Varcoe: NDP’s ‘Enron clause’ lawsuit ends with a whimper, but more trouble awaits


It began with a political bombshell two years ago. It ended with barely a thud last week.

But the Notley government’s sensational court action over Alberta power contracts — alleging secret deals and covert action involving discredited power firm Enron — isn’t over just yet.

One week ago, the province announced its lawsuit over power purchase arrangements (PPAs) had finally been settled with Calgary utility Enmax Corp.

But a former civil servant — the longtime head of Alberta’s energy regulator — isn’t prepared to let the matter die so quietly.

Neil McCrank, who served as chair of the Alberta Energy and Utilities Board for a decade, is demanding an apology.

The former deputy attorney general of Alberta is also contemplating suing the province for what he believes was an attack on his reputation — and on other civil servants — in the highly charged political affair.

“Not to be too dramatic, it has provided sort of a living hell for me for the last two years, because your name has been put out there as somebody who conspired to screw the public out of $2 billion, and it hasn’t been cleared,” said McCrank.

“We’ve been waiting to see whether they would bring this thing to a halt and apologize. That just took place last week. An option is to sue for slander and that’s still available.”

The Byzantine controversy first exploded on to the public stage in July 2016 after the NDP government held a news conference to announce it was launching a lawsuit over the power agreements.

Mounting losses with the contracts threatened to devastate Alberta’s Balancing Pool, an independent government agency set up to backstop the deals.

Power purchase arrangements were created in the late 1990s when Alberta deregulated its electricity market, allowing utilities like Enmax to purchase electricity from generators and resell it on the open market.

When electricity prices were high, the deals were profitable. During the 2015 recession, power rates plunged to two-decade lows, pushing the contracts deep under water.

The red ink would have remained on the utilities’ books.

But in June 2015 the newly elected NDP government announced it was going to increase the provincial carbon levy on large greenhouse gas emitters, including coal-fired power plants, increasing the PPA costs and making them more uneconomic.

However, an exit clause let the holders return the money-losing contracts to the Balancing Pool if government changes — such as hiking the carbon tax — made the agreements unprofitable “or more unprofitable.”

Enmax signalled in December 2015 it would hand back one of its PPAs, saying the increased carbon levy had tripped the “more unprofitable” clause.

Others followed suit.

At one point, the Balancing Pool was shouldering losses of $70 million a month and had to liquidate its nearly $700-million investment fund.

That wasn’t enough.

The agency has since borrowed $804 million from the government, and it’s expected to need up to another $337 million by 2020. The money will be paid back by electricity consumers through a surcharge on their monthly bills until 2030.

Cabinet ministers insisted they weren’t aware of those three words — “or more unprofitable” — in the provision until the spring of 2016.

The province began a blockbuster legal action, seeking to have the “more unprofitable” measure invalidated by the courts.

Deputy Premier Sarah Hoffman argued the clause was unlawfully enacted in 2000 at the behest of backroom lobbying by now-bankrupt U.S. energy firm Enron and noted the PPA losses could cost consumers up to $2 billion.

“Our government believes that Albertans shouldn’t be on the hook for secret backroom deals that were created between companies like Enron and the previous PC government,” Hoffman said at the time.

As part of its PR offensive, the government even created its own web page titled, “Understanding the Enron clause,” which was only taken down recently.

In legal documents, the province argued that before the PPAs were auctioned off in 2000, McCrank — as head of the energy regulator — and the former Tory government authorized changes to add the words “or more unprofitable” to the clause.

McCrank said the change was a routine clarification requested by an independent panel of electricity experts and it actually came through the Energy Department.

The energy regulator acted properly and in the public interest, he said in an affidavit.

“I did not discuss the corrections and clarifications with Enron, or any other market participant for that matter,” he said in the affidavit. “Any suggestion otherwise is absolutely false and frankly preposterous.”

Last October, a judicial ruling in a related legal skirmish between Enmax and the Balancing Pool pointed out Alberta lawmakers tried during deregulation to attract as many potential buyers to bid on the contracts and increase competition.

“It appears the legislators endeavoured to provide as much certainty as possible to potential PPA buyers and relieve them of non-market related risk,” wrote Justice Paul Jeffrey of Court of Queen’s Bench.

By painting a routine step as “covert” action, the NDP government tried to shift the blame for its own mistake, McCrank said in an interview this week.

The Calgary lawyer, who spent nearly a decade as Alberta’s deputy minister of justice in the 1990s, noted no one from government ever contacted him to seek clarity on the matter before beginning the lawsuit two years ago.

Now that it’s over, he wants an apology.

In last week’s press release, Energy Minister Marg McCuaig-Boyd said the government initiated the lawsuit to protect Albertans, and that many parties, including Enmax, “were regrettably caught up in our action against the past government.”

That’s not good enough, said McCrank, noting he and other civil servants such as former Energy and Utilities Board counsel Bob Heggie were “dragged through the mud.”

“I remember the day that this action was launched … my wife was at a meeting and some people that don’t know us very well came up and said, ‘Well, I see your husband has been alleged to have stolen money from the public.’ That’s the way they put it.

“Now that’s never been cleared up … There is no truth to it. But that fact remains the allegation (is) hanging in the wind out there.”

Heggie, now the CEO of the Alberta Utilities Commission, said the entire case has been stressful.

“It’s a very difficult thing to be involved in litigation where you are really trying to defend your reputation,” he said.

McCuaig-Boyd was not available for an interview this week, but the government hasn’t backed down from its original assertion.

Premier Rachel Notley told the legislature Wednesday the province took the matter to court because “we were concerned about a clause that the previous government had negotiated inappropriately, we would suggest, behind closed doors, with representatives from Enron at the time, that hurt consumers.”

Friends and colleagues of McCrank said the former civil servant deserves better.

University of Alberta School of Business dean Joseph Doucet has known McCrank and Heggie for years and said the men have “an unwavering sense of ethics, professionalism and public service.”

The allegations deeply hurt McCrank and the government owes him, and other public servants, an apology for throwing them “under the bus,” Doucet said.

“When you are in a position such as he was, as the chair of the (energy) board, you expect to make some people unhappy,” he added.

“You don’t expect your integrity to be questioned, and if your integrity is questioned you expect to have an ability to defend yourself — and receive an apology… if those allegations or suggestions are baseless.”

The government’s attempt to stem the estimated $2 billion in losses by launching the lawsuit is now over.

Alberta Energy Department officials say they recouped $186 million “in value returned to Albertans” through various settlements with the PPA holders.

The province spent $550,000 on related legal fees.

But electricity industry insiders note that for 18 months, the lawsuit tied the hands of the Balancing Pool to terminate the PPAs and stop the financial hemorrhaging, with one pegging the losses approaching $1 billion.

The Balancing Pool is currently consulting industry on its plans to terminate the money-losing Battle River PPA, a move it says will save the agency — and consumers — up to $122 million.

Yet, it could have been more.

Back in February 2017, internal Balancing Pool documents show it could have saved $221 million at the time by taking action, meaning the delay in terminating just one of six PPAs cost consumers about $100 million.

“The lawsuit just exacerbated the losses incurred by the Balancing Pool,” said Gary Reynolds, former head of the agency, in an email.

“I have no idea what the government’s intent was with the lawsuit, however, it’s clear now that their position on the so-called Enron (clause) totally failed.”

As part of last week’s settlement, Enmax agreed to transfer about $5 million worth of carbon offset credits to the Balancing Pool.

In its fourth-quarter financial report issued Thursday, the Calgary utility said it received a $5-million payment from the provincial agency in the settlement, suggesting the government didn’t recover anything in the case.

Alberta Party MLA Greg Clark said it’s obvious the “mythical Enron clause” wasn’t unusual and the NDP government squandered public money with the lawsuit.

“A billion dollars out the door for an ideological public relations exercise is just outrageous,” he said.

In a statement, McCuaig-Boyd’s press secretary Mike McKinnon said Friday the government will “make no apologies for standing up for regular Albertans against backroom deals and regulatory loopholes negotiated by the Conservatives. The agreements we’ve struck are fair.”

Today, McCrank is contemplating his next steps.

At 74, the semi-retired lawyer isn’t eager to start a defamation suit but wants his name cleared.

“I never had any politics in my bones, so for them to take a public servant on — who was non-political, who provided what I think is reasonable service for 34 years — in this fashion, I think is very unfair,” he said.

“It’s a signal to other public servants that you better watch your back because these guys might turn on you in a New York second.”

Chris Varcoe is a Calgary Herald columnist.


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