Legal action, new approach on Power Purchase Agreements

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Today our government is taking legal action to protect everyday Albertans from having to pay for the business losses of Alberta’s biggest and most profitable power companies.

These companies have long-term Power Purchase Arrangements…or PPAs…with electrical power generators.

Under these arrangements, the PPA Buyers have done very well in our province.

In fact, since these PPAs were created, the buyers have made an estimated 10 billion dollars in profit.

Now, because low electricity prices are eating into their profits, the buyers want to walk away from a handful of now-unprofitable PPAs early …which will leave Albertans to cover the cost of their contracted obligations to power generators.

Between now and the expiry of the PPAs, those obligations could amount to $2 billion.

The PPA Buyers believe they can do this because of a secret clause inserted into the arrangements by Enron and the previous government.

After months of public hearings and review, the Enron clause secretly modified what’s known as a “change-in-law” provision that had been developed properly in an open process.

The change-in-law provision was originally designed to permit companies to return a PPA to the Balancing Pool if government action made a profitable PPA into an unprofitable one.

The Enron clause fundamentally changed that provision to permit companies to return already unprofitable PPAs to the balancing pool, if any government action, no matter how small, made them more unprofitable.

This Enron clause is what the power companies are relying on to hand their unprofitable PPAs to the Balancing Pool.

Our government believes that regular Albertans shouldn't be on the hook for secret back room deals between companies like Enron and the previous PC government.

We think this is not only unfair to Albertans, it’s also unlawful. That’s why we’re going to court.

We are asking to the Court to declare that the Enron clause was created unlawfully and is therefore void in law.

As a result, we are also asking the Court to overturn the Balancing Pool’s use of the Enron clause to accept the return of Enmax’s Battle River PPA.

The former government worked with lobbyists from ENRON and secretly accepted the clause in question.

How secret was it?

First, they omitted the clause in question from over a year of public hearings, consultation and stakeholder review.

Then, at the last possible moment – the day before the PPA auction commenced – they inserted the Enron clause into the PPA contract language by way of a letter to the Minister from the Board.

Finally, the government and board took steps to hide what they had done from the public by exempting the so-called regulation from standard public disclosure.

Their actions were deliberate and we believe unlawful.

Most importantly, they were clearly not in the best interests of Albertans.

The government knew the public was watching their deregulation of the electricity system closely.

They had sold deregulated electricity as a way to transfer financial risk to the private sector in return for giving them the chance to earn greater profit.

In secret, they did the opposite – setting up a system where consumers bear all the risk.

We are going to court to protect Albertans as much as possible from the financial burden of these now-unprofitable PPAs. That is our highest priority.

To be clear, we know that power companies are major job providers in Alberta, and they are essential to developing a greener electricity system.

But market changes that affect profits are part of being in business…and cannot be the grounds for abandoning contracts and passing on the costs.

Lower electricity prices are a market response to over-supply.

And the fact is that in every case, the PPAs that were returned were profitable in the past, but now unprofitable as a result of marker conditions.  

In closing, Albertans elect governments to protect their interests. The former government forgot that. We won’t.

Thank you.