Robert Hemstock, BComm, LLB
Why Albertans Should Care About the $2 Billion PPA Story
This is a story about how Alberta electricity consumers have been saddled with an estimated $2 billion in unnecessary costs because our Government made three mistakes in dealing with the Power Purchase Arrangements ("PPA's). The story's not just about the PPAs though. It's also about how our elected representatives in the Alberta Government used their position of power and access to taxpayer funds to attempt to achieve their political objective of avoiding accountability for having poorly managed the PPA issue.
The first mistake was, without first doing some basic homework, the Minister of Environment and Parks announced a decision to increase the carbon tax on large emitters, including all coal-fired electricity generators. This decision was announced on June 25, 2015, just one month after the new Government took office.
In a June 25, 2015 Financial Post article reporting on Minister's Phillips announcement of an increase in carbon tax on large emitters, include coal-fired electricity generators, she is quoted as saying:
"Some would argue we are are moving too far and too fast. I say to them that more of the same would be the worst thing we could do for our energy economy and for the future of our province."
It would have been prudent for the new Government to understand the financial impact of raising the carbon tax on coal-fired generation. It would have been prudent for them to understand how an increase in the carbon tax may cause all four of the PPA Buyers (Capital Power, ENMAX, TransCanada, and ASTC Partnership) to respond by exercising their legal right, under the terms of the Power Purchase Arrangements ("PPAs") to rely on the new Government's change in law as the grounds upon which the PPA Buyers could terminate the PPAs, leaving electricity consumers with PPAs that were estimated to incur a $2 billion loss.
Had the Premier, the Minister of Environment and Parks, or the Minister of Energy done even a small amount of homework, such as seeking advice from civil servants within the Alberta Government who were well versed on the PPAs or engaging in meaningful consultations with the four PPA Buyers, they would have quickly learned two very important things:
1) this higher carbon tax on large emitters would cause Alberta's coal-fired generation plants to be unprofitable or more unprofitable; and
2) the coal-fired plants are subject to an Alberta law called the Power Purchase Arrangements Determination Regulation that says if the Government changes the law (i.e. increases the carbon tax on coal-fired generation plants) and this causes the coal-fired generation plants to be unprofitable or more unprofitable, then a government agency named the Balancing Pool, could be required to assume ownership of these unprofitable PPAs from the original PPA Buyers.
In the Minister's June 2015 announcement, she also announced formation of the Climate Change Advisory Panel led by Dr. Andrew Leach, an economics professor at the University of Alberta. The Government became focused on the Climate Leadership Plan work as the Premier was scheduled to head to Copenhagen in December 2015 for the COP 21 Climate Conference. They had very little time to give Premier Notley a new Alberta Climate Policy to announce before Copenhagen. They got it done, and Premier rolled out the new Climate Leadership Plan in time for her to talk about it at the Copenhagen meeting.
The second mistake was the Climate Leadership Plan process was rushed and the final framework was never shared with PPA Buyers before it was finalized. The final framework did not reflect most of what PPA Buyers, including ENMAX, had advocated for. I was the ENMAX representative at the Climate Change Advisory Panel consultations with industry. Click here for one of the ENMAX submissions on how to accelerate coal generation phase out. This presentation is publicly available at https://www.alberta.ca/climate-leadership-discussion.aspx#toc-1.
The Climate Leadership Plan would further increase carbon costs for coal-fired electricity generation beyond the June 2015 announcement. It became apparent to the PPA Buyers that the losses on their coal-fired generation were just going to get higher, not lower. On December 11, 2015, ENMAX was the first PPA Buyer to give a Government agency named the Balancing Pool notice that it was terminating the Battle River 5 PPA, effective January 1, 2016. On March 7, 2016 two more PPAs Buyers gave the Balancing Pool notice of termination of three more PPAs. By early March 2016, notice had been given for the termination of four of six PPAs.
By mid-March 2016 the Government finally realized they potentially had a $2 billion PPA problem. They could see the prospect of the Balancing Pool owning six PPAs that were forecast to lose and estimated $2 billion by the end of 2020. They realized that Alberta electricity customers would see this cost on the "Balancing Pool Allocation" line item on their electricity bill and they would not be happy. Since 2001, electricity consumers had been receiving a credit on their electricity bills for the Balancing Pool Allocation. This credit would now become a charge. Click here to see a sample electricity bill that shows the Balancing Pool Allocation is now a charge (not a credit) on all electricity bills.
The Government then made a third mistake. Instead of taking accountability for the first two mistakes and working in good faith with PPA Buyers, as there was still time to resolve the problem, the Government came up with a plan to actually go on the offensive. It created what I refer to as the PPA Advocacy Plan. The Plan had two key elements:
1) the Government would not compromise with PPA Buyers on the higher carbon taxes for coal-fired generation, it would simply demand they withdraw their PPA terminations and if the PPA Buyers refused then the Government would threaten them that it would take some undefined action against the PPA Buyers;
2) the undefined threat was the Government would use a taxpayer funded lawsuit and a taxpayer funded media campaign led by Deputy Premier Hoffman to characterize the Government as the defender of Alberta electricity consumers. The media campaign would allege the Alberta Energy and Utilities Board approval of the terms of the PPAs sixteen years earlier was unlawful and that individuals involved in that process had acted inappropriately.
The Plan would see the Government deflect blame for the estimated $2 billion in PPA costs that would be borne by Alberta electricity consumers away from the Government and onto the PPA Buyers, the former PC Government, The Alberta Energy and Utilities Board, and eventually a small number of individuals, including me.
The first part of the Plan was put into action in June and early July 2016. None of the PPA Buyers agreed to withdraw their PPA terminations. So, on July 25, 2016 the PPA Buyers learned what the undefined threat was. They were served with the Attorney General's lawsuit and Deputy Premier Hoffman launched the media campaign with a speech.
Things didn't start well for the Government as some in the media were critical. The media reported, among other things, that the Attorney General made a stunning admission in paragraph 57 of its Attorney General's lawsuit against the PPA Buyers. The Government had admitted that it took until mid-March 2016, some nine months after the increase in carbon tax on large emitters was announced in June 2015, for the Minister of Environment and Parks, the Minister of Energy, and the Attorney General to even learn about the precise language in the change in law provisions in the Power Purchase Arrangements Determination Regulation.
So, how did the Plan play out in the end? The PPA media campaign funded by taxpayers ran its course and the website they created has long since been taken down. The Attorney General ended her lawsuit against the PPA Buyers in March 2018 without achieving any of the remedies to prevent the PPA terminations she sought from the Court in paragraphs 74 to 79 of the Attorney General's lawsuit. The Balancing Pool now owns all the PPAs and is spending millions of dollars every month on the money losing PPAs it now owns. The Balancing Pool initially paid for all this by depleting its balance sheet of hundreds of millions of dollars. To fund this liability, the Balancing Pool is now relying on Government loans and revenue from the charge that appears on the Balancing Pool Allocation line on all Alberta electricity bills.
During my career I was directly involved in the PPA development process leading up to the PPA Auction in 2000 and the PPA terminations in 2016. In this website, I share some observations on each tactic used by the Government to deflect blame for the PPA costs Alberta electricity consumers are paying for today. In doing so I hope to achieve three things:
1) expose the Government's PPA Advocacy Plan to deflect blame for a $2 billion mistake as the abuse of political power and taxpayer funds that it was;
2) encourage others in Alberta's electricity industry and government who lived through this and know the truth, to also speak out; and
3) ensure the fine reputations of those individuals the Government media campaign identified as engaging in wrongful conduct back in 2000, some of who were dedicated civil servants employed by the government of the day, are fully restored. This includes, restoring my own reputation as a fair, ethical, and honest executive and lawyer.
I was one of the individuals accused of wrongdoing during the Government's PPA media campaign. In July 2018 I filed a defamation lawsuit against the Government, Deputy Premier Hoffman and the Premier's Director of Communications Oates for comments made about me during the PPA media campaign. My case is presently before the Court. In view of this, I've limited my commentary on my defamation case to information that is on the public record, such as the allegations I have made in my Statement of Claim. I look forward to a judge or jury of my peers deciding the merits of my lawsuit.
There are a number of pieces to the PPA Story that are not easy for most Albertans to link together and understand. I hope the information I've provided on this website provides a centralized resource for the various PPA related issues that have arisen since the time the Government increased the carbon tax on large emitters and triggered the PPA terminations to where we are today.
I also hope my work prompts further serious questions from Albertans to the Government about the handling of the PPA file. In the spirit of this, I have posed a number of questions on a later page of this website.