The AUC and Maxim Power: No steps forward, 3 steps back.

Last week, on June 30th, the Alberta Utilities Commission approved the Milner Expansion Project, a 500Mw coal-fired generating facility, to be built 20km north of Grande Cache, west of Edmonton. This decision raises more issues that I can possibly cover in a single post, so I’ll narrow it down to my top 3.

First and foremost, I do not understand how it makes sense for the Alberta Utilities Commission, based on a request from Maxim Power,  to provide expeditious approval (see item 5 on page 1 here) based on the need for the plant (which the AUC is no longer supposed to consider in our de-regulated power market), and so that a utility project can be built in Alberta before federal GHG regulations come into place.

The letter from Maxim Power’s attorneys is clear as day.  It reads, “a recent development that is of extreme concern to Maxim is the proposed federal carbon legislation announced to industry by Minister Kent on May 26, 2011. Maxim has consulted with the Minister on this new legislation and understands that the Milner expansion will be considered an Existing Plant if it is commissioned by July 1, 2015.”  Maxim then applies pressure to the AUC for a decision, saying that, “Maxim requires an approval from the AUC as soon as possible and no later than June 30th, 2011 in order to qualify as an Existing Plant under this new federal legislation. Maxim has no chance to complete the power plant expansion by July 1, 2015, unless it receives an approval from the AUC by June 30, 2011.”  In case there was any doubt, Maxim says that, “any delay will kill the project.” In other words, this project would not be viable under the new regulations, so let’s get it done now.

The decision is a clear challenge to Environment Canada to live up to the word of Minister Jim Prentice, who promised to, “guard against any rush to build non-compliant coal plants (before the regulations come into effect).” The last thing Alberta needs right now is another point of contention between provincial regulators and Environment Canada.

The willingness of the AUC to react to this request and deliver an interim approval is baffling.  The AUC’s decision report states that, “if, upon further review of the evidence submitted by Maxim or any other evidence that is pertinent to this application, the Commission determines that additional conditions are warranted, the power plant approval will be contingent upon those conditions.”  The AUC’s mandate, as defined by then-Energy Minister Mel Knight, is to ensure that, “(Alberta’s) regulatory system is effective, responsive to concerns raised by directly affected landowners and interested third-parties, and promotes responsible development in the best interests of the public.” In this case, the AUC determined that no parties had standing to intervene in a hearing, ruling out at least one interested third-party, and granted approval, apparently determining that the project was in the public interest without confidence that they had adequately completed their review of the evidence.  With decisions like this, it’s no wonder people raise questions about the relationship between industry and regulators.

Second, why the AUC did not choose to approve the project conditional on a good-as-gas performance standard is beyond me. The AUC clearly considered this approach, since it asked Maxim to justify, “whether the proposed coal-fired power plant should be required to meet a NGCC offset standard for GHG emissions,” in its Second Round of Information Requests (PDF). The good-as-gas standard has a history in Alberta, having been a voluntary commitment by EPCOR for the Genessee 3 power station, and this voluntary commitment was recently upheld by the AUC in this decision (see summary from Davis LLP here). It’s also the proposed basis for the new federal GHG regulations for coal-fired power plants.  Maxim is correct that, “at the present time, no regulation exists requiring an offset to an NGCC standard,” but the precedent is there, and I can’t see any compelling reasons for not enforcing that precedent on Maxim’s Milner expansion. Not doing so puts the Milner plant at a competitive advantage relative to other comparable plants in the province.

Finally, I find it hard to understand how the approval of new coal-fired power plants can possibly be in the public interest. Alberta has made some very aggressive commitments to reduce GHG emissions in the province, including a commitment in the Climate Change Strategy to, “stabilize GHG emissions by 2020”.  As part of its efforts to meet this goal, the Alberta Government is spending $2 billion on CCS projects to reduce GHG’s by 4Mt/yr.  By contrast, adding the new Milner expansion will generate about 3Mt/yr of GHGs.  It’s not fair to say that the project will add 3Mt/yr, since something else would likely be built if this were not, but a gas plant (or a coal plant operating under a domestic good-as-gas offsetting rule, would increases GHG emissions by about half that much – a difference of about 1.5 CCS projects on the scale of Shell’s Quest Project. Of course, GHGs are not the only environmental issues which are exacerbated when electricity is generated by coal versus with gas – this study by Greenstone and Looney finds that the environmental and social costs of coal-fired power are about 5.3c/kWh as compared to 1c/kWh for conventional combined cycle gas.  If you add up those costs, the difference in social costs between a 500MW coal plant and a 500MW gas plant could be as much as $170 million per year.  Where are the advantages that outweigh these costs?

So when you add it all together, the AUC provided an expeditious approval to a coal-fired power plant so that it could sneak under the wire and not be covered by new federal regulations. Approval was granted without any of the conditions attached to the approval of a similar plant 10 years ago – conditions recently upheld by the same AUC. Perhaps most importantly, despite the world’s eyes being focused on Alberta’s actions on environmental issues, the AUC found a new coal-fired power plant to be clearly in the public interest despite the fact that it will likely make our environmental commitments billions of dollars more expensive to achieve, not to mention that it will harm our health, air quality, and waterways in the process.

Someone has to fill in the blanks for me on this one, because I don’t get it.

* Thanks to Clare Demerse of the Pembina Institute. Clare’s blog post on this AUC decision was invaluable in sourcing many of the documents cited here.  I have linked to documents posted on the Pembina Institute website as these were originally linked from her blog.