ENMAX PPA Management Inc v Balancing Pool, 2017 ABQB 605

Court of Queen’s Bench of Alberta Citation: ENMAX PPA Management Inc v Balancing Pool, 2017 ABQB 605 Date: 20171011 Docket: 1601 01689 Registry: Calgary Between: ENMAX PPA Management Inc. Applicant - and - Balancing Pool Respondent _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice P.R.

Jeffrey _______________________________________________________ Introduction [ 1 ] ENMAX PPA Management Inc sent a notice to the Balancing Pool on December 11, 2015, terminating the Battle River Power Purchase Arrangement (the “ BR PPA ”) effective 12:01 am, January 1, 2016. [ 2 ] The Balancing Pool responded saying the termination, if later determined to be valid, cannot take effect until the Balancing Pool is legally able to take over ENMAX’s role as “buyer” under the BR PPA. On January 27, 2016, the Balancing Pool concluded the termination to be valid.

On July 13, 2016, it assumed ENMAX’s role as buyer under the BR PPA. [ 3 ] ENMAX applies for a declaration that the effective date of termination is January 1, 2016. The Balancing Pool says the termination takes effect on July 13, 2016. For the reasons that follow, I find that the effective date of termination of the BR PPA is

January 1, 2016 at 12:01 am. Background [ 4 ] A power purchase arrangement (“ PPA ”) is a standardized set of contract-like terms promulgated under the Power Purchase Arrangements Determination Regulation , Alta Reg 175/2000 and continued by section 96(1) of the Electric Utilities Act , SA 2003, c E- 5.1 (“ EUA ”). Such arrangements enable parties wanting to market electricity within the province to acquire the right to specified electricity production until year-end 2020.

Auctions of electricity production under PPAs to such parties facilitated the transition from the regulated pricing of electricity in the hands of a few suppliers, towards more market-based (or deregulated) pricing of electricity in the hands of many suppliers.

The Alberta legislators wanted the ultimate price paid for electricity to be determined by a market that would be “fair, efficient, and openly competitive” (or “ FEOC ”). [ 5 ] The BR PPA entitles ENMAX (the “ Buyer ”) to electrical power from the Battle River Generating Station until December 31, 2020, and obliges it to pay the unit’s owner throughout that term. The Battle River Generating Station consists of five generating units; only the power generated by Unit 5 (“ BR5 ”) is the subject of the BR PPA and this termination date issue.

It is a coal-fired thermal electricity generating facility located in Forestburg, Alberta, that is operated by ATCO Power Canada Ltd (“ ATCO ” or the “ Owner ”). [ 6 ] The Balancing Pool is a statutory body established under

section 75 of the EUA . It facilitated the transition from regulated pricing of the commodity towards a market-based pricing of the commodity within a FEOC market by, among other things, conducting auctions of PPAs. It backstops the market against the risk of an extraordinary event such as force majeure in relation to PPAs. It has an ongoing duty to sell generation assets when it can receive fair market value for them: EUA, s 85(1)(d).

It has a duty to act commercially in respect of power under PPAs that did not sell by auction or that reverts to the Balancing Pool by expiry or termination of a PPA: EUA, s 85(1)(b); it is to manage its accounts so that no profit or loss results: EUA, s 85(1)(j). It has a duty to manage generation assets in a manner consistent with the eligibility requirements for a person to hold a PPA: EUA, s 85(1)(c).

Its costs are recovered for it from all system users via the Independent System Operator’s (“ ISO ”) tariff: EUA, ss 82 and 85(1)(h). [ 7 ] The Balancing Pool is not a party to the BR PPA, but has a significant interest in it. For example, the sixth recital to the BR PPA states: By operation of the Act and in accordance with the terms and conditions of this Arrangement the Owner and the Buyer are entitled to receive payment from the Balancing Pool in certain circumstances and are required to involve the Balancing Pool in making certain determinations.

Also, in certain circumstances including those in play here, by operation of law the Balancing Pool may be deemed a party to a PPA in place of the initial buyer. [ 8 ] Under the BR PPA, the Buyer is required to keep the Owner whole for any net changes to its cash flows resulting from any “Change in Law”, as that is defined in the BR PPA. It further provides that if any such Change in Law could reasonably be expected to render continued performance of the BR PPA unprofitable to the Buyer, or more unprofitable to the Buyer, “then the Buyer may terminate this [BR PPA]”.

Section 4.3(

j) of the PPA states: Notwithstanding any of the foregoing, to the extent that a Change in Law, after giving effect thereto and to this

Section 4.3, could reasonably be expected to render continued performance by the Parties to this Arrangement for the balance of the Effective term unprofitable to the Buyer in respect of a Unit, having taken account of any compensation entitlement under

Section 4.3(

i) or any amount due from the Balancing Pool, then the Buyer may terminate this Arrangement and shall not be liable for, nor entitled to any Termination Payment. [ 9 ] That is what happened here. In December 2015 the Province of Alberta amended the Specified Gas Emitters Regulation , Alta Reg 139/2007, and the Climate Change and Emissions Management Act , SA 2003, c C-16.7. Those amendments increased ATCO’s costs of running BR5, which would be borne by ENMAX under the BR PPA.

The increase would commence on January 1, 2016. [ 10 ] ENMAX determined that these amendments constituted a Change in Law under the BR PPA and reasonably expected that as a consequence, the continued performance of its obligations as Buyer under the BR PPA would be rendered unprofitable, or more unprofitable, for the remainder of the term of the BR PPA. [ 11 ] On December 11, 2015, ENMAX issued a notice to ATCO and the Balancing Pool, that it was terminating the BR PPA effective January 1, 2016 at 12:01 am. [ 12 ] The Balancing Pool replied on January 13, 2016, stating that it was: ... continuing our investigation, assessment and verification, under the Balancing Pool Regulation (AR 158/2003), in respect of the claimed extraordinary event stipulated in your letter. and that: ... termination of the PPA cannot be effective until all requirements of law have been satisfied to allow Balancing Pool to hold the PPA in the capacity of buyer as required by, and in the manner stipulated in, Section 96(3) of the Electric Utilities Act . [ 13 ] Section 96(3) of the EUA provides: A power purchase arrangement, other than a power purchase arrangement held by the Balancing Pool, that is terminated other than under

section 15.2 of the power purchase arrangement

(

a) is deemed to have been sold to the Balancing Pool, and (

b) is to be held by the Balancing Pool in the capacity of a buyer for all purposes of this Act, the regulations and the power purchase arrangement. [ 14 ] The Balancing Pool completed its investigation and reported the results to ENMAX by follow-up letter of January 27, 2016, stating that: Balancing Pool has verified the occurrence of the extraordinary event and, correspondingly, confirms your entitlement to terminate the Battle River PPA pursuant to

Article 4.3(

j) thereof. and that: ... We wish to also confirm to you that our position with respect to the effective termination of the Battle River PPA as set out in our letter to you of January 13, 2016 remains unchanged. [ 15 ] All electricity capable of being generated by a generating unit in each hour must be offered into the Power Pool: Fair, Efficient and Open Competition Regulation , Alta Reg 159/2009, (“ FEOC Regulation ”) at s 2(

f) and the Rules of the Alberta Electric Systems Operator (the “ ISO Rules ”),

Part 200 Markets, Division 203 Energy Market,

Section 203.1 “Offers and Bids”. [ 16 ] Since 2006, the Balancing Pool has not maintained operations and staff for a 24-hour, real time generation offer desk. In order to meet its obligations as a Buyer under a different PPA, the Balancing Pool contracted with Capital Power Generation Services Inc. (“ Capital Power ”) to provide the Balancing Pool with energy management services through Capital Power’s Energy Management Operations Centre. Capital Power provides 24-hour real time desk service to the Balancing Pool for generation offer, operational information, ancillary services, dispatch down service and energy restatements. [ 17 ]

Section 3 of the FEOC Regulation restricts market participants from sharing non-public records relating to past, current, or future price/quantity offers. However, subsection 3(3) permits market participants to obtain an order from the Alberta Utilities Commission (the “ AUC ”) which permits the sharing of such records. Pursuant to subsection 3(3), the Balancing Pool must apply to the AUC for an order of sharing of records to enable Capital Power to act as the Balancing Pool’s agent to provide dispatch services. With respect to the BR PPA, the Balancing Pool applied for this order on March 7, 2016.

The AUC granted the application and issued an interim order on June 28, 2016. The Balancing Pool officially took over offer control of BR5 from ENMAX on July 13, 2016.

By “offer control”, the parties refer to the determination of offer quantity and price pairings of all the electric energy the Buyer under the BR PPA is entitled to control, 24-hours per day, and providing the necessary inter-face between ATCO as operator of BR5 and the system controller (“ Offer Control ”). [ 18 ] Commencing January 1, 2016, counsel informed me, the Balancing Pool made the Buyer’s payments to ATCO and ENMAX continued to exercise Offer Control until July 13, 2016.

The parties fulfilled these obligations in the interim, it appears, without prejudice to their respective positions on this application. Both parties acted pragmatically to minimize any collateral impacts while they resolved this issue. Positions of the Parties [ 19 ] ENMAX says all of the following compel the conclusion that the effective date of termination is, in this case, January 1, 2016: the “clear and unambiguous wording” of

Section 4.3(

j) of the BR PPA; the intent for

Section 4.3(

j) according to the “independent assessment team” (or “ IAT ”); the related statutory provisions including but not limited to section 96(3) of the EUA ; and the importance of such a right to a party like ENMAX to manage its risks. [ 20 ] The Balancing Pool says the BR PPA is not clear and unambiguous but is in fact silent on the effective date of a termination under

Section 4.3(j). It says that ENMAX seeks to impermissibly read-in a unilateral term to the legislation. It says ENMAX’s

interpretation is unsupportable in light of the entirety of the BR PPA and the legislative scheme. [ 21 ] Further, the Balancing Pool says if the ENMAX

interpretation prevails, “the date on which the Balancing Pool was legally required to act as Buyer would predate the date on which it was legally able to act as Buyer” (emphasis by the Balancing Pool). It says that the ENMAX

interpretation would entitle it to terminate the BR PPA prior to the Balancing Pool being able to (

i) investigate and verify the claimed termination for a Change in Law, (ii) apply for the requisite order under subsection 3(3) of the FEOC Regulation , and (iii) satisfy its other legal obligations relating to Offer Control. [ 22 ] This Court’s jurisdiction to hear and decide this application was not in issue; both parties say this Court has jurisdiction. Both also say that it is open to the Court to declare any date as the effective date of termination, and that I am not limited to concluding it must be one of the two dates they commend as correct.

Threshold Issue on Admissibility of Affidavit Evidence [ 23 ] The parties initially proceeded by way of an Agreed Statement of Facts. ENMAX then filed two further affidavits (the “ Disputed Affidavits ”). The Balancing Pool brought a cross application to strike the Disputed Affidavits, or most of them, on the basis of being (1) hearsay; (2) not relevant; (3) inadmissible opinion; and/or (4) prejudicial. [ 24 ] For the most part, I agree.

Upon review of the first Disputed Affidavit I consider only paragraphs 5 to 7 (which describe the work of the IAT and excerpt portions of its work product), and paragraphs 31 to 33, 36 and 37 (which may suggest inexcusable delay by the Balancing Pool in becoming able to take over ENMAX’s role as Buyer under the BR PPA) to be admissible on this application, and therefore also paragraphs 1 and 2 that identify the affiant. The IAT information is relevant and informs the statutory interpretive question (as described more fully below at paragraphs 31 to 42).

The evidence of possible delay by the Balancing Pool is relevant to the Balancing Pool’s position on the effective date of termination of the BR PPA and its probative value to that approach exceeds any prejudicial effect.

[25] Upon review of the second Disputed Affidavit, only paragraphs 7 and 8 are admissible on this application, and therefore alsoparagraph 1 identifying the affiant. Paragraphs 7 and 8 also are relevant to the Balancing Pool’s approach to determining the effectivedate of termination of the BR PPA. [26] All the remaining portions of the Disputed Affidavits are irrelevant to the question of law before the Court or are otherwiseinadmissible. I therefore grant the Balancing Pool application to strike those remaining portions and referenced attachments.

The weightof the admitted portions of the Disputed Affidavits is a separate matter. It has been assessed in the context of the Court’s deliberations onthe main issue. [27] ENMAX characterizes some of the remaining portions of the Disputed Affidavits as admissions by the Balancing Pool againstits interest and therefore admissible hearsay. ENMAX says the Balancing Pool has made numerous statements and admissions thatacknowledge and admit that it became the default Buyer of the BR PPA effective January 1, 2016.

ENMAX says these are an exceptionto the inadmissibility of hearsay and relies on R v Waite, 2014 SCC 17 at para 3, where the Supreme Court of Canada states: “[t]hegeneral rule is that out-of-court statements by a party may be adduced as evidence of their truth by an opposite party”. [28] In my view, the statements ENMAX refers to here do not fall into that category. They also do not constitute factualadmissions by the Balancing Pool against its interest.

In Augustine v Inco Ltd., , the Ontario Superior Court ofJustice said, at paras 10-13 (emphases added): An admission is a statement made by one party against his or her own interest. Such a statement is admissible as an exception to thehearsay rule. Documents that contain admissions of a party are admissible as some evidence to prove the facts admitted against thatparty. The party who made the admission may not rely upon this exception to the hearsay rule.

However, the party who made the admission isnot precluded from introducing that admission as some evidence of the facts stated, based on some other exception to the hearsay rule. A statement may only be accepted as evidence under this exception as evidence of the facts stated; it may not be accepted for the truth ofopinions, diagnoses, impressions, summaries or recommendations. The foregoing is not to be confused with a formal admission, such as an admission made in a pleading or in response to a request toadmit.

The party making an admission against interest may lead other evidence to contradict the facts stated. [29] Out of court statements against a declarant’s interest that are admissible are statements of fact, not statements of legal opinionon statutory

interpretation. The ‘admission against interest’ evidence that ENMAX seeks to rely upon is opinion evidence, about aquestion of law from a non-lawyer, which purports to answer the ultimate question before the Court and, as stated earlier, is irrelevant tothe test used to interpret statutes. That evidence is not admissible. Effective Date of Termination [30] The right of ENMAX to terminate the BR PPA for a Change in Law is contained in

Section 4.3(j). Both parties acknowledgethat it is silent as to the date any such termination would be effective. [31] ENMAX suggests the BR PPA should be interpreted as a contract. The Tax Court of Canada referred to a PPA as a “contract-like instrument”: Alberta Power

(20000) Ltd v R, 2009 TCC 412 at para 4. The Alberta Court of Appeal described PPAs as “long-termcontracts”: ATCO Electric Ltd v Alberta (Energy and Utilities Board), 2004 ABCA 215 at para 17.

This Court held that “PPAs are notcontracts, but are ‘a form of regulation’”: TransAlta Generation Partnership v Balancing Pool, 2012 ABQB 2 at para 9. [32] I consider the characterization of PPAs by the AUC to be correct, that they are not strictly commercial contracts but are “acomponent of a comprehensive statutory scheme enacted to ensure the fair, efficient and openly competitive operation of the electricitymarket in Alberta”: MSA v TransAlta, Nathan Kaiser, and Scott Connelly, AUC Decision 3110-D01-2015 at para 289.

In that case it hadbeen argued that the AUC did not have jurisdiction to review or interpret PPAs because they were commercial contracts. The AUCdisagreed, basing its conclusion on how the IAT characterized PPAs in its report to the Alberta Energy and Utilities Board in 1999 (the“IAT Report”)[1]. The purpose of the IAT Report was to provide the IAT’s determination of the form of the PPAs for the specifiedgenerating units and its determination of the parameter values to be included in each of the PPAs for those units.

The AUC relied on thefollowing excerpt from the IAT Report: The IAT has elected to proceed on the basis that the PPAs will not be agreements.

It is proposed that the PPAs be specifically authorizedand implemented in accordance with the legislation and the regulations which will specify that a particular arrangement attached byreference will operate as between the named Owner and successful bidder at the PPA auction(s)… As a general rule, the IAT has drafted the PPAs to be as close to a contractual form as possible recognizing the limitations involved.There are recitals but they do not record any agreement as between the parties.

Certain other clauses to contracts have been left out and,finally, there is no provision for the document to be executed since it will be in effect by virtue of the legislation and the regulations:MSA v TransAlta at para 289 citing the IAT Report at page 2. (emphases added) [33] Decisions of the AUC regarding its governing statutes and regulations attract a high degree of curial deference: ATCO Gasand Pipelines Ltd v Alberta (Utilities Commission), 2014 ABCA 28 at para 26.

Though the deference spoken of in that case meantdeference to decisions of the AUC applying its governing statutes that are under appeal, the deference is no less appropriate hereregarding its characterization of the nature of a PPA for purposes of their

interpretation. [34] In any event of deferring to the AUC’s conclusion, its conclusion that PPAs should be understood and implemented inaccordance with their legislative and regulatory context is correct at law. First, their wording is made final by legislative act. Second, all

the essential elements to the creation of a contract are not present. [35] Third, they are not stand-alone documents. It is necessary to consider other statutory provisions to understand the completeterms that govern the relationship between PPA parties and to understand the intent behind their words. [36] Fourth, the wording of PPAs make it clear they operate in conjunction with the broader regulatory regime contemplated bythe EUA.

For example, half of all their recitals commence with: “By operation of the Act [meaning the EUA] and in accordance with theterms and conditions of this Arrangement....” In this way their own wording necessitates reference to legislative enactments.

Further, theelectrical power becoming subject to a PPA required prior determination by the IAT and prior approval by a regulator – originally by theAlberta Energy Utilities Board (“AEUB”) and now by the AUC. [37] Fifth, despite it wanting the Court to interpret the BR PPA as a contract, ENMAX has implicitly acknowledged that the legaleffect of the BR PPA is not dictated by its words alone. By their Agreed Statement of Facts the parties recognized that the wording ofSection 4.3(

j) in the BR PPA has been revised by, or at least clarified by, the AEUB. They state: On August 1, 2000,

Section 4.3(

j) was amended by way of Errata issued by the AEUB, which clarified that under

Section 4.3(j): ... the Buyer shall be entitled to terminate the PPA and shall not be liable for, nor entitled to any Termination Payment if a Change inLaw renders the PPA unprofitable, or more unprofitable. These “or more unprofitable” words are not in the BR PPA, but ENMAX has proceeded in recognition that they apply as if they were inthe BR PPA. [38] Accordingly, I am to consider both the text of the arrangement within the legislative scheme as a whole.

The PPA’s legislativescheme includes the EUA, the Balancing Pool Regulation, the Power Purchase Arrangements Determination Regulation, the PowerPurchase Arrangement, the FEOC Regulation, and the ISO Rules. [39] The leading case on statutory

interpretation is Re Rizzo & Rizzo Shoes Ltd, (SCC), [1998] 1 SCR 27 at 41,where the Supreme Court of Canada adopted Driedger’s modern approach: Today there is only one principle or approach, namely, the words of

an Act are to be read in their entire context and in their grammaticaland ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament: Elmer Driedger,Construction of Statutes, 2nd ed (Toronto: Butterworths, 1983) at 87. [40] I agree with the Balancing Pool that the

Interpretation Act, RSA 2000, c I-8, therefore also applies here, such that the BR PPAand its authorizing statutory regime must be interpreted in a fair, large, and liberal way that “best ensures the attainment of its objects”:Interpretation Act, s 10. [41] The Alberta Court of Appeal in Balancing Pool v TransAlta Corporation, 2013 ABCA 409 at para 34, found that “[t]hepurpose of the EUA is the development and promotion of an efficient market for electricity based on fair and open competition.” [42] When interpreting regulations, materials such as policy papers and cost-benefit assessments or impact analyses prepared by orrelied on by the government in the course of the regulation-making process are admissible extrinsic aids: Ruth Sullivan, StatutoryInterpretation, 3rd ed (Toronto: Irwin Law, 2016) at 261.

In Schaeffer v Woods, the Supreme Court of Canada expressly relied on areport that formed the basis of a regulation as direct evidence of the regulation’s intended scope: Schaeffer v Woods, 2013 SCC 71 atparas 53-60. In this case the legislators relied on the associated AEUB decisions and the IAT Report therefore they also offer insight tothe Court as to the legislator’s intention. [43] For the reasons that follow, the only

interpretation of the effective date of a

section 4.3(

j) that is consistent with the PPA as awhole within its legislative context, and the purposes and object of that legislative context, is: the termination date selected by the Buyerthat is on or after the date that the Change in Law could reasonably be expected to render continued performance of the PPA unprofitableor more unprofitable. In this case, that date is January 1, 2016, at 12:01 a.m. [44] First, the operative phrase in

Section 4.3(j), underlined in the following: “to the extent that a Change in Law ... couldreasonably be expected to render ... this Arrangement ... unprofitable to the Buyer... then the Buyer may terminate this Arrangement”,without more, suggests the right to terminate is effective immediately. It does not say “then the Buyer may provide notice oftermination”, “then the Buyer may terminate effective no less than [X] days thereafter”, “then the Buyer may place affected parties onnotice the Arrangement will terminate after [future event(s)]” or any other such wording suggesting a delay before the termination couldtake effect. The Balancing Pool says ENMAX’s

interpretation impermissibly reads-in a unilateral term (“immediately”) to the legislationbut I find the word implicit by the absence of any specified period of time before the termination may take effect. Further, it is actuallythe Balancing Pool’s

interpretation that reads-in words not there. In effect it says other legal requirements and practical realities importinto

Section 4.3(

j) by operation of law words like “but not effective until after the Balancing Pool is legally able to act and physicallycapable of acting as Buyer under the Arrangement”. [45] While the phrasing actually used in

Section 4.3(

j) is not “clear and unambiguous” proof, as ENMAX urges, that suchterminations can take immediate effect if the Buyer chooses, it is nevertheless the more reasonable inference and is a relevantconsideration. It militates in favour of the effective date being whatever date the Buyer chooses, on or after the Change in Law takeseffect. [46] This

interpretation is reinforced by reference to the other BR PPA sections contemplating termination: •

Section 14.6 permits termination for an event of force majeure that exceeds or will exceed 6 months in duration or that will extend

past December 31, 2020. Like

Section 4.3(

j) the provision is silent on the effective date of any such termination, stating: “... then the Buyer may terminate this Arrangement ...”. •

Section 15.2 allows the Owner to terminate “for destruction” on 60 days’ notice. •

Section 15.3 allows a Buyer to terminate on 30 days’ notice if the BR5 unit is destroyed. •

Section 17.3 allows either party to “immediately terminate” if the other party substantially defaults, is bankrupt, insolvent, in receivership, dissolved, liquidated, or even into proceedings headed that way. The right to terminate immediately for substantial default only comes after giving 60 days’ notice to allow the party opposite to remedy the substantial default. The right to terminate immediately for all these 17.3 scenarios requires prior payment of a Termination Payment, determined in accordance with “Schedule L” to the BR PPA. •

Section 17.4 allows the Buyer to “immediately terminate” at any time upon prior payment to the Balancing Pool in accordance with

Schedule L. I infer from these other termination provisions that the drafters turned their minds to the effective dates of terminations and to the cost consequences of early terminations. They chose to not insert any period of prior notice, or any payment precondition, before a

Section 4.3(

j) termination would take effect. [ 47 ] The Balancing Pool says that an immediate right was expressly mentioned in Sections 17.3 and 17.4, but not in

Section 4.3(j), and therefore the drafters must have intended the right in

Section 4.3(

j) to not be immediate. With respect, first, that compares

Section 4.3(

j) only with Sections 17.3 and 17.4, in disregard to the other rights of termination in the BR PPA. Second, the

Section 17.4 right of a Buyer to terminate is unilateral and immediate. The Balancing Pool accepts this, that this ground for termination takes effect immediately. But if it occurs when the Balancing Pool is, as it was between January 1 and July 13, 2016, without capacity to exercise Offer Control 24/7 it would, under its reasoning, nevertheless be forced to operate illegally. If the Balancing Pool was consistent in its approach, it would not juxtapose a

Section 4.3(

j) termination to a

Section 17.4 “immediate” termination. Instead it would say they both are modified by the subsequent enactments and choices of the Balancing Pool to not operate its own Offer Control processes. Third, the “immediate” wording in Sections 17.3 and 17.4 is accompanied by an express period of time to remedy a substantial default, in respect of that possible triggering event, and a payment penalty in respect of all the possible triggering events due to the terminating party upon its election to terminate immediately. So the contrast suggested by the Balancing Pool fails. In my view, the better

interpretation is that the absence of an effective date of a

Section 4.3(

j) termination that expressly is later than the notice of termination implies that the termination takes effect upon notice. [ 48 ] Second, the other wording of

Section 4.3(

j) militates strongly in favour of ENMAX’s

interpretation. The end wording (underlined) states: “... then the Buyer may terminate this Arrangement and shall not be liable for, nor entitled to any Termination Payment .” This reveals the drafters’ intent to not have a Buyer bear any cost consequence from a Change in Law. The Buyer will not bear any cost consequence for a Change in Law termination only if the termination takes immediate effect. Under the Balancing Pool’s

interpretation, the Buyer continues to bear cost responsibility and probable unprofitable operation until after the Balancing Pool verifies the Buyer’s claim under

Section 4.3(j), the Balancing Pool self-perceives it has the legal ability to take over the Buyer’s role and the Balancing Pool self-perceives it can actually do so in fact. In my view this is inconsistent with the apparent intention of

Section 4.3(j). [ 49 ] Third, the Balancing Pool’s

interpretation renders the legislated interim payment scheme between notice of the termination and verification of its validity superfluous, in the circumstance where the claim is ultimately verified.

Section 2 of the Balancing Pool Regulation states: 2

(1) The Balancing Pool must carry out the following powers and duties in accordance with the Act, the regulations and any arrangement: ... (

g) on receipt of notice in respect of an extraordinary event from a party to an arrangement or otherwise, (

i) conduct any investigation the Balancing Pool determines appropriate, and ... (

h) when clause (

g) applies, (

i) agree with the parties to the arrangement that the extraordinary event has occurred and that there is a need for a payment to be made to or by the Balancing Pool, or (ii) 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 arrangement, and participate in any dispute resolution proceedings under an arrangement pursuant to subsection (2); (

i) on receipt of notice under clause (g), begin making payments as set out in an arrangement until all matters arising pursuant to clauses (

g) and (

h) are agreed to or resolved; ...

(2) Notwithstanding the provisions of an arrangement, and subject to

section 2.1 , if (

a) a party to the arrangement disputes a determination by the Balancing pool under subsection (l)(h)(ii), or (

b) the Balancing Pool disputes that an extraordinary event has occurred or that a payment to or by the Balancing Pool should be

made under the provisions of the arrangement, the dispute must be resolved by the dispute resolution process set out in the arrangement. The termination by ENMAX in this case satisfies the definition of an “extraordinary event” in this regulation. [ 50 ] The scheme established here for extraordinary events like the Change in Law driven termination is, therefore, to immediately relieve ENMAX of its obligation as Buyer to make payments to the Owner in the interim, while the Balancing Pool conducts the mandatory investigation, but at the same time ensure the Owner continues to receive its capacity payments.

The Balancing Pool is the backstop. Upon completion of the assessment, one of two things will occur. Either the Balancing Pool will verify the legitimacy of the claim of an extraordinary event or it will dispute the claim’s validity. If the claim is not verified, the dispute must be resolved in accordance with the

Section 19 dispute resolution provisions of the PPA. At issue there would be the validity of the disputed claim and the cost responsibility for the interim period, the Balancing Pool being entitled to reimbursement of the amounts it paid to the Owner in the interim if it prevailed through the dispute resolution process. If on the other hand the Balancing Pool verifies the claim, like it did with the BR PPA, no reimbursement would be necessary and the parties would carry on with the Balancing Pool fulfilling the Buyer’s role under the PPA and meeting all its responsibilities until it could sell the PPA at fair market value. [ 51 ] If the Balancing Pool’s

interpretation is correct, however, even though the Balancing Pool has paid the Owner as required by a PPA and the claimed extraordinary event has been verified, the Balancing Pool could claim reimbursement of the payments to the Owner that pre-dated the effective date of the termination. This undermines the interim mechanism. [ 52 ] If the Balancing Pool’s

interpretation is correct, section 2(1) (

i) of the Balancing Pool Regulation would be far more likely to read that the Balancing Pool’s obligation is to make payments due under the arrangement “once” all matters arising are agreed to or resolved, not “until” they are agreed to or resolved, as it currently reads. It would require the Buyer, not the Balancing Pool, to continue to make such payments “ until the effective date of the termination” or “ until the Balancing Pool is legally able to fulfill the Buyer’s responsibilities” under the arrangement or, at the very least, “ until the extraordinary event is verified”. It does not. The ENMAX

interpretation of the effective date of termination is the one consistent with the broader legislative scheme. [ 53 ] Fourth, section 96(3) of the EUA has similar effect. On its own, in isolation, the wording of section 96(3) is equally consistent with both parties’

interpretations of

Section 4.3(j). Both parties say the deemed sale and the obligation on the Balancing Pool take effect on termination, just ENMAX says that time is in accordance with the notice of the termination and the Balancing Pool says it is upon the effective date of the termination, after it can legally and actually fulfill the obligations. [ 54 ] But read in conjunction with the Balancing Pool Regulation , in particular the portion just discussed above, the ENMAX

interpretation of

Section 4.3(

j) is the more likely. The Balancing Pool

interpretation would result in it bearing the interim payment obligations to the Owner from the date of notice of termination under the Balancing Pool Regulation , but not receiving any interim revenue for dispatched offers resulting from the Buyer’s exercise of Offer Control until, in this case, months after the notice of termination, on the effective date of the termination under its

interpretation of section 96(3) of the EUA . I consider that inconsistent approach by the legislators improbable. Far more plausible is that the drafters intended both to commence at the same time, on an interim basis until the claimed extraordinary event was verified or disputed, because they intended the effective date of a 4.3(

j) termination to be immediate upon its notice. [ 55 ] Fifth, I agree with ENMAX that the commentary in the IAT Report, recommending the Balancing Pool assume a buyer’s role immediately upon a termination, informs what became the legislators’ intention: The IAT, however, agrees with the Owners that the Balancing Pool should have a “PPA backstop” role in risk mitigation under certain events (the specifics of which are discussed later in the report). The IAT has had to make assumptions about the role of the Balancing Pool. This

section outlines the role that the IAT believes the Balancing Pool should take in performing this PPA backstop role. In this

section the term “termination” means that the Buyer exits from the PPA. The IAT proposes that, under these circumstances, the PPA should immediately be taken over by the Balancing Pool. Balancing Pool Role in relation to the PPA Termination Where the PPA is terminated (i.e. the Buyer exits from the arrangement under the terms allowed in the PPA) it is assumed that the Balancing Pool is required, without delay, to take over the role of the Buyer .

It is expected that the Balancing Pool will then have a number of options: IAT Report at page 15. [emphasis added] And elsewhere in the IAT Report: Post-Termination Role of Balancing Pool The IAT’s view has consistently been that the PPA determined by the IAT governs the relationship between the Owner and the Buyer (and includes, in some specific circumstances, the Balancing Pool in this relationship).

Once the Buyer exits (“termination of the PPA” in the language of the PPA) the Balancing Pool steps in to take over many of the rights and obligations of the Buyer: IAT Report at pages 17-18. [emphasis added] [ 56 ] Sixth, the ENMAX

interpretation is more consistent with the purposes and objects of the legislation in two respects. A Change in Law termination taking effect immediately is more consistent with the intended role of PPAs in the transition towards a FEOC market and is more consistent with the Balancing Pool’s statutory role as the backstop for extraordinary events. I will explain each of those in turn.

[ 57 ] PPAs were the means by which the legislators sought to introduce competition into the market for electrical power, by attracting additional competitors into that market, without confiscating the asset value of the very small group of incumbent power generators holding significant market power. The legislators needed to attract many different private commercial interests to become market participants by buying the PPAs. The more market participants that became interested in buying PPAs the better, for it would drive up their price at the PPA auctions.

A greater number of market participants succeeding in acquiring PPAs would reduce the market power of any single holder of PPA rights, facilitating the transition to a FEOC market. To accomplish this, among other things, the legislators had the IAT undertake a two year industry consultation process to recommend PPA content and, further, the legislators relied on the industry expertise at the AEUB to review and approve the PPAs. From that process it appears the legislators endeavoured to provide as much certainty as possible to potential PPA buyers and relieve them of non-market related risks.

They looked to such potential buyers to take on market risk, business risk, capital risk, regulatory risk, long term price risk and commercial counterparty risk, among other risks, but took steps to protect them from governmental risk – via the Change in Law provisions.

Having been one of the few jurisdictions in North America to attempt the transition to market based commodity pricing of electricity, the legislators, and the AEUB by its Errata, appear to have understood the apprehension among the pool of potential investors in PPAs around government losing its resolve and reverting to price regulation, or making some equally adverse decision to the interests of a PPA buyer. The legislators chose to address that concern, expressly raised by industry during the IAT consultation, by including the Change in Law provisions. The

interpretation of the Balancing Pool on the effective date of a Change in Law driven termination undermines that intended allocation of risk and intended protection to PPA buyers. [ 58 ] The

interpretation of the Balancing Pool is also inconsistent with its statutory role as the backstop for extraordinary events. The Balancing Pool interprets the PPA and its statutory regime in a way that will keep itself whole in such events, rather than it keeping affected market participants whole, for the transition to a FEOC market. [ 59 ] The Balancing Pool previously ceased maintaining its capability to immediately step in as PPA buyer. The Balancing Pool says that the AUC approved its having done so.

The Balancing Pool relies on a decision of the AUC regarding the Balancing Pool’s sharing of information with another market participant (Capital Power) so the latter could exercise Offer Control on behalf of the Balancing Pool in respect of electrical power from BR5: Decision 21406-D01-2016.

The AUC focused in that application on the FEOC Regulation and ensuring that “no confidential information will be shared between the Balancing Pool, [Capital Power], and ATCO for the purposes of price-fixing, price-manipulation or any other conduct prescribed by the [ FEOC ] Regulation ”: at para 24. [ 60 ] The AUC ruled on whether the information sharing was reasonably necessary in the circumstances, not on whether the Balancing Pool was satisfying all its statutory obligations by contracting out its Offer Control responsibilities for generation assets reverting to it upon termination.

That Decision concludes that the information sharing is reasonably necessary in the circumstances. It is not an approval of all the decisions that resulted in the Balancing Pool not being able to immediately backstop for BR5.

Its decision cannot be taken, as the Balancing Pool intimates, as approval to reduce its statutory obligation to be poised and ready as a backstop against the risk of extraordinary event. [ 61 ] The AUC decision implies that the approach taken by the Balancing Pool was consistent with its obligation to “manage generation assets in a commercial manner and exercise its powers and carry out its duties in a manner that is responsible and efficient”: at para 30. But that is only one of the Balancing Pool’s obligations.

The AUC Decision is not a determination that the Balancing Pool could, in carrying out those duties, shift the cost consequences of doing so on to a PPA buyer that is terminating. That is a separate question that was not before the AUC but that is entailed by the question of law brought to this Court. [ 62 ] Seventh, and finally, the Balancing Pool’s

interpretation makes the effective date of the Change in Law termination variable depending on its earlier actions and decisions, rather than being commercially certain as the legislators intended and as described above. I strongly doubt this was the legislative intent originally or that it was a legislatively intended collateral consequence subsequently, as legal requirements affecting all market participants, including potentially the Balancing Pool, were added. [ 63 ] The Balancing Pool says that if the ENMAX

interpretation prevails, “the date on which the Balancing Pool was legally required to act as Buyer would predate the date on which it was legally able to act as Buyer” (emphasis by the Balancing Pool). It says that the ENMAX

interpretation would entitle it to terminate the BR PPA prior to the Balancing Pool being able to (

i) investigate and verify the claimed termination for a Change in Law, (ii) apply for the requisite order under subsection 3(3) of the FEOC Regulation , and (iii) satisfy its other legal obligations relating to offer control. The Balancing Pool says that “satisfaction of these prerequisites is dependent on factors beyond the control of the parties”. [ 64 ] While it is true that the ISO Rules and the discretion of the regulator under the FEOC Regulation are outside the parties’ control, I am not persuaded that the Balancing Pool ending up in this position was beyond its control.

The Balancing Pool only ran up against its prerequisites (ii) and (iii) above because of its earlier actions and choices in how to discharge its responsibilities. As these prerequisites became a possibility, the Balancing Pool had opportunity to adjust to them in advance of any immediate termination of a PPA (not just for a Change in Law termination), and remain positioned to fulfill its risk backstopping role.

It also might be able to arrange with the terminating Buyer or the Owner to act as its interim agent until it could assume Offer Control, potentially avoiding the effect of a delay to comply with section 3(3) of the FEOC Regulation . It is not reasonable to suggest that PPA Buyers should bear the avoidable consequence of the Balancing Pool’s choices. Conclusion [ 65 ] Therefore I find that the Balancing Pool

interpretation undermines the attainment of the statute’s objects, whereas the ENMAX

interpretation fulfills them. I find the effective date of a

Section 4.3(

j) PPA termination to be the date the Buyer indicates in its notice of termination, that is on or after the Change in Law takes effect. [ 66 ] For these reasons, the effective date of termination of the BR PPA is January 1, 2016 at 12:01 am. The parties may speak to costs if they are unable to agree.

Heard on the 7 th day of September, 2017. Dated at the City of Calgary, Alberta this 11 th day of October, 2017. P.R. Jeffrey J.C.Q.B.A. Appearances: Dalton W McGrath, QC, Michael O'Brien for the Applicant Roger Smith Lara Mason for the Respondent