Many people will never have heard of the Balancing Pool. But look closely at a power bill and you’ll see a Balancing Pool rate rider charge tacked on each month.
But that will be a thing of the past as Alberta’s government says it is winding down the operations of a major player in the province’s power market.
More than 20 years after Alberta began privatizing electrical generation, Premier Jason Kenney says the Balancing Pool is no longer needed.
“It just constitutes an additional cost,” he said at a news conference in February. “We need to reduce power costs for Albertans and this is one small way of doing so.”
But questions remain about who will take over some roles the organization still plays and pool or no pool, consumers will be paying off its expenses and debt for years to come.
To understand why the pool exists and what it does, we’ll have to look back to the late 1990s.
Why did Alberta privatize electricity generation?
Unlike many provinces, Alberta has never had a Crown utility company responsible for generation, distribution and sale of electricity.
The government did control electricity prices, though.
Faced with a couple of frustrating brownouts, Premier Ralph Klein’s government believed deregulating generation would encourage more companies to produce power in the growing province, and that increased competition would lead to better power prices.
However, new power plants weren’t going to manifest overnight.
At first, the government needed a way to artificially create competition in the market, to buy time for more corporations to enter the fray.
So, the Progressive Conservative government created a scheme to auction off all the power produced in the province to bidders for the next 20 years.
The winning bidders of these power purchase agreements, or PPAs, would pay the power plants for their electricity, then sell power back to the grid. They would assume the risks and rewards of fluctuating prices.
However, the government needed a safety net — a default corporation that would manage these power contracts if a company became insolvent or reneged on the contract. The government also had trouble finding buyers when it first took the contracts to auction. And so, the Balancing Pool was born.
What is the Balancing Pool?
Created by government in 1998, the corporation has managed any PPAs that electricity companies wouldn’t run.
For about 15 years, the Balancing Pool profited from power it sold. It returned those profits to Albertans with monthly credits on power bills, handing out almost $4.6 billion over the years.
But the former NDP government’s green policies and carbon taxes prompted big changes.
TransCanada, AltaGas and Enmax made headlines in 2016 when they terminated their PPAs early.
The corporations said that in combination with low power prices, the government’s moves were making the contracts too unprofitable.
The Balancing Pool picked up their slack, hopping in to manage the agreements until they expired at the end of 2020.
Newly saddled with money-losing contracts, the pool had to figure out how to cover the cost.
The Balancing Pool credits on power bills became a charge.
To avoid hammering consumers with huge power bill hikes, the pool borrowed $1.3 billion from the provincial government, to be repaid by 2030, to dilute the financial punch.
Last month, NDP energy critic Kathleen Ganley said she still thinks her former government made the right choice. She said it made clear they were serious about acting on climate change while also protecting consumers.
On Dec. 31, 2020, all remaining PPAs ended. Most power generators are now responsible for selling electricity directly to the grid.
What else does the pool do?
The government gave the Balancing Pool other duties. It helped pay for the decommissioning and reclamation of some power plants. It’s responsible for resolving any outstanding legal or commercial disputes from PPAs.
It helps small-scale power generators get their power to market. And, it ran and financed a utility payment deferral program, when the government allowed customers to delay paying their power bills in the early days of the COVID-19 pandemic.
Balancing Pool president and CEO Sandra Scott says she’s in talks with other organizations, including the Alberta Electrical System Operator (AESO), to potentially take over some of these roles.
How long will consumers be paying off that loan?
The rate rider on power bills covers all the Balancing Pool’s expenses now, including the loan repayment.
Scott says changing interest rates and the fate of ongoing disputes makes it hard to predict future costs.
The organization estimates consumers will pay between $786 million and $1.1 billion to wrap up the pool’s activities, and the rate rider could end as early as 2027, or as late as 2030.
Does Alberta still need a balancing pool?
Scott says no, effectively talking herself out of a job.
“We will vanish into the night and I don’t think anybody out there in the consumer side of things should worry about that,” she said. “It was part of the design in the beginning.”
University of Calgary economics assistant professor Blake Shaffer said it’s critical the government have a backup plan for who will manage ongoing programs currently under the pool’s watch.
Just when the Balancing Pool will close for good is up to the government and they haven’t yet set a date.
Did deregulation provide consumers with better prices?
While consumers are currently getting shocked by huge utility bills, market watchers say average power prices in Alberta have been lower than in neighbouring provinces during the past two decades.
Duane Reid-Carlson, is an electrical engineer and president and CEO of EDC Associates, Ltd., a group of electrical system consultants. He says Alberta’s generation capacity has expanded substantially and is still growing beyond what the province needs.
“It’s not an experiment anymore,” he said of deregulation.
The province has a highly reliable system producing power at reasonable prices, he said.
Shaffer says the Balancing Pool leaving the market has contributed to more painful power bills today. With the three largest companies supplying about half of the province’s power, concentration of ownership remains an issue, he said.
“We didn’t quite get to the level of competition we might have wanted when we thought about this 20 years ago,” he said.
Shaffer said this should change in the coming years. More renewable power projects are under construction, and some former coal-fired power plants being converted to use natural gas will come back online.