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Each company exercised that option and cited Alberta’s climate change policies as the reason for the termination, though electricity prices were falling sharply at the same time.

“You have prices falling while policies are changing — what happened first?” Tombe said during a press conference.

The contracts, called power purchase arrangements, or PPAs, were created in 2000 as a way to introduce competition as the former Progressive Conservative government moved to deregulate Alberta’s electricity sector.

The NDP government filed a lawsuit in late July saying that the return option in the PPAs was illegitimate and argued the previous government did not protect Albertan consumers in agreeing to the clause, which the NDP said was requested by bankrupt Enron Power.

In addition to disputing the government’s estimated cost figure, Tuesday’s report by Leach and Tombe also shows that neither the companies named as defendants nor the government are right to blame one single factor on the PPAs becoming unprofitable.

Their report shows the net present value of the companies PPAs was just under $1.5 billion last summer.

The economists argue that a combination of new emissions regulations, carbon prices and falling electricity prices eliminated the value of those contracts, to the point where they are now worth negative $900 million.

“Importantly, this estimate suggests things are better than the $2 billion in losses advertised by the government in relation to the PPA lawsuit,” Leach and Tombe write in their report.

“Better still, the Balancing Pool has always owned (one of the PPAs), so the new losses are closer to $600 million. Not a small amount, to be sure, but better than otherwise,” they wrote.

The province’s lawsuit against the three companies that exercised their option to terminate the contract will get its first hearing in court in November.

Financial Post

gmorgan@nationalpost.com

Twitter.com/geoffreymorgan