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Alberta electricity consumers can expect to see a couple of surprises in their monthly bills in 2018: higher power prices and increased charges from the Balancing Pool.
For the past three years, Albertans have enjoyed cheap electricity rates due to falling industrial demand and low natural gas prices, among several factors.
In 2017, the Alberta pool price for electricity averaged $22.19 per megawatt-hour (MW-h), less than half of pre-recession levels when the economy was roaring.
But during the first two days of the new year, even as the bitter cold that gripped the province during the holidays finally lifted, prices were trading in the mid-$30 range.
Analysts’ forecasts and prices on the forward market are pointing in the same direction: upward.
A report Tuesday by electricity consultants EDC Associates projects wholesale power prices will average $51.49 per MW-h this year.
Several forces are pushing prices higher, including growing demand as the recession ends and natural gas prices inching upward.
But EDC’s Duane Reid-Carlson said the two biggest drivers will be the higher carbon tax — the province increased its charge by $10 to $30 a tonne on Jan. 1 — and the mothballing of older coal-fired power plants, announced by TransAlta last month.
“Consumers should see a doubling of the wholesale energy cost,” he said. “Consumers are going to feel it, but it’s coming from a bunch of different places, it’s not just one source.”
Reid-Carlson estimated the higher carbon levy will be responsible for an increase of about $7 a MW-h in 2018 power prices, while the retirement and mothballing of older coal-fired plants will add another $6 or $7 to the pool price.
However, he pointed out electricity prices are still well below levels seen before the economy tanked, such as the $80 MW-h reported in 2013.
Electricity expert Blake Shaffer agrees several forces are impacting prices, although he believes the sidelining of several coal-fired units — affecting close to 1,500 MW of capacity — will be the biggest driver.
“After about two or three years of really unsustainably low prices in Alberta, we’re going to see a lift back to what might be considered normal prices,” said Shaffer, a fellow-in-residence at the C.D. Howe Institute.
“We will have four big coal plants coming off this year.”
Of course, the cost of electricity is only one factor in the monthly power bills for consumers.
Other charges include distribution and transmission expenses, and the consumer surcharge from the Alberta Balancing Pool.
In recent years, the provincial agency happily sent rebates to consumers through their monthly bills as the Balancing Pool must pass along any profits or losses to ratepayers.
That ended in 2017 when it instituted a small charge.
With the return of several money-losing power purchase arrangements (PPAs) to the agency in 2016 — after the Notley government hiked the province’s carbon levy on heavy industrial emitters — the Balancing Pool’s financial fortunes crumbled.
It has been bleeding millions of dollars each month from these deals, and required a loan last year from the government, with the money to be paid back by 2030.
So how will it cover these losses?
Beginning in January, the monthly consumer charge for 2018 has been set at $3.10 per MW-h, nearly triple last year’s amount. Over the course of the year, the Balancing Pool will collect about $190 million.
Balancing Pool CEO Bruce Roberts said the charge is based upon the agency’s forecast of power prices and expected losses, although he noted rising rates between 2018 and when the PPA contracts expire in 2020 could significantly lower the charge in future years.
To be fair, the consumer charge will cost the average household less than a couple extra dollars on their monthly bill. Industrial consumers who use the bulk of the electricity will shoulder most of the burden.
But the charge indicates just how much money the agency anticipates losing from the returned power deals.
“The real story here is the Balancing Pool expects to have a need to cover off over $2 billion worth of losses over the remaining life of the PPAs,” said Gary Reynolds, former CEO of the Balancing Pool.
“It’s a big sum.”
United Conservative Party MLA Don MacIntyre noted that back in 2015 and ’16, Albertans were getting a credit from the Balancing Pool “and now it’s completely reversed.”
He blames the Notley government for boosting the carbon levy, allowing PPA holders to use an opt-out clause in their contracts and toss the losses back to the Balancing Pool.
“It is frustrating and the No. 1 frustration is this was so totally avoidable,” he said.
Yet, amid the politics of power, electricity prices remain relatively low, which is why the response to the hike has so far been muted.
The province also introduced an electricity price cap last year for people on the regulated rate option. If prices go above 6.8 cents per kilowatt-hour, the province must make up the difference.
“We feel 6.8 cents is a reasonable cap,” said Energy Minister Marg McCuaig-Boyd. “There may be the odd month we pay, but we don’t expect it to be all the time.”
The bottom line for consumers, however, is higher prices are coming in 2018.
David Gray, former executive director of the Alberta Utilities Consumer Advocate, noted electricity costs typically make up about half of the average household power bill when prices hover around $50 MW-h.
For residential consumers, he expects their bills to be “slightly higher in 2018,” but cautions they could rise significantly in the 2020 time frame.
“The long and short of it is the market has been operating well below replacement (power) costs for the last couple of years — and you can’t expect that to continue forever,” he concluded.
Chris Varcoe is a Calgary Herald columnist.
Average Alberta pool prices for electricity (per megawatt-hour)
2010 — $50.88
2011 — $76.22
2012 — $64.32
2013 — $80.19
2014 — $49.42
2015 — $33.34
2016 — $18.28
2017 — $22.19
Source: AESO
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