Power

Alberta power companies extend their reach across the continent—and beyond

Edmonton-based Capital Power is now the city's second-largest employer—and one of its fastest growing—which an executive with the independent power producer (IPP) says could not have happened without deregulation of the Alberta electricity sector.

Bryan DeNeve, senior vice-president of commercial services for Capital Power, says the company now has 1,100 workers overall, of which 550 are employed in Edmonton. Only engineering giant Stantec has a larger presence in the capital city.

"It [deregulation] certainly provides us with a strong platform from which to grow," says DeNeve. "From that platform we have been able to develop a depth of skills that has allowed us to enter power markets throughout North America. And, because we are headquartered in Edmonton, much of the job growth will be in Edmonton."

The metamorphosis

Capital was formerly a part of EPCOR Utilities, the successor to Edmonton Power and the former utility serving the capital city and area. It was spun off from EPCOR in 2009, with EPCOR retaining ownership of power transmission in the Edmonton region, as well as water and wastewater facilities (and water assets elsewhere in North America).

Capital has interests in 35 facilities in Canada and the United States, totalling 5,350 megawatts. That includes 1,400 megawatts of assets held by Capital Power Income, in which it holds a 30 per cent interest.

The company has experienced a growth spurt this year, announcing in mid-February it would spend US$315 million to buy two gas-generating plants in New England, including one located in Tiverton, R.I., and one in Rumford, Maine. The two produce a combined 549 megawatts of electricity.

Just three weeks later, in March, it announced it would spend US$355 million to scoop up a 520 megawatt natural gas–fired plant in Bridgeport, Conn., in the same general region of the first two purchases.

"On closing of these transactions, Capital Power will have invested US$670 million in the New England region in 2011, adding more than 1,000 megawatts of combined cycle natural gas–fired generation to our fleet," said company president Brian Vaasjo at the time of the Bridgeport purchase.

Lofty goal attainable

The company, which had 2010 revenues of $1.76 billion, has set a goal of having 10,000 megawatts in generating assets before the end of this decade.

However, DeNeve believes it's likely Capital Power will be generating 15,000 megawatts by then, which would put it on a scale with BC Hydro and Hydro-Québec, Canada's largest utilities (both government-owned and primarily hydropower producers).

IPPs that have emerged from Alberta's deregulated environment have developed skill sets that allow them to compete worldwide, he says. Early on, like its competitors, Capital Power had to establish merchant trading desks, with power traders who operate much like professionals trading natural gas or crude oil in the oil and gas sector.

"Deregulation got rid of a central planning entity," he explains. "There's no entity that says, 'We need 500 megawatts over the next five years and we'll contract for it, passing the risk on to the ratepayers.' The risk is all taken by the IPPs like us, so we have to bear the cost of our mistakes."

Skill set to success

That has meant the IPPs have had to develop strong construction planning, execution and management skills, in addition to the trading skills. As well, they've had to develop management expertise to manage those assets in uncertain pricing environments for long periods.

"We had to recruit 70 per cent of our staff because most of those skill sets didn't exist in the former regulated environment in Alberta," DeNeve says.

But armed with those skills, Alberta-based IPPs are able to take on power projects throughout North America, he adds, especially since most of these projects are built and operated with secure, long-term contracts.

Capital sees Alberta as a growth market, particularly as more coal-based plants are phased out. It also plans to concentrate on Ontario, where its Kingsbridge 11 wind power plant will be adding 270 megawatts to the existing Kingsbridge 40-megawatt plant. As well, the new Port Dover and Nanticoke wind project, about 125 kilometres southwest of Toronto, will generate 105 megawatts (under long-term contracts). In British Columbia, the Quality Wind Project, located about 10 kilometres northeast of Tumbler Ridge, will produce 142 megawatts (also under a contract). The company also owns Island Generation, a 275-megawatt gas-fired plant on Vancouver Island, and two small hydro projects in that province that generate a total of 40 megawatts.

It also plans to concentrate on power assets in the U.S. northeast, northwest and southwest, where, either directly or through Capital Power Income, it has interests in 20 power plants in Ontario, British Columbia, Colorado, Washington, North Carolina and California.

"We are involved in some very large electricity markets in the U.S., where there will be continued opportunities for expansion," he says.

TransCanada enters the fray

For oil and natural gas pipeline giant TransCanada, the company's IPP division, TransCanada Power, has come from nowhere to become one of its fastest growing divisions.

The company's power entity, which now produces 10,800 megawatts of electricity continent-wide, has no specific targets other than to grow its power division, says Brandon Anderson, senior vice-president of TransCanada Power.

"It was the auction of [formerly regulated] power assets in 2001 that jump-started our power business," he says. "If it wasn't for deregulation, we would have never seen the growth we have."

Prior to that, TransCanada's power assets had consisted of the 560-megawatt Ocean State Power gas-fired power plant, located in Rhode Island, as well as some small cogeneration plants in Ontario, linked to its gas pipelines there. As deregulation unfolded, it purchased 2,635 megawatts of power purchase agreement (PPA) assets in Alberta, which gained it exclusive rights to sell power from three coal-fired plants (Sundance A and B and Sheerness).

The company followed that in 2005 with the purchase of an interest in the Bruce Power nuclear plant in Ontario, which gave it the rights to 2,480 megawatts, and it has since been busy in Ontario. TransCanada now owns part of the Portlands Energy Centre, a gas-fired plant near Toronto capable of providing 550 megawatts of electricity. It has also built the $700-million Halton Hills gas-fired plant, also located near Toronto and built under a long-term contract with the Ontario government. It can provide up to 683 megawatts.

TransCanada Power also has a large gas-fired plant and a cogeneration plant in Quebec, with a total capacity of 1,100 megawatts. It has a 62 per cent interest (equivalent to 365 megawatts) in Quebec as well. It also owns a 62 per cent share (equivalent to 132 megawatts) in a wind plant in the northeastern United States.

The bigger, the better

Perhaps its best-known gas-fired plant is the huge Ravenswood facility, located in Queens, N.Y. That plant, one of the largest in the world, provides 2,480 megawatts of electricity to New York City.

In addition, it owns a number of other cogeneration and gas-fired plants, including the MacKay River plant in Fort McMurray, which provides 165 megawatts. Its newest plant is the US$500-million Coolidge Generating Station, a 575-megawatt facility located near Phoenix, Ariz.

TransCanada, which employs 4,000 people and last year generated $1.23 billion in revenue, sees its power division as an area of significant future growth, says Anderson. "Our power business represented about 40 per cent of our total revenues last year," he says. "It will be one of our core businesses, along with our gas pipeline business and the Keystone pipeline."

It's natural for TransCanada to pursue opportunities to build gas-fired plants, Anderson explains, and the company sees a great deal of growth potential in that area.

"We are a natural gas company. We see it as a clean resource. It makes sense that gas-fired generation will be a key part of the future power mix in many jurisdictions."

John Ell, president of Calgary-based ATCO Power, part of the ATCO group of companies, which has 7,700 employees overall and assets of $10 billion, also credits deregulation in Alberta with giving his 600-employee division the ability to expand in Canada and overseas.

"It was very important when Alberta moved out of the [regulated market] and [power producers] needed to compete in the open market," says Ell. "Since then, we've built power stations in the province and elsewhere in the world."

It could have been a difficult adjustment for the employees of the firm, he explains, since it was one of the original regulated utilities in Alberta. In fact, its transmission and distribution division remains regulated, operating as ATCO Electric, and is one of two large Alberta-based companies specializing in transmission.

ATCO had purchased the former Canadian Utilities to become one of the regulated power companies in the province. "It was a significant challenge to move from a cost-regulated approach to an enterprise approach," Ell says. "We found our people responded very well to it."

He was already a convert, having helped manage the company's Barking power station, which ATCO Power built and commissioned in 1995 before deregulation was launched in Alberta. It's a partner with a local utility in that gas-fired plant, which produces 1,000 megawatts in a partially deregulated market.

"Having lived through that I appreciate it [deregulation], and ATCO has been able to use it as a platform," he says.

Gaining a foothold in the outback

The company has since moved into Australia, where it owns three gas-fired plants, producing a total of 319 megawatts. The company produces a total of 4,658 megawatts of power in Canada and the United Kingdom; 2,618 of that directly owned by the ATCO, along with the plants in Australia.

Ell says the company will continue to look at opportunities in all the markets it currently serves, although the United Kingdom and the United States aren't target markets, given the slower economies in those countries. For that reason, Australia, tied to the booming Chinese economy, is a target. So is Alberta, where coal-fired power will have to be replaced in a growing economy.

He notes the company faces competition from other Alberta-based power producers in most of its markets. "We see all the [Alberta-based] competitors in Australia and other markets," Ell says, adding that it would be unlikely to directly enter the Chinese market, since there is too much Chinese-based competition.

While it looks at renewables such as wind or small hydro, ATCO remains focused on natural gas–fired power inside and outside of the province. "If you look at the likely replacement for coal that provides clean power, it is natural gas," Ells says.

ATCO won't provide a target for future growth, but he says growth is likely in most of its markets. For instance, in mid-July ATCO Group announced it would buy a natural gas utility in Australia for $1.03 billion. Under the deal, ATCO will acquire 74.1 per cent of a Perth-based utility from WestNet Infrastructure Group and the remaining interest from DUET Group.

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