NDP takes disputed ‘Enron clause’ to court
Government files suit to void provision in power regulations
Alberta’s NDP government is taking legal action to stop power companies from offloading money-losing contracts onto the public — at a potential cost of $2 billion — with the province arguing that its own regulation allowing the corporations to do so is invalid.
But the government’s move prompted a strongly worded reaction from one of the companies at the centre of the case, Calgary utility Enmax, while opposition parties accused the NDP of desperately trying to distract from their own mistakes.
In a lawsuit filed in Edmonton on Monday, the government is asking the Court of Queen’s Bench to declare void a provision in power purchase agreement (PPA) regulations that allows companies to terminate contracts if there has been any change in law that makes the deals “more unprofitable.”
Deputy premier Sarah Hoffman said in a news conference Monday that the previous Progressive Conservative government had allowed a loophole to be “unlawfully enacted” when the regulations were drawn up in 2000, “setting up a system where consumers bear all the risk.
“Our government believes that regular Albertans shouldn’t be on the hook for secret back room deals,” said Hoffman, who noted companies have made an estimated $10 billion in profits from the PPAs.
PPAs are contracts set up during the deregulation of Alberta’s electrical system that see buyers purchase power from generating companies and then resell into the open market.
The government says the PPAs were originally written to allow for their termination in cases where a change in law made a contract unprofitable.
It alleges that was altered, following an inquiry by now-bankrupt American electrical operator Enron, to also allow the contract to be ended if a change in law made the PPA more unprofitable.
The province says that change was put into regulations and approved by the Energy and Utilities Board — now known as the Alberta Utility Commission — without public hearings or notice to the public just before the initial PPA auction. The PC cabinet then passed an order exempting the board’s regulation from both the normal legal process and from disclosure to the public, the government alleges.
“We will argue that the government had no legal authority to make this change,” said the province’s lawyer, Joseph Arvay of Vancouver.
Since December, Enmax, TransCanada, AltaGas and Capital Power have announced their intention to terminate all of their PPAs for coal-fired electricity, transferring the money-losing contracts back to a government entity called the Balancing Pool.
The companies all cited the NDP government’s Jan. 1 increase to the carbon levy on large emitters, the Specified Gas Emitters Regulation.
But the province says the PPAs were unprofitable already because of low power prices and that if the terminations go ahead it will cost consumers up to $2 billion through additional costs on power bills by 2020, when the PPAs expire.
Only Enmax has had a termination formally accepted, but the government lawsuit is also seeking to block the relinquishment of the Battle River PPA, arguing that the Balancing Pool had misinterpreted the regulations.
In a statement released late in the afternoon on Monday, Enmax said it was “very disappointed” the government is taking retroactive action on agreements that have been in place for 16 years and brought billions of dollars of investment into Alberta.
The company, owned by the City of Calgary, said the government should have realized the implication of its actions related to the PPA issue and that Enmax’s actions were entirely foreseeable and reasonable.
“More broadly, we are concerned with the approach the government is taking and the signals it sends for future investment in Alberta,” said the Enmax statement.
Bruce Roberts, president of the Balancing Pool, said he could not comment as the organization is still formulating its response to the government’s lawsuit.
“If they win, it’s good for Alberta consumers,” he said. “We’re kind of agnostic on the whole thing.”
University of Calgary law professor Nigel Bankes said it is “very unusual” for a government to be challenging the work of one of its own bodies as unlawful, but the province is making “not a bad argument.”
“These are statutory arrangements and therefore the process to approve them must be that approved by the statutes,” said Bankes. “And while, yes, you can correct technical and clerical errors ... this change of the allocation of risk goes way beyond a clerical error.”
But Wildrose electricity critic Don MacIntyre said in a statement the NDP didn’t understand provincial regulations and the consequence is a lawsuit that will scare away investment needed as the government phases out coalfired power as part of its climate change plan.
Interim PC Leader Ric McIver said the government must believe it’s in trouble on the issue if it’s raising the spectre of Enron.
“This is more about their own political skin than anything else,” he said.
“The fact is, they made a mistake that cost $2 billion and they’re looking for anybody to pin it on.”
The alleged influence of Enron, which went out of business after it was revealed to have taken part in widespread corporate fraud, is a key political message for the NDP, with Hoffman repeatedly calling the regulation the “Enron clause.”
But Neil McCrank, who was chair of the EU B when the PP A rules were enacted, said he couldn’t remember Enron having any involvement in the process.
“For anything that was of contention, we would ensure that all parties would have a chance to comment on it,” said McCrank, who also served as Alberta’s deputy minister of justice.
The fact is, they made a mistake that cost $2 billion and they’re looking for anybody to pin it on.