Varcoe: Blame game heats up as province heads to court over unprofitable power contracts

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.

Chris Varcoe is a Calgary Herald columnist.

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