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I posted this on a different forum...so far, haven't heard any disagreement.

So, the way I read this, industry asked for a clause to prevent the usual government "bait and switch" technique of offering low costs to get in, then legislating higher prices through taxes. When the new government tries to raise prices, they are upset that industry had already learned from these techniques in the past...

Had the government not tried to tax away profits, then the companies wouldn't have pulled out. 10B in profits, over nearly 16 years, divided amoung several companies, may not really work out to that much (but it certainly sounds better to lump it all into one number, those lousy money grubbing companies making profits for their shareholders)...plus, the consumer benefitted from the low rates that were negotiated by the original agreements...

We'll see how the consumers react to their bills when the carbon tax comes in...from what I've heard, the tax on natural gas may be higher than the cost of the gas itself...not mentioning that natural gas is a very clean burning fuel...or the fact that the carbon tax looks a lot more like wealth transfer than it does environmental...

If the ndp win the suit, and those companies are forced to overpay for electricity (since they must be able to buy it cheaper elsewhere...they still need the energy for clients) you can bet their stocks will tank, or the consumer will just have to bear the extra costs.
 

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Typical government meddling in commerce, especially with the NDP. I can't imagine how the NDP can win this suit but likely has to do so to try to salvage their policy (and if not that, their bruised egos). I have not really thought the consequences through yet but on first blush, ISTM that it is the PPA purchasers (Altagas, Epcor, Enmax et al) that save themselves from squeezed margins (or losses), and the coal fired generators (Atco, TransAlta et al) that will suffer with uneconomic (stranded) assets and higher government bailouts to retire coal generation prematurely.
 

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I really should abstain from this thread but I can't resist.

I think it first makes sense to put some context behind the players. The PPA units and their respective buyers and owners are:

Genesee 1/2; Balancing Pool; Capital Power
Sheerness 1/2; TransCanada; ATCO/TransAlta
Sundance 1/2; TransCanada; TransAlta
Sundance 3/4; JV between TransCanada/Altagas; TransAlta
Sundance 5/6; Capital Power; TransAlta
Keephills 1/2; ENMAX; TransAlta
Battle River 5; ENMAX; ATCO

The PPAs were established back in the late 90s as a transition vehicle from a regulated to a deregulated market. The intent was to incent entry of new players to compete with the incumbents (EPCOR/Capital Power, TransAlta, ATCO). The PPAs were intended to provide the owners with a regulated-like return and to transfer market risks to buyers. Buyers pay a capacity payment, energy payments and other incentive-laded payments in exchange for the physical rights of the electrical capacity from these plants. The buyers decide how to offer this capacity into the market.

The buyers purchased the PPAs (along with the rights and obligations thereof) through an auction process in 2000. The auction netted approximately $1 billion which has been managed by the Balancing Pool which was established by the Balancing Pool Regulation. For the past several years, the Balancing Pool has been providing a credit to the bills of consumers with these funds. The Balancing Pool also serves as a back-stop for extraordinary events. In the event of a force majeure, the Balancing Pool steps in to make capacity payments on behalf of the buyer. The Balancing Pool also steps in and becomes the buyer if the PPAs are terminated. One of the ways to terminate a PPA is from a buyer's claim that a change-in-law renders the PPA unprofitable (or more unprofitable). The 'more unprofitable' language was added in as part of an errata, however the Independent Assessment Team (established to create the PPAs) made it clear that this was always their intention.

I won't go into the legal side of it (re: claim that the PPAs are void ab initio), but rest assured, this file will not stop at the Court of Queen's Bench. It will absolutely go to the CofA and maybe even the SCC. In any event, I personally think the AB AG will have an uphill battle.

What happens when the PPAs are terminated?
The buyers simply walk away. The Balancing Pool takes over as buyer. The owners are not affected. However, the Balancing Pool has the option of cancelling the PPAs. In this event, the Balancing Pool would have to pay the owners the PPA NBV which is worth hundreds of millions of dollars. And then the owners get the keys to plants and they can do as they wish with them. If the terminations are rejected, the buyers' margins will be hit slightly (there are ways for buyers to mitigate the hit on their margins), but the impact to these companies in the grand scheme of things are very small. The largest hit would be to the City of Calgary via their ownership of ENMAX.

However, none of this won't happen until the legal issues are cleared up and if this goes all the way to the SCC, the PPAs could be over by then (PPAs expire at the end of 2020).

What's best for the consumer?
Believe it or not, the opposite of what you might initially think...however, what is best for the short-to-medium term is VERY different than what is best for the long-term.
 

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I find this confusing but I think I have the gist of it. If I understand it correctly, the previous PC government included regulations which allowed private companies to sell energy producing assets back to the government (the Balancing Pool) if new regulations rendered them unprofitable, or more unprofitable. The NDP Government was unaware of the regulations when it drafted the carbon tax legislation and now it wants the Court to strike down the regulations because it does not want those assets returned.

??

:upset:
 

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^ Correct. The PPAs include a put option for $0 which allows the buyers to transfer the rights and obligations to the Balancing Pool if new laws/regulations rendered them unprofitable or more unprofitable. The originating application pleads that the government was not even aware of this option until March 2016.
 
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