Alberta NDP's claim that secret clause added to power purchase arrangement is 'balderdash,' says analyst
Former employee with provincial energy regulator on negotiations of PPAs 16 years ago
A former senior analyst with the province's energy regulator is calling 'balderdash' on the NDP's argument that a clause was 'secretly' added to Alberta's power purchase arrangements (PPAs) 16 years ago.
The clause allows electricity companies to return power contracts to the province if government legislation is introduced that makes their business "more unprofitable."
Since the NDP government increased the carbon levy on large emitters through changes to the Specified Gas Emitters Regulation (SGER), Enmax, Capital Power, TransCanada and AltaGas have used the clause to apply to terminate their PPAs early.
"It [the clause] was done, what appears to be very secretly, at the eleventh hour," deputy premier Sarah Hoffman told the Calgary Eyeopener on Tuesday.
"It was certainly done by back channel advocacy by Enron and we don't think that's right and we're going to court to stand up for Albertans."
- Alberta NDP deputy premier Sarah Hoffman on PPAs lawsuit
- ANALYSIS | Experts explain the story behind Alberta's power purchase legal action
David Gray was working for the Alberta Energy and Utilities Board (EUB) in 2000 — when the framework for the PPAs was negotiated.
Below is a Q&A, slightly condensed, of what he remembers from that time, as told to the Calgary Eyeopener's Jennifer Keene:
Jennifer: You were involved in these negotiates 16 years ago. Was there a secret backroom deal to include this clause?
David: No, technically that's what's called balderdash. There was no secret backroom deal, Enron didn't grease anyone's palms. It was a matter of getting these contracts in place so that the auction of them could proceed. At the time we desperately needed new generation investments and this was part of what got that investment to happen.
Jennifer: Originally the clause said "unprofitable." The phrase "more unprofitable" was added in. Why is that?
David: Well I'm not surprised because if you use the original clause, or the clause that the government wants to go back to, it only applies if you happen to be crossing the threshold from profitable to unprofitable. But it doesn't give you any protection if you're already unprofitable and the government adds to your losses. So, you know, in the context of these 20 year agreements, I'm not surprised that that sort of clause was required.
Jennifer: So what are power companies contending now as they use the clause to get out of their agreements?
David: Well essentially they're saying this clause is in the agreement they signed and that was the basis of the offers we made for these contracts and we wish to exercise our right under the agreement.
Jennifer: And what do you make of that?
David: They signed these agreements in good faith, putting up two or three billion dollars back when this transpired. So if it was me, I would do the same thing.
Jennifer: This clause has existed for 16 years. Why is it only an issue now?
David: Because they [the Alberta NDP] found what they thought was a clever way to use this to take away the ability of companies to return those contracts. I don't think it would have come up for any other reason. So, they went on a hunt and found some pieces that they could put together into a conspiracy hypothesis and ran with that. But the only problem is that those of us who were there know that wasn't the case and that it's pretty much a complete mischaracterization of what was going on.
Jennifer: You worked with the man who brought these agreements into place for the government. Do you think this is an unfair characterization of the work that he did?
David: I wrote a blog post called The McCrank Conspiracy Hypothesis and the chairman of the EUB at the time was Neil McCrank, who I worked with very closely during that time. He was an excellent chairman of the board and he was very much about the public interest and the issue of the day which, if you go back in time, was the lack of reserves that we had in our system.
There was significant concerns about running out of power, particularly in the winter time. And that was the focus, was ensuring that every agency got all the pieces done to allow new generation investment in the province. And it was successful.
It was either an explicit or an implicit character assassination of a fellow who I think should be thanked for his service.
Jennifer: What do you think is likely to happen with this legal action now?
David: Well it's going to sit in the courts for a couple years. It will be a long and complicated case, a lot of lawyers will make a lot of billing hours off it.
But at the end of the day, I don't think they'll win. I think it's very unusual for a government to say, "Hey, we wrote a contract with you 16 years ago, but we didn't do it right, therefore it's void." Even if they found a trail of breadcrumbs from Enron to the Ministry of Energy, I don't know how malfeasance on the part of the government should void the contract with their counter party.