PPA flap shows how big utilities are privatizing profits, socializing risks by Duncan Kinney, August 3, 2016, Edmonton Journal
Alberta’s big utilities and the right-wing anger machine have been busy whipping up misplaced fear and being hilariously wrong over what is a fairly complex subject: the government’s plan to sue utilities into honouring their electricity power purchase arrangements or PPAs.
To summarize, Enmax, followed closely by several other utilities, used the government’s announcement that it was going to incrementally raise an existing carbon price on big emitters brought in by Premier Ed Stelmach in 2007 to cancel and turn over PPAs to a quasi-public agency called the Balancing Pool at considerable cost to consumers.
Back when Alberta deregulated its electricity system a generous bargain was struck. The companies who built the plants under the old regulated electricity system were made whole. Despite the fact that we were “deregulating” our electricity market they got a regulated rate of return on their investment. Then the electricity output from these coal-fired generating plants were commoditized and sold to a few large corporations. These are the PPAs.
Estimates put the profit generated by these PPAs at around $10 billion over the past 20 years. Unfortunately (if you’re a PPA owner) as of right now the electricity market in Alberta is in the tank.
Wholesale power rates are hovering around all-time low prices of 1.5 cents per kilowatt hour. While that’s great for consumers, it means these coal contracts have become unprofitable after decades of using them to print money.
Funnily enough this is largely the fault of the electricity sector. Enmax built the massive 860-megawatt Shepard natural gas plant last year, flooding the market with cheap electricity while at the same time TransCanada forced two near end of life TransAlta coal plants to come back online after prolonged shutdowns.
As a result of these dismal market conditions (for generators mind you, not for customers) the big utilities decided to activate a hitherto little known opt-out clause that was apparently negotiated in secret — the Enron clause. If any law or regulation was passed that made these PPAs “more unprofitable” they could be terminated and handed back to the public to bear the brunt of the market.
And this isn’t just about protecting the PPA buyers from the burden of a change in law; this clause allows the companies to dump money-losing contracts that were already underwater simply due to low prices.
A sweet deal if you can get it. Who wouldn’t sign onto a no- to low-risk proposition where you could privatize the profits and socialize the risks. And we’re talking any law here. If Alberta improved occupational health and safety laws at coal plants or implemented pollution controls that would mean less asthma and premature death the utilities could have turned these PPAs over to the public.
But they didn’t dump these PPAs on the public when we improved safety regulations at coal plants, required mercury controls in 2006 or even when the government implemented a carbon price back in 2007. They didn’t do so back then because they were making money hand over fist. Now that prices have tanked, they want out. And while it might sound more legitimate to blame the most recent carbon price increase, nothing prevents them from using those previous policy changes instead.
Now that Alberta’s utilities have made a mess they’re trying to get regular Albertans to clean it up. We can’t allow the utilities to avoid the consequences of their bad business decisions by having regular Albertan electricity customers shoulder the burden. We need to make the electricity system work both for Albertans and the utilities.
Wind energy is the cheapest source of electricity in the province. Solar photovoltaic energy has never been cheaper and several hundred megawatts of projects are in development. There are also many biomass and biogas projects being drawn up.
Let’s generate clean electricity at a fair price for all and let’s ensure that the poor decisions of Alberta’s electricity sector are not passed on to its citizens.
Duncan Kinney is the executive director of Progress Alberta and a director with Spark, a cooperative electricity retailer that supports green energy. [Emphasis added]
NDP MOVES TO END SECRET KLEIN-ERA SCHEME TO OFFLOAD CORPORATE LOSSES ON THE PUBLIC – THE OPPOSITION, PREDICTABLY, SCREAMS by David Climenhaga, July 26, 2016, albertapolitics.ca
No one should be surprised that as its final decade approached, Alberta’s Progressive Conservative government cut a secret and illegal deal with a small group of electricity marketing companies to let them leave the province’s consumers holding the bag for billions if dollars in the event the dice ever failed to roll their way.
Indeed, no one is very surprised, as you can tell from reading between the lines of the oh-so-cautious mainstream media coverage of the NDP Government’s lawsuit, launched in the Alberta Court of Queen’s Bench yesterday, to invalidate a secretly negotiated clause in Tory-passed legislation that allowed corporations to offload business losses in the electricity market onto the public.
“Our government believes Albertans should not be on the hook for secret backroom deals that were created between companies like Enron and the previous PC Government,” said Deputy Premier Sarah Hoffman, who is the NDP Cabinet’s point person on this issue. “We think it’s not only unfair to Albertans, it’s also unlawful.”
Anyone who was paying attention to how crony capitalism operated in oligarchical Tory Alberta may be appalled, but certainly not shocked, by the workings of this scheme. This kind of thing was standard operating procedure back when conservatives ran this place, and you can place a bet on it there’s more to come.
So while it may be unusual for a government to sue to challenge the activities of one of its own agencies, as a University of Calgary law professor interviewed by the Calgary Herald conceded yesterday, it’s “not a bad argument.”
The details are complicated – just the kind of news story that makes readers’ eyes glaze over and their attention wander. Which is what conservative governments count on when they cook up this stuff.
In a nutshell, the Tories intentionally snuck a loophole into their legislation “deregulating” electricity sales that allowed companies buying electricity from generators and reselling it in the “market” to walk away if a change in the law made their activities unprofitable. This was done in secret, naturally, passed by a discreet cabinet order.
The effect was to leave consumers carrying the risks of the system of casino capitalism desired by the government’s pals and funders. Unsurprisingly, all this happened back in 2000 when the beloved Ralph Klein, supposed slayer of the provincial deficit, was Conservative premier of Alberta.
What fun! If the roulette wheel spins to the right colour and number, the corporate bosses get to keep all the chips. If it lands on the wrong combination, and they lose big, no worries! They stillgot to keep all the chips.
The Klein Government – again, unsurprisingly – lied to us at the time and said they were transferring risk to the private sector when in fact they were transferring risk away from corporations and onto the public. Remember that every time you hear a complicated explanation for a how a so-called public-private partnership, or P3, is in your interest as a taxpayer. Same scam; different details.
The fact that Enron Corp. – the disgraced U.S. company that turned out to be a financial house of cards – lobbied for such schemes gave the NDP a memorable way to try to ensure this scandal sticks in the public’s mind for what it really is. At the end of 2001, after it was revealed its reputed profits were sustained by “institutionalized, systematic, and creatively planned accounting fraud,” New York-based Enron went into bankruptcy. The company had ceased to exist by 2007.
Like a lot of Mr. Klein’s conniving, it took a long time for the chickens to come home to roost. But after 16 years and about $10-billion in profits, now that the market for electricity has turned down as part of the general economic situation, corporations got ready to use their secret golden parachute to bail out of their no longer automatically profitable deals.
The government’s lawyer said he will argue Mr. Klein’s government lacked the legal authority to make the secret deal – which Ms. Hoffman said could now cost Alberta electricity consumers $2 billion. Therefore, the government will argue, the clause is void. It is seeking a court order quashing a recent order of the Klein-era regulatory authority to let Calgary-based Enmax Corp. pass off a money-losing contract to consumers.
Corporate heads are spinning, of course. Never in their wildest nightmares did they imagine common sense and the interests of citizens would prevail in electricity sales casino!
The Opposition reaction yesterday was lame, to say the least.
Don MacIntyre, Wildrose electricity and renewables critic, tried gamely to make the case this sort of thing would scare investment away from Alberta.
“The NDP is asking the courts to turn back time,” he huffed to the CBC. Actually, you could make a case they’re trying to turn back crime, political crime anyway, and will save taxpayers billions of dollars.
Ric McIver, hapless interim leader of the PCs, the party that came up with this rotten deal, tried to put it back on the NDP, arguing laughably it’s the NDP who are trying to pin their mistake on someone else. I don’t know about you, but I missed the part when the NDP was in power in 2000.
This is almost as silly as last week’s Wildrose news release demanding that the NDP stop hurting Brad Wall’s fist with its face.
Seriously, I’m not making this up! When Premier Rachel Notley finally crisply responded to the umpteenth drive-by slagging of her government by Saskatchewan’s ill-tempered premier, the Wildrosers were immediately on her case. The headline on their press release read: “Notley needs to stop tearing down Alberta’s relationship with Saskatchewan.”
Makes you wonder just whose side they’re on, anyway? Oh, wait. We already know the answer to that one, don’t we? [Emphasis added]
Blame game heats up as province heads to court over unprofitable power contracts by Chris Varcoe, July 26, 2016, Calgary Herald
Is the former Progressive Conservative government responsible for a critical electricity decision that could cost Albertans up to $2 billion in higher charges — or is the current NDP government accountable?
Or is anyone to blame in this high-voltage affair?
Ultimately, that question could be decided by an Alberta court after the Notley government started legal action Monday to try to stop utility companies from unloading unprofitable power purchase arrangements (PPAs) on to consumers.
It’s a showdown that’s been brewing for months, but dates back to the Klein government’s deregulation of Alberta’s power market almost two decades ago.
The lawsuit involves a provision contained in the power contracts that the government is now calling “the Enron clause” after the notorious U.S. energy company — and the NDP is fighting to have the clause voided.
“Our government believes that Albertans shouldn’t be on the hook for secret back-room deals that were created between companies like Enron and the previous PC government,” Deputy Premier Sarah Hoffman told a news conference at the legislature.
“We think it is not only unfair to Albertans, it is also unlawful.”
Since the spring, the government has been trying to find a way to prevent the utilities from transferring money-losing PPAs into the lap of a government-created agency, the Balancing Pool.
The agency sells electricity from older generation contracts that weren’t sold at auction when Alberta’s market deregulated in the late 1990s.
It allocates any profits or losses back to consumers on their monthly electricity bills. To date, the pool has returned more than $4.4 billion to Alberta consumers.
Rapidly, however, the profits are turning into losses. Power prices have recently plunged to 20-year lows.
On Dec. 11, Calgary’s power utility Enmax gave notice it was terminating its PPA for the Battle River coal-fired power facility.
It noted the province was increasing Alberta’s carbon tax on heavy greenhouse gas emitters and that the PPA became “unprofitable or more unprofitable” for Enmax.
The power arrangements originally contained an exit clause that allowed for the contract to be terminated if a change in law made the PPAs unprofitable.
But the arrangements were later amended in August 2000 to also include the words “more unprofitable.”
The province claims the change was made at the behest of now-defunct Enron, then a big player in Alberta’s power market.
The province argues no public notice was given or hearings held into the changes made by Alberta’s Energy and Utilities Board at the time, and that the province’s own energy regulator made an amendment “that it was not authorized by law to make,” according to court documents.
The government says it isn’t fair for consumers to have to pay for losses on contracts that were already unprofitable due to market conditions. It notes the buyers collectively made an estimated $11 billion in profit from their PPA operations dating back to last decade.
After Enmax terminated its PPA, the decision was accepted by the Balancing Pool in January — something the province is also contesting.
Other utilities stuck with unprofitable coal-fired PPAs have since joined the stampede and terminated their contracts. However, their cancellations haven’t been accepted by the pool.
In March, a statement by Energy Minister Marg-McCuaig Boyd noted “any change of ownership of the power purchase arrangement will have minimal impact to consumers.”
But stuck with the unprofitable contract, the Balancing Pool has already begun taking steps to brace for the financial meteor heading its way.
Its board of directors approved a strategy this spring to liquidate its $705-million investment portfolio due to the cash requirements tied to the contract terminations.
If the cancellations are upheld, the Balancing Pool will have to cover the shortfall, estimated at up to $2 billion by the time the contracts finally expire in 2020, according to the government.
In essence, the NDP government is blaming the former PC government for being asleep at the switch and not examining the repercussions of the “more unprofitable” clause on Alberta consumers.
Hoffman leaned heavily on inflammatory language at the news conference, using words like “secret clause” and “covert moves” to describe the changes made back in 2000.
“It’s clear there was an intention to have this deal struck secretly between Enron and the then government, and that certainly is not in the public interest, and we’re arguing it’s also unlawful,” she said.
But there’s a counter-point to be made here.
If the NDP hadn’t changed the carbon levy on heavy emitters, it wouldn’t have given companies the opportunity to terminate the contracts in the first place, critics contend.
“It’s a banana republic move,” charged Alberta Party Leader Greg Clark. “They’ve tied themselves in legal knots to try to find some way of un-ringing the bell.”
Enmax added that the government should have known about the implications of its carbon levy. “Enmax’s actions on its PPAs were completely foreseeable, legal and reasonable,” it said in a statement.
In its court filing, the province contends the energy, environment and justice ministers only became aware of the “more unprofitable” clause in a mid-March 2016 meeting with the Balancing Pool.
And so the case is now headed for the courts in November.
Meanwhile, the Balancing Pool has to accept all of the losses of the terminated power contracts until the legal matter is decided.
This messy case may have its roots back in the formative days of power deregulation some 16 years ago, but the issue will have ramifications for consumers in the days ahead with higher surcharges likely added to their power bills.
And the blame game is only getting started.
Enron clause: Alberta asks court to make power companies pay for electricity contracts by James Wood with files from The Canadian Press, July 25, 2016, Calgary Herald
Alberta’s NDP government is taking legal action to stop power companies from offloading money-losing contracts onto the public — at a potential cost of $2 billion — with the province arguing that its own regulation allowing the corporations to do so is invalid.
But the government’s move prompted a strongly worded reaction from one of the companies at the centre of the case, Calgary utility Enmax, while opposition parties accused the NDP of desperately trying to distract from their own mistakes.
In a lawsuit filed in Edmonton on Monday, the government is asking the Court of Queen’s Bench to declare void a provision in power purchase agreement (PPA) regulations that allows companies to terminate contracts if there has been any change in law that makes the deals “more unprofitable.”
Deputy premier Sarah Hoffman said in a news conference Monday that the previous Progressive Conservative government had allowed a loophole to be “unlawfully enacted” when the regulations were drawn up in 2000, “setting up a system where consumers bear all the risk.”
“Our government believes that regular Albertans shouldn’t be on the hook for secret back room deals,” said Hoffman, who noted companies have made an estimated $10 billion in profits from the PPAs.
PPAs are contracts set up during the deregulation of Alberta’s electrical system that see buyers purchase power from generating companies and then resell into the open market.
The government says the PPAs were originally written to allow for their termination in cases where a change in law made a contract unprofitable.
It alleges that was altered, following an inquiry by now-bankrupt American electrical operator Enron, to also allow the contract to be ended if a change in law made the PPA more unprofitable.
The province says that change was put into regulations and approved by the Energy and Utilities Board — now known as the Alberta Utility Commission — without public hearings or notice to the public just before the initial PPA auction. The PC cabinet then passed an order exempting the board’s regulation from both the normal legal process and from disclosure to the public, the government alleges.
“We will argue that the government had no legal authority to make this change,” said the province’s lawyer, Joseph Arvay of Vancouver.
Since December, Enmax, TransCanada, AltaGas and Capital Power have announced their intention to terminate all of their PPAs for coal-fired electricity, transferring the money-losing contracts back to a government entity called the Balancing Pool.
The companies all cited the NDP government’s Jan. 1 increase to the carbon levy on large emitters, the Specified Gas Emitters Regulation.
But the province says the PPAs were unprofitable already because of low power prices and that if the terminations commence it will cost consumers up to $2 billion through additional costs on power bills by 2020, when the PPAs expire.
Only Enmax has had a termination formally accepted, but the government lawsuit is also seeking to block the relinquishment of the Battle River PPA, arguing that the Balancing Pool had misinterpreted the regulations.
In a statement released late in the afternoon on Monday, Enmax said it was “very disappointed” the government is taking retroactive action on agreements that have been in place for 16 years and brought billions of dollars of investment into Alberta.
The company, owned by the City of Calgary, said the government should have realized the implication of its actions related to the PPA issue and that Enmax’s actions were entirely foreseeable and reasonable.
“More broadly, we are concerned with the approach the government is taking and the signals it sends for future investment in Alberta,” said the Enmax statement.
Bruce Roberts, president of the Balancing Pool, said he could not comment as the organization is still formulating its response to the government’s lawsuit.
“If they win, it’s good for Alberta consumers,” he said. “We’re kind of agnostic on the whole thing.”
Capital Power also called into question some of the government’s claims in a statement it released Monday.
“Today’s announcement by the Government of Alberta claims that the PPA terminations will result in consumers bearing up to $2 billion in costs between now and 2020. This claim is misleading because it is incomplete. Based on available public information, the Balancing Pool can reduce its liability to an estimated $950-million by terminating the PPAs that were recently turned back to them, or to an estimated $635-million by terminating some PPAs, and retaining and managing others.”
The release further stated that the company plans to exercise every legal avenue at its disposal to ensure the government honours the terms of the PPAs.
“We believe the legal claim is without merit, and we will look to the courts to ensure that the Government of Alberta cannot retroactively amend an arrangement for which Albertan companies paid and upon which they have been relying in good faith for 16 years,” said Capital Power president and CEO Brian Vaasjo.
TransCanada’s spokesman Mark Cooper said it too plans to defend its right to terminate the contract.
“We properly exercised our termination rights under provisions in the Power Purchase Arrangements that were clear 16 years ago and that remain clear today,” he said in a statement.
“The Government of Alberta through its regulator the AUB clarified the intent of these provisions for all parties during a fully public process back in 2000. We relied on the termination provisions in the PPAs as fundamental to the commercial decision to participate in the PPA auction and would not have participated without them.”
University of Calgary law professor Nigel Bankes said it is “very unusual” for a government to be challenging the work of one of its own bodies as unlawful, but the province is making “not a bad argument.”
“These are statutory arrangements and therefore the process to approve them must be that approved by the statutes,” said Bankes, chair of natural resources law. “And while, yes, you can correct technical and clerical errors … this change of the allocation of risk goes way beyond a clerical error.”
But Wildrose electricity critic Don MacIntyre said in a statement the NDP didn’t understand provincial regulations and the consequence is a lawsuit that will scare away investment needed as the government phases out coal-fired power as part of its climate change plan.
Interim PC Leader Ric McIver said the government must believe it’s in trouble on the issue if it’s raising the spectre of Enron.
“This is more about their own political skin than anything else,” he said.
“The fact is, they made a mistake that cost $2 billion and they’re looking for anybody to pin it on.”
The alleged influence of Enron, which went out of business after it was revealed to have taken part in widespread corporate fraud, is a key political message for the NDP, with Hoffman repeatedly calling the regulation the “Enron clause.”
But Neil McCrank, who was chair of the EUB when the PPA rules were enacted, said he couldn’t remember Enron having any involvement in the process.
“For anything that was of contention, we would ensure that all parties would have a chance to comment on it,” said McCrank, who also served as Alberta’s deputy minister of justice. “If they weren’t in contention, that’s fine.” [Emphasis added]