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.