5 billion) through 2020, the government estimated.
“The previous government sold deregulated electricity as a way to transfer financial risk to the private sector, in return for giving them the chance to earn greater profit,” Deputy Premier Sarah Hoffman said in the statement. “In secret, they did the opposite -- setting up a system where consumers bear all the risk.”
Alberta’s electricity generation system is one of the few deregulated power markets in the world. The province in 2001 implemented the policy to transfer risks associated with fluctuating power prices to companies and away from consumers, while allowing new entrants to participate in the market. At the same time, buyers of the PPAs were able to terminate the contracts if they became unprofitable.
Electricity generator Capital Power Corp. said in a statement Monday that the government’s legal claim is “without merit” and that it will “exercise every legal avenue at our disposal to ensure that the Government of Alberta honours the terms of the PPAs.”
TransCanada Corp. and Enmax Corp., owned by the City of Calgary, are among companies that have terminated PPAs since the government announced its new climate policy and plans to phase out of coal in November. TransCanada cited “unprofitable market conditions” and increases in the price of carbon among the reasons.
Under the policy, the balancing pool takes over the contract, paying the generator the contract price while selling the power into the market at a loss in the case of prices lower than the contract.
Alberta is in the midst of a revamp of its electricity system, with coal plants phased out and more renewable power being phased in by 2030. In addition, a boost in the price of carbon has also increased costs for buyers of PPAs.