Alberta and Enron: A tale of two twisted power plays

By challenging the Enron clause, Alberta's NDP government takes on the system it inherited and a dark piece of Ralph Klein's legacy

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Robert McGarvey“Oh, what a tangled web we weave/When first we practise to deceive.”

Having launched its campaign against carbon-emitting power plants, the Alberta government has inadvertently opened Pandora’s box, only to find the grisly face of Enron Corp. staring out at them … snickering.

Enron (that now-failed poster boy for corporate malfeasance) was a principal adviser to the Alberta government in 2000 when the province was deregulating the electrical power industry. Although a strong advocate for a “free” market in electricity, Enron lobbied behind the scenes for an escape route in case things didn’t work out as planned.

The “Enron clause” gave power companies the right to return electrical purchase contracts to the Alberta Balancing Pool if policy changes made them “more unprofitable.” That is precisely what happened when the New Democratic government’s carbon levy went into effect.

Having discovered that this loophole could add billions of dollars to the government’s deficit, an outraged NDP leadership has taken legal action to void the clause.

Not surprisingly, a political firestorm has erupted. The Progressive Conservative and Wildrose parties, and municipal leaders across the province, accuse the government of incompetence.

Although the clause was added quietly at the very last minute of negotiations in 2000, and was not debated in public, interim PC Leader Ric McIver now points out the obvious: the clause has been hiding in plain sight. “The clause has been available to all Albertans from the Queen’s Printer for 15 years now. There’s nothing secret about it.”

Alas, in the game of power politics a lot of blame gets tossed around. Representatives of past and present Alberta governments are being economical with the truth and guilty at the very least of naiveté.

In the late 1990s, the Ralph Klein government was deregulation mad. In its haste, it partnered with Enron to get Alberta’s electricity deregulation done as quickly as possible.

Clearly, the government should have known better.

Enron’s willingness to manipulate and deceive was well known. Prior to its involvement with Alberta, Enron had a strategy in California that it referred to as “Fat Boy,” in which it submitted fraudulent power schedules to government officials that caused unnecessary spikes in power prices. And its “Death Star” strategy involved transmission fraud, in which Enron created false power congestion that resulted in the company getting paid to alleviate a problem that didn’t exist.

In one notable instance, Enron celebrated one of its energy traders for diverting California power out of state and then returning it to California. This market manipulation doubled the price for homegrown power because it was disguised to look like out-of-state power.

Deregulation of the power grid was promoted by the Klein government as a progressive retreat of government from the lives of Albertans, and that it would result in cheaper power bills. However, it is inconceivable that government officials would not have known about the impacts of deregulation in California, where it resulted in massive corruption, power blackouts, rapidly rising prices for electricity and Enron’s dubious reputation.

Alberta’s current government of Premier Rachel Notley may be stage-managing the crisis for political purposes.

Wildrose Leader Brian Jean has dredged up documents that claim to show the NDP was aware last fall of the Enron clause and its potential impact. That would be prior to initiating new climate change laws.

The Wildrose believes the government is using its legal challenge of the clause to divert public attention from what it considers reckless, anti-business climate policies. It believes the government should have dropped the carbon levy or considered ways of averting the contract problem before implementing the legislation.

So, in this bizarre maze, the Alberta government has taken the unprecedented step of suing itself, all in the public interest. Absurdities abound, naturally.

However, the fact remains that for decades before deregulation, Albertans trusted their power suppliers, whose dedication to public service was unquestioned, even if they were also inefficient and bureaucratic. But Albertans had a publicly-operated system that – although no paragon of virtue – managed to consistently deliver cheap, plentiful power.

The minute Enron became involved with the Alberta government to “improve” the system through deregulation, there was only one certainty: the public would pay the price for any failure. You can bank on that.

Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.

Robert is a Troy Media contributor. Why aren’t you?

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