Why we’re going to court over power purchase agreements

Government of the day didn’t want Enron clause made public, writes Sarah Hoffman

When Alberta’s electricity system was deregulated, the former PC government must have forgotten who they were elected to protect.

They worked to convince Albertans a deregulated electricity market would transfer financial risk from the public to the private sector.

We now know they did the opposite — they set up a system through power purchase agreements (PPAs) that allowed electricity companies to make billions of dollars when electricity prices were high, and when the prices were low, the agreement could be turned over to Alberta families and businesses to pay for the loss.

Over the past couple of weeks, you may have heard our government refer to the “Enron clause.” I want to explain exactly what that means, and why our government feels the need to protect Albertans from it in court.

In contract law, a change-inlaw clause is a normal aspect of many contracts between the public sector and the private sector.

This kind of clause gives reasonable protections to companies who provide a valuable service to the public. In providing public services, private companies almost always assume a very real investment risk.

Our government fully respects these clauses and, where a change-in-law actually does alter the economics of a pre-existing project so severely that it makes a profitable project unprofitable, the government has an obligation to work in good faith with the company to mitigate investment losses. It’s only fair.

This is exactly why our government is working in good faith with coal-fired electricity generators to help mitigate losses associated with our plan to phase out emissions from coal-fired electricity generation by 2030.

Some of these coal generation facilities are capable of operating beyond 2030, but government will be making a change in law to respond to overwhelming scientific evidence that shows coal emissions are harmful to the health and well-being of Alberta families, and to reduce Alberta’s greenhouse gas emissions.

Our government recognizes this change will likely mean some facilities stop operating earlier than initially planned, so we are working with them in good faith. Again, it’s only fair. But the Enron clause is not about the public and private sector working together in good faith. In fact, there is nothing fair about it. This clause was sneaked into PPAs at the last minute by a U.S. corporation with a history of illegal activity. It was added without public consultation and subsequently hidden from legislators and the public. And when you look closer at the clause, it’s pretty easy to see why the government of the day didn’t want it public.

There is a key difference between a reasonable change-inlaw clause and the Enron clause. With the Enron clause, it doesn’t need to be a change in government law that renders a project unprofitable. With the Enron clause, companies can ditch their PPAs if a change in government law renders them unprofitable or more unprofitable. It’s a small change to the clause, with huge implications for the public.

By adding the words “or more unprofitable,” a PPA could be ditched for almost any reason, transferring business losses to Albertans.

The Enron clause hasn’t been used before in Alberta because for years, PPAs have been very profitable due to high electricity prices and market forces. In fact, PPA buyers have made over $10 billion in profit since they bought PPAs.

But over the last couple of years in Alberta, new electricity generation has come online and created an excess of supply. As a result, prices have come down substantially. This has been good for the public, but it has also meant PPA holders are seeing nowhere near the profits they were before.

Many of the PPAs, including the PPA for Battle River that the government is challenging in court, are now unprofitable, and they are unprofitable because of normal market forces and business decisions — but not because of government action.

When the former government allowed Enron to have its way, when they sneaked this clause into PPAs at the 11th hour, and when they took deliberate steps to hide it from the public, they forgot who they were elected to serve.

Our government knows who elected us and we won’t forget why. We are here to protect the public — and that’s why we are going to court.