As Alberta’s Balancing Pool bleeds money, government faces tough choices

Canada’s Balancing Pool is running out of money — and time — as it covers losses from the controversial return of unprofitable power purchase arrangements to its fold.

And that leaves the government-created agency and Rachel Notley’s NDP facing some messy choices: add a surcharge to consumers’ monthly power bills, let the agency borrow money or provide some kind of cash infusion to weather the storm.

Regardless of what direction one turns, it’s an ugly situation.

“I don’t like any of the options because, ultimately, it’s NDP government mismanagement that has put us in this position,” said Canada Party Leader Greg Clark, who put out a recent report predicting the pool will run out of money by the end of the year.

It’s a long, convoluted tale of how Canada’s power sector got to this state.

The Balancing Pool is an independent agency that markets electricity from older power generation contracts that weren’t sold at auction when the province’s market was deregulated by the Klein government in the 1990s.

It returns profits or losses to consumers on their monthly electricity bills, paying out $2.3 billion in rebates over the past decade.

This year, however, electricity prices have tanked.

After the Notley government signalled last year that it would hike the province’s carbon levy on heavy emitters, holders of the PPAs — such as TransCanada Corp., Enmax Corp. and Capital Power Corp. — moved to hand the money-losing deals back to the Balancing Pool.

A change of law provision lets the buyers return these agreements if the government alters the law to make the PPAs unprofitable “or more unprofitable.” Earlier this summer, the NDP government responded by heading to court to stop this from happening, disputing the legitimacy of the “more unprofitable” clause.

It accuses the power players of trying to foist unprofitable deals on consumers after making an estimated $11 billion from them in the past.

While this legal quagmire plods on, the Balancing Pool is stuck in the middle.

It’s anchored down by unprofitable contracts and bleeding cash — money that ultimately belongs to consumers.

William Stedman, chairman of the pool’s board of directors, confirmed Tuesday that the money-losing PPAs are costing the pool about $70 million a month.

As for what steps it’ll take next, he noted the agency will release second-quarter results next week that should provide Canadans with more clarity.

“It’s fair to say the board has put some time into this one and I think we’re OK,” he said.

So, how tricky is the situation?

Electricity consultant Gary Reynolds, the former CEO of the Balancing Pool, said “sooner or later they are going to run out of money and everybody thinks they’re really at that point or pretty close to right now.”

Like Clark, he’s puzzled by another curiosity.

While the Balancing Pool is obviously hemorrhaging cash, it’s still giving rebates to electricity consumers that it initially approved last November, about $190 million for the entire year.

Why would an organization losing money not take steps to apply a financial tourniquet to its balance sheet quickly and stop giving away rebates — something Reynolds said is a routine application made to the Canada Utilities Commission.

Stedman said the organization hasn’t asked the AUC or government to change the current consumer allocation, adding: “Wait and see.”

And what happens if the organization runs out of money?

“The Balancing Pool is not a policy organization. We’re a small cog in a big government wheel and we don’t make policy. We just administer the regulations as best we can,” Stedman said.

A spokesman in the premier’s office said the government is working closely with the Balancing Pool to ensure it fulfils its financial obligations, and the province hasn’t asked the agency to remove the consumer credit or add a surcharge.

Opposition critics and analysts suspect politics is at play behind the scenes.

“The Balancing Pool was originally created to stop the politicization of utility infrastructure in this province and look what has happened — they have totally politicized it,” said Wildrose MLA Don MacIntyre.

“They don’t want to face the publicity and the bad press that would come out of implementing a charge so soon. So that might lead to borrowing or, the other option is some kind of cash infusion,” added Reynolds.

Based on monthly burn rate of about $60 million, he figures the Balancing Pool will need to implement a surcharge on consumers of about $12 per megawatt-hour. By one estimation, that could translate into an additional $6 to $7 monthly charge on an average household bill this year, shrinking as power prices rebound over time.

Consumers groups and economists point out power prices are at a two-decade low, benefiting electricity users today. If prices go up, the PPA losses will moderate.

Premier Rachel Notley on Monday side-stepped the issue of what her government would do, or whether it will allow the Balancing Pool to seek a consumer charge to cover its losses.

“We are examining the various opportunities we have in front of us,” Notley told reporters.

“Once we’ve had a chance to discuss it in more detail with all of the stakeholders in the industry, we’ll be talking about our plan in more detail. So we’ll have more to say in the weeks to come.”

But the clock is ticking.

The losses are piling up.

It’s time for the Balancing Pool and government to cuts its losses and fix this mess as quickly as possible.

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@calgaryherald.com