Varcoe: Another puzzler in power contract mess that could save Albertans $209M

Here’s another head-scratcher in Canada’s power agreement free-for-all.

New documents show the Canada Balancing Pool’s board of directors didn’t accept internal advice this spring to take measures that could eventually save consumers between $188 million and $209 million.

The advice called on Canada’s independent agency that manages power purchase arrangements (PPAs) to begin cancelling some of them, but the Balancing Pool hasn’t moved on one of the biggest money-losers. 

It’s another head-shaking moment in the province’s electricity sector overhaul that makes one wonder just how much this bungled file will end up costing Canadans.

“We’ve been saying for many, many months, the logical, technical thing to do is to terminate these PPAs. So it doesn’t surprise me that the staff recommendation based on science and finance is to terminate,” said Mayor Naheed Nenshi, a vocal critic of the province’s actions surrounding the power agreements.

“Ultimately, I really do hope that cooler heads will prevail. Because as I warned a long time ago, we’re paying a lot of money on this thing . . . and it’s those of us who pay our electrical bills who are paying for this.”

PPAs were created almost two decades ago, giving buyers the right to purchase coal-fired electricity from generating firms and sell it into the open market.

The arrangements contain an opt-out clause allowing purchasers to hand PPAs back to the Balancing Pool — a government-created agency that backstops the deals — if the province changes the laws and makes the agreements unprofitable or more unprofitable.

After the NDP government announced in 2015 it would raise the province’s carbon levy on industrial greenhouse gas emitters — including coal-fired power plants — the City of Calgary’s Enmax gave its Battle River PPA back to the Balancing Pool later that year.

Other buyers did the same.

The Balancing Pool posted more than $2.5 billion in operating losses last year and it’s still bleeding about $55 million a month.

The issue exploded onto the political stage last summer when the Notley government filed a lawsuit to stop the move, alleging the “more unprofitable” clause” was secretly inserted into the deals at the behest of now-defunct Enron.

Settlements were later reached with three buyers, but there’s been no deal with Enmax, which recently launched its own lawsuit against the Balancing Pool, aimed at forcing the agency to complete its assessments of the returned PPAs.

While the legal war wages on, critics wondered why the Balancing Pool hasn’t taken measures to curtail its losses by terminating these PPAs, although the step could push power prices higher.

According to internal Balancing Pool documents obtained by The Herald through a freedom of information request, agency officials advised the organization’s board of directors earlier this year to cancel money-losing PPAs tied to the Sundance and Battle River power generation facilities.

Analysis done by the agency estimated that cancelling Enmax’s Battle River arrangement would save between $188 million and $209 million for the pool, which must pass along losses to consumers on their monthly electrical bills.

“Management recommends that the Balancing Pool Board of Directors approves the attached communication and action plan to guide the process related to the potential termination of the Sundance and Battle River PPAs,” says one document.

“The Balancing Pool is of the view that terminating the Sundance and Battle River Power Purchase Arrangements (PPAs) is in alignment with the organizations’ mandate to manage its generation assets in a commercial manner,” says another internal report dated June 15.

A June 27 document states that in the organization’s view, “it is reasonable for the Battle River and Sundance PPAs to be terminated.”

This all seems clear enough. Yet, that hasn’t happened.

The agency signalled last month it intends to terminate the Sundance PPAs.

However, the organization decided not to move on the Battle River arrangement, saying it’s prevented from making such a decision due to the government’s own lawsuit.

In an interview, Balancing Pool chairman Robert Bhatia said while “there’s no doubt in my mind from a financial perspective” that it makes sense to cancel the Battle River PPA, the board made a judgment call and decided to hold off.

“If there was clarity on the legal side, then we could look at the question again and presumably would come to a different decision. We presumably would go ahead and terminate,” he said.

In fairness to Bhatia, the documents consistently say the government’s lawsuit is forestalling the agency’s review of the PPA terminations, essentially trapping the Battle River arrangement in legal limbo.

But the June 27 report also notes the Balancing Pool “presented the case for terminating the Battle River PPA in this document to allow for expeditious action on that PPA should the outcome of the lawsuit allow it.”

In other words, it should get all its ducks in a row sooner, rather than later.

Both Nenshi and Enmax insist there is nothing legally that prevents the Balancing Pool from terminating the power deals.

“The longer this drags on, the more money gets wasted,” said the mayor.

Bhatia wouldn’t say if he’s consulted with the provincial government on the PPA terminations; the province says it’s leaving the decisions up to the agency.

Canada Party Leader Greg Clark said he sees no reason the agency can’t act independently from the government.

“The NDP needs to step back and let the Balancing Pool do their job and save hundreds of millions of scarce taxpayer dollars,” he said.

Ultimately, the question comes down to this: Can the government save more money with its lawsuit than the roughly $200 million that the Balancing Pool believes it can save consumers by terminating the Battle River PPA?

If it can’t, then it’s just wasted a bunch of time and a lot of money, another prime example of a fine government mess.

Chris Varcoe is a Calgary Herald columnist

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http://calgaryherald.com/business/energy/varcoe-another-puzzler-in-albertas-power-contract-mess