Power Purchase Arrangements
Information about the government’s legal action to protect electricity consumers.
Facing poor market conditions, four Power Purchase Arrangement (PPA) Buyers terminated their PPAs early, based on an unlawful agreement made behind closed doors between Enron and a former government.
As a result, the power companies' losses were transferred to a financial account called the Balancing Pool, which is wholly funded by residential and commercial electricity consumers.
The government fundamentally disagrees with this position, in which financial losses incurred by the private sector were passed to consumers on the basis of an unlawful clause that was hidden from the public.
The Government of Alberta took legal action to protect Albertans from the financial burden of these now-unprofitable PPAs.
- Originating application (0.4 MB)
- News: Court action launched to protect power consumers from paying costs of unlawful “Enron clause” (July 25, 2016)
- Speech: Legal action, new approach on Power Purchase Agreements
- Audio: Listen to the news conference
Settlements have been reached with Capital Power, AltaGas Ltd. and Trans-Canada Pipelines Corporation.
The government has passed legislation, Bill 34, the Electric Utilities Amendment Act, to help the Balancing Pool manage the cost of the power companies' return of PPAs and to limit the impact of these returns on electricity consumers.
Understanding the "Enron Clause"
Power Purchase Arrangements (PPAs) contain a “change-in-law” clause that allows companies to terminate the agreements in the event that government action makes their projects unprofitable. This standard change-in-law provision was subject to public scrutiny over nearly a year of consultation and was intended to be part of the final language of the PPAs.
The PPA change-in-law provision in dispute, however, was amended at the behest of Enron lobbyists to add the words “or more unprofitable,” just days before the PPA auction took place.
The amendment was never open to public scrutiny. It was temporarily posted online, after the PPA auction had already started.
How PPAs work
Under a PPA, a buyer purchases electricity from a power plant and sells it to Albertan consumers.
PPAs, which took effect in 2001, were established to move Alberta’s electricity system from a regulated to a competitive deregulated market. PPA Buyers would bear the risk of buying and selling electricity in Alberta in return for the opportunity to collect greater profits.
PPA Owners – the power generating companies – continued to be paid by PPA Buyers as though the system were still regulated.
PPA Buyers have collectively profited an estimated $10 billion since PPAs were established.
Impact on the electricity system
The power plants involved aren’t closing and the return of the PPAs will not affect electricity system stability.
The Balancing Pool was created by the Government of Alberta to manage PPAs on behalf of Alberta’s electricity consumers.
The Balancing Pool acts as a backstop to the PPAs. In specific circumstances, certain risks contained in the PPAs are transferred to the Balancing Pool.
The Balancing Pool is responsible for:
- managing the proceeds of the PPA auctions on behalf of electricity consumers
- allocating any surplus (or shortfall) of the Balancing Pool to electricity consumers in the form of a charge or a credit on their electricity bills
- acting as the default buyer for any generation facilities that failed to sell in the PPA auctions.
All electricity bought and sold in the province is managed through the Alberta Electric System Operator (AESO).