Alberta’s NDP government wants to save Albertans $2 billion and the Wildrose, the Progressive Conservatives and the media are churning up a dust storm of misinformation trying to stop them.
Let’s take it from the top, shall we?
Klein deregulates the power industry
In 2000 Premier Klein boldly went where few had gone before—he deregulated the electricity industry.
The utility companies were allowed to own and operate power plants but had to transfer the right to sell power to middlemen known as Power Purchase Arrangement Buyers (PPA Buyers) at auction.
The PPA Buyers cherry-picked the first batch of PPAs on offer, buying 8 of the 12 at significantly less than the expected value. The less profitable PPAs went into the Balancing Pool. The Balancing Pool sells power under these unprofitable PPAs and passes the losses onto Albertans.
The PPA Buyers made $10 billion in profit over 14 years.
Notley increases the emissions levy
The PC government passed the Climate Change and Emissions Act in 2003 and the Specified Gas Emitters Regulation (SGER) in 2007. It set a $15/tonne fee on emissions above target. Target was 12% above original emissions.
In January the ND government increased the fee to $20/tonne in 2016 and $30/tonne in 2017 and increased the target to 15% above original emissions.
The PPA Buyers say these changes trigger the Change of Law clause in their PPAs and they can dump their “more unprofitable” PPAs back into the Balancing Pool transferring the $2 billion loss to consumers.
The NDs say not so fast and hired Joe Arvay, a top notch constitutional and administrative lawyer, to ask the Court to issue a ruling on the PPAs and the regulations and orders that brought them into existence.
The Opposition parties and the media went nuts.
It’s time to set the record straight.*
Myth #1: The ND government is refusing to honour a contract
Fact: PPAs are NOT contracts
Power Purchase Arrangements are not “contracts”, they’re “arrangements.”
Here’s your first clue—they’re not signed. They don’t need to be executed because they’re statutory instruments that form part of a statutory scheme Premier Klein set up in 2000 to create a fair, efficient and open electricity market.
The NDs are not going to court to “break” a contractual clause. They’re asking the court to determine whether a clause in a statutory instrument was lawfully enacted in the first place.
Myth #2: The ND government is suing the PC government of 2000
Fact: The ND government is NOT suing itself or its predecessor PC government
The ND government isn’t suing anyone.
It’s applying for an order declaring the Alberta Energy Utilities Board (AEUB) had no legislative authority to accept an amendment to the Change of Law clause that allowed PPA Buyers to abandon their PPAs if the government passed a law that made their PPAs “more unprofitable.”
The government is also asking for an order declaring that the regulations that “approved” the amended PPAs are unlawful.
If the Court agrees with the government, PPA Buyers will have a harder time showing that it is the $5/tonne increase in the emissions fee and not poor market conditions or their own imprudent business decisions that made their PPAs unprofitable.
Myth #3: The NDs should exempt power producers from the increased emissions fee or be blamed for the $2 billion hit to consumers
Fact: This myth assumes the Enron clause is valid; it’s not
The birth of the Enron clause is cloaked in mystery. I’m serious! Who knew that enacting statutory instruments could be so intriguing!
The Klein government appointed consultants (PwC and Charles River Associates) to develop PPAs and present them to the Alberta Energy Utilities Board.
Cabinet gave the AEUB the power to approve these PPAs or vary them under special circumstances (eg if the consultants were idiots or the PPAs were obviously unreasonable, economically unsound or not in the public interest).
After receiving the PPAs from the consultants the AEUB held a public hearing to consider changes proposed by industry.
The AEUB rejected industry’s change requests and issued an Order (U2000-190) approving the PPAs pursuant to the statutory power granted to it by Cabinet.
At this point in time the Change of Law clause allowed PPA Buyers to terminate their PPAs if a change of law made them “unprofitable.” There was no language allowing them to terminate if the change of law made them “more unprofitable”.
Then things went sideways.
The consultants submitted two more sets of changes to the AEUB after it had approved the PPAs.
Most of the changes corrected mathematical calculations, however buried in the pile of “errata” was a change to the Change of Law clause requested by Enron that amended the language already approved by the AEUB by adding the words “or more unprofitable”.
This was a substantive change because it created a brand new off-ramp in the PPAs, giving PPA Buyers yet another way to terminate their arrangements, thereby increasing the risk that Alberta taxpayers would be left holding the bag (to the tune of $2 billion it turns out).
The AEUB did not have the legislative authority to approve this change but it did so anyway which is why the NDP government is challenging the Enron clause in court.
Myth #4: The ND government should have known about the Enron clause before it increased the emissions fee to $20/tonne
Fact: Cabinet buried the Enron clause so deep no one could find it
Here comes the cloak and dagger stuff…
The NDP government might have known about the Enron Clause if it hadn’t disappeared in the blink of an eye.
On Aug 18, 2000 a regulation (Reg 175/2000) was filed with the Registrar of Regulations. It contained the AEUB’s Order approving the original PPAs plus “errata” letters setting out mathematical changes and the Enron Clause.
This regulation was not supported by a Ministerial Order or an Order in Council—it just materialized out of thin air.
A month later Cabinet passed a regulation burying Reg 175/2000 (and the Enron clause). It said Reg 175/2000 was available in printed form to those who wanted it and it was too big to go into the Alberta Gazette.
Let’s think about that for a moment.
Yes, the Reg containing the PPAs and Enron clause can be purchased from the Queen’s Printer for $246 or ferreted out of a legal data base if you have a subscription and an experienced law librarian handy—but you need to know the Enron clause exists in the first place before you can go looking for it and you won’t know it exists because you can’t read about it in the Alberta Gazette or search for it on CanLii, a standard free legal database.
So good luck trying to find it.
It appears the only people who knew about the Enron clause were those who were involved in the PPA auction (including Enron), the AEUB and Klein’s Cabinet (none of whom are in the Legislature today).
The Wildrose and PCs are having a field day with this file.
While it’s understandable from a political perspective that the PCs want to stop the NDs from exposing the unlawful actions taken by the Klein government in support of its free-market-propped-up-by-corporate-welfare-deregulation strategy, it’s not clear why the Wildrose is standing with the PCs against consumers.
Perhaps it’s a matter of ideology.
Rather than throw their support behind the NDs who want to test the validity of a clause that, left unchallenged, will stick consumers with a $2 billion bill, the Wildrose would prefer to play “Gotcha!”