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.
Premier Notley
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.
Now you see it *click* and now you don’t
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).
Gotcha!
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!”
Seriously???
*Sources for this post include two excellent blogs written by Law Prof Nigel Banks which can be found here and here and the Government’s Originating Application which can be found here.
Susan on the Soapbox 
OMG….thankyou so much for laying this out!!
Great stuff as usual Susan!!
Norm, the application will be heard by a judge in chambers on Nov 2. I can’t wait to see the respondents’ affidavits setting out their arguments. Should be very interesting!
s finished playing out
I should be able to get my hands on the respondents’ affidavits when they’re filed. I’ll share them with you.
Susan, if I accept at face value the case that you have laid out and the conduct of the current government as you have represented it – I do have a question. Why would the Province not pick a law firm or lawyer based in Alberta to pursue these matters, in part or in total. That would add an element of legitimacy to the process and keep the huge fees involved working in the same Province paying the bills. Thanks for your hard work on this commentary and in advance for your reply to my question. Mark me curious, politically active, a retired real estate and economic development specialist and never a member of the Law Society of Alberta.
Given the number of companies and other groups responding to the government’s application, it is very likely that many of the high-end law firms in Alberta that would be up to the challenge would have been placed into a conflict of interest.
Thomas, Emmet is right. Prof Nigel Banks said BC lawyer Joe Arvay “is no doubt a very good choice, but I suspect that there would have been few major law firms in Alberta with expertise in this area who would not already have been conflicted out.” From a lawyer’s perspective this would be a very juicy file in every sense of the word!
Thank you, thank you for shedding another spotlight on the shenanigans of this 40+ government.
You’re welcome Claudette! I just wish the main stream media would get it’s act together. I couldn’t believe the malarkey they were spouting–one said the NDs were reaching back in time 16 years to “sue” the PCs–all they had to do was read the Originating Affidavit to get their facts straight.
The media is not interested in getting its act together. They are now instruments of political propaganda. Some more than others, depending on their ‘journalists’.
In fairness Carlos, the media is on very hard times more so than many other industries. The have zilch for advertising revenue and their subscriptions are off a cliff. They do not have the resource to do more than they are now.
Sorry Cyberclark but I disagree with you. The media has been under control of big money for many years and their present state does not mean that they have to sell their souls to propaganda.
Just another reason to not trust an albertan politition !! As if there aint enough already !!
You’re right Bill, this situation illustrates why voters are cynical of government.
“An Easter egg is an intentional inside joke, hidden message, or feature in an interactive work such as a computer program, video game or DVD menu screen.”
https://en.wikipedia.org/wiki/Easter_egg_(media)
Is there a name for “Easter Eggs” in laws and regulations? This can’t be the first time in the world this sort of thing has happened. Someone should ask the Tories whether there are more to be found.
Keith, great analogy! Years ago when I was in-house counsel we did a deal in Beijing. I wanted a Change of Laws clause put into the contract. The Beijing lawyer laughed and said sure, but it will only apply to the public laws, not the secret ones. The PCs didn’t go quite that far–the amended PPAs can be ferreted out if you know the amendment exists and where to look for it, but the fact they passed a regulation dispensing with publication made the search that much more difficult and raises the question: are there any more regulations we should know about?
Hi Susan, it always amazes me how much admiration and respect Ralph Klein gets after his government saddled us with $30 billion in infrastructure debt and then created a “competitive” electrical system that has been anything but competitive. In the 90’s I used to pay about $40.00 per month for power, when it came from one source; at that time Trans Alta, who generated and distributed the power to me. As soon as deregulation occurred I now have Epcor who retails the power, Fortis who distributes it and the somewhere in the PPA someone who generates the electricity. Obviously all three want to make a profit. So my once $40.00 per month power bill became $130.00 and when natural gas prices peaked it got close to $180.00 – $200.00. For a government that was supposed to be “business minded” did they not figure that introducing more players will increase the cost.
So it doesn’t surprise me that there was this “more unprofitable”. I also remember in the 90’s that the Klein Government were notorious for burying the “good” they were doing so deep into documents and made retrieving those documents so money or time intensive that many would be dissuaded from doing so.
We Albertans need to hold all our representatives feet to the fire in government and out. We need to not take everything that is said as the truth because there are always ways to make people look better than they are and to slowly chip away at our “ownership” of the government without out us understanding what is happening. That means being informed, and if we won’t be informed then we deserve the governments we get. Thank you for helping to inform us.
Einar, your guess is as good as mine when it comes to the veneration of King Ralph.
One thing is certain, his lop-sided deregulation strategy didn’t introduce many new players to the market and the Enron clause allowed the few who came in to take the profits and push the losses on to the consumer.
In 2000 there were three regulated utilities producing and selling power: Edmonton Power (subsequently EPCOR and publicly traded as Capital Power), Alberta Power (subsequently ATCO) and your favourite, TransAlta. After 14 years there are two more big producers: Enmax and TransCanada (plus some smaller players the MSA describes as “other”).
The power companies that want to terminate their PPAs include subsidiaries of Enmax, TransCanada, Capital Power and ATCO.
Bottom line: Klein’s deregulation strategy gave the power producers an opportunity to create subsidiaries that could ride the power market up when prices are high and dump their PPAs when prices dropped.
How could this possibly in the public’s best interest?
Another example of why I hate the “right wing” they always govern with their greed in mind and not the public good in mind.
Brent, the irony here is the AEUC was lawfully allowed to amend the PPAs if the PPAs were NOT in the public interest. Assuming for a moment that the original PPAs were in the public interest, when the AEUC amended the PPAs by adding the Enron clause they took PPAs that were in the public interest and amended them so they weren’t in the public interest.
Without the Enron clause power companies could walk away from their PPAs only if the government introduced a law that made their profitable PPAs unprofitable. After the change they could walk away from their unprofitable PPAs (which would be unprofitable due to poor market conditions or bad management) if the government introduced a law that made the already unprofitable PPAs more unprofitable.
The AEUC and director of energy may not have understood what they were doing but Enron certainly did. http://www.theglobeandmail.com/news/alberta/e-mails-reveal-how-albertas-enron-clause-was-orchestrated/article31303953/
Is this an analogous situation? :
Our municipal council voted to jack up the FOIP Access fee to $30. The fee is set at $25 in Provincial regulations. Municipal councils (like the AEUB) get their powers from provincial law and have no authority to do this. If I had paid $30 (which I didn’t) I guess I could apply to the courts to have this ruled illegal and get my $5 back.
Good question Keith. The analogy works. Let me look into this and get back to you.
I can add some color to this really excellent article. Ralph Klein started off seizing the power lines into the Government. Municipalities formerly took revenue from lines and pipelines going though their area. Klein compared Leduc (rich) as having a computer room in their school and Blueberry AB (Poor) as having no such room. Klein’s promise was to have all school equipped with computers and this would come from the power line revenue now in the hands of the province.
A year later the power lines had to be sold to make his market work This cost the Alberta residents a reported 7 billion dollars as the lines were handed off for pennies on the dollar of value.
The so called pool was PPA’s (mostly gas which was expensive at the time) were picked up by the Power Corp; the parent company of Great West Life (and many others). Great West Life was headed by Mazenkowski who was always at the inside table of the Conservative Gang. There was never any accounting given on how much Power Corp charged to run the holding pool nor any indication on how much they made when they sold the natural gas holdings.
Think of it, this arrangement would allow companies to switch at will between gas and coal at any whim they may have.
Wow, that’s an excellent addition of “color” to this post. Klein’s purpose in seizing the power lines sounds laudable (rural children deserve computers too), but the fact that a year later the power lines were sold to make the market work creates the suspicion that the laudable purpose was just sleight of hand…which gets us back to Einer’s question: why do the conservatives accord Klein so much admiration and respect?
Susan, Once again I would be lost without you. You take, what to me anyway, a complex issue and in couple of 100 words lay out the history and structure of it and cut through the fog of misinformation that has been generated around it so I can understand it. It highlight again how poorly served by the media we are. They only report on what various people say none of them spend 5 minutes trying to analyze whether what is being said is accurate it just pile up of inaccuracies. The bottom line is the utility companies have done quite well in Alberta and in end it will be the taxpayer or the consumers who will pay.
Thank you David! I don’t understand why the media doesn’t go directly to websites like ABlawg. It sets out all the facts plus all the supporting documents on almost any issue of importance to Albertans. Sure, the legal stuff can be a bit of a slog sometimes, but the media are being paid to slog through it, it’s the least they could do before launching into a diatribe and confusing the public even more.
It’s also the least they could do so people like me who read their inane articles don’t die from a stroke brought on by high blood pressure!
Energy companies 10 billion profit. Raping the common person
And the PC government that was elected to protect the public interest paved the way.
John 10 billion is just touching in comparison to the real rape that has been going on since Peter Lougheed left the government. I suspect trillions is more like it.
Mel Hurtig, the only Canadian that reported on this for a long time, unfortunately passed away after being ignored in life and now in death. Newspapers waste pages and pages when a criminal like Karla Homolka complains about not being left alone but the death of one of the great Canadians of our modern times is basically ignored by most newspapers. Reading his books gives us a good idea of the magnitude of the real ‘rape’ of the Canadian economy. Read them and you will join me on the disgust of our total lack of respect for our own country’s well being.
Yes. 860 Billion was plucked from the heritage trust. This was done by freezing and drawing down the fund to a 5% profit. Norway who has half the output of Alberta has over a trillion banked. Prentice said upon abandoning his post “I guess we hit the Heritage a little too hard.” This was just after I busted them on stealing 7 billion from labours pensions.
Different John replying to you. The Conservatives milked the Heritage Trust fund to the tune of 860 billion dollars. They did this by freezing and then drawing down the heritage to a 5% profit..
Norway who has less than half the oil output of Alberta has over 1 trillion banked in their version of the fund. On paper at least every Norwegian is a millionair!
Prentice on abandoning his post, said “I guess we hit the Heritage too hard”. This was just after I busted him for stealing 7 billion from labors pension funds held by Aimco. This they denied for about weeks before coming clean but then only after threat of taking AIMCO to court.
Conservatives were selling Prentice as being the only true moderate leader and we spoiled things by tossing them out.
The conservatives put a 17% tax on the build of the new DC power lines. Ms Notley is keeping this and I don’t blame her. But DC travels on the outside of the wire and the wires are larger in diameter. Hence, no resistance and no EMF. What the companies put onto the wire comes off and they can control it finitely. Companies can expect 25 to 35% additional profits when the lines go into service. But, there is no word from Notley or the power companies they are going to do anything other than charge us still more on line charges. Enter Buckminster Fuller.
Having worked for the Alberta Government previously, they do have access to Quicklaw and Westlaw and there are no restrictions on use for lawyers so while a quick search on canlii wouldn’t have brought up the regulation, if the lawyers working in government aren’t thorough enough to find the regulation that a first year summer student should be able to, it might be time to do some retraining. Notwithstanding that Rachel Notley debated PPAs with Jim Prentice during the campaign, which is how I became aware of them a year ago and I barely watch the news! I was confused and while I’ve thought the NDP under qualified, have never thought them dishonest until seeing the claim of not knowing about the PPAs (or perhaps very forgetful?).
Sorry, but most of this article is just making excuses for the NDPs incompetence.
They could have easily consulted with the Balancing Pool about the potential impacts the carbon levy would have on the PPAs before enacting the legislation. But instead, they just blindly jammed the carbon levy through.
Even if the clause is deemed invalid by the courts and the companies are forced to keep the PPAs, they will just pass the increased costs on to the consumer by selling the electricity at higher prices.
It’s a loss either way to the consumer, which is why the whole lawsuit is pointless. If the NDP wanted to protect the consumers, they shouldn’t have been so aggressive in enacting the carbon levy legislation.
I wonder where the $2B dollar number comes from. The Balancing Pool also has the option of terminating the PPA (although they have to pay a penalty to the owner, which could mitigate the losses to consumers to be less then $2B.
HILT and Ruttiger, at the end of the day nothing hinges on whether the ND government should have known or could have known about the amended Change of Law clause when it introduced the increased emissions fees in 2015. The argument set out in the Originating Application is that the AEUB did not have the legislative authority to amend the Change of Law clause in Aug 2000 and as such the amendment has no effect and Reg 175/2000 is ultra vires and void ab initio.
If the judge agrees with the AG, then Ruttiger’s point about the power companies passing increased costs on to the consumer needs to be considered. According to the Originating Application Enmax bought the Battle River and Keephills PPAs, TransCanada bought the Sheerness PPA and it, ASTC and Capital Power bought various Sundance PPAs. I don’t know how many other PPAs these companies hold, but the first thing I’d ask is whether the losses under these PPAs can be off-set against the profits from the other PPAs instead of being passed on to the consumer. The second question I’d ask is whether the consumers can avoid these increased costs by switching power providers.
Ruttiger, I don’t know where the $2B number comes from but I think you’re right that the BP could pay the termination fee to the owners and terminate the PPAs in order to mitigate the losses to consumers.
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.
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So let me get this straight Susan. You are saying that the government of Alberta under the PCs simply did not do their due diligence or simply acted against the public interest and allowed the changes made by the AEUB that it was not permitted to do? We got screwed in terms of these power arrangements because the PCs accepted a legislative change by the AEUB that it was not permitted to do?
Upon discovering this situation why weren’t we told by the NDP folks—about this clause until this late date? In other words, I assume that there are ways to get this information before making policy changes such as the carbon levy, that the government pays for all scenarios to be presented to it and as such the government was fully aware that legislative changes that they were introducing would result in this current situation where power companies are decamping. Knowing about the clause and the potential for the current situation where power companies are exiting, why didn’t the government communicate this situation to the public as you are doing? Whether or not the legal case proves that the NDP folks are correct or not —there should have been better communication of this issue. It is very confusing to the ordinary citizens like myself to find out that PPAs are not contracts. It is also confusing to find out that the government is not suing itself but suing to declare work done by the AEUB as work it was not permitted to do. Until I read your blog post, I was under the impression that the government of Alberta was breaking contractual agreements rather than arrangements that do not have the same constraints (apparently) as contracts.
Ultimately, who has the real responsibility for this situation? Isn’t it the government of Alberta’s job to review work done by regulatory bodies? Isn’t the government of Alberta— supposed to be following the work of regulatory bodies such as the AEUB? Isn’t government ultimately responsible for decisions made by such regulatory public bodies?
This situation with the associated legal case work—doesn’t increase my confidence in the work of the government of Alberta. It’s doing repair work on a renovation job that should have never been done in the first place. While I understand that bureaucrats are subject to the political party in power why was none of this apparently unacceptable work by the AEUB detected by government lawyers? At the very least, would you not expect the lawyers at government to look over the work of Cabinet? Why was the legal team at the AEUB also not be concerned about this matter? I am frankly very surprised by what appears to be a willingness to overlook shoddy AEUB work that was not done in the public interest or cunning work done by Cabinet in the private interest. Why would Cabinet pass a regulation to hide this information from the rest of government and the public?
Julie I don’t know the answers to most of your questions. I expect we’ll learn more when the respondents to the Originating Application file their affidavits in response. Part of the difficulty here is that the media is doing a very poor job of presenting the story. They continue to describe the PPAs as “contracts” that the government made with industry when they’re actually statutory “arrangements” that govern the relationship between power plant owners and power buyers. The PC government was involved at the statutory level because Klein needed to pass statutes and regulations to enable the deregulation to proceed. And now the ND government says the PPAs were unlawfully enacted because the AEUB didn’t have the statutory authority to accept the Enron amendment.
You’re right to ask about the role of the lawyers working for the AEUB and the Dept of Energy, they may well have been concerned about the addition of the Enron amendment and the lack of a public hearing on it, but lawyers take their instructions from their bosses and a recent Globe article says Mr Charach, the civil servant in charge of the PPA auction, told the director of the AEUB to talk with the Enron lobbyist and come to terms – “close the gap” over adding the clause before the auction. I don’t know how one “closes the gap” over these 3 words, either they’re in or they’re out, there’s no middle ground, so this sounds like a “do it” instruction to me.
The PC government gave the AEUC the authority to approve the PPAs except in certain cases, one of which was if they were against the public interest. It would appear the Enron amendment went against the public interest but Mr Charach said it was the AEUB’s job, not his job, to look after the public interest…he also told the AEUB to “close the gap” so I’m not surprised the clause found its way into the PPAs on the eve of the auction.
All in all it’s a mess, and that could be why Cabinet passed a regulation to hide it from the public, but we’ll never know for sure will we?
Here’s the link to the Globe article: http://www.theglobeandmail.com/news/alberta/e-mails-reveal-how-albertas-enron-clause-was-orchestrated/article31303953/
Kudos to the AB NDP for trying to re-establish the rule of law in Alberta after 40+ years of impunity. However, government now has the legal precedent established by the Harper Cons over the Wheat Board issue.
When Friends of the CWB argued in the Federal Court that farmers actually paid for the hundreds of millions of dollars of hard assets owned by the CWB, the government lawyer replied this was irrelevant since the legislation seizing the assets contained no provision for compensation.
In their judgement the Federal Court let this stand – apparently Parliament and the Legislature are supreme in this regard. So why doesn’t the AB NDP pass legislation to nullify, without compensation, the PPAs? They could even do the same thing with the whole electrical system and run it as a public utility.
I should also note the Friends of CWB legal action is proceeding as we contend Government mishandled CWB funds depriving farmers of hundreds of millions of dollars.
Larsen I agree with you but corporate entitlement is so ingrained in our society that whatever any government does for the public good is terrible. Just look at the local papers and see how Rachel Notley is depicted even in cartoons. Even the so called ‘Progressive’ media is tragic. How to even have a chance in this kind of environment is very concerning.
https://mobile.twitter.com/SheilaGunnReid/status/758164840246571009/video/1
Susan, I would suggest that something very important hinges on whether they knew – the integrity of our Premier. Here is a clip of her being told about the damages that would be owed and yet the NDP plowed ahead with the closures and the carbon tax. It would’ve been in the best interest of the people to put their application before the Court, get a ruling and proceed from there. The ndp have proven themselves hell bent on pushing their agenda through without proper research or consultation and the carbon tax is just another example.
HILT, the issue of when the ND government knew about the “or more unprofitable” amendment to the Change of Law clause isn’t legally relevant for the Originating Application because the legal argument is that the words were improperly added by the AEUC in 2000 and they didn’t have the power to do so (this power rested with Cabinet).
I take your point about it being important to understand whether the ND government is telling the truth about when it found out about the impact of the amendment. But I don’t think the clip you’ve attached addresses this point. In the clip Jim Prentice says it would cost billions if the coal plants were closed early. The Originating Application isn’t about closing coal fired power plants and the owners of the coal fired power plants aren’t arguing that they have to close their power plants because of the government’s Climate Leadership Plan or the change to SGER. The Originating Application came about because power companies (PPA Buyers) who buy power from the power plant owners want to terminate their PPAs because the cost of the government’s policies make their PPAs “more unprofitable”. (Note: that the Originating Application names four Atco companies as the owners of the Battle Creek Generating Station, it looks like Atco is wearing two hats in the O.A. because these four are also identified as the PPA Buyer for the Battle River PPA and it’s in their capacity as PPA Buyer that they want to terminate their PPAs).
And while I don’t agree with your last sentence, I do appreciate the fact that you’ve approached this discussion by examining what I’ve said and pointing out evidence to the contrary. That’s far more effective than some of the other comments I’ve received which dismiss everything I’ve said because all we “lefties” are bananas. People who base their arguments on name calling will not be published here.
http://albertathedetails.blogspot.ca/2016/04/the-world-is-in-dire-straights.html is a link i put up with great reference material. In addition, earth’s orbit is progressing as it should, it is elongating into a more oval shape. This in the past has been the herald of ice age onset but the cooling temperatures are more than offset by our carbon dependency. We wanted leadership, honest leadership in Government and now, we have it
In addition we have a Government that is determined to put a chicken in every pot as opposed to conservative breadlines and food stamps.
The corporate trickle down lies are seen for what they are now. No one will argue their whole government was rotten and crooked to the core. Why would anyone not support their current position? Leadership is a great treat especially when it is inclusive of the less fortunate.
I say to detractors “suck it up”.
Kleins comment that (I don’t really understand this deregulation thing) turned the shysters loose to do there thing and they did as capably as eneron did. Most of these maneuvers were done to confuse and most energy matters are very complicated so the general public doesn’t get to involved so we get taken for a ride (amen)
Tom, I remember you telling me about Klein’s comment that he really didn’t understand this deregulation thing, seems to me many in government didn’t understand it either.
Who does anyway? Deregulation was created to generate fortunes for those that know how to take advantage of confusion.
Love your photo of Ms Notley.
Nice photo. Poignant song. Thanks Anonymous.
Susan, first let me say thank you for taking the time to wade into this critical issue.
While we may disagree on some of the ‘facts’ (for example, I believe that the remaining PPAs taken on by the Balancing Pool were until recently also profitable and the savings, not losses, were being passed on to consumers), these aren’t critical to the overall point. And, I’d also like to make that observation that being in government (as opposed to opposition) requires that one take the long view on issues in order to protect the public interest. Just being “right” on an issue doesn’t always lead to good policy and is a luxury one should give up once elected to lead.
In this case, a deal was made in 2000 that while in retrospect, seems to be a poorly worded agreement, it is still an agreement. Whether the current government should or shouldn’t have been aware of this when they increased the carbon levy is, right now, irrelevant to taxpayers. The goal for the current government should be to reduce the impacts of that agreement as much as possible without triggering other potentially even more drastic effects.
So first, we need to have a good understanding of what the actual options are and their relative costs, both direct and indirect. One option, and the option chosen by government, is to try and have the original contract declared void. This will result in some savings assuming that the current PPA holders are unable to pass on the resulting costs to consumers anyway. However, is it really $2 billion or is the number quite a bit smaller as some are now arguing? This needs to be resolved.
More important though, what are the broader financial and policy costs? The NDP’s Climate Leadership Policy depends entirely on companies that are already skittish about the future of Alberta’s economy believing that any future investments they make into the power industry (particularly into renewables which require subsidies to be competitive) can rely on the rules in place at the time being carried forward, irrespective of the government in place. Can the NDP really feel comfortable that by tearing up an old contract, they are not also sending a very strong and negative signal to those same future investors they have to attract?
And, is there a second option? Would it make more sense, both near and longer term, to provide the coal-fired plants subject to the new carbon tax a four year holiday from the tax to the end of the PPA life? This would have several benefits as well as costs. As to benefits, first, it would allow the Balancing Pool the opportunity to independently determine if the “more unprofitable” clause was still being triggered in the absence of the additional levy (which is not a trivial cost) and if not, refuse to accept the PPAs. This would remove the alleged $2 billion in costs from consumers. And if the PPA holders disagreed with the Pool’s interpretation, it would now be up to them to seek judicial relief and from the Pool rather than government.
Perhaps even more important this approach would also fully respect the sanctity of the original agreement. This would be a very powerful signal to investors and one that should benefit Albertans for years. In particular it would send a very strong signal to potential out of province investors into renewable energy.
This approach would not come without costs but how large would those actually be? Alberta would have to forego the revenue created by the carbon tax from the affected coal-fired power plants which could be substantial but this would just be for four years. As long as the cost of this was not substantially greater than the cost of assuming the PPAs then financially Albertans would be ahead.
However, there is still an elephant in the room that you have alluded to in your article but that no wants to talk about. In four years, irrespective of what happens now, the PPAs will end and the companies currently owning those coal-fired power plants will again take full control, re-establishing a massive amount of market power into limited hands. Of note, the PPAs were an artifact designed as a holding structure to be in place while others, such as Calpine, AES and yes, even Enron, entered into the market. Unfortunately none of those new entrants stayed. Dealing with the PPA debacle, proactively and constructively, gives us an opportunity to work through those challenges.
Donna and Susan thank you for your posts on this issue. As always, we seem to talk different languages when it comes to complex issues like this one.
Donna you mentioned ‘facts’ but you do not challenge at all the real ‘fact’ that PPA according to Susan are not contracts. So we first have to correct our understanding so we can come to some conclusion about it. You talk as if the PPA are part of the ‘agreement’ whatever that means in the world of PCs where there was really symbiosis between the government and corporate interests. According to the newspapers, even on the right wing, it seems that these ‘agreements’ were changed without anyone’s approval other than whoever got the Enron emails. The ‘agreements’ were changed at their own discretion.
If this is correct then there is no doubt that the court has to side with the government unless of course the judge is also part of the PC family which is very possible these days.
You also mentioned that and I quote ‘ requires that one take the long view on issues in order to protect the public interest’ – when was the last time you actually witnessed a government do this? We got used to this era of corporate interests protection and we are having a hard time accepting that this is wrong and that taking corporations to court when necessary is correct thing to do, after all they are citizens like the rest of us and they have to respect the law. Yes it will be negative for investment in Alberta in the short term but the fact is that the continuation of these bad policies is already having way more serious consequences as we are witnessing around the world. Change is difficult and has a price but sacrifice and resilience is absolutely fundamental for the long term health of our economy for future generations. Our current economy is disastrous, sick and totally one sided.
Donna, thank you for your thoughtful comments.
Yes, I agree that governments should take the long view in order to protect the public interest and think the ND government is striving for the right balance between protecting the environment and protecting the economy (the results of the Royalty Review bear this out in my humble opinion).
Where we disagree is on the characterization of the PPAs as “agreements” indicative of a “deal” that must now be honoured. Nigel Banks’s blog says this about Power Purchase Arrangements: “The use of the term “arrangements” rather than agreements must be taken to be deliberate. They are not contracts, or at least contract law cannot adequately describe or comprehend these instruments.” Nigel points to an AUC decision that refers to the IAT’s characterization of PPAs as follows: “The IAT has elected to proceed on the basis that the PPAs will not be agreements. It is proposed that the PPAs be specifically authorized and implemented in accordance with the legislation and the regulations which will specify that a particular arrangement attached by reference will operate as between the named Owner and successful bidder at the PPA auction(s)…”
The government is challenging the so-called Enron amendment on the basis that it was not lawful authorized in accordance with the legislation and regulations. This is fair game. If the judge in chambers agrees with the government then the concerns about the sanctity of contract are not relevant. Furthermore, I’d expect the ND government to be especially careful to ensure that any laws/regulations it passed to encourage investment in the power industry would be lawfully enacted in order to avoid creating the ND version of the Enron debacle down the road. (Of course if the judge doesn’t agree with the government then we have an entirely different situation all together).
I agree with your point that there may be other options available to the parties which should be explored further.
You make a valid point when you say that regardless of how this case turns out, the PPAs expire in 2020 and everything reverts back to the big players, I would hope that they, like the pipeline companies, will put their minds to creating a new regulated structure, perhaps one which includes a controlled market risk element. Both TCPL and Alliance Pipelines have made considerable headway in this area without throwing greater risk on the ultimate consumers of oil and natural gas.
The conservatives used the power to introduce “indirect taxation” onto this province. Look at EPCOR page long of line charges. Power in a province this size should be in Government’s hands! But, it is so entrenched in the economy now I don’t know if that is doable or not.
I am entirely saddened by the fact we still have to pay oil to operate! The world recession and oil glut has made this necessary I see where the Orphan Well fund is aftr the feds for 500 million dollars to help clean up orphan wells. When we were at the top of the wheel the @Orphan Well fund was used as a tax dodge for #oil companies. We were told they were working on it and things were being fixed.
I have to ask, where did all their money go? Well over 500 million. Was it pulled out like a second Heritage Fund when operating cash fell short?
I don’t think the feds should give this crew anything..
Carlos, you make an important point when you say our economy is one-sided. We have only to look to the investor state dispute settlement provisions in NAFTA and the TPP as evidence that this is the case. The so-called Enron clause is analogous to the ISDS provisions in that if the judge decides it was lawfully enacted the Enron clause would block the government’s climate management strategy at least in relation to coal fired power plants. The implementation of any regulations, no matter how tiny an impact they would have on an already unprofitable PPAs, would allow the power companies to terminate their unprofitable PPAs and dump them back into the Balancing Pool.
This is would be a bizarre outcome–the PC government would have tied its hands for 20 years despite its efforts to move ahead on climate management policies (let’s not forget that the PCs enacted the Climate Change and Emissions Act in 2003 and the SGER fees in 2007). One would have to ask oneself whether this was an unintended consequence of the PCs deregulation strategy or whether they’d intended this result all along. In any event it cries out for fresh thinking on the relationship between government and industry.
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“The government is not suing itself”??????
You are really playing with words here saying that they are applying for an order stating that a statutory instrument was unlawfully enacted and it’s not a contract, it’s an arrangement.
Whatever was agreed to was agreed to by all parties at the time….this government can be sure that by opening this can of worms, I believe it sets a precedent for future governments to do the same thing….dangerous territory for sure, especially for corporations looking to invest long term in Alberta.
Chria, the Originating Motion sets out who is suing whom (look at the list of Respondents, you won’t see the Attorney General for Alberta on the list). It also sets the rationale underlying the government’s position that the addition of the words “”or more unprofitable” was unlawful. The precedent this sets for future governments is that when they pass statutes, regulations and statutory instruments they should do so lawfully. Seems like a reasonable precedent to me.
Except for clauses of this nature are common practice. And notly was fully aware of the clause, it has been pointed out to her by opposition on camera at least twice prior to the election and since in the legislature. Whether or not her claims are valid she changed the laws and created exactly the situation this clause was put in place to protect investors from. Right or wrong the clause was there, never a secret, never a surprise, and it doesn’t take a genius to figure out that in a socialist mindset the government wants to control the power supply and price.
Keith, Change of Law clauses are indeed common practice. However Change of Law clauses that include the words “or more unprofitable” are not. Notley is not changing a law, she’s challenging its validity from the day the three words were inserted into the Change of Law clause. The judge in chambers will determine whether she’s right.
Thanks for laying this out so clearly and highlighting Prof. Banks analysis for us non-legal folks.
Jean, Prof Banks and the lawyers and law students write on a broad range of issues. The ABlawg site is the first place I check when something interesting happens in the legal/political world.
Just back from a week’s camping in the mountains.
Not a lawyer but this blog and the comments elicited are an exceptional and unequalled discussion of this complex issue in this province!
I have given some of Ms. Soapbox’ blogs five stars in the past but this one really must qualify for six!
Thanks ABCanuck! I had hoped this post would stimulate discussion; it has!
Hope you had a great week in the mountains, lots of sun and no bears!
What does “less unprofitable” mean? As I see it, it means the least unprofitable group among a group of unprofitable entites. On the other hand, maybe the double negative cancels itself out. giving it the meaning of “profitable.” Or alternatively, maybe it is intended to be a version (though hamfisted) of “less profitable.” Going back to the most obvious meaning, I don’t understand why any one would be bitching about the less unprofitable of their holdings while they have others which are in a more unprofitable situation. I find it very hard to understand preceding text and comments without having this clarified,
David, if the government’s position is correct it won’t matter what “less unprofitable” means because these words will be struck from the Change of Law clause, however if the judge accepts the addition of these words all of the parties will be arguing over what the words mean and we’ll have a whole bunch of answers to your very interesting question.