The government of Alberta is launching unprecedented legal action to block power buyers from terminating their unprofitable coal-fired electricity contracts, a move the government claims could cost Albertans as much as $2 billion by 2020.
Power suppliers like the City of Calgary-owned Enmax have found themselves facing a double whammy, with unfavorable market conditions and historically low power prices combined with higher carbon levies introduced by the government. While they are trying to avail themselves of an exit clause that exists in their agreement with the government to supply electricity, the NDP is launching legal action to stop them from doing so.
Sarah Hoffman, Alberta’s deputy premier, put the blame squarely on the previous PC government for “setting up a system where consumers bear all the risk,” adding in a press release, “Albertans should not be on the hook for these backroom deals.”
Power Purchase Arrangements (PPAs) were created in 2000 to move Alberta’s electricity system from a regulated to a competitive deregulated market. The arrangement was that PPA buyers would bear the risk of buying and selling electricity in Alberta in return for the chance to collect greater profits.
The new arrangement created PPA owners, the ones generating power, and PPA buyers who could buy the right, at an auction, to sell the generator’s electricity into the Alberta market. The government also created the Balancing Pool, which manages the revenue brought in from auction and any unsold PPAs.
Starting this year, the province increased the carbon levy charged to high-emitting large industrial operations, doubling the tax in 2016 and tripling the tax impact for 2017. This prompted Enmax and three other power companies to trigger the exit clause, citing the change in law making them “unprofitable or more unprofitable.”
If these PPAs are permitted to be returned to the Balancing Pool and in turn, consumers, the government estimates losses could be as much as $2 billion by 2020, when PPAs are set to expire.
“The government fundamentally disagrees with this position, in which financial losses incurred by the private sector are passed to consumers on the basis of an unlawful clause that was hidden from the public,” states a press release from the Government of Alberta, which goes on to note that PPA Buyers have collectively profited by $10 billion since PPAs were first established.
While power companies were already facing declining profits because of low power prices, the words “or more unprofitable” became the ones at issue. The government has called this the “Enron clause,” arguing that the “discredited and now bankrupt US electricity operator” lobbied for the extra clause and made an unlawful agreement behind closed doors with the former government, without public consultation, to include it. The government’s application to the courts is seeking an order to declare the clause “void in law” and an order to quash the decision by the Balancing Pool to accept the return of Enmax’s money-losing PPA.
Hoffman and the NDP have repeatedly said they were not aware of the “more unprofitable” wording and that raising the carbon levy could trigger the exit clause that would pass the liability on to consumers, until this spring.
However, Lac La Biche-St. Paul-Two Hills Wildrose MLA David Hanson doesn’t buy that.
“I think them claiming they didn’t know what the agreement was is false,” he said, adding that during leaders’ debates, former premier Jim Prentice even raised the issue to Notley that the government would pay billions of dollars in damages if coal-fired power plants shut down.
The dubbing of the clause as “the Enron clause” by the government is also quite insulting to companies like Calgary-owned Enmax and Edmonton’s Capital Power, said Hanson, adding the legal action will hurt ties between the province and its urban municipalities as well.
“It’s not a good way to make friends with major cities in the province,” he said.
Enmax and Capital Power both stated in press releases that they continued to support action to reduce Alberta’s greenhouse gas emissions, but Capital Power stated the terminations of the PPAs is “one of the costs of transition.”
According to Capital Power, if the Balancing Pool took prudent action to reduce the costs of PPA management, losses could be constrained to $635 million, rather than the $2 billion estimated by the government. Spread over the 14 years of the Climate Leadership Plan, “the expected impact for an average Alberta family would be about 30 cents per month,” according to its news release.
As for Hoffman’s assertion that consumers have borne all the risk from these agreements, Capital Power noted that consumers have benefitted from abundant and reliable power at “extraordinarily competitive prices,” while Hanson said that consumers have gotten rebates when the price of energy has been high, with the Balancing Pool’s 2015 financial statements showing it has returned $4.4 billion to Alberta electricity consumers through allocations and rebates since 2006.
“It’s not just the companies that have been profitable, the consumers have benefitted too.”
Any project, including the company that is expressing interest in erecting wind turbines in the Shamrock Valley/Chicken Hill area, will want a 25 to 30-year contract, but if the government is changing the rules and making it unprofitable for them to do business “they’re going to be reluctant to get into it,” he said.
Ultimately, the ones that will bear the brunt of the clash between power companies and the province will be Albertans, Hanson said.
“We’re going to get it one way or another. There’s only one source of revenue, and that’s the consumer and taxpayer, unfortunately.”
He hopes to see the government drop the lawsuit, remove the extra tax levy on high emitters and ensure it is following the legislation properly.
“Deal with corporations openly – and the public.”
