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Alberta goes to court to enforce PPAs, overturn C$2B 'Enron clause'

Alberta's government started court action to enforce powerpurchase agreements that have been returned to a provincial agency under whatit calls an "Enron clause" that could cost taxpayers as much as C$2billion between now and 2020.

The government claims in a July 25 court action naming thePPA holders, along with two of its own agencies, that the Alberta Energy andUtilities Board overstepped its authority by inserting a contract clause thatpermits buyers to terminate the contracts under certain conditions.

The amendment to the PPAs, which the government claims wasmade in secret after the contracts had already been drafted, has beeninterpreted by contract holders that they can be abandoned if they becomeunprofitable. The clause was inserted in 2000 at the request of now-failedHouston-based energy trader Enron Corp., which had lobbied for its inclusion.The government claims that Neil McCrank, then chairman of the Alberta Energyand Utilities Board, which has since become part of the Alberta Utilities Commission,slipped the clause into the contracts without following proper procedure.

"The previous government sold deregulated electricityas a way to transfer financial risk to the private sector in return for givingthem the chance to earn greater profit," Deputy Premier Sarah Hoffman saidin an email. "In secret, they did the opposite — setting up a system whereconsumers bear all the risk. Albertans should not be on the hook for thesebackroom deals."

Since the PPAs were created, the owners have made an estimatedC$10 billion in profit from them, Hoffman said. The PPAs were sold at auctionin 2000 as part of the province's plan to deregulate its electricity generation sector.

Output from most of Alberta's coal-fired generating stationswas sold under the long-term contracts, some of which have expired, but most ofwhich have become unprofitable since power prices dropped to record lows asdemand in the energy industry-dependent province sagged. PPA holders includingTransCanada Corp.,Capital Power Corp.,ENMAX Corp. andAltaGas Ltd. havereturned the contracts to the Balancing Pool — a government agency that managesPPAs that were unsold in the auction — claiming changes to the levy Albertacharges on carbon emissions made them unprofitable.

The government seeks to have the clause in the contracts voidedthrough a judicial review and an order quashing a decision by the BalancingPool to accept the return of the PPAs. The application, which is being broughtby the attorney general of Alberta, was filed as action number 1603 13041 inCourt of Queen's Bench in Edmonton. It will be heard Nov. 2 by the justice in chambers.

The action names Alberta Power (2000) Ltd., ASTC PowerPartnership, ATCOPower (2000) Ltd., ATCO Power (2010) Ltd., ATCO Power Ltd., Capital Power PPAManagement Inc., ENMAX PPA Management Inc., TransCanada Energy Ltd., theBalancing Pool and the Alberta Utilities Commission as respondents.