Alberta asks court to quash 'secret' clause that benefits power companies

The province is going to court to prevent some of Alberta's biggest power companies from using what the government calls asecret and illegal clause that allowsthem to abandon agreements worth up to $2 billion to purchasepower from coal-fired power plants.

"When you talk of $2 billion of liability passed on to power consumers, we're not justgoing to stand by and let that happen,"deputy premierSarah Hoffman said Monday.

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The government is seeking a courtorder declaring the clause, which has been in place since 2000 when the power purchasing agreements were created,void in law.

This spring, Enmaxquietlyended itspower purchase agreement to buy power fromAtcoPower'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-basedCapital Power Corp. said it wasterminating 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 byEnron, aU.S. electricitycompany that went bankrupt in 2001.

The clausepermitsbuyers to terminate the agreements without liability if any change in the law makes them unprofitable.

In 2000,Enronlobbiedan expert panelappointedby the province to develop thePPAstoadd the words "or more unprofitable" to the provision.

The experts agreedwithEnronand without anypublic hearings ornotice to consumers or their representatives, and the Alberta Energy Utilities Boardenacted 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 PPAswere 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 collectiveprofit of $10 billion since 2001, she said.

Now facing poor market conditions,four buyers Capital Power, Enmax, TransCanada,AltaGashave applied to terminate their PPAs early, Hoffman said.

Bailing out of the agreements could cost taxpayers $2 billion, shesaid.

"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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Thecompanies said they terminated their PPAs for electricity generated by coal-fired power plants after theNDPincreased the carbon levy onlarge emitters on Jan. 1.

Enmax became the first to successfullytransferacontractback to theBalancing Pool, a government body established to backstop the PPAs.

Enmax said thegovernmentshould have realizedthe 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 wasbased on theterms, 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," saidsenior 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 thecourt actioninteresting.

"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 calledthe NDP government's actions "heavy handed"and warned the lawsuitwill 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."

Read the court application here