Is Alberta’s “Enron Clause” one of Ralph Klein’s skeletons publicly dangled by Lyle Oberg? E-mails reveal how Alberta’s ‘Enron clause’ was orchestrated

Enron, the Power Grid cartoon

Enmax breaks silence on NDP lawsuit, executive who worked for Enron by Don Braid, August 8, 2016, Calgary Herald

City-owned Enmax has hunkered down in public silence since the legal assault from the provincial government began.

But with the latest twist — the revelation that a current Enmax executive once negotiated the “Enron clause” for his then-employer — the gloves are off.

“We have done nothing wrong,” communications vice-president Tamera Van Brunt said in an interview Monday.

“Sixteen years ago we bid on a power purchase agreement (PPA) in good faith. So did other buyers in the process. All the bidders knew what they were walking into.”

This contradicts the NDP’s claim that the Enron clause was negotiated illicitly and in secret, outside the knowledge of other companies.

The chief negotiator for Enron was Calgary lawyer Robert Hemstock, who in 2000 was senior director, government and regulatory affairs, for Enron Canada Corporation.

Emails from Hemstock, supplied by the government and published in the Herald, showed him jubilant after advocating successfully “for changes that would mitigate or eliminate many of the risks in the PPAs.”

Hemstock was sent a celebratory email from Enron’s chief lobbyist in the U.S., saying “your work on the Alberta PPA has not gone unnoticed.”

The next year, parent company Enron Corp. was embroiled in a huge U.S. scandal over billions in hidden debt, power price manipulation in California, and accounting practices that masked criminal fraud.

Nobody is saying Hemstock was aware of any of this. People who know him say there’s no chance he was. In 2000, Enron’s interest in the Alberta electricity market was actually considered a prestige thing by the PC government of the day.

Enron Canada later collapsed under the weight of the U.S. uproar. Afterward, Hemstock worked at UBS Warburg Canada and then as vice-president of government and regulatory affairs at Direct Energy.

In 2006, Enmax hired him as executive vice-president of regulatory and legal services. He was in that job until quite recently, when he became special legal counsel to CEO Gianna Manes, a post where he’s still listed as part of the executive team.

Van Brunt says the move has nothing to do with the NDP lawsuit or his background with Enron. He’s working on important legal files, she says, including the government’s lawsuit.

Hemstock won’t speak publicly, she added, also because of the lawsuit.

“Robert Hemstock is an experienced regulatory lawyer, ” she says. “He was doing his part at that time (2000) to ensure that in any agreement the bidders were going into, there was an understanding of what was going to be outlined.”

“It was a clause that all the bidders were aware of. He did his part to put that in place. That affected how we were going to invest . . .”

That suddenly-famous clause, of course, says buyers of PPAs may terminate them if a change in government policy makes them not simply “unprofitable,” but “more unprofitable.”

The later part triggered the termination by a half dozen companies of agreements to buy coal power, at a potential public cost of $2 billion, according to the NDP.

Van Brunt says Enmax is entirely justified in dumping its PPAs because the financial burden of NDP policy changes was going to be enormous — a $600 million hit over five years.

That would virtually wipe out Enmax profits, which run about $150 million annually, and last year provided a $56 million dividend to the city treasury.

If Enmax is stuck with this liability, it will land on city taxpayers when Enmax inevitably comes to council for more capital.

Enmax puts the blame for its termination of the PPAs squarely on the looming carbon tax, and increases in the levy on heavy emitters.

The annual cost of the original emitters levy was about $15 million a year for Enmax, Van Brunt says. The new policies will raise that to $160 million.

“What’s important to understand is that these carbon levies are not a tweak, these changes in law are a major, major change in law, a tenfold change (for Enmax),” she adds.

The crazy irony is that Enmax is Alberta’s greenest utility, the one you’d think would be an NDP favourite rather than a demon.

Enmax no longer puts a single coal-fired electron into the provincial grid. Eighty-six per cent of generation is fired by natural gas, mostly from the new Shepard generator. The remaining 14 per cent is from renewable sources, including solar and wind.

How the province’s lawsuit helps foster goals like that is beyond understanding. So far, the dispute doesn’t seem to benefit anyone but corporate lawyers.

“Everybody’s lawyering up,” says one, who doesn’t want to be named, for reasons that will be clear from the rest of this quote.

“It’s awesome. Bring it on, Premier Notley. Too many lawyers are sitting around twiddling their thumbs right now.” [Emphasis added]

Leaked emails show Enron requested PPA change, highlight close relationship with PCs by Emma Graney, August 8, 2016, Edmonton Journal in Calgary Herald

Emails hinting at a cosy relationship between Alberta’s former Progressive Conservative government and disgraced power giant Enron will form a chunk of a billion-dollar lawsuit launched by the NDP.

The NDP government says Enron wanted to ensure it could pull out of its power contracts if the Alberta government made changes in law rendering power purchase arrangements “more unprofitable.”

It’s challenging the legality of the words “more unprofitable,” arguing they were inserted secretly at the behest of Enron.

In 2000, Enron’s then-director of government affairs, Robert Hemstock, told a colleague about the great relationship he had fostered with the PC government of the day.

Not wanting to “toot (his) own horn,” he boasted in an email that last-minute changes to the province’s power purchase arrangements (PPAs) were based “in large part” on that relationship and the trust he had established with then-director of electricity at the province’s resources department, Larry Charach.

Hemstock wrote he was “quite proud of … identifying the regulatory risks and advocating for changes that would mitigate or eliminate many of the risks in the PPAs.”

The loophole has some companies now scuttling their agreements. Essentially, that leaves Albertans on the hook for up to $2 billion, potentially through power bill hikes.

The government is taking on a host of power companies in its suit, as well as the Alberta Utilities Commission.

In its statement of claim, the government argues the commission’s predecessor, the Alberta Energy and Utilities Board (AEUB), acted above its authority when it altered the terms of PPAs; the contracts had been publicly discussed for weeks, the government says, and already agreed upon by the Independent Assessment Team (IAT) six months prior.

PPA regulations were detailed to the board in an August 1999 report by IAT.

That report made no mention of “more unprofitable.” Instead, it said market risks — bottoming out energy prices, for example — would be best managed by the power companies buying into the market.

It also noted that allowing companies relief from any environmental taxes would be “contrary to the public good.”

If power contracts were allowed to be terminated in situations other than those specifically laid out in the report, the IAT wrote, the entire process would be undermined and the balancing pool — therefore, Alberta energy consumers — exposed to “risks which they were not intended to bear.”

The PPAs went through public consultations in October 1999, and were approved by the AEUB in May 2000.

According to government documents, it wasn’t until July 27, 2000 — just days before the power contracts went to auction — that Enron piped up with concerns about profitability.

Hemstock emailed Charach in the government’s resources department, worried that if changes to the PPAs weren’t made correctly, courts might find the contracts unenforceable; that could affect how aggressively Enron would bid on a contract, Hemstock wrote, or whether it would bid at all.

These were not merely “typographical errors and minor clarifications,” Hemstock argued, but changes “in the order of hundreds of millions of dollars.”

Charach passed those concerns over to AEUB executive director Bob Heggie, adding that Hemstock was pretty sure Enron’s requested changes could be passed without a public hearing.

“I realize you believe otherwise,” Charach wrote, but urged Heggie to give the Enron executive a call to “close the gap.”

In an email less than 24 hours later, Hemstock told his colleague that concerns about PPAs had “been addressed to Enron’s satisfaction.”

An Aug. 1 letter from the AEUB to then resources development minister Mike Cardinal says changes attached to the letter — including the “more profitable” line — should be considered part of the power contracts.

The NDP argues the changes were never rolled into PPA contracts and the AEUB overstepped its authority to push through the changes, skipping the necessary step of public consultation.

Interim PC leader Ric McIver called the lawsuit a move to save the government’s “own political skin” and said no matter the result, taxpayers will be left on the hook.

“It doesn’t matter who had lunch with who 16 years ago,” he said.

While McIver wouldn’t comment on the fairness of downloading power contract losses onto consumers, he said “a deal is a deal” and the government should honour its contracts.

Deputy premier Sarah Hoffman said her government doesn’t believe those deals were legal or ethical in the first place.

“This all started in 2000, and we want to fix this,” she said. [Emphasis added]

E-mails reveal how Alberta’s ‘Enron clause’ was orchestrated by Justin Giovannetti and Jeffery Jones, August 7, 2016, The Globe and Mail

As Alberta began deregulating its electricity market in late July, 2000, Enron Corp.’s chief lobbyist in Canada was getting kudos from head office in Houston for his influence over the entire process.

Robert Hemstock was Enron’s Canadian head of government relations, the front man in talks with regulators over the structure of Alberta’s power purchase arrangements in the year before Enron’s name became shorthand for massive corporate accounting fraud.

The power purchase agreements – PPAs – were the centrepiece of Alberta’s landmark move away from a regulated market. They were auctioned off to companies wanting to buy electricity from Alberta’s generators and resell it into the market.

A small but crucial provision within them, added at the behest of Enron’s Mr. Hemstock, is now at the heart of the Alberta government’s court action aimed at preventing the holders of now money-losing contracts from walking away from them. The NDP says it was unaware of this clause until the spring and that Albertans face up to $2-billion of costs being offloaded to consumers as a result of the provision.

Late last month, the government launched a lawsuit against three electricity companies who have relinquished PPAs, as well as the province’s own power regulator, among others.

E-mails provided to The Globe and Mail by the Alberta government detail last-minute machinations before the province’s first deregulated energy auction began on Aug. 2, 2000. They show the request from Enron to have the provision inserted, followed by memos between Alberta bureaucrats and, finally, celebratory letters sent within Enron, the now-discredited and defunct U.S. energy company.

“Your work on the Alberta PPA has not gone unnoticed and really is a model for the rest of the group as to how to approach the review and analysts of a significant transaction [with] huge [regulatory] risk …” Richard Shapiro, top lobbyist for Enron, gushed in an e-mail to Mr. Hemstock, on July 31, 2000.

“Not to mention the external leadership you provided on the issue [with] folks like Larry Charach. Thanks very much,” Mr. Shapiro wrote.

Mr. Charach, the bureaucrat in charge of electricity for the energy department at the time, is a central figure in the e-mails. His ministry spearheaded the market deregulation, which Ralph Klein’s Progressive Conservative government promised would lead to competition and fairness for consumers.

The NDP says the documents prove its case that the clause is not valid because it was improperly slipped in at the 11th hour without following necessary protocol. Premier Rachel Notley’s government has taken to calling it the Enron clause.

The clause revolves around the insertion of three words: “or more unprofitable.”

After extensive public hearings in 1998 and 1999, the fine print in the pending power contracts stated that companies could back out of the 20-year deals if government policies made them unprofitable. However, the words “or more unprofitable” were added on July 28, 2000, among a shopping list of what were supposed to be quick and relatively minor fixes, according to an internal ministry memo.

The change was made only a day after a July 27, 2000 e-mail in which Mr. Charach suggested the director of the Alberta Energy and Utilities Board [Now AER] speak with the Enron lobbyist and come to terms – “close the gap,” as he wrote – over adding the clause before the auction. There were lingering questions over whether the significant change might require public input. In the end, none was sought.

Before the change, companies would have only been able to walk away when a government action, such as a heavy carbon tax or large change to the labour code, was solely responsible for making a contract unprofitable. With the change, a company holding a money-losing PPA due to weak market conditions could now abandon it when a government act made it the least bit more unprofitable.

“It’s like a gnat has landed on the back of a bull, and now they’ve given us the entire bull and told us that it’s our problem,” a senior official in the Notley government said of the change.

According to the documents, regulators decided against seeking public comment on the addition, even though Enron itself warned that leaving the phrase out could cost PPA holders “hundreds of millions of dollars.” Enron would buy one of the first PPAs.

This year, three electricity companies have cited the clause in their decision to hand back PPAs to a public agency known as the Balancing Pool, saying the government’s new carbon legislation will cause major losses.

The first to do so was Enmax, the City of Calgary’s power utility. Mr. Hemstock, formerly of Enron, is now part of Enmax’s legal team. A spokeswoman for the company said he is unable to comment on the documents because the case is before the courts.

The companies contend they have followed the rules and that the government appears to have been ignorant of the policies it is in charge of. Indeed, Calgary Mayor Naheed Nenshi joined the fray, calling the Notley government’s suit outrageous.

The court action names Enmax; TransCanada; and Capital Power. It also names electricity generator Atco Ltd., the Balancing Pool, which is a public body, and its own power regulator as defendants. The court case is slated for November.

Mr. Charach, now an energy consultant, said in an interview with The Globe and Mail that the Klein government hired PricewaterhouseCoopers to oversee the creation of the PPAs. As the auction drew near, his job was to make sure the deadlines for the auction were met.

He said his role wasn’t to debate the content of the questions raised by perspective bidders, including Enron, but to send their questions to legal counsel and PricewaterhouseCoopers.

In its July 27 letter, Enron also asked Mr. Charach to consider bundling the PPAs and its suggested modifications into a regulation. Mr. Charach then forwarded those concerns to the head of the Alberta Energy and Utilities Board, and a lawyer for Alberta Energy. The next day, PricewaterhouseCoopers accepted the modifications. Instead of a contract between two private companies, the new PPAs would now have the force of law and included in them would be the “or more unprofitable” clause.

“We were on a tight deadline and we had no involvement whatsoever about the content of those questions,” Mr. Charach said. “My object was to have the auction proceed on time.”

On Aug. 18, the modifications were bundled with the PPAs and made into a regulation. Mr. Klein’s cabinet voted not to announce the new regulation through the typical process. Instead, the regulation was quietly posted on a government website for five weeks and then removed. The regulation can be ordered today from the government’s printer, although it still doesn’t appear in a list of regulations available to lawyers.

Whether “or more unprofitable” was in the public interest in 2000 was left up to PricewaterhouseCoopers, Mr. Charach said.

Mr. Charach says his understanding at the time was that the modifications requested by Enron were common and reflected the original intent behind creating the private system. Enmax and other companies that have backed out of PPAs have echoed that view.

If faced with the situation he faced 16 years ago, Mr. Charach says he would do the same thing. “The right thing was done, entirely,” he said. [Emphasis added]

Alberta Tory race has mudslinging without the dirt by Katherine Harding and Dawn Walton, October 26, 2006, The Globe and Mail

Lyle Oberg keeps promising some mudslinging, but the man hoping to replace Alberta Premier Ralph Klein keeps forgetting to bring the mud.

Yesterday, the family doctor turned politician who is now considered one of the front-runners for the Progressive Conservative Party leadership, called a press conference where the news media were told they would hear something “juicy” that would cause “bloodletting.”

Instead, reporters keen to be roused from the sleepy leadership race learned that Dr. Oberg’s campaign “anonymously received sensitive information about the misconduct of another candidate’s campaign” on Monday evening. “I would have loved to bring this out and I may well bring it out at some time in the future. But I’m very concerned about the people involved and I’m protecting those people,” he said.

Political watchers will recall Dr. Oberg for his cryptic warning earlier this year about “skeletons.”

In March, Dr. Oberg was suspended indefinitely from caucus and stripped of his cabinet post over remarks he made about the Premier to his constituency association in the southeastern Alberta town of Brooks.

He told members he wouldn’t ask them to support Mr. Klein during the coming leadership review. (As it turned out, Mr. Klein’s support was so low he was forced to resign earlier than he had planned and now a leadership vote is set for Nov. 25.)

“If I were the premier, I wouldn’t want me as a backbencher,” Dr. Oberg told the meeting, which was covered by the Brooks & County Chronicle newspaper.

“I know where the skeletons are.” [The Enron Clause? Encana illegally fracturing Rosebud’s drinking water aquifers with AER, the Klein gang and Alberta Environment fraudulently covering-it up?]

Despite much prodding, the skeletons never came out of the closet and Dr. Oberg gained some great traction in the polls. It’s not clear how these latest allegations of skulduggery will affect his popularity and his well-funded campaign.

frackingcanada this space for sale

Dr. Oberg said the information was passed onto his campaign by “internal sources within the legislature and abroad” who are now concerned for their jobs and their families.

But at the 11th hour, he decided to protect the anonymous sources and went ahead with the press conference.

“I went against my campaign team’s advice on this one. This is me making that decision,” he said.

He told reporters that he was able to verify the information, but near the end of the nine-minute news conference in Edmonton, Dr. Oberg said he hoped “their concerns are unfounded.”

Jim Dinning, who was at one time the province’s treasurer and is now considered the favourite in the eight-man race, was largely nonplussed by the claim.

“If he has got some specific allegations he should call the PC office and get the PC office to deal with it,” Mr. Dinning said in an interview.

“If you call a press conference and smear thousands of volunteers who are working hard for seven other candidates it does nothing to inspire confidence,” he added.

Dr. Oberg acknowledged that his press conference could “possibly” smear all the other campaigns until the information is publicly released.

He said that he hadn’t approached Conservative Party brass before dropping his mysterious allegations yesterday to the public, but said he would talk to the party and the other leadership contenders.

The allegations are “serious,” he added, but they don’t have to do with financial matters and no election law has been broken.

Sean Libin, Dr. Oberg’s spokesman, didn’t help to clear up any of the mystery and confusion that came out of the bizarre news conference.

He said he hopes the sources “come forward on their own volition.”

Party association president Doug Graham said yesterday the allegations have yet to be brought to his attention, but questioned just how serious they could be if they are neither financial nor rule bending.

With a report from Deborah Yedlin in Calgary [Emphasis added]

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