What is the Balancing Pool and a Power Purchase Arrangement?
Recently Enmax, Direct Energy, and AltaGas have all exercised a right available to them in their Power Purchase Arrangements to opt out of the agreements and return them under the control of the Balancing Pool. These actions will have impacts on consumers in the Alberta Utilities market who might be asking, “What is the Balancing Pool and a Power Purchase Arrangement”?
If your energy retailer is providing you with a proper breakdown of your charges, like ours below, you will see Balancing Pool Allocation as a line item on your electricity bills and wonder what it is doing there. For the most part consumers have been, like this example, receiving allocations or credits on their bill.
The Balancing Pool was established in 1999 by the Government of Alberta to help manage and support the transition to a fair, efficient, and openly competitive electricity market in Alberta by performing the duties and responsibilities set out in its mandate including managing the risks and maximizing the value of the assets held on behalf of Alberta’s electricity consumers
The legislated duties of the Balancing Pool include:
- To manage generation assets in a commercial manner, specifically any Power Purchase Arrangements (PPAs) held by the Balancing Pool that include the right to exchange electric energy and ancillary services, and any arrangements or agreements derived from these assets;
- To hold the Hydro PPA and manage associated payments;
- To forecast revenues and expenses (incorporating estimates of Pool price and potential expenses related to risk backstop activities) and allocate the forecast surplus or deficiency to consumers through a Consumer Allocation or charge;
- To participate in appropriate regulatory, dispute resolution and other proceedings and processes to protect the interests of the Balancing Pool and the value of its assets; and
- To manage risks prudently in all aspects of its operations.
Now what does it mean that the Balancing Pool is responsible for the Power Purchase Arrangements? Well when the 3 large retailers opted out of their PPA’s, the financial responsibility to the coal fired generation assets became the Balancing Pools to manage. The PPAs were long term fixed power price purchase arrangements initially set up and auctioned off to begin acting as market mechanisms on January 1, 2001 when the Alberta Utilities Market opened up for competition. The existence and the fixed price nature of a PPAs for electricity provided market price stability for the owners of the generation assets. It also added a level of market protection to consumers as well since wholesalers and retailers of electric energy had access to fixed contracted term rates for power as opposed to the wholesale spot market where the price changes constantly throughout the day. (as you can see in the image below)
With the Balancing Pool responsible for more assets a question that arises in our minds is, will the Balancing Pool Allocations that our customers have been seeing on their bills as credits start changing to Balancing Pool Charges? Perhaps, but not likely anytime soon. According the 2014 Annual Report, since 2006, the total Consumer Allocation from the Balancing Pool to Alberta electricity consumers has exceeded $2.0 billion. The largest source of cash inflow to the Balancing Pool was from the sale of electricity and ancillary services from the Genesee and Hydro PPAs they hold. So now that they will be holding more assets, it should mean more cash inflow and perhaps a continuation of allocations to consumers.
So even though the Alberta Government stated it was going to review Enmax’s decision to opt out of their PPA, conditions are still good for consumers to save money on their electricity bills. The current market price for electricity is the cheapest it has ever been and forecasts have it remaining low in the near term. Our customers on the Flow-Thru Rate plan, who have been paying 3-4 ¢/kWh for their electricity, are capitalizing on the savings available.
Maybe it’s time you reviewed what you are paying make the switch to Park Power.
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