Alberta’s NDP government is taking the PC government, circa 2000, of Ralph Klein to court over an escape clause in the Power Purchase Agreements that is allowing big power companies to step out of their 20-year contracts early, potentially leaving consumers to foot the $2 billion deficit.
The problem began back in 2000 when Ralph Klein and the PC government began the deregulation of the energy market. Ultimately, the deregulation of the energy market was a positive step. Power Purchase Agreements (or PPAs) were introduced in order to allow competition within the market, a step that would enable consumers to access lower rates and more varied rate plans. That deregulation involved big electricity companies (PPA buyers), like Enmax, buying 20-year contracts from power producers (PPA owners)—in other words, the original utilities who generated electricity, like coal-fired power plants, etc.
Where did things start going wrong?
In January, after Alberta’s new NDP government announced its decision to double the carbon levy for high producers of greenhouse gasses, a hidden escape clause within the PPAs came to light—one the NDP government didn’t know about.
The clause allows PPA buyers to return the contracts to the Balancing Pool if a change in government law suddenly makes them unprofitable. And that’s just what the companies are doing.
Enmax was the first to pull out, notifying the province as early as December that it planned to terminate its Battle River PPA under the change-in-law provision. TransCanada, the ASTC Power Partnership, and Capital Power soon followed suit, cancelling their coal-fired power PPAs.
This unexpected move has left the NDP government tugging at its shirt collar. If the PPA buyers all back out of their contracts now, it could leave a $2 billion deficit in the government-owned Balancing Pool, and that deficit would land squarely on the shoulders of energy consumers.
However, while this may seem like a pretty critical oversight on the part of the NDP government, they aren’t entirely at fault for the kerfuffle.
According to the NDP, the clause was added to the PPAs at the last minute and without being properly vetted at public hearings. Essentially, the NDP argue, that fact alone makes those contracts null and void, and their lawsuit speaks to that effect. The NDP are taking the 2000 Conservative Ralph Klein government to court in a legal battle that they hope will result in the overturning of that escape clause.
What does this mean for Alberta?
Ultimately, despite the fact that the NDP government’s actions are intended to protect Albertans, the government’s decision is deemed likely to create even more uncertainty in a power market that is already fluctuating. Not only is this creating uncertainty about the potential cost to consumers, but it is a decision that may also cause further detriment to the province’s investment climate.
On the other hand, the lawsuit is the most obvious way to protect Albertans from having to face increases on their electricity bills. If that doesn’t work, the government may have to find a way to compensate consumers for an increase that will occur in addition to the carbon levy, and that may mean taking a second look at the carbon levy itself. Alberta’s green dream may once again have to take the back seat—at least until the economy picks up again.
