After the events of this week it’s unclear who the Opposition is standing for.
The NDP government announced it was:
- settling the PPA dispute over the enforceability of the “Enron clause” with Capital Power, TransCanada and AltaGas, leaving Enmax the sole outlier,
- compensating Capital Power, TransAlta and ATCO for the early closure of six coal-fired power plants,
- capping electricity at 6.8 cents/kilowatt hour for four years for families and small businesses and
- shifting from the “energy-only” electricity market to a “capacity” market.
The Wildrose and PC Opposition are extremely critical of these moves, claiming to stand for everyone, the people, the industry, and investors, in opposition to them.
Do their objections make any sense?
Settling the PPA dispute
After months of debating whether power companies could terminate their power purchase arrangements (PPAs) under a clause the government said was unenforceable the parties decided to settle.
Apparently, the companies will accept responsibility for losses caused by plummeting electricity prices and the government will accept responsibility for losses resulting from its climate plan. Capital Power agreed to pay $39 million. The amounts TransCanada and AltaGas will pay are not yet available.
With only Enmax left in the dispute the Opposition’s attempt to stand for industry against a “banana republic” was weakened.
So now it’s standing for Calgarians, arguing that if the government doesn’t leave Enmax alone, Enmax (which is wholly-owned by the City of Calgary) won’t be able to pay a dividend to Calgary and property taxes will rise.
The Opposition’s stand would have been more compelling if Enmax hadn’t undercut it in its 2015 Financial Report (p 81) where it said the outcome of the PPA dispute would not have a “material adverse effect” on its financial position.
In other words, Enmax will issue a dividend to the City of Calgary and if property taxes rise, it won’t be solely because Enmax refuses to join Capital Power, TransCanada and AltaGas in settling this dispute.
Compensation for early closure of coal-fired power plants
The climate plan forces all 22 of Alberta’s coal-fired plants to close by 2030. Six of these will close prematurely leaving their owners, Capital Power, TransAlta and ATCO, with stranded assets.
The Opposition stood with the unhappy plant owners and the people living in communities like Hanna who rely on the coal-fired plants for their livelihood.
The government responded by negotiating a deal with the plant owners whereby it would pay them $1.3 billion over 14 years from funds collected by the carbon levy imposed on industrial GHG emitters. In return the plant owners agreed to support the communities impacted by the closures through to 2030.
PC MLA Rick Fraser said it’s “disgraceful” the government is passing the buck for supporting communities like Hanna to the power companies.
Think about that for a moment.
Who is better positioned to transition the local workforce from coal-fired plants to natural gas fired plants and renewable energy plants than the power companies who will be investing in these plants over the next 14 years, especially when $1.3 billion from the government is riding on it?
Electricity price cap
The NDP government announced a four-year 6.8 cent/kWh cap on electricity prices for residential and small business consumers.
The Opposition says the cap is too high and it’s unnecessary because prices are low anyway.
True, the 6.8 cents cap is higher than 3.8 cents consumers are paying today, but it’s much lower than the 14.81 cents Calgarians were paying three years ago. Also it’s a cap not a floor. If prices stay low Albertans will pay less.
Why this is a problem for the Opposition who is standing for the people is a mystery.
The NDP’s most significant announcement was the shift from the “energy-only” electricity market to a “capacity” market to attract investment and transition to renewable energy. The government expects 30% of our electricity to come from renewables and 70% to come from natural gas fired plants by 2030.
The Opposition says this is a hare-brained ideologically driven plan to re-regulate the electricity market, it’s flawed because the government didn’t consult industry or the investment community, and it will create investment uncertainty.
It’s standing with everyone–the people, the industry and the investors–on everything.
Let’s take a look at their objections.
The government accepted the recommendation by the Alberta Electric System Operator (AESO), a non-profit statutory body created by the Progressive Conservative government, to transition to a capacity market.
It is NOT an “ideologically driven” plan.
Alberta is one of two jurisdictions (the other is Texas) that has an “energy-only” market. Most American Republican and Democratic states plus the UK (Tories) have a “capacity” market for electricity. If it’s good enough for the Republicans and Tories surely it’s good enough for the Wildrose and PCs.
It does NOT “re-regulate” the free market.
Blake Shaffer, writing for the C.D. Howe Institute, says the government had a choice between four kinds of electricity structures, two are market-based structures (“energy-only” and “capacity markets”) and two are non-market or centrally-planned structures (“long term contracts” and “cost of service regulated rate” models).
Shaffer says Alberta was right to reject the centrally planned model and stick with a market–based system, namely the capacity market.
Incidentally, the Saskatchewan government run by Brad Wall (the Opposition’s role model) oversees a fully regulated cost of service electricity market; somehow this isn’t an ideological problem for the Opposition.
The government DID consult with the industry and investors.
AESO consulted with experts from The Brattle Group (economic, financial and regulatory), KPMG (tax/audit), Morrison Park (banking) and JCRA (risk management).
It learned that investment in energy-only markets was declining across North America and Alberta had to shift to another market structure in order to bring investment back.
It’s true AESO relied on internal experts to assess the impact of the four types of markets on stakeholders, however TransAlta CEO, Dawn Farrell, hailed the AESO report as “first class” and said from her perspective stakeholders had been listened to.
It will NOT create market uncertainty
Two of the biggest players in the industry, Capital Power and TransAlta confirmed they’d be very significant investors in Alberta’s electricity industry going forward.
Share prices for TransAlta, ATCO and Capital Power jumped following the announcement.
This is a sign of improving investor confidence, not investor uncertainty.
Albertans will benefit from stable prices, the industry is going to invest in new and re-purposed facilities and investors prefer the capacity market to the energy-only market so who is the Opposition standing for?
The NDP government is standing for Albertans as it works with industry and investors to ensure the future of Alberta’s electricity industry.
The Opposition is standing for no one but themselves.
I think the communities who are so worried about losing their jobs need to hear confirmation that the companies will support them, given all the doom-screeching from the rightwing politicians. I haven’t noticed much emphasis on that in the media and I think the NDP needs to stress it more.
Good point Val. Brian Jean said 10% of Hanna’s workforce is employed at the local coal-fired plant. Google says Hanna’s population was 2,673 in 2011. I don’t know how many people from Hanna and the surrounding area will be affected by the plant closure but given all the publicity swirling around on this issue the sooner the government and the companies start talking with the people who are affected, the better.
The Notley NDP government is doing a remarkable job of cleaning up the messes left behind by Conservative governments, especially the abomination of Ralph Klein’s “restructuring” of the electricity industry. The ability of the Notley government to address the interests of industry AND the common people is amazing. Electing the NDP was the smartest decision the Alberta public has made in more than 40 years.
Eric, I agree. The NDP promised to be a moderate pragmatic government and they’re doing a good job of it so far.
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Thanks for shedding a more objective light on the situation. I am finding WR and the PC getting increasingly whiny, and can not figure out whether to call them chicken little or the boy who cried wolf. Both parties incessently complain, but acutally the NDP have done a decent job of this convoluted prioject (and corrected the incompetent job of the PC’s earlier in the program) If the Opposition wants to gain some credibility, let them complain with solid arguments rather than undertake the ” doom screeching” another respondant so aptly described. The second bone of contention has to sit with Post Media. It seems to be quite happy flogging the NDP with no understanding other than using the silly logic of the oppostion parties. What happened to responsible journalism where a reporter would dig out facts, opposing opinions and present it as news rather than diatribe.It has not elevated the level of conversation at all, and reporters should hang their heads in shame…you report the news, you don’t make it!
Roy you’ve put your finger on the problem. The Wildrose says it’s the party of the people but it’s not. Take the PPA dispute as an example, the companies were asking the people to bear a loss they should not be asked to bear. The government fought this in the public interest but the WR sided with the corporations. In the end the WR painted itself into a corner because corporations will always do what’s best for the corporation (like settling the PPA dispute rather than going to court). Bottom line: the WR abandoned the people to fight on behalf a corporation that didn’t need or want their support. I’m amazed the people don’t see this but I think they’ve lived under the PC rule for so long that they truly believe that if the government takes care of the corporations the corporations will take care of the people. This is very naive.
Susan, as always, a very thoughtful analysis of a very complex set of issues around this critical shift to a lower carbon future while ensuring a competitive electricity market.
One reservation I still have is that the government is reducing the price signal to consumers when we need people to change behavior based on the real price of producing (and transmitting) that electricity.
David you’re right about the importance of the price signal. I think the government is moving cautiously because it suspects the Opposition and many Albertans don’t believe climate change is a real issue or if they do, they don’t think Alberta and Canada can have much impact in addressing it.
Thank-you for this analysis. I appreciate the facts and timeline being laid out point by point. I have been trying to get my head around Alberta’s energy system off and on for, well, forever. I’m sure this blog has been very enlightening, even for the Wildrose folks! Roy’s right- we certainly can’t get much actual information from our newspapers anymore.
Thanks Elaine. Post Media is so frustrating, either it’s running stories that aren’t fully researched or it runs well researched stories under misleading headlines. Rod Love, Klein’s chief of staff, said he never read anything but the headlines because he knew that’s what formed public opinion. Scary thought!
I have felt for a while that the major way the NDP is letting us down is that they do not explain what they are doing clearly enough to the citizens of Alberta. Thank you Susan for this and all of your great pieces every week. Maybe they should hire you to do PR! And of course the media. Ugh, what can I say. Just do not do their jobs AT ALL. What has happened to investigative journalism?
I wonder though, how they could inform better. So many Alberta’s refuse to even hear them and prefer the voice of Levant etc. Spending on gov’t advertising just gets more criticism. What to do?
Yes Watson – what to do is the correct question.
I personally think that the system needs deep changes but first we have to replace these anti-democratic ministers like Maryam Monsef in order to move forward.
In PEI it is ok to elect Mayors and councilors with 39% of the vote but God forbid change the electoral system. Talk about biases. Furthermore it is the current system that has created these amazing numbers of participation of 39%. No one thinks their vote counts or makes any difference and they are mostly right. I have voted since 1981 and only once it counted and at the provincial level. So what is really the point?
Also politicians have been playing the game for so long they love it. I think that they are in for a surprise. Their disrespect for the rest of us will soon be over.
We have to change the system right under their feet and it is happening.
Katie and Watson, you make an excellent point about the government’s need to communicate more clearly. It’s only recently that we’ve started to see how all the pieces fit together to support the Climate Leadership Plan. I understand that some of the pieces need to be supported by legislation before they can be rolled out, but it might be a good idea now that we’ve come this far for the government to post a little one-pager on its official website that we can share on social media. The government uses Twitter and Facebook, they could provide links there for us as well. The key would be to make the information accessible because as Watson correctly points out so many Albertans refuse to listen, preferring to get their “news” screamed at them by the likes of Levant.
It is very sad that for the first time, after reading this post, I have an idea of how the energy market in Alberta looks like. Thank you.
The newspapers are almost irrelevant. Not their fault of course, after all the stories of the sink holes, the Brazilian senator that distributes thongs while campaigning , the intelligent comment from Kellie Leitch that the CBC should be dismantled because it cannot be fixed and all the propaganda from the extreme right, there is no room to talk about Alberta. Talk about what anyway. After all, the PCs left Alberta in free market shape. The problem, according to many people, is the disgrace since the socialist took over. They have no clue of what they are doing.
I agree with David that lowering the costs is not the best way to transition to reality but again if they do not people will bury them in slogans from the PCs and WRs. They are so Borg like that they scream the same sentences designed to answer the energy question regardless of the circumstances. It is scary.
Our confrontational system forces the opposition to oppose anything that comes from the government to get the brownie points but I think that they will not get many out of this one. If anything, what I heard from some of my friends that think I am a communist, is that they never thought the NDP would be able to pull the agreement they got with the energy corporations.
How we are going to confront our political/social problems with this kind of mentality is what concerns me the most. Problems are great indeed and with confrontation we will never be able to get over them.
Carlos you’ve identified the issue that concerns me the most…our democratic system has become so polarized that he who shouts loudest wins, regardless of whether he’s telling the truth. The name of the game is to oppose everything the government does because otherwise you risk looking “soft”.
No wonder people are guided by their emotions, not their intellect. I used to think if we did a better job in schools teaching people how to think critically they’d see through the garbage that’s being thrown at them by unscrupulous politicians and the media but the election of Donald Trump has given me pause. I have very intelligent logical friends who tell me they’re glad Trump won because Hillary is a murderer because she sent thousands of soldiers to their deaths when she was secretary of state. So let’s think about that. The secretary of state cannot single-handedly send armies to war. That is a decision made by the President and his joint chiefs of staff, nevertheless my friends say it’s all Hillary’s fault because Trump says so.
My friends are getting a little upset with Trump because he decided not to prosecute Hillary even though he promised he would and he’s appointing billionaires and lobbyists to key cabinet positions when he said he’d “drain the swamp” of insiders, but their support for the man remains steadfast.
I haven’t completely given up hope. Rachel Notley is one of the few politicians who understands that insulting someone won’t make them agree with you. It will be very interesting to see how she deals with the BC premier and the BC NDP over the approval of Trans Mountain pipeline.
Susan I have the same exact concern and I also get amazed as to what I hear from people that know better, I have my own explanation for this. Many people these days have developed a serious lack of focus and extremely short attention span due to the relentless tech influence. People talk with lols and ttyl which is not wrong but along with television 2 second interviews, forced multitasking, fast lunches, fast everything and the clear fall of standards and incomes, we are being forced to read less and know the world through quick information wrapped with all the spin politicians adore to win at any price. Democracy is no longer an important factor in our lives. As a result what you mention in your note is becoming the ‘normal’. You just have a clear example of democratic disrespect on the result of the commission on the voting system. Everyone except Justin Trudeau and the minister of Democratic renewal want a change to Proportional Representation but the prime minister likes the preferential system and right from day one he has been mining the process. It is mind boggling and to me abhorrent. This is a 43 year old sunny ways individual that of course knows best.
As far as the pipeline. I doubt it will be built but if it is, it will be another bad investment. Christy Clark will have a war in her hands and not from Alberta but from her own people especially those that have to put up with an increase tanker traffic of about 700% – well I say LOL
Interesting and great post. With respect to the price cap, it doesn’t sound like either party has Alberta’s interest at heart. The best thing the government could do would be to get rid of the price cap and regulated rate. With a price cap, the average energy consumer has little incentive to shop around for different rates and even less incentive to understand how they are billed. Both the NDP and WR are trying to appeal to the general public, and it sounds great, creating a “price cap” and “protecting the average Albertan.” The reality is that its doing more harm. Firstly, having a price cap just means you pay for the higher priced power through your taxes. Secondly, by having a price cap, there is no incentive for retailers sell more competitive products. In the commercial and industrial space where there is no regulated rate and price cap, the products offered to companies are quite competitive, flexible and really aimed at saving companies money based on their actual usage. Consumers will never get products like that because there is no incentive for the retailer to offer products like that or for consumers to switch from the regulated rate to a competitive retailer.
With respect to the Capacity Market, maybe I’m missing something, but sounds like a definite win for the generators and not so much for Alberta. If someone offered me a sales job, and I had to choose between getting commission + salary or just commission, I would definitely choose the commission + salary. I’m guaranteed an income and maybe I don’t have to be as fiscally responsible, maybe I don’t worry as much about the risk.
Interesting comments Brendon. The issues around the regulated rate option (RRO) and the price cap are fascinating. The RRO was introduced when the government deregulated the industry in 2000 as a transitional measure to allow the retail market to develop and the public to get up to speed on what it could offer. However by 2012 only 30% to 40% of Albertans had moved off the RRO. The energy minister struck a committee to get to the bottom of this. The Committee concluded (1) Albertans were “passive”, (2) they needed better tools to understand and compare the retail market’s offerings and (3) the only way they’d give up the RRO was if the government took it away from them. The Committee urged the government to phase out the RRO post-haste. The energy minister said, um, yeah, and extended the RRO for another 4 years, it’s now set to expire in April 2018. I think the Notley government introduced the cap on the RRO for the same reason the PC government introduced the RRO…it will provide stability while the market transitions from energy-only to capacity market. What’s interesting to me though is why after 16 years the retail sector failed to have more success. You’d think they could undercut the RRO and develop flexible packages, maybe serving the green market, which would be attractive.
With respect to the Capacity Market, I see it more like a pipeline offering “firm service” versus “interruptible service”. In a Capacity Market the generator is paid to have sufficient capacity to offer “firm service” to meet demand each and every day (and yes there will be days when there’s excess capacity but that’s how it works), the Energy Market is more like “interruptible service”, there are mechanisms to ensure some kind of next day delivery (I don’t know what they are) but it might fail to deliver if there’s unusually high demand. And with the decrease in investment in the Energy Market and our rising demand there’s a higher chance of brownouts and service interruptions. This would drive consumers crazy.
Here’s the link to the 2012 Retail Market Review Committee Report http://www.energy.alberta.ca/Electricity/pdfs/RMRCreport.pdf