Our Business

MESSAGE TO STAKEHOLDERS FROM THE BOARD CHAIR

2017 was a year of transition for the Balancing Pool. Most significantly, the Balancing Pool has been engaged in managing the process around the termination and expiry of the Power Purchase Arrangements (the “PPAs”) that apply to coal-fired generation units in Alberta.

As we reported last year, changes to the Specified Gas Emitter Regulation (“SGER”) that came into force on January 1, 2016 increased costs to the PPA buyers and triggered the return of six PPAs to the Balancing Pool. While the Balancing Pool holds a PPA, it is responsible for ongoing capacity payments and other PPA-related costs and for selling the output of the underlying generation units into the wholesale power market.

On July 25, 2016, the Attorney General of Alberta filed an application with the Alberta Court of Queen’s Bench seeking declarations relating to the validity of the return of the PPAs to the Balancing Pool. The Government of Alberta has since reached settlement agreements with all of the PPA Buyers of the subject PPAs and the Balancing Pool has accepted the PPA Buyers’ claims with respect to those PPAs.

For the PPAs that have been returned to the Balancing Pool by the PPA Buyers, the Balancing Pool has the option to hold the PPAs, resell all or a portion of the PPAs, or to terminate the PPAs by paying the Owner of the underlying generation units a termination payment equal to the remaining net book value of those underlying units.

During 2017 and into 2018, the Balancing Pool’s priority was to evaluate whether terminating some or all of the PPAs it held was economically justified and in alignment with the Balancing Pool’s mandate to support a fair, efficient, and openly competitive market.

We have since evaluated all six of the PPAs returned to the Balancing Pool, along with the Genesee PPA already held by the Balancing Pool, to determine whether any or all of these PPAs should be terminated. In the course of these evaluations, we have consulted with representatives of electricity customers and the Minister of Energy about the reasonableness of any potential PPA terminations.

Upon careful review of the feedback received, the Balancing Pool determined that terminating the Battle River 5, Sundance B and Sundance C PPAs was in alignment with our mandate of managing generation assets in a commercial manner and in supporting a fair, efficient, and openly competitive market. The Sundance A PPA expired on December 31, 2017.

The table below identifies the various PPAs, their respective Buyers and plant Owners, and the dates associated with the PPA terminations.

Following the termination of the Battle River 5 and Sundance B and C PPAs by the Balancing Pool with the plant Owners, the Balancing Pool will control a combined total energy capacity of 2,284 megawatts (“MW”) or 14% of the installed capacity in the Alberta market, down from the 4,643 MW or 29% immediately following the return of all the PPAs to the Balancing Pool.

In late 2016, following the return of the PPAs to the Balancing Pool, the Government of Alberta enacted changes to the Electric Utilities Act (“EUA”) which allow the Treasury Board to make loans to the Balancing Pool at the recommendation of the Minister of Energy and to guarantee the Balancing Pool’s obligations. As at December 31, 2017, the Balancing Pool had borrowed $566.0 million from the Government of Alberta. These loans will ultimately be repaid by electricity consumers.

Under provisions of the EUA, each year the Balancing Pool is required to forecast its revenues and expenses and to determine whether any excess or shortfall of funds will be allocated to electricity consumers. Accordingly, the Balancing Pool announced in December 2017 that a consumer collection of $3.10/megawatt hour (“MWh”) on consumption will be collected from electricity consumers in 2018 for an estimated annualized amount of $190.0 million. Comparatively, the Balancing Pool collected $66.0 million ($1.10/MWh) from electricity consumers in 2017.

As of April 9, 2018, Bruce Roberts, formerly President and CEO, is no longer at the Balancing Pool. We have appreciated his leadership and contributions during his time with the organization. The Board of Directors and the Balancing Pool management team are continuing operations in the normal course.

I would like to recognize the ongoing efforts and focus of our staff in effectively dealing with the many complex issues that have arisen over the past year. I appreciate the direction and expertise of our Board as we move ahead on behalf of Alberta’s electricity consumers.

Robert Bhatia

Chair

April 10, 2018