On January 12, 2018 the Balancing Pool initiated a consultation process with representatives of consumers regarding the reasonableness of terminating the Battle River 5 PPA.
As part of that process, the Balancing Pool released the following package to consumers: BR5 Consumer Information Package
The following information is provided by the Balancing Pool to answer the most frequently asked questions regarding the Battle River 5 PPA termination.
Battle River 5 PPA Termination Questions and Answers
Q: Why is the Battle River 5 PPA being terminated?
A: The Battle River 5 PPA is losing significant sums of money in Alberta’s wholesale electricity market given low market prices and high PPA related costs. Financial analysis suggests the Balancing Pool could mitigate its PPA losses by $105 to $122 million by terminating the Battle River 5 PPA. Mitigating these losses is consistent with the Balancing Pool’s mandate to manage its generation assets in a commercial manner.
Furthermore, it is the Balancing Pool’s view that having offer control in the hands private market participants is more conducive to supporting a sustainable FEOC market than having the Balancing Pool continue to offer the related generation into the wholesale market.
Q: Why was the Battle River 5 PPA not terminated at the same time as the Sundance PPAs?
In late 2015/early 2016, the various Buyers elected to return their respective PPAs to the Balancing Pool under the terms of the arrangements. In mid-2016, the Government of Alberta contested these terminations through litigation against the parties involved, but by late-2016, the litigations were substantially settled and the terminations accepted with all but one Buyer. As a result, only two PPAs remain subject to the lawsuit: specifically the Battle River 5 and Keephills PPAs.
Although the Balancing Pool had accepted the return of Battle River 5 PPA from the PPA Buyer, the Balancing Pool took the position that it could not make a determination on the return of the Keephills PPA until after a decision had been rendered in the Government of Alberta’s lawsuit. In the summer of 2017, the PPA Buyer filed an injunction in the Court of Queen’s Bench in which it asked the court to direct the Balancing Pool to complete and issue its determination on return of the Keephills PPA, which the Balancing Pool was subsequently ordered to do. Based on the court’s ruling, the Balancing Pool has since accepted the return of the Keephills PPA and is now of the view that the Government of Alberta’s lawsuit is no longer an impediment to any actions related to the termination of the PPAs, including termination of the Battle River 5 PPA.
Q: What will be the impact on electricity prices?
Electricity prices are the outcome of the competitive forces governing Alberta’s wholesale electricity market and, as such, are subject to uncertainty. The Balancing Pool hired an independent firm to generate market price forecasts as part of the termination analysis and these forecasts suggested prices may increase modestly by $8 per MWh following the terminations, with prices remaining far below historical averages and below the cost of building new generation in the market.
Q: What will the Balancing Pool do with the remaining PPAs?
The Balancing Pool will continue to evaluate the relative merits of terminating, holding, or selling further PPAs as circumstances and market conditions evolve. Should the Balancing Pool determine further PPA terminations are warranted, another consultation processes would be initiated in the future.
Q: Will the units underlying the PPAs be shut down?
When a PPA expires or is terminated, the underlying units may continue to operate in the power market. Following the effective date of a termination, the underlying units would be subject to the same market forces as any other merchant generating facility and the decision of whether or not to continue to run the units will rest entirely with the owner.
Q: Is the Battle River 5 PPA termination related to or affected by the province’s plan to phase-out coal fired generation?
The PPA termination is unrelated to the coal phase-out and the Balancing Pool has no role in the phase-out. The last of the PPAs expire at the end of 2020 while the coal phase-out does not take effect until 2030.