Alberta coal power contracts terminated as natural gas prices plunge

CALGARY C Companies are 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 business most widely known for building pipelines but that also includes a power business, cited a recent alternation in Alberta’s climate laws in order to terminate contracts to buy 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 these contracts, called Power Purchase Agreements (PPA), which must certainly be honoured with a provincial agency known as 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 such as 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 gas, a process that emits less carbon per megawatt hour than coal-fired power.

“The climate change policy gives 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 currently 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 those factors has led to an autumn in electricity prices in the province, which has made most of the coal-fired power contracts unprofitable for the buyer.

“The climate change policy is a factor, but the low 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 one of its PPAs for coal-fired electricity.

The terminated contracts now require province’s Balancing Pool to buy coal-fired power from Atco and TransAlta at a specific price, which many analysts say is higher 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 in a research note.

Paget added the decision to hand those purchase agreements within the provincial agency would prevent further losses for TransCanada, which “was likely to generate losses on every megawatt-hour it purchased this year because of 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 in a release that the company will still participate in the Alberta power market, as a natural gas-fired power producer.

“These low-cost and low CO2 emitting gas units are required 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 results from the termination of those agreements on their electricity bills, by means of a rider from the Balancing Pool.

“It leaves the Balancing Pool holding the bag for the last area of the agreements,” Gray said.

gmorgan@nationalpost.com

Twitter.com/geoffreymorgan