Report from the President
2016 was an extremely challenging year for the Balancing Pool. Changes to the Specified Gas Emitter Regulation (SGER) and related Climate Change and Emissions Management Fund that came into force on January 1, 2016 increased cost to various PPA Buyers and triggered the termination of six PPAs during the first half of 2016.
The table below summarizes the dates of PPA termination notices by the respective Buyers.
According to the Balancing Pool Regulation, in the event of a Buyer termination the Balancing Pool is required to assume responsibility for ongoing capacity payments and other PPA-related costs. The Balancing Pool also assumes responsibility for selling the output from these PPAs into the wholesale electricity market.
The PPA terminations imposed significant financial liabilities on the Balancing Pool that, in combination with the continuing low price environment in the wholesale electricity market, have constrained the Balancing Pool’s ability to discharge our financial obligations.
To meet these financial obligations for 2016, the Balancing Pool divested the assets in our investment portfolio drawing down the investment portfolio by approximately $680 million.
Based on our forecast of future market electricity prices the Balancing Pool expects the unavoidable costs of meeting the obligations under the PPAs will continue to exceed the economic benefits derived from them over the balance of the PPA term.
The Government of Alberta amended legislation in December 2016 to allow it to loan funds to the Balancing Pool in order to meet the corporation’s ongoing financial obligations. The amendments to the Electric Utilities Act and Balancing Pool Regulation give the Balancing Pool until 2030 to recover costs from consumers.
In addition to support from the Government of Alberta, it is anticipated the Balancing Pool will continue with a consumer collection. In this regard the Balancing Pool will collect approximately $65 million from electricity consumers over 2017. Fortunately, consumers are expected to benefit from sustained low power prices throughout 2017 that will serve to reduce the impact on electricity bills. Since 2006, the Balancing Pool has distributed $2.6 billion to electricity consumers by way of the Consumer Allocation. The total distribution to electricity consumers including the original auction proceeds is $4.7 billion.
With the return of the PPAs, the Balancing Pool currently has a total energy offer control of about 3,877 MW or 24.6% of the overall capacity in the Alberta’s wholesale electricity market. The Balancing Pool has the option to terminate the PPAs by paying the Owner a termination payment equal to the net book value. In 2017 the Balancing Pool’s priority will be to evaluate whether to terminate the PPAs where these terminations can be economically justified.
On behalf of the staff of the Balancing Pool, I would like to thank former Board Chair William Stedman and Board Member Monica Sloan for the extensive industry and management experience they brought to the Balancing Pool.
The challenges facing the Balancing Pool in the coming years are complex. Our management and staff look forward to the direction of our new Board as we fulfill our role on behalf of Alberta’s electricity consumers.
April 04, 2017
President and Chief Executive Officer