Enron’s ghost returns to haunt Alberta power market

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Yes, Alberta, there is an Enron clause.

And by fighting it, the New Democratic Party government is gambling big as it sells its ambitious climate plan to a populace that could be on the hook for costly upheaval in the electricity market.

On Monday, the NDP announced it is taking several companies to court to stop them from using that ominously named provision to offload up to $2-billion worth of money-losing contracts onto consumers. It contends that the language was inserted into the contracts, known as power purchase arrangements (PPAs), at the behest of Enron, on the sly. The company was among the first bidders for a contract.

That was 16 years ago, when premier Ralph Klein's Progressive Conservatives first deregulated the electricity market, and it has come back to haunt the current government. Several holders of those contracts have used the language to walk away from them since Premier Rachel Notley began upping a carbon levy on big emitters last year just as power prices went into a deep funk. The companies are livid over the court action, saying they have followed the rules.

The very mention of Enron, symbol of malfeasance and trickery in the energy business, evokes skepticism in a skeptical world. The Houston-based company infamously gamed the California power market during a time of painful shortages and rolling blackouts, then in 2001 descended into what was at the time the largest corporate bankruptcy in the United States after revelations of deceptive accounting.

Having the name attached to a tiny, but potentially crucial, part of government policy makes it instantly worrisome to the casual reader.

It is one more battle for the Notley crew as it implements massive change it says is aimed at improving the fossil-fuel-heavy province's global reputation in the carbon-reduction arena. The outcome is very uncertain.

The whole mess boils down to one word – "more" – and how it found its way into PPAs, the arrangements that allow companies to buy juice from generators and resell it into the market.

After broad consultation under the Klein government, the PPA fine print stated that companies could back out of the 20-year deals if government policies made them unprofitable. According to the NDP, the phrase "or more unprofitable" was added after "unprofitable" the day before the first auction of PPAs in August, 2000, in a "backroom deal" with no consultation or public disclosure.

University of Calgary law professor Nigel Bankes wrote in a blog post that the Enron clause could allow a PPA holder to bail when weak market conditions are erasing profitability and then a government move makes the contract even slightly less profitable.

The government says the arrangement allowed PPA holders to pocket profits as long as they could generate them, then offload any losses on consumers when market conditions weakened and government policy changes affected them. The contracts are then assumed by the Balancing Pool, a public body. Deputy Premier Sarah Hoffman contends companies that cited the clause are ignoring years of previous profits when they say the PPAs will be unprofitable between 2016 and 2020, as carbon levies increase.

The government's court action names Enmax, which is the City of Calgary's power utility; TransCanada; and Capital Power, all of which relinquished PPAs. It also names electricity generator Atco Ltd., the Balancing Pool and its own power regulator as defendants.

Enmax was most vocal in its displeasure, saying the government is "retroactively challenging fundamental aspects" of a long-held policy to which the company has adhered. It was the first to relinquish a PPA early this year, citing a doubling of the financial hit from the carbon levy this year and tripling next year.

Calgary Mayor Naheed Nenshi chimed in, calling the NDP's move outrageous and chiding it for somehow being ignorant of its own policies. Indeed, many of the NDP's harshest critics charge the government cannot read the contracts it is in charge of enforcing.

None of that, though, answers the fundamental question about the legality of how the Enron clause came to be in the first place. That's what the government intends to argue in what promises to be a complicated and headline-grabbing court battle.

In its favour, it would have a slightly tougher time making its case if it had decided to name the clause after a charity that takes in orphaned puppies and kittens.

Editor's note: A previous version of this article incorrectly identified Atco Ltd. as among companies that relinquished power purchase arrangements to an Alberta agency, but is a respondent in a government of Alberta lawsuit for its role in providing electricity to a holder of a power purchase agreement.