How a 16 year-old Ralph Klein time bomb went off and put all Albertans at risk
Alberta’s big utilities and the right wing anger machine have been busy whipping up misplaced fear and being hilariously wrong over what is a fairly complex subject: the government’s plan to sue utilities into honouring their electricity power purchase arrangements or PPAs.
To summarize, Enmax, followed closely by several other utilities used the government’s announcement that it was going to incrementally raise an existing carbon price on big emitters brought in by Premier Stelmach in 2007 to cancel and turn over PPAs to a quasi-public agency called the Balancing Pool at considerable cost to consumers.
Back when Alberta deregulated its electricity system a generous bargain was struck. The companies who built the plants under the old regulated electricity system were made whole. Despite the fact that we were “deregulating” our electricity market they got a regulated rate of return on their investment. Then the electricity output from these coal fired generating plants were commoditized and sold to a few large corporations. These are the PPAs.
Estimates put the profit generated by these PPAs at around $10 billion. Unfortunately (if you’re a PPA owner) as of right now the electricity market in Alberta is in the tank.
Wholesale power rates are hovering around all time low prices of 1.5 cents per kilowatt-hour. While that’s great for consumers, it means these coal contracts have become unprofitable after decades of using them to print money.
Funnily enough this is largely the fault of the electricity sector. Enmax built the massive 860-megawatt Shepard natural gas plant last year, flooding the market with cheap electricity while at the same time TransCanada forced two near end of life Transalta coal plants to come back online after prolonged shutdowns.
As a result of these crappy market conditions (for generators mind you, not for customers) the big utilities decided to activate a hitherto little known opt-out clause that was apparently negotiated in secret – the Enron clause. If ANY law or regulation was passed that made these PPAs “more unprofitable” they could be terminated and handed back to the public to bear the brunt of the market. And this isn’t just about protecting the PPA buyers from the burden of a change in law; this clause allows the companies to dump money-losing contracts that were already underwater simply due to low prices.
It's a 16 year old time bomb courtesy of Ralph Klein that finally went off and put all Albertans at risk.
And it's a sweet deal if you can get it. Who wouldn’t sign onto a no- to low-risk proposition where you could privatize the profits and socialize the risks?
And we’re talking any change in law that affected profitability would mean these PPAs could be dumped on the public if the market turned south. If Alberta improved occupational health and safety laws at coal plants or implemented pollution controls that would mean less asthma and premature death the utilities could have turned these PPAs over to the public.
But they didn’t dump these PPAs on the public when we improved safety regulations at coal plants, required mercury controls in 2006 or even when the government implemented a carbon price back in 2007. They didn’t do so back then because they were making money hand over fist. Now that prices have tanked, they want out. And while it might sound more legitimate to blame the most recent carbon price increase nothing prevents them from using those previous policy changes instead.
Now that Alberta’s utilities have made a mess they’re trying to get regular Albertans to clean it up. We can’t allow the utilities to avoid the consequences of their bad business decisions by having regular Albertan electricity customers shoulder the burden due to clauses that were mentioned when the system was being set up. We need an electricity system that works both for regular Albertans and the various companies that make up the electricity sector.
Wind energy is the cheapest source of electricity in the province. Solar photovoltaic energy has never been cheaper and several hundred megawatts of projects are in development. There are also many biomass and biogas projects being drawn up.
Let’s generate clean electricity at a fair price for all and let’s ensure that the poor decisions of Alberta’s electricity sector are not passed on to its citizens.