WHAT IS A PPA?

The NDP dropped a bombshell this week as it launched legal action aimed at preventing power companies from returning money-losing contracts. James Wood explains.

Q What are Power Purchase Arrangements?

A Power 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.

Q What set things off? The 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-inlaw provision. TransCanada, the ASTC Power Partnership and Capital Power followed suit on their coal-fired power PPAs, also citing the SGER hike. The Balancing Pool approved Enmax’s initial termination while the others are pending.

Q What are the consequences of that move? If 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.

Q What’s the fight? The 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 later bankrupt 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.

Q What’s been the reaction? In 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.

Sources: Alberta government, the Balancing Pool, Independent Power Producers Society of Alberta, Enmax