On 21 April, apparently in response to opposition demands that the UCP government stop withdrawals of utility services and get cheques or rebates into the hands of Albertans quickly, Associate Minister of Natural Gas and Electricity Dale Nally issued a news release. During a 17-minute news conference Nally took the former NDP government to task when releasing a March 2021 report from Deloitte LLP on the financial position of Alberta’s Balancing Pool (ABP). The report concluded that the cost of the policy changes totaled $1.34-billion. It is ironic that this is about the same number that the UCP government lost from its bet on TC Energy’s Keystone XL pipeline.
Nally was in true fighting form demonstrating lessons he has learned in ideological fervor and outrage from his master Premier Jason Kenney. Sprinkled through his briefing were accusations of “ideological malfeasance,” “the punishing federal pressures of decarbonization of our electricity system”: UCP codeword for stalling on climate change measures. The Liberal-NDP alliance was accused of policies that worked contrary to working Albertans adding about $30 a month to power bills, a deficit that will take another eight years to pay off. Nally accused “leftist friends and ideological extremists” of the former government for the fiasco. Below is the full transcript.
Here are a few choice spots from the presentation and Q+A period giving a flavour of what is top of mind with Minister Nally.
what was a breath-taking display of acute partisanship for a minister of the Crown Nally used hyperbolic
the financial review released today shows that bad policies and ideology led to 1.34 billion dollars in losses. That is unforgivable. But we are fixing mistakes made by the NDP. We are embracing change and looking out for hard-working families and businesses. We are doing what it takes to support Albertans and to provide safe reliable and affordable electricity for consumers and a competitive market for investors. We need to “NDP proof” the electricity system and the best way to do that is to ensure they never get near the electricity great again. Shining a light on their mismanagement of the Balancing Pool is an important first step. The second step is to wind down the Balancing Pool so no government can ever use it again to further their ideological agenda
We have said all along that it is the ideologies of progressive politicians that have created this energy crisis. If it wasn’t for the investment=crushing carbon taxes that progressive politician like Rachel Notley and Justin Trudeau appreciate we would have seen more thermal generation come online and because we haven’t seen that thermal generation come on line because of your childlike enthusiasm for these carbon taxes.
And please I don’t want this to be misinterpreted at all- we recognize that it’s important to decarbonise. Climate change is real and human activity has contributed to the changing of the climate but we need to move forward in a methodical manner and a manner that is responsible and right now Albertans are struggling from inflation from higher interest rates. everything is being more expensive and end getting to that of course is the carbon tax.
Transcript of New Conference given by Honourable Dale Nally on an Independent review of Balancing Pool losses 21 April 2022
It was very obvious that the Minister used releasing the report, which had gathered dust for 13 months, to respond aggressively to NDP questioning about when electric and natural gas rebates were getting into the pockets of customers. By pointing to an “independent” report that quantified what has been known for years, Nally was able to tout “another election promise – made and kept.”
The press conference also gave Nally the opportunity to signal that he would soon be tabling what became Bill 22 the Electricity Statutes (Modernizing Alberta’s Electricity Grid) Amendment Act, 2022. The Bill, tabled on 27 April, provides for new electric storage facilities and the winding down of the ABP to be replaced by a “entity designated in the regulations.” The Utility Commodity Rebate Act (Bill 18) was introduced on 20 April will offer rebates to Alberta electricity consumers and natural gas “price protection rebates” if prices rise above certain Alberta price levels.
Background
The starting point for the ABP was the “de-regulation” of the electricity market in the mid-1990s, an effort led by Dr. Steve West. The driving force was the political view (shared by investment bankers and energy traders) that, as Alberta’s massive oilsands were expanding, new significant electricity investment would be required and this demand would be best met by a “deregulated” market. Deregulated is in quotation marks because Philadelphia lawyers would have trouble explaining how the pieces work together.
The electricity market was restructured into three key segments: generation; transmission, and distribution. Electricity pricing would occur in a “free market” overseen by a Market Surveillance Administrator (MSA) which promotes “effective competition and a culture of compliance and accountability in Alberta’s electricity and retail natural gas markets.” The Alberta Electric Systems Operator (AESO) was created to keep the power grid “safe and reliable.” According to AESO. “our System Controllers balance supply and demand 24/7, 365 days a year, to ensure four million Albertans have power when they need it.” The AESO ensures safe and reliable power is available from generators and is transmitted and distributed to industrial and residential consumers. Specifically, the AESO dispatches the power sold by generators, “using the lowest-priced electricity first and then the next lowest until the need for power has been satisfied.”
In 1998, the Balancing Pool was created to facilitate policy implementation and to support the functioning of the electricity industry for the benefit of Albertans and to manage “certain assets, liabilities, revenues, and expenses associated with the ongoing evolution of Alberta’s electric industry.”
Under the Electrical Utilities Act, the ABP is required to operate without a profit or loss. The Balancing Pool’s Board of Directors are appointed by the Minister of Energy of the Government of Alberta. The Board consists of individual members who are independent of persons having a material interest in the Alberta electric industry. For the first 15 years the ABP was in the happy position to be distributing electricity rebates as a result of surpluses generated by the ABP. In addition, under extraordinary conditions such as the termination of a power purchasing agreement (PPA), the ABP is obligated to take over the contract and to make any termination payments. The ABP is required to manage generation assets in a commercial manner (Footnote 1 to Financial Statements).
In 2015, the NDP government brought in legislation and regulation to phase out the generation of coal-fired electricity by 2030. The Leach Report on climate leadership led to the Carbon Competitiveness Regulation. Coal-fired generators only received credit for one-third of their emissions, thus causing the cost of coal-fired generation to increase and profitability to fall. The losses were also the result of changes to the Specified Emitters Regulation. As a direct consequence of these policy actions, electricity utilities, whose boards and senior management should have known when new coal-fired facilities were commissioned that coal generation was on life support, were allowed to sell the uneconomic PPAs back to the ABP under provisions of the Electric Utilities Act and Regulations.-
Source: TransAlta.com
The PPAs became uneconomic when new carbon levy charges caused generators to receive diminished cash flows over the remainder of the plant’s life due to higher carbon charges. Additionally a policy to decommission all coal generation facilities by 2030 meant that coal-fired plants, expected to operate for many more years would lose future expected earnings. With the purchase of uneconomic PPAs in the 2016-2019 period, the pre-existing function of managing PPAs was no longer necessary since the original PPAs were to expire in 2020. The current role of ABP is mainly collecting the consumer charges in relation to the purchase of the PPAs -a payment which is expected to be completed in 2030 when the ABP will be wound down.
This provision in the PPA agreements was apparently unknown to the NDP government. It’s seems improbable that not senior Alberta public servant knew of the provision, but maybe not. Nally accused the NDP of failing to read the “fine print” at the news conference. The Enron clause, as it came to be known, forced the Government and the ABP into litigation over what the Government thought was a lack of proper public debate and discussion consultation. The government ultimately reached out-of-court settlements with the generators. Ultimately consumers would have to pay because the ABP was structured as a commercial entity whose losses were balanced against rebates paid to consumers up to 2015 mainly from the proceeds of original PPA auction. (see Table below)
Schedule of Consumer Rebates and Collections 2000-2021
| Years | $millions | Cumulative Totals ($millions) |
| 2001 | 2100 | 2100 |
| 2006 | 54 | 2154 |
| 2007 | 162 | 2316 |
| 2008 | 271 | 2587 |
| 2009 | 344 | 2931 |
| 2010 | 162 | 3093 |
| 2011 | 110 | 3203 |
| 2012 | 307 | 3510 |
| 2013 | 314 | 3824 |
| 2014 | 325 | 4149 |
| 2015 | 324 | 4473 |
| 2016 | 190 | 4663 |
| 2017 | -66 | 4597 |
| 2018 | -189 | 4408 |
| 2019 | -173 | 4235 |
| 2020 | -146 | 4089 |
| 2021 | -134 | 3955 |
| Deferral account 2021 | -811 | 3244 |
| Est. collection per year -9 years to 2030 | $91 million per year | |
Following the PPA terminations, in 2016 the Government of Alberta enacted changes to the EUA which allowed Alberta Treasury Board and Finance to make loans to the Balancing Pool at the recommendation of the Minister of Energy and to guarantee the Balancing Pool’s obligations. The NDP government also enacted changes to the Balancing Pool Regulation which stipulates the consumer payment for 2017 at $65 million for the year. Shortfalls from consumer collection will be financed by funds obtained through the loan agreement with the Government of Alberta and recovered from electricity consumers over the period of January 1, 2021 to December 31, 2030 (Note 18, p..103 Department of Energy Annual Report.)
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Legislated duties effective January 1, 2021 include the following:
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The new mandate to fund initiatives at the direction of the Minister allows the ABP to provide financing for the Utility Deferral Program in responding to a need caused by the COVID pandemic.
Deloitte Report and Media questioning
The release of the Deloitte report, over one year after the government received it, was framed as a continuing effort to make government transparent and fulfilled an election promise to Albertans. The election promise specifically named the Auditor General to investigate the cost of the NDP’s policy. Asked why Deloitte was hired rather than using the Auditor General, Nally stressed the Deloitte was “independent.” He did not know how much the report cost but promised to get back to the reporter. Another reporter asked what the report accomplished given that most of the information synthesized for the report came from publicly available documents. Nally cagily dodged the question responding by suggesting it was necessary to come up with one final complete number in the interest of public disclosure and transparency.
The independent report served its intended political purpose which was to cast doubt on the competency of the previous NDP government and tick off an election promise box. It did this by directing Deloitte to examine only the four year period of the ABP’s operations conveniently ignoring the roughly 15 years of rebates to consumers. Why this promise was not ticked off sooner suggests that possibly its findings were not as surprising,-or newsworthy, as the government would have liked. With NDP pressure on the government which can no longer claim penury or fiscal exigency, this partisan broadside was thought to hold off perceived gains made by the NDP on this issue.
However. as the table above shows the ABP will, over its 20 year history, have given back much more than paid by consumers even though this was not the original supposition. Indeed while $1.34 billion sounds like a big number is a little over $304 per Albertan. Spread out over nine years this is only $30 a year really little Albertans should be concerned about.
Nally’s accusations boil down to the UCP’s fundamental opposition to carbon taxes and climate policies which actually impose costs on users of energy produced by fossil fuels, notably coal. This “pretend it will go away” policy that reducing GHGs will not hurt the pocket books of rural residents and suburban voters that need their cars, caters to Albertans’ delusion that others, mainly outside Alberta, should bear the cost of climate change. The dispute should be about policy differences not partisanship.
On the question of transparency perhaps the NDP will forge a 2023 election promise to bring clarity and transparency on the $1.3-billion Keystone XL “boondoggle”?