If NDP was in the dark about PPAs, why didn’t someone turn on the lights?

The newly elected NDP government decided last year to hike the carbon levy on large greenhouse gas emitters such as coal-fired power plants, but now insists it wasn’t told the move could potentially trigger billion-dollar consequences for consumers.

How is this possible?

That’s the $2-billion question everyone in the power industry — along with Calgary’s mayor and political opponents — is wondering about after the province launched an unprecedented lawsuit Monday.

Mayor Naheed Nenshi speaks prior to the Calgary Economic Development's Report to the Community at the Telus Convention Centre in downtown Calgary, Alta., on Tuesday, May 17, 2016.
Mayor Naheed Nenshi Lyle Aspinall / Postmedia Network

“Had they done the climate change policy just slightly differently, they would have been able to avoid this trigger, so I’m pretty shocked we’re here,” Mayor Naheed Nenshi told reporters Wednesday. “I’m pretty shocked we’re going to have to spend millions on legal fees.”

The Notley government wants the courts to stop unprofitable power purchase arrangements (PPAs) being transferred from utilities to consumers through the Balancing Pool, a government-created entity.

As part of the Klein government’s transition to a deregulated electricity market, PPAs were set up in 2000 to transfer the right to sell power from existing plants.

After years of being lucrative for the buyers, the power deals have gone deep into the red due to low electricity prices caused by oversupply and weak demand.

Since last December, companies that held the unprofitable PPAs — including Enmax, Capital Power, TransCanada and AltaGas — have decided to terminate them, citing a “change in law” provision in the agreement.

Government action that makes these deals unprofitable — “or more unprofitable” — trips the exit clause. Then, the agreements fall into the Balancing Pool’s lap, which must pass along losses to electricity consumers.

In the initial process of setting up the power auction in 2000, the clause dealing with a change in law only included the words unprofitable, but the words “or more unprofitable” were later added — and approved by the regulator at the time, the Canada Energy and Utilities Board.

These three little words would have huge consequences, as time would prove.

Fast forward to June 2015, just a few weeks after the NDP took power in the province.

The Notley government announced with great fanfare it would double the existing carbon levy on heavy greenhouse gas emitters, such as coal-fired power plants, by 2017.

Citing this increase, Enmax and others have since handed back their money-losing PPAs to the Balancing Pool, invoking the change in law provision. The province wants the courts to stop this from happening.

So did the NDP know that raising the carbon levy could open up the Balancing Pool to big losses — losses consumers would ultimately shoulder?

No, the government insists.

According to documents filed this week in Court of Queen’s Bench, the province says the attorney general, energy and environment ministers only became aware of the “or more unprofitable” clause this spring.

It “was not communicated to the ministers, by officials of the Government of Canada or otherwise, until senior government officials first learned of its existence in a mid-March 2016 meeting with the chief executive officer of the Balancing Pool.”

Asked about it in an interview Tuesday, deputy premier Sarah Hoffman said several times the NDP cabinet wasn’t made aware in 2015 that raising the carbon levy could trigger the exit clause that would dump liability on to consumers.

“No. It certainly was not part of the transition binder,” she said of the briefing books that new cabinet ministers receive upon taking over.

Health Minister Sarah Hoffman speaks to the media at the Sherwood Park Hospital after announcing that the Province is moving to public oversight of laboratory diagnostic services following a report from the Health Quality Council of Canada, in Sherwood Park Alta. on Tuesday May 3, 2016. Photo by David Bloom
Deputy premier Sarah Hoffman. David Bloom Bloom, David / David Bloom

“My understanding from conversations with my colleagues was, of course, we’re not making them unprofitable — they are already unprofitable. And it was the assertion that those three extra words, those were not part of our discussions, that’s for sure, because we certainly weren’t aware that they’d been added.”

The NDP asserts the extra clause should be declared invalid by the courts for several reasons, including that the public wasn’t properly informed of the PPA changes back in 2000.

But the former heads of the Balancing Pool, the Canada Energy and Utilities Board and current PPA contract holders say it was widely understood by those in the industry.

So why didn’t the government know?

“That is unfathomable as far as I’m concerned,” said Gary Reynolds, who headed the Balancing Pool between 2003 and 2011. “If the new minister didn’t know about it or (her) political staff, then there seems to have been a breakdown in communication between them and the bureaucrats.

“If they say the people in the minister’s office didn’t know, well, I think all the general public can say is that doesn’t seem to make any sense. They should have known.”

Former AEUB chairman Neil McCrank said the words “or more unprofitable” were a last-minute clarification requested by the province’s expert consultants at the time.

McCrank said it wasn’t done through a closed-door deal, as the NDP is asserting, noting the request for changes actually came through the Energy Department itself.

“The whole thing is preposterous,” said McCrank, who also served as Canada’s deputy justice minister.

“If they didn’t know, it’s because they didn’t pay attention — but it was all there.”

Curiously, included in the government’s own legal document is the letter Enmax sent to the Balancing Pool in December 2015 when it cancelled the first PPA.

The Calgary-owned utility was terminating on the basis that a change in law had occurred — changes to the heavy emitters levy — that would make the agreement “unprofitable or more unprofitable for Enmax,” it said.

So if Enmax pointed out precisely why it was cancelling the power arrangements in December, how could cabinet or government officials not know about this for three more months?

Calgary’s mayor said the entire lawsuit doesn’t make any sense.

“They didn’t know their own regulations when they changed them,” Nenshi told reporters.

“That’s weird, that’s really weird. And it’s particularly weird because I happen to know they were warned repeatedly that this may trigger the very thing that they’re suing themselves about right now.”

In Edmonton, meanwhile, the Wildrose released a briefing document Wednesday it obtained through an access to information request that raises more issues.

The Sept. 11, 2015, internal document from the Balancing Pool discussed “the potential for a buyer-initiated termination under the PPAs’ change in law provisions.” Clearly, it was considering the issue.

“It tells me this government knows more than they’re admitting to,” said Wildrose MLA Don MacIntyre.

The Balancing Pool declined to comment Wednesday. Officials in the premier’s office say they didn’t see the agency’s document, and weren’t told by government bureaucrats of the “or more unprofitable” clause until this spring.

“I certainly don’t blame anyone for not bringing this to our attention, especially if it wasn’t brought to their own attention,” said Hoffman. “I’d like to give the public service the benefit of the doubt.”

The deeper one digs into the mysterious case of the PPAs, however, the more questions it sparks.

If the government was in the dark about PPAs, why didn’t someone turn on the lights?

Chris Varcoe is a Calgary Herald columnist.


Varcoe: If NDP was in the dark about PPAs, why didn't someone turn on the lights?

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