The province is going to court to prevent some of Alberta's biggest power companies from using what the government calls a secret and illegal clause that allows them to abandon agreements — worth up to $2 billion — to purchase power from coal-fired power plants.
"When you talk of $2 billion of liability passed on to power consumers, we're not just going to stand by and let that happen," deputy premier Sarah Hoffman said Monday.
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The government is seeking a court order declaring the clause, which has been in place since 2000 when the power purchasing agreements were created, void in law.
This spring, Enmax quietly ended its power purchase agreement to buy power from Atco Power's coal-fired power plant in December, becoming what is believed to be the first company to use the clause.
TransCanada announced plans to end power purchase agreements (PPAs) to buy coal-powered electricity from three plants: the Sheerness power plant near Hanna, owned by Atco Power and TransAlta, and TransAlta's Sundance A and B plants west of Edmonton.
Two weeks later, Edmonton-based Capital Power Corp. said it was terminating an agreement to buy electricity from the Sundance C coal-fired power plant west of Edmonton.
Clause inserted at 'last possible moment'
Hoffman said the clause was lobbied for by Enron, a U.S. electricity company that went bankrupt in 2001.
The clause permits buyers to terminate the agreements without liability if any change in the law makes them unprofitable.
In 2000, Enron lobbied an expert panel appointed by the province to develop the PPAs to add the words "or more unprofitable" to the provision.
The experts agreed with Enron and without any public hearings or notice to consumers or their representatives, and the Alberta Energy Utilities Board enacted the clause.
"At the last possible moment the day before the PPA auction commenced, they inserted the Enron clause into the PPA contract language," Hoffman said.
"The government and board took steps to hide what they had done from the public."
The PPAs were created in 2000 to move Alberta's electricity system from a regulated to a competitive deregulated market.
Profits of $10 billion since 2001
The theory was that PPA buyers would bear the risk of buying and selling electricity in Alberta in return for the opportunity to collect greater profits, Hoffman said.
Buyers have done very well by the process, making a collective profit of $10 billion since 2001, she said.
Now facing poor market conditions, four buyers — Capital Power, Enmax, TransCanada, AltaGas — have applied to terminate their PPAs early, Hoffman said.
Bailing out of the agreements could cost taxpayers $2 billion, she said.
"They made $10 billion in profits and they don't want to take two in losses. I understand that. That's their business. Our business is to protect Albertans."
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The companies said they terminated their PPAs for electricity generated by coal-fired power plants after the NDP increased the carbon levy on large emitters on Jan. 1.
Enmax became the first to successfully transfer a contract back to the Balancing Pool, a government body established to backstop the PPAs.
Enmax said the government should have realized the implications of the carbon levy on the PPAs.
"Given the government's change in law to carbon costs, Enmax's actions on its PPAs were completely foreseeable, legal and reasonable in carrying out its fiduciary duty to its shareholder – the City of Calgary and its 1.2 million citizens," the company said in statement Monday.
Capital Power says when it purchased the PPAs at auction in 2000, its bid was based on the terms, which included the change in law protection.
"Collectively, we and other buyers paid $3 billion for the PPAs — money that was returned to Albertans by the government through the Balancing Pool," said senior vice-president Kate Chisholm. "Buyers would have paid substantially less to purchase any PPA that was missing a change in law clause."
'This all surprises me'
Electricity consultant David Gray called the court action interesting.
"I've been at this for 27 years and this is the first thing like this I've ever seen," said Gray, former executive director of the Utilities Consumer Advocate. "Essentially a government is suing its predecessor for malfeasance."
"I'm rarely surprised but this all surprises me."
The Wildrose Opposition called the NDP government's actions "heavy handed" and warned the lawsuit will scare away investment and drive up power prices.
"What we saw today was shocking — the NDP is asking the courts to turn back time," said Wildrose MLA Don MacIntyre.
"Today's announcement to take private companies to court over agreements signed at the turn of the century is extremely short-sighted, and will keep billions of dollars of necessary investment away from our province."