Alberta Announces Changes to Balancing Pool
On November 29, 2016, the Government of Alberta announced that it had tabled Bill 34: Electric Utilities Amendment Act, 2016 (Bill 34) in the Alberta Legislature. When passed, Bill 34 will add an additional section to the Electric Utilities Act, S.A. 2003, c. E-5.1 (the EUA). The purpose of Bill 34 is to allow the Balancing Pool, established in 1999 to manage the transition to competition in Alberta's electricity industry (the Balancing Pool), to borrow money from the province to manage its funding obligations.
As we previously discussed here and here, a number of companies in Alberta announced in the spring of 2016 that they would be terminating their Power Purchase Arrangements (PPAs) with coal-fired power plants in that province. As a result, under subsection 96(3) of the EUA, a PPA that is terminated is deemed to have been sold to the Balancing Pool and the Balancing Pool becomes responsible for offering the capacity into the market and making payments under the PPA to the generator. The Balancing Pool has the option of either continuing to hold the PPA, reselling it or terminating it by paying the generator an amount equal to the net book value of the generating unit.
Currently, the Government of Alberta reports that the average electricity consumer receives a Balancing Pool credit of $1.95 on their monthly bill. However, as a result of the Balancing Pool becoming responsible for the terminated PPAs, Alberta expects that without the changes proposed in Bill 34, the Balancing Pool would have to remove that credit and apply a charge of $8.40 per month (approximately $100 per year) starting Jan. 1, 2017, with similar charges applied until the end of 2020.
Under Bill 34, the EUA would be amended by the addition of section 82.1, which would authorize the Minister of Finance to, on the recommendation of the Minister of Energy, make loans to the Balancing Pool and guarantee the obligations of the Balancing Pool.
The Government of Alberta expects that the change implemented by Bill 34, in conjunction with other proposed Ministerial Orders that allow the Balancing Pool to smooth price volatility over a longer period of time, will support electricity costs remaining low and stable. As we discussed in an earlier post, Alberta has made several significant announcements in the past few weeks relating to electricity in the province, which have been targeted at ensuring low electricity prices for consumers. One of these announcements includes a consumer price cap on electricity prices of a maximum of 6.8 cents per KWh from June 2017 until June 2021.
However, we would note that at this time, Alberta has not announced the total amount of loans expected to be made to the Balancing Pool. The amount of the loans will obviously impact the total cost to Albertans of this initiative. A smaller loan amount will likely mean higher charges on electricity bills since any deficit in the Balancing Pool at the end of the year is passed through to consumers. Conversely, while a bigger loan would likely result in lower electricity bills, it would probably attract controversy given that there is no certainty that the Balancing Pool would be able to repay these amounts in light of weak electricity market prices in Alberta and the slowdown in the provincial economy as a whole.