Canadian companies TransAlta Corp. and TransCanada Corp. are at odds over TransAlta’s abrupt notice on Tuesday that it will close and destroy its Sundance 1 and 2 coal-fired units near Edmonton, Alberta. TransCanada, which buys power from the units under a power purchase agreement (PPA) agreement, said today it had not received validation of TransAlta’s determination that the plants were so corroded that they could not be economically restored to service.

The Sundance units comprise 560 MW of the six-unit 2,126-MW Sundance power plant that serves as a baseload facility for the Alberta power system. The power generating facility is the largest power plant in the province and the largest coal plant in Western Canada.

In mid-December last year, TransAlta withdrew the Units 1 and 2 from service after testing showed boiler tube conditions were no longer at design limits. The company said that “comparable boiler conditions” had not been seen at other TransAlta coal-fired units. “After extensive physical inspection of the boilers in the units and review of the terms and conditions of the PPA, TransAlta has determined that the units cannot be economically restored to service,” the company said on Tuesday.

TransCanada said in a statement today that TransAlta had notified it about the units’ closures and was seeking to terminate the PPA as it applied to those units. “In January 2011, these same units were subject to a force majeure claim by TransAlta under the PPA,” it said. “TransCanada has not received any information that would validate TransAlta’s determination that the units cannot be economically restored to service,” it said.

TransAlta said it expects to recover the net book value prescribed in the PPA and does not expect any material financial impact. The company is due to start up a new coal-fired plant in Alberta, the 450-MW Keephills 3, later this year.

TransCanada has 10 business days from the date of TransAlta’s notice to either agree with or dispute the company’s determination that the units cannot be “economically repaired, replaced, rebuilt or restored.” If TransCanada decides to dispute the determination, the issue “will be resolved using the dispute resolution procedure under the terms of the PPA,” the company said.

The Globe and Mail reports that the disagreement could end up in a lengthy battle. It quoted UBS Securities Analyst Chad Freiss, who said that TransCanada could receive a payout of about C$90 million. Though this is equal to the remaining book value of the PPA, the market value of the PPA “exceeds the remaining book value payout,” he said.

Sources: POWERnews, TransAlta, TransCanada, The Globe and Mail