CALGARY C Information mill wiggling from money-losing contracts to purchase electricity from coal-fired power plants in Alberta as a result of the province’s new climate change policies, leaving a provincial agency to honour the agreements.
TransCanada Corp., a company most widely known for building pipelines but which has a power business, cited a current change in Alberta’s climate laws in order to terminate contracts to purchase coal-fired electrical power from Atco Ltd. and TransAlta Corp.
The company said Monday it will take a $235 million charge around the termination of those contracts, called Power Purchase Agreements (PPA), which must now be honoured with a provincial agency called the Balancing Pool.
In addition, AltaGas Ltd. director of finance and communications Jess Nieukerk said his clients are also cancelling its PPAs and returning those obligations to the Balancing Pool.
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Both TransCanada and AltaGas cited the change in Alberta’s laws C like the new policy that carbon emissions be taxed at $30 per tonne starting in 2017 C because the reason for the cancellation.
“It will make coal a lot more uncompetitive,” Nieukerk said of Alberta’s new carbon-pricing policies.
Both companies produce electricity from natural gas, a process that emits less carbon per megawatt hour than coal-fired power.
“The climate change policy provides them a very good reason to leave (of coal contracts),” said Larry Charach, an Edmonton-based consultant who helped shape Alberta’s deregulated electricity market as he worked for the provincial government within the late 1990s.
Charach said there is certainly the surplus of accessible power in Alberta, that is made worse by weak interest in electricity given the current downturn in the economy. He explained the collapse in natural gas prices this year can also be rearranging Alberta’s electricity market.
Each of these factors has contributed to a fall in electricity prices within the province, that has made many of the coal-fired power contracts unprofitable for the buyer.
“The climate change policy is really a factor, but the affordable prices would be the trigger,” Charach said.
In December, Calgary’s city-owned utility company Enmax Corp. informed the Balancing Pool it would also terminate certainly one of its PPAs for coal-fired electricity.
The terminated contracts now require the province’s Balancing Pool to purchase coal-fired power from Atco and TransAlta in a specific price, which many analysts have to say is greater than the present price of electricity in Alberta.
“TransCanada is terminating money-losing agreements that obliged it buy power in Alberta at above market prices,” FirstEnergy Capital Corp. analyst Steven Paget said inside a research note.
Paget added the decision to hand those purchase agreements over the provincial agency would prevent further losses for TransCanada, which “was prone to lose money on every megawatt-hour it purchased this season due to low gas prices in Alberta combined with inclusion of the 800 MW Shepard gas-fired plant near Calgary.”
TransCanada executive vice-president Bill Taylor said inside a release the company will still have fun playing the Alberta power market, as a natural gas-fired power producer.
“These low-cost and low CO2 emitting gas units are expected to do well these days environment,” Taylor said.
David Gray, an electrical expert and president of Gray Energy Economics Inc., said Albertans might find the effects of the termination of those agreements on their own electricity bills, in the form of a rider from the Balancing Pool.
“It leaves the Balancing Pool holding the bag during the last part of the agreements,” Gray said.
gmorgan@nationalpost.com
Twitter.com/geoffreymorgan
