TransCanada becomes latest to terminate Alberta coal-power deals, citing higher costs

TransCanada Corp. has become the latest to back out of deals to buy power from coal-fired plants in Alberta — but while the company and opposition politicians point the finger at the provincial NDP's climate change policies, others suggest falling electricity prices might be a bigger factor.

TransCanada announced Monday that it plans to end power purchase agreements (PPAs) to buy coal-powered electricity from three plants: the Sheerness power plant near Hanna, owned by Atco Power and TransAlta, and TransAlta's Sundance A and B plants west of Edmonton.

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The Calgary-based company blamed the cancellation on changes in Alberta laws, saying costs associated with carbon-dioxide emissions from the plants have risen and are forecast to increase further over the remaining term of the agreements. 

The agreements contain a provision that permits the PPA buyers to terminate the PPAs if there is a change in the law that makes the agreements unprofitable.- TransCanada executive VP Bill Taylor

"The agreements contain a provision that permits the PPA buyers to terminate the PPAs if there is a change in the law that makes the agreements unprofitable," Bill Taylor, TransCanada's executive vice-president and president, energy, said in a news release.

"We have made the decision to exercise this right."

The NDP government of Rachel Notley announced in November that it planned to impose a carbon tax and phase out coal-fired power plants in order to reduce carbon dioxide emissions, a contributor to global warming.

TransCanada is just the latest company to make such a move.

The City of Calgary-owned utility company Enmax quietly ended its power purchase agreement to buy up to 663 MW from Atco Power's 689-MW, coal-fired power plant in December — becoming what is believed to be the first company to do so.

And in late February, AltaGas president David Harris said on a conference call with investors that the company was evaluating the impact of the new climate regulations and considering terminating its power purchase agreement with the Sundance B plant.

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NDP 'failed' electricity sector workers: Wildrose

The Opposition Wildrose Party pounced on TransCanada's announcement as proof that NDP policies are harming the economy.

"Today's announcement shows NDP policies are making more parts of our energy sector unviable and on an accelerated timeline," Wildrose Leader Brian Jean said.

"This is the first domino to fall for workers in the electricity industry and the government has failed to show how they will look after the workers and families who will be impacted by these decisions."

NDP says purchasing deals will be honoured

However, the NDP government quickly countered to say the PPAs would now be honoured by a provincial agency called the Balancing Pool, which was set up in 1999 to help manage the transition to competition in Alberta's electric industry.

"The Balancing Pool, which is responsible for managing its assets for the benefit of electricity consumers, has become the buyer of the power purchase arrangement,"  Alberta Energy Minister Marg McCuaig-Boyd said in a statement.

"The Balancing Pool is considering options going forward regarding this purchase arrangement. It's important to note though that any change of ownership of the power purchase arrangement will have minimal impact to consumers."

Blake Shaffer, an energy expert at the University of Calgary, says that's not the case.

"So if we look at our bills, and not many people do, there's a small positive rider on there," he said. "Every month we receive some money, that's about to go to zero — if not negative — because by assuming these negative contracts that's going to erode the Balancing Pool's overall assets. I've calculated this to be a roughly $1 billion transfer of cost over to the public."

The provincial agency can continue to buy and distribute the power itself, resell the capacity to another distributor, or end the agreement entirely by paying the owner the net book value of the contract — which may be significantly more than current electricity rates in Alberta.

Low prices may be bigger factor

But while the companies cited the impact of new climate regulations, Ben Thibault, electricity program director at the Pembina Institute, says current electricity prices that are close to half the five-year average are having a much bigger effect on profitability.

"That difference is much larger than any impact of the actual carbon price," said Thibault. 

"It demonstrates that operating these coal plants is not economic like maybe it once was."

Thibault says the announcement doesn't mean the plants will immediately close, but lends weight to the Alberta's plan to phase out coal-fired plants because it's not competitive when "it's not allowed to use the atmosphere as a free dumping ground."

David Gray, an electricity market analyst, said the relatively low cost of buying natural gas and the increasing efficiency of gas-fired power plants have helped erode the profitability of coal contracts.

"The power purchase agreements for those coal plants have gone, I think to everyone's surprise, out of the money," said Gray.

'It's definitely going to affect our town'

There's no word on when TransCanada plans to end its power purchase agreements, as the company says it is still working out the timeline, but the mayor of Hanna says there's a lot at stake.

"Between both operations, Westmorland Coal and the Atco Sheerness generating station, there's approximately 400 employees out there," said Chris Warwick. 

"So, that's about 15 per cent of our total population in Hanna. So, as you can imagine losing 15 per cent of your population — that's worst case scenario, obviously — it's definitely going to affect our town in a negative way."

He says that he's not sure where these people will find work given unemployment levels in the province due to the oil and gas decline.

TransCanada not in 'full retreat'

TransCanada's decision affects 913 megawatts of generating capacity at the Sundance A and B plants, and 756 MW at the Sheerness plant.

TransCanada said it expects to write down the remaining value of the power purchase agreements for a total non-cash charge of $235 million before taxes and $175 million after taxes, representing the remaining book value of the company's investment.

Taylor, president of TransCanada's energy business, said the company continues to see investment opportunities in the Alberta energy market, citing new wind projects and the need for gas-fired power capacity.

"The company does not view this action on the (power purchase agreements) as a full retreat from the Alberta power market," Taylor said in a statement.