Alberta going to court over power: a red herring

Dear Minister Margaret McCuaig-Boyd,

It's true. Most of us tell white lies. Sometimes, they're meant to share a story that better fits our perspective with the intent of bending reality. On other occasions, we leave out important details to suit us better.

We've seen the newspaper ads focused on "protecting Albertans against unfair power bills". They painted a picture that seemed to indicate that, as consumers, we're on the hook for $2 billion for PPAs (Power Purchase Agreements) turned back to the Balancing Pool. A scary number.

Calgary Herald columnists Yedlin and Braid paint a different picture.

According to a recent report published by the University of Calgary's School of Public Policy, they pegged the $2 Billion number as possibly overstated by 70% or $1.4 billion. In addition, residential consumers consume only 16% of the energy in the province. This brings the number down to less than $0.004 per kWh and, on average, about $2.50 per month is added to the utility bill of a typical home owner.

Bookmark The School is focused on providing analysis of policy issues, void of political motivation.

Let's not speculate, though. We should wait for the Balancing Pool to publish their 2017 forecasted numbers showing excess or shortfall. If the cost increase is $0.004 per kWh, it's important to remember that in 2016 the Balancing Pool rebated consumers $0.0035 per kWh for a total of $205 million. Consumers can see this rebate on their monthly utility bill. It's a wash with possible net effect of zero.

Background note: PPAs are managed by the Balancing Pool and the income on the sale of PPAs has been rebated to consumers, each year, since 2006. Given the return of coal PPAs to the Balancing Pool, our current rebates most likely will be proportionally reduced.

The $2 Billion number possibly is overstated by 70% or $1.4 billion...while residents consume only 16% of the energy in Alberta

Dear, Minister. Maybe, it would be appropriate to ask for two courses of action from Mr. Stedman, Chair of the Balancing Pool Board of Directors:

  • publish a revised financial statement for their organization;
  • prepare an action plan focused on trying to retire the old coal plants early.

This would eliminate the speculative nature of the issue and might avoid the costly legal case the government is planning on filing against the previous PPA holders.

Let's also remind consumers about the cost of turning back the PPAs to the Balancing Pool.

In 2013, home owners were paying over +9 cents per kWh for the energy consumed. Today, consumers on the Floating Rate (which is indexed to the actual cost of energy) are paying less than 3 cents. Under deregulation, between 2013 and today, the average consumer saw their energy bill drop by approximately $40 per month.

At $2.50, the surcharge per month is relatively small. The only reason for a surcharge, at all, is that electricity prices at the wholesale level have dropped so dramatically that some of the older plants - ready to be retired - are shipping into the grid at below cost. Consumers must remember to look at the net difference because the numbers are linked.

In addition, the energy community often uses jargon that sounds like a foreign language to some. So, maybe, if all costs were reported in terms of a kWh, it might make it easier to comprehend and compare. For example, here's how consumers can think of what can be done with a kWh of electricity:

  • brew 90 cups of coffee
  • iron 11 shirts
  • bake a cake
  • surf the web for five hours

Here are three more tips to help grasp the significance of the numbers.

  • Generators are paid in dollars per MWh (Megawatts Watts hour). The price paid the generators by the Power Pool has dropped from +$80 in 2013 to $20/MHh today (down 75%);
  • Consumers are billed in cents per kilowatt-hour (kWh) for the energy they consume;
  • Administration fees are typically based on a flat fee in dollars per month or per day.

The distribution and transmission charges are billed based on a complex set of rate codes, capital cost recovery formulas, and riders. These are nearly impossible to put into layman terms.

Everyone agrees on this point: utility energy tariffs can be confusing. So, representing all apparent costs in cents per kWh may help to better understand the numbers.

We hope you find the following interesting.

Alberta energy retailers have different margins and admin fees

The difference in fees refers to the cost of generation, delivery, and municipal access fees which are the same for all customers within each zone. The retail margin formula quoted above is based on the fees charged by to residential customers. Delivery charges are based on the regulated rates charged by Enmax, Epcor, Fortis, and Atco.

The potential cost regarding the cancellation of the PPA agreement is estimated at 0.4 of a cent per kWh.

This is rather insignificant isn't it, especially when you look at the regulated fees charged for the delivery of the energy. Residential consumers living in Northern Alberta are paying 16.8 cents for delivery charges compared to a consumer living in Southern Alberta in the Fortis area and paying ½ as much. Perhaps this is the item that needs attention from our political leaders.

Here's the real problem our government faces: they were expecting to charge the owners of the old coal PPAs for the new increased carbon tax. Political leaders were hoping that corporations would simply pay the tax out of retained earnings. Except, now the government (aka Balancing Pool) owns the coal generation PPA problem. So, who are they going to collect the carbon tax from? Can a government tax itself?

Was the income from the new tax earmarked as a subsidy to encourage the investment in, and building of, new green generation in the province? If the government is considering paying $35/MWh (equal to 3.5 cents per kWh), then this number needs to be put into context. We currently are paying the generators 1.9 cents per kWh and the total retail price (for the energy consumed) is under 3 cents per kWh. How can the government afford to pay a premium of 3.5 cents to green generators?

Is the PPA issue and taking the industry to court a red herring?

The real problem centers on these two factors:

  • A possible shortfall in carbon taxation revenue;
  • The cost of Climate Change policies now falling squarely on the shoulders of Albertans to pick up the tab.

The other thing the government might consider doing is closing Battle River and Sundance coal plants early, prior to the end of life of the facility. This would diminish the negative cost of the PPA being returned to the Balancing Pool and immediately reduce the carbon emissions.

But often, by doing one thing, it can possibly cause something else to go off-kilter.

If coal plants are closed ahead of schedule or their output is reduced, it could cause a shortage of supply in the market and consumers very possibly would be faced with an increase in Power Pool price volatility.

A shortage in supply = Price volatility = Higher consumer retail prices.

If the government did this, it would be akin to a generator withholding production and causing the price to spike. Shortening the market has its consequences.

Please do not take offence to our questions. We entered the green marketplace earlier this year and are staunch supporters of "Greening the Grid".

Nick Clark | Aug 25, 2016