What’s the deal with these PPA’s and this government lawsuit?
By now you may have heard that the Alberta Government is suing a handful of electricity companies in the province over a contract or Power Purchasing Agreement (PPA). We at Peace Power wanted to take you through exactly what is going on with this lawsuit so you, the customer, can be informed and not have to wait until it shows up in some horrible iteration of Law and Order: Divorce Court.
The beginning of this case basically involves a few electricity companies walking away from a PPA. What is a PPA? Essentially, it is the way that power companies purchased electricity to sell on the market. A generation facility put power up for bid. The winner of the bidding process then earned the right to sell the power to the consumer.
The idea of selling electricity through a PPA came about due to deregulation with the idea that the bidding process would allow for competition, which in turn, help lower prices for the consumer. By and large, this seems to have worked as we have seen record low electricity prices.
What has happened now though is these electricity companies cited irreconcilable differences, walked away from the agreements, and stuck the government, by way of the balancing pool, with the cheque. The fall out of this is where things get problematic and the government is sending “take me back” letters in the form of a subpoena.
The issues lay with the aforementioned balancing pool. This balancing pool is an arm’s length entity of the government and is responsible for managing PPA’s and any electricity that isn’t purchased by a PPA. This is how it has been since deregulation occurred and is there as a backup power supply of sorts. Electricity from the balancing pool can be purchased by other companies if needed and the money on these sales are given to the consumer as a deduction on their bills (Click here for more).
Since the electricity companies have reneged on their PPA’s, the electricity they agreed to purchase reverts back to the balancing pool and they will now be on the hook for the costs of these PPA, approximately 2 Billion. What this means is the cost of maintaining these agreements will cause the deduction line on the bill mentioned above to become a cost line. The cost is the responsibility of the balancing pool and will filter down to the consumer. This has become the bullet in barrel of the divorce.
But why did these power companies decide to leave their agreements? Simply, new laws and regulations like the carbon tax have made the PPA’s, according to these power companies, unprofitable. As it stands, this situation is completely legal due to a clause in the contract (a little gift from a company called Enron that shows their legacy is more than just a bad documentary on channel 66, for more click here).
The government is mad and slighted by all of this and have taken these power companies to divorce court….provincial court. Their defence is that the clause that allows them to leave was illegal and should be void.
Whether you think the contracts were negotiated fairly or the clause was underhanded is purely on how you view the situation. Some think it was simply a lack of foresight by the government and the introduction of the carbon tax has gotten them into this mess as the power companies feel it has made their agreements unprofitable. Others feel that the government is trying to protect consumers from higher costs they will have to face from unfair contract manipulation The choice is yours, of course, but whichever way you cut it the government isn’t signing divorce papers yet and will be looking to get as much alimony as possible.