Power Purchase Arrangement Information
Power Purchase Arrangements (PPAs) Overview
Commencing in the mid-1990’s the Province of Alberta began a process through which the Province’s electricity sector was to be restructured. The Electric Utilities Act (Alberta) (“EUA”) provided for a transition period to full deregulation of the electrical generation through the implementation of power purchase arrangements (“PPAs”) covering the vast majority of the regulated power plants.
PPAs are one of the mechanisms used by the Government of Alberta to introduce competition into the supply of thermal electric power from regulated generating units.
The PPA’s were intended to allow the Owners of the power generating facilities a reasonable opportunity to recover their fixed and variable costs of generation while transferring the right to offer the output of the plants into the power pool to intermediaries (Buyers).
The PPAs govern the relationship between the Owner and the Buyer in a manner similar to a contract but are not negotiated contracts they are statutory instruments imposed upon the parties by the legislation.
Under the applicable legislation, the terms of each PPA for each power generation facility were determined by an Independent Assessment Team (“IAT”) which examined a number of cost factors in relation to each power generation facility including operating characteristics, fixed costs and variable costs. Pursuant to Section 45.5(2) of the EUA, the IAT was required to determine PPAs that were “just and reasonable” and that, among other things, they were to:
- “Provide the Owner with a reasonable opportunity to recover the fixed and variable costs of generating electricity at the expected available capacity of the generating unit over the effective term;
- Provide the Owner with a reasonable opportunity to achieve efficiency through incentives including cost and output incentives over the effective term;
- Establish operational and financial terms and conditions;
- Provide the Owner with incentives for any future ongoing investment in the generating unit over the effective term.”
The Balancing Pool was established to backstop the PPA’s through mechanism that transfers certain risks to the Balancing Pool under specific circumstances. Buyers were selected through an auction process. The proceeds from the auction were to be paid into the Balancing Pool and the net proceeds were distributed to consumers of electricity. The PPA auction was conducted in August of 2000. The PPAs were formally implemented on January 1, 2001.
Power Purchase Arrangements Regulation – Alberta Regulation 167/2003.