Power Purchase Arrangement – Injunction Application – Injunction Granted
In this decision, the Alberta Court of Queen’s Bench (“ABQB”) considered an application by ENMAX Energy Corporation (“ENMAX”) for (the “Application”):
(a) an interim injunction compelling the Balancing Pool to complete and communicate the results of its assessment and verification of ENMAX’s Termination Notice (the “Termination Notice”) in respect of the Power Purchase Arrangement (“PPA”) for the Keephills Generation Facility (the “Keephills PPA”);
(b) an interim injunction compelling the Balancing Pool to take offer and dispatch of Keephills Units 1 and 2 without further delay; and
(c) in the alternative, the determination of an issue of law, namely whether the Balancing Pool is required to fulfill its statutory obligations to complete and communicate the results of its assessment and verification of the Keephills Termination Notice and take offer and dispatch control of Keephills Units 1 and 2.
For the reasons summarized below, the ABQB:
(a) granted an interim injunction compelling the Balancing Pool to complete and communicate the results of its assessment and verification of the Termination Notice; and
(b) dismissed, as premature, ENMAX’s application for an interim injunction compelling the Balancing Pool to take offer and dispatch control of Keephills Units 1 and 2.
Background: Keephills PPA and Termination under Change in Law Clause
Power Purchase Arrangements and Termination Clause
The ABQB explained:
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PPAs were developed to help facilitate the transition to a deregulated wholesale electricity generation market in Alberta, commencing in the mid-1990s.
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PPAs are similar in form to contracts but enacted through the Power Purchase Arrangements Determination Regulation and have statutory force by virtue of section 96(1) of the Electric Utilities Act (‘EUA”).
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PPAs allow owners of generating units to own and operate their facilities but auction the dispatch rights and beneficial ownership of the associated energy to the PPA buyers (“Buyers”). The PPAs grant to the Buyers the right to the capacity and the electricity generated by the generating units. The Buyers can then sell the electricity they have purchased directly to their own customers, or to the Power Pool.
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Article 4.3(j) of every PPA allows the Buyer to terminate a PPA in response to increased costs as a result of a change in law in certain circumstances.
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The Government of Alberta made certain amendments to the Specified Gas Emitters Regulation, effective January 1, 2016, which resulted in increased costs of producing coal-generated electricity. As a result, every PPA Buyer, including ENMAX, took steps to terminate their PPAs under Article 4.3(j).
The ABQB also noted that Article 4.3(j) of all PPAs was the subject of litigation between the Attorney General of Alberta (“Alberta AG”) and various parties including ENMAX PPA Management Inc., the Balancing Pool, and other PPA Buyers in separate but related ABQB proceedings (the “AG Action”). In that dispute, the Alberta AG contended that Article 4.3(j) allows Buyers to terminate a PPA only where a change in law has rendered the PPA unprofitable for the Buyer. The respondents in that action, including ENMAX PPA Management Inc., argued that Article 4.3(j) allows Buyers to terminate a PPA where the change in law has rendered the PPA unprofitable or more unprofitable for the Buyer.
ENMAX’s termination of the Keephills PPA
In this case, the ABQB explained:
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The Keephills Generation Facility is a coal-fired electrical generating station owned and operated by TransAlta Corporation and Capital Power.
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ENMAX purchased electricity produced from the Keephills Generation Facility under the Keephills PPA.
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On May 5, 2016, ENMAX provided the Termination Notice to the Balancing Pool that it was terminating the Keephills PPA effective that same day.
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On May 26, 2016, the Balancing Pool notified ENMAX that it had commenced its investigation and assessment pursuant to section 2(1) of the Balancing Pool Regulation (“BPR“).
Termination under Section 2 of the Balancing Pool Regulation
The mechanism for initiating the termination of a PPA is set out in section 2(1) of the BPR, which provides that, on receipt of notice in respect of an extraordinary event, the Balancing Pool must conduct any investigation the Balancing Pool determines appropriate, and:
(a) agree that the extraordinary event occurred and that there is a need for a payment to be made to or by the Balancing Pool, or
(b) assess and verify the occurrence of the extraordinary event and the need for any payment to be made by or to a party under the provisions of the PPA and participate in any dispute resolution proceedings.
Once a PPA is terminated, it is deemed to have been sold to the Balancing Pool pursuant to section 96(3) of the EUA.
ABQB Reasons for Granting Injunction Compelling Balancing Pool to Complete Assessment of Termination Notice
ENMAX requested an interim injunction compelling the Balancing Pool to complete and communicate the result of its assessment and verification of the Termination Notice.
The parties agreed that the test for injunctive relief was the test set out by the Supreme Court of Canada (“SCC”) in RJR-MacDonald Inc. v. Canada (Attorney General), ([1994] 1 SCR 311 (“RJR-MacDonald”).
Under the RJR-MacDonald test, the person applying for an injunction must establish the following three elements:
(a) there is a serious issue to be tried;
(b) the applicant will suffer irreparable harm if the injunction is denied; and
(c) the balance of convenience between the parties favours granting the injunction.
Considering “serious issue to be tried”
The ABQB found that the first injunction requested by ENMAX was properly characterized as a mandatory injunction (i.e. compelling the Balancing Pool to carry out a positive act). Therefore, ENMAX was required to demonstrate a strong prima facie case to meet the “serious issue” element of the RJR-MacDonald test.
The ABQB concluded that ENMAX had a strong prima facie case in respect of the Balancing Pool’s breach of its obligation to complete its assessment of the Termination Notice. This conclusion was supported by the following findings:
(a) the language of BPR section 2(1)(g) is mandatory (i.e. the Balancing Pool must complete an assessment of the Termination Notice);
(b) by indefinitely deferring the assessment, the Balancing Pool was not determining the kind of investigation that is appropriate under BPR section 2(1)(g)(i);
(c) the Balancing Pool, for all practical purposes, was declining to proceed with the assessment, contrary to its mandate; and
(d) the Balancing Pool’s refusal to complete an assessment of the Termination Notice, pending the outcome of the AG Action, was a breach of its obligation under BPR section 2(1)(g).
Considering “irreparable harm”
In RJR-MacDonald, the SCC described irreparable harm as follows:
“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court’s decision; where one party will suffer permanent market loss or irrevocable damage to its business reputation; or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined.
The ABQB found that the proper test in Alberta is whether the applicant has established that there is doubt as to the adequacy of damages.
Given the complex and varied set of factors that determine the cost and the price of electricity at any given time, the ABQB found there was real doubt as to whether the costs to ENMAX resulting from the Balancing Pool’s failure to acknowledge the Termination Notice in a timely way could adequately be proved and compensated for in damages.
The ABQB explained that PPA Buyers, such as ENMAX, purchase, in advance, electrical capacity, and then sell that electricity to their customers. Owners are paid for the amount of electricity they produce. End users are charged for the amount of electricity they consume. The level of demand is constantly in flux.
The ABQB found that:
(a) when ENMAX purported to terminate the Keephills PPA, it could no longer accept electricity under that arrangement; and
(b) ENMAX purchased that power — hundreds’ of millions of dollars’ worth somewhere else, but the Keephills plant continued to generate electricity, which continued to be dispatched into the market by ENMAX.
The ABQB noted three possible outcomes following the Balancing Pool completing its assessment of the Termination Notice:
(a) the Balancing Pool concluded that ENMAX was not entitled to terminate the PPA, and that decision was upheld in the arbitration or litigation that would inevitably follow, ENMAX’s power purchase to replace power under the Keephills PPA may ultimately be simply an unfortunate business decision, with no damages to claim;
(b) if the Balancing Pool concluded that ENMAX was not entitled to terminate the PPA, but that decision was not upheld in subsequent proceedings, there would doubtless be a complex damages assessment to determine the costs to ENMAX resulting from the Balancing Pool’s failure to acknowledge the Termination Notice in a timely way; or
(c) the result of the Balancing Pool’s assessment would be that ENMAX is entitled to terminate the Keephills PPA.
The ABQB found that under any of those scenarios, the question remained as to whether ENMAX would ultimately be required to take the Keephills power.
Considering “balance of convenience”
The ABQB rejected the Balancing Pool’s argument that the balance of convenience weighed in favour of denying the injunction, based on there being incomplete information pending the outcome of the AG Action. The ABQB found that to wait until there was a resolution in the AG Action, which was effectively to wait indefinitely, would be an abrogation of the Balancing Pool’s responsibility to conduct an assessment.
ABQB Reasons for Denying Injunction Compelling Balancing Pool to Take Offer and Dispatch Control
The ABQB went on to consider ENMAX’s second injunction application, in which it requested an interim injunction compelling the Balancing Pool to take offer and dispatch of Keephills units 1 and 2 forthwith.
Considering “Serious Issue to be Tried”
The ABQB found that ENMAX sought to have the Balancing Pool carry out a positive act. An injunction of this nature was mandatory and therefore required ENMAX to demonstrate a strong prima facie case.
The ABQB found that it was difficult to understand the prima facie case of ENMAX that the Balancing Pool breached its legislative duties, based on the ABQB’s findings that.
(a) the legislation (EUA section 96) did not require the Balancing Pool to assume offer and dispatch control unless and until the PPA was terminated and thereby deemed sold to the Balancing Pool;
(b) notwithstanding ENMAX taking steps to terminate the Keephills PPA, the PPA was not yet terminated pending the Balancing Pool’s assessment of the Termination Notice; and
(c) therefore, there was no breach of any obligation on the part of the Balancing Pool.
Irreparable Harm
The ABQB noted that neither the Balancing Pool nor ENMAX provided evidence as to whether ENMAX was billing the Balancing Pool or being paid. The ABQB concluded that there was therefore no evidence of irreparable harm.
Balance of Convenience
The ABQB found that ENMAX failed in a consideration of whether the balance of convenience favours it because its application was premature. There was no ability for ENMAX to call for dispatch and offer control to be assumed by the Balancing Pool until the PPA was terminated, which termination had not yet been assessed or confirmed.
Declaration on Issue of Law
Given its disposition of the interim injunction applications by ENMAX, the ABQB determined that ENMAX’s alternative application for a declaration as to an issue of law had been dealt with.
Decision
In summary, the ABQB:
(a) granted an injunction in favour of ENMAX, compelling the Balancing Pool complete and communicate the result of its assessment and verification of the Termination Notice issued on May 5, 2016 by ENMAX in respect of the Keephill’s PPA without further delay; and
(b) dismissed the application by ENMAX for an interim injunction compelling the Balancing Pool to assume offer and dispatch control with respect to the Keephills PPA.
