THE ART OF (BREAKING) THE DEAL
The NDP government dropped a bombshell this week when it launched legal action to prevent power companies from handing money-losing contracts back to the province. The stakes are high, the issues are complex and the ramifications could be costly for consu
QWhat are Power Purchase Arrangements?
APower Purchase Arrangements, or PPAs, were created in 2000 as a way to introduce competition as the former Tory government moved to deregulate Alberta’s electricity sector.
The arrangement created PPA owners, who were the original utilities, and PPA buyers, who at auction bought the right to sell the generator’s electricity into the provincial market. The government also created the Balancing Pool, which manages the revenue brought in from auction and the unsold PPAs.
QWhat set things off?
AThe PPAs contain a clause that allows the buyers to return the contracts to the Balancing Pool if a change in law makes them unprofitable or more unprofitable. Last year, the new NDP government moved to increase the carbon levy paid by large industrial operations under the Specified Gas Emitters Regulation (SGER).
With the increase coming into effect Jan. 1, Enmax notified the province last December it would terminate its Battle River PPA under the change-in-law provision. TransCanada, the ASTC Power Partnership and Capital Power followed suit on their coalfired power PPAs, also citing the SGER hike. The Balancing Pool approved Enmax’s initial termination while the others are pending.
QWhat are the consequences of that move?
AIf the PPAs are relinquished to the Balancing Pool, the organization becomes responsible for offering the power to market and making payments to the generators. It would then have three options: continue to hold the PPAs, resell them or cancel them by paying the power plant owner a termination payment equal to its book value. Due to a slowing economy and a surplus of electricity supply in the province, power prices are at a record low.
If the Balancing Pool operates the PPAs at a loss, the difference will be tacked on to consumers’ power bills.
QWhat’s the fight?
AThe NDP government says the PPAs were already unprofitable and allowing the companies to relinquish them will cost Albertans up to $2 billion by the time the arrangements expire in 2020. The province argues that shouldn’t be allowed to happen, and it’s launched a highly unusual legal action to stop it.
The government says that the provision allowing buyers to terminate the PPAs if they become “more unprofitable” was introduced at the last minute at the behest of bankrupt and discredited Enron Corp.
It says the clause was “unlawfully enacted,” with the Energy and Utilities Board putting it in regulations without public hearings or notice and the PC cabinet exempting the rule from both the normal legal process and public disclosure.
The province is asking the Court of Queen’s Bench to void the regulation — which the NDP is calling the “Enron clause” — and to block the termination of the Battle River PPA, arguing the Balancing Pool had improperly interpreted its rules.
QWhat’s been the reaction?
AIn its court filing, the government says cabinet ministers only learned about the “more unprofitable” provision in March of this year. Opposition parties say the government is either incompetent or not telling the truth and suggest the lawsuit is just a way for the NDP to distract from its costly mistake.
The companies involved aren’t happy with the government intervention, accusing the province of trying to retroactively change wellunderstood rules and suggesting it will affect the investment climate in the province.
Mayor Naheed Nenshi has also staunchly defended city-owned Enmax, while the Calgary Chamber of Commerce said the government’s decision set a “devastating precedent.” However, University of Calgary law professor Nigel Banks has said the province has a good case and a not bad chance of prevailing in court.