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A quick review of the development of PPAs is helpful here.

PPAs were developed by consultants who submitted them to the AEUB, which circulated them to industry and set up public hearings to consider industry requests for changes.

No one requested any changes to the Change of Law clause which allowed holders to terminate PPAs if the government enacted laws that made their profitable PPAs unprofitable.

After hearings, the AEUB issued an order in accordance to the statutory power granted by cabinet. It rejected industry requests for changes and approved PPAs with the original Change of Law clause.

Then things got sticky.

Consultants submitted two more sets of changes to the AEUB, most correcting calculations. Buried in the pile of “errata” was an amendment to the Change of Law clause requested by Enron that amended language already approved by AEUB by adding “or more unprofitable.”

The AEUB did not set up a second hearing. It approved this amendment despite lacking legislative authority. Its power to amend PPAs was limited to cases where consultants did a poor job or an amendment was required because without it the PPAs were obviously unreasonable, economically unsound or contrary to public interest.

These three little words created a brand new off-ramp in the PPAs.

The original Change of Law clause protected PPA buyers from political risk in the event the government passed laws that made profitable PPAs unprofitable. The amended clause went much further. It protected PPA buyers against political risk and economic risk brought on by falling market prices and imprudent business decisions.