TransCanada becomes latest to terminate Alberta coal-power deals, citing higher costs

TransCanada Corp. has becomethe latestto back out ofdeals to buy power from coal-fired plants in Albertabut while the company and opposition politicians pointthe finger atthe provincial NDP's climate change policies, others suggestfalling electricity prices might be a bigger factor.

TransCanada announced Monday that it plans to end power purchase agreements (PPAs) to buy coal-powered electricity from three plants:theSheerness power plant near Hanna,owned byAtcoPower andTransAlta, andTransAlta'sSundanceA and B plants west of Edmonton.

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The Calgary-based company blamed thecancellation on changes in Alberta laws, saying costs associated with carbon-dioxide emissions from the plants have risen and are forecast to increase further over the remaining term of the agreements.

The agreements contain a provision that permits the PPA buyers to terminate thePPAsif there is a change in the law that makes the agreements unprofitable.- TransCanadaexecutive VP Bill Taylor

"The agreements contain a provision that permits the PPA buyers to terminate the PPAs if there is a change in the law that makes the agreements unprofitable," Bill Taylor, TransCanada's executive vice-president and president, energy, said in a news release.

"We have made the decision to exercise this right."

The NDP government of RachelNotleyannounced in November that it planned to impose a carbon tax and phase out coal-fired power plants in order to reduce carbon dioxide emissions, a contributor to global warming.

TransCanadais just the latest company to make such a move.

The City of Calgary-ownedutility companyEnmaxquietlyended its power purchase agreement to buy up to 663 MW fromAtcoPower's 689-MW, coal-fired power plant in December becoming what is believed to be the first company to do so.

And in late February,AltaGaspresident David Harris said on a conference call with investors that the company was evaluating the impact of the new climate regulations and considering terminating its power purchase agreement with theSundanceB plant.

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NDP 'failed' electricity sector workers: Wildrose

The Opposition Wildrose Party pounced on TransCanada's announcement as proof that NDP policies are harming the economy.

"Today's announcement shows NDP policies are making more parts of our energy sector unviable and on an accelerated timeline," Wildrose Leader Brian Jean said.

"This is the first domino to fall for workers in the electricity industry and the government has failed to show how they will look after the workers and families who will be impacted by these decisions."

NDP says purchasing deals will be honoured

However, the NDP government quickly countered to say thePPAswouldnow be honoured by aprovincial agency called the Balancing Pool, which was set up in 1999to help manage the transition to competition in Alberta's electric industry.

"The Balancing Pool, which is responsible for managing its assets for the benefit of electricity consumers, has become the buyer of the power purchase arrangement," AlbertaEnergy Minister Marg McCuaig-Boyd said in a statement.

"The Balancing Pool is considering options going forward regarding this purchase arrangement. It's important to note though that any change of ownership of the power purchase arrangement will have minimal impact to consumers."

Blake Shaffer, an energy expert at the University of Calgary, says that's not the case.

"So if we look at our bills, and not many people do, there's a small positive rider on there," he said."Every month we receive some money,that's about to go to zeroif not negativebecause by assuming these negative contractsthat's going to erode the Balancing Pool's overall assets. I've calculated this to be a roughly $1billiontransfer of cost over to the public."

The provincial agency can continue to buy and distribute the power itself, resell the capacity to another distributor, or end the agreement entirely by paying the owner the net book value of the contract which may be significantly more than current electricity rates in Alberta.

Low prices may be bigger factor

But while the companies citedthe impact of new climate regulations, BenThibault, electricity program director at thePembinaInstitute, says current electricity prices that are close to half the five-year average are having a much bigger effect on profitability.

"That difference is much larger than any impact of the actual carbon price," saidThibault.

"It demonstrates that operating these coal plants is not economic like maybe it once was."

Thibaultsaysthe announcement doesn't mean the plants will immediately close, but lends weight to the Alberta'splan to phase out coal-fired plants because it's not competitive when "it's not allowed to use the atmosphere as a free dumping ground."

David Gray, an electricity market analyst, said the relatively low cost of buying natural gas and the increasing efficiency of gas-fired power plants have helped erode the profitability of coal contracts.

"The power purchase agreements for those coal plants have gone, I think to everyone's surprise, out of the money," said Gray.

'It's definitely going to affect our town'

There's no word on whenTransCanadaplans to end its power purchase agreements, as the company says it is still working out the timeline, but the mayor of Hanna saysthere's a lot at stake.

"Between both operations,WestmorlandCoaland theAtcoSheerness generating station,there's approximately 400 employees out there," saidChrisWarwick.

"So, that's about 15 per cent of our total population in Hanna. So, as you can imagine losing 15 per cent of your population that's worst case scenario, obviously it's definitely going to affect our town in a negative way."

Hesays that he's not sure where these people will find work given unemployment levels in the province due to the oil and gas decline.

TransCanadanot in 'full retreat'

TransCanada's decisionaffects 913 megawatts of generating capacity at theSundanceA and B plants,and756 MW at the Sheerness plant.

TransCanadasaid it expects to write down the remaining value of the power purchase agreements for a total non-cash charge of $235 million before taxes and $175 million after taxes, representing the remaining book value of the company's investment.

Taylor, president ofTransCanada'senergy business, said the company continues to see investment opportunities in the Alberta energymarket, citing new wind projects and the need for gas-fired power capacity.

"The company does not view this action on the (power purchase agreements) as a full retreat from the Alberta power market," Taylor said in a statement.