Power Purchase Arrangements

Overview

Commencing in the mid-1990’s the Province of Alberta began a process through which the Province’s electricity industry was to be restructured. The Electric Utilities Act (1995) provided for a transition period to full deregulation of electrical generation through the implementation of Power Purchase Arrangements (“PPAs”) covering the 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 facility 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 (PPA Buyers).

The PPAs govern the relationship between the facility owner and the PPA Buyer in a manner similar to a contract but are not negotiated contracts, they are statutory instruments imposed upon the parties by the legislation.

The provisions of each PPA were determined by an Independent Assessment Team that examined a number of factors to design PPAs that were “just and reasonable” and allowed the facility owners an opportunity to recover their fixed and variable generation costs, while transferring the right to offer the output of the plants into the power pool to the PPA Buyers. PPA Buyers were required to assume the fixed and variable costs associated with the various facilities in exchange for output of the facilities. PPA Buyers were selected through an auction that was conducted in August of 2000.  The proceeds from the auction were paid into the Balancing Pool and the net proceeds were distributed to consumers of electricity through the Consumer Allocation. The PPAs were formally implemented on January 1, 2001 through the enactment of the PPA Regulation.

The term of the PPAs are scheduled to end in 2017 or 2020.