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Capital Power CEO optimistic about proposed Alberta power market design

The Alberta government's first proposal for a capacity market is "constructive" and appears to offer equitable treatment for both new and existing generation companies, Capital Power Corp. President and CEO Brian Vaasjo said.

The province's grid operator released a draft of its Comprehensive Market Design for the overhauled power generation industry in January, Vaasjo said on a conference call. That draft is "generally consistent with our view of a properly designed capacity market for Alberta," he said. The final design of the market is expected to be released July 20.

Alberta is in a transition from a deregulated power generation sector to a capacity market overseen by the Alberta Electric System Operator, or AESO. In the past year, the province spent billions to unwind long-term power contracts with the operators of the large coal-fired generators that had provided the bulk of baseload electricity supply. Capital Power, which operates the Genesee coal-fired plants near its home base of Edmonton, Alberta, is working through the province's plan to phase out those plants by 2030.

"Overall, the design appears constructive and resembles a market structure where existing and future assets will have the opportunity to earn a return on and a return of capital without putting undue cost or risks on ratepayers," Vaasjo said of the proposed changes on the Feb. 16 call. "The Government of Alberta commitments to treat new and existing assets equitably and to continue a level playing field have been honored."

AESO's proposal contains a forecast for revenues of C$55/MWh to C$65/MWh in both energy and capacity payments when the new design is implemented in 2021, Vaasjo said. While Alberta's spot market price averaged C$22/MWh in the fourth quarter of 2017, Capital Power's average realized price was C$46/MWh in the quarter due to profitable trades, the company said.

As Alberta pivots to a larger portion of renewable energy under a government directive, Vaasjo said Capital Power has an edge in a pair upcoming competitions for contracts because its proposed wind farms are in close proximity to existing transmission networks. "Capital Power is well positioned to bid on both competitions with its Whitla 2 and Halkirk 2 projects," Vaasjo said. The company's first phase of the Whitla project was one of the winning proposals submitted in an earlier AESO-run renewables auction.

Separately on Feb. 16, Capital Power posted fourth-quarter 2017 adjusted EBITDA of C$154 million, up from C$144 million for the comparable quarter of 2016. Fourth-quarter adjusted funds from operations totaled C$91 million in 2017, compared with C$56 million 2016, while revenues and other income dropped to C$261 million, from C$280 million.