On Monday, a NAFTA arbitration panel will start oral hearings in Toronto arising from a dispute between the Delaware-incorporated renewable power developer, Windstream Energy, and the Government of Canada (notice how awkward it is for the public to attend). At stake is Windstream’s claim for damages of $475 million plus interest and costs over an alleged breach of NAFTA obligations by the Ontario government. Windstream had a Feed-In Tariff (FIT) contract granted by the Ontario Power Authority in 2010 to develop a 300 megawatt, 130-turbine offshore wind project west of Wolfe Island, but says it was thwarted by the Ontario government prior to construction.
My main interest in the Windstream litigation is how it illuminates the chaos inside official Ontario’s administration of the province’s electricity future. The case also illustrates how international trade agreements can leave the federal government on the hook when provincial government engage in shenanigans, an important but previously known fact of life in our imperfect federation. (As if our provincial governments need more incitement for irresponsibility.)
(Three short appendices are included at the end of this piece, one briefly glancing at other litigation going on initiated by other unsuccessful wind developers, another noting what appears to be special treatment by the Ontario government for a Samsung solar project, and finally links to other coverage of the Windstream case.)
The litigant’s pleadings are linked here.
Connecting to the Gas Scandal
Represented by a team of lawyers from Torys LLP lead by John Terry, Windstream’s arguments draw heavily on evidence arising from the Ontario gas plant scandal. That event precipitated the exit of then Premier McGuinty from politics in 2012 and criminal charges against McGuinty’s former Chief of Staff and Deputy Chief of Staff. Their next court date is February 24. The government’s
business decisions in the Windstream and gas plant cancellation and relocation cases arose contemporaneously in the period from 2010 through 2012.
In defending the NAFTA claim, the government has made legal arguments that much of the gas scandal evidence is privileged and inadmissible. I am unable to weight the strength of those arguments.
Ontario’s Green Energy and Green Economy Act was passed in 2009. It created the FIT program whereby the government would buy power from different renewable generation technologies at pre-set prices. As for zoning and approvals, then Minister Smitherman promised, “the act would ensure that new green power doesn’t get tripped up in all kinds of red tape.” The FIT program started offering a base price of 13.5 cents/kWh for onshore wind power — a price high enough to spawn a gold rush of mostly international wind developers. Over objections from the government’s internal electricity experts who warned against offshore wind, Smitherman decided that offshore wind was such an urgent priority that the FIT offering would be 19 cents/kWh.
One of Windstream’s arguments is that its claim for compensation is a great deal overall for the public because “These amounts (of claimed damages) are significantly less than the $1.3 to $2.1 billion in economic benefits Ontario has realized from cancelling the Project.” The claim for $475 million in damages is based on what Windstream alleges was the fair market value of the FIT contract prior to construction.
Even if that figure is somewhat exaggerated, power consumers might take a moment to reflect on government officials signing vast portfolios of wind and solar contracts where the signed contracts themselves suddenly become marketable securities carrying vast value for the developers with unbuilt projects. To put Windstreams $475 million in context, remember that the overall impact of the Oakville and Mississauga gas plant cancellation and relocation shenanigans on the public, where 1.175 GW of capacity was at stake, amounted to $950 million or more, according to the Auditor General’s reports in 2013 (Mississauga and Oakville).
Hot Politics, Cold Feet
Within a few months of the passage of Green Energy Act, Windstream submitted eleven FIT applications for renewable power projects, including an application for the 300-megawatt Windstream Wolfe Island Shoals (WWIS) project.
At about the same time that the contract for WWIS was granted, the Ontario government began having second thoughts about off-shore wind power. WWIS was the only off-shore wind FIT contract ultimately granted. Right out of the gate, the government undertook a policy review of offshore wind development. Windstream sought to delay the contractual in-service deadline for its project. Statements from the Ontario government in 2010 and 2011 that the project could not proceed because work on the regulatory framework for offshore wind projects remained incomplete were mere window dressing for a cancellation decision taken for electoral reasons, Windstream alleges.
Other off-shore wind developers were targeting areas that happened to be near sensitive Liberal ridings in Scarborough and Leamington, as well as Kingston.
Windstream cites an exchange of emails documenting back-peddling on off-shore wind development driven by fear of political backlash wherein the politicos concocted the rationale that off-shore wind could not proceed pending resolution of “scientific uncertainty”. After settling on this communication strategy, government efforts to develop regulations to manage off-shore wind development stopped.
The Ontario government’s excuse-making became comic in its application of what it claimed was a “precautionary approach”. One of Windstream’s pleadings summarises a witness statement from John Wilkinson, the former Minister of the Environment, filed by the government in this litigation:
John Wilkinson, the former Minister of the Environment, states that “the issue that
heavily influenced [his] decision [to impose the moratorium] was the effect that construction of
an offshore wind facility might have on drinking water.” Mr. Wilkinson further states that
“Ministry officials could not assure [him] that Ontario’s drinking water would not be impaired,
or if it were, for how long.” As a result, “applying the precautionary principle,” Minister
Wilkinson claims that he decided to impose the moratorium.
Windstream has adduced expert evidence noting that the closest drinking water intake to the WWIS project was 12 kilometres away.
Windstream has submitted a witness statement from Smitherman directly contradicting the government’s claim that Ontario was “not ready” to receive offshore wind investment. Windstream notes an interview he gave to the Toronto Star as the Green Energy Act was introduced indicating that there were “wonderful opportunities for offshore wind” and the Government was “making sure we’ll move those proposals along.”
It seems pretty clear that McGuinty’s government was engaged in decision-based evidence making. Referring to the period once the FIT program was starting to get going, Wilkinson acknowledges “that offshore wind development was a difficult file politically.” Opponents of off-shore wind development, like those who had showed up in strength at public meetings when Toronto Hydro had proposed putting up wind turbines close to the Scarborough Bluffs, had clearly made the government think twice.
Where is the Paper Trail?
Central to the government’s case is Wilkinson’s claim he was the decision-maker for slowing off-shore wind development.
Citing traces of internal communications and, most damning to my eyes, records of meetings, Windstream contends that the Premier’s Office, not the Environment Minister, was driving the bus. However, in an echo of the gas scandal, the documentary record from the Premier’s Office and Energy Minister’s office appears to be less fulsome than might be expected given the money at stake and the level of engagement.
Although not discussed in the prefiled pleadings of the litigants in the Windstream case, in the course of the gas scandal hearings at Queen’s Park, key figures guiding the government’s energy decisions in 2010-2012 time period, including Sean Mullin and John Brodhead then working in the Premier’s Office, and the Chief of Staff to the energy minister Craig MacLennan, explained the absence of their gas plant records as due to their practice of maintaining a “clean inbox” for their email. Brodhead, Mullin, and Maclennan reappear as central figures in the document trails that Windstream cites. Folks following my Gas Busters series will have seen previous references to these three public servants.
Windstream’s allegation is harsh.
“Windstream submits that relevant documents from the Premier’s Office and the Minister’s Chief of Staff have been deleted, and asks that the Tribunal draw an adverse inference that such emails would have contained information detrimental to Canada’s case.”
Windstream also claims:
“Given the temporal and subject-matter overlap between the gas plant scandal and the events at issue in this arbitration, the only reasonable conclusion is that emails relevant to offshore wind and Windstream likely were deleted along with emails concerning the gas plants cancellation…Counsel for Canada has advised that the deleted emails cannot be recovered through any back-up tapes.”
The government counters that it has produced some documents from the Premier’s Office. In addition, drawing from one of the Ontario Information and Privacy Commissioner’s two reports on the gas scandal where the commissioner decried the practice of avoiding creating documents, the government notes that “the culture within the Premier’s Office was predominantly verbal.”
Comparing to TransCanada Being “Kept Whole” Over Oakville Cancellation/Relocation
Central to Windstream’s financial claim is its assertion that the cancellation of its project is analogous to the cancellation of TransCanada Energy’s Oakville gas-fired power plant at nearly the same time. The energy minister’s Chief of Staff MacLennan, reportedly assured Windstream when government road blocks started to develop that “he wanted to ensure that Windstream was ‘happy’ with the process, and confirmed that the Project could continue”, assurances that the government obviously did not live up to. By contrast, Windstream claims the Ontario government offered more favourable treatment to TransCanada by granting it a new contract in a new location after the Premier’s Office assured TransCanada it would be “kept whole” after the cancellation of the Oakville generation contract.
The government’s response is that TransCanada and Windstream were not in like circumstances. TransCanada was not contracted to deliver a renewable energy project, did not participate in the FIT Program, and there were differences in the circumstances underlying the respective contracts.
Neither side in the NAFTA case gets into the rude details, but the circumstances of the cancellations of TransCanada Oakville and Windstream WWIS took place in different decision-making environments. When TransCanada was promised by Premier’s Office staff that it would be “kept whole” by way of other side deals, the government appears to have been supremely confident that they could sweep those costs under the rug and nobody outside could put together a clear picture of the transaction. It was only due to the vicissitudes of minority parliament politics, the eventual engagement of the Auditor General and the Information and Privacy Commissioner and other investigations, including I believe my Gas Busters project, that those costs came to light.
In Windstream’s NAFTA case, any financial claim, if any, ultimately awarded will not be paid by the Ontario government but by the federal government. As when the Newfoundland and Labrador government of Danny Chavez confiscated property from the forestry company AbitibiBowater that resulted in the federal government paying damages of $130 million, the provinces are immune to the direct consequences of NAFTA litigation.
The Windstream vs. Canada hearing is scheduled to extend until February 26th. The course of that proceeding may well lay bare even more unseemly detail about the inner workings of energy decision making in Ontario. I hope the federal prosecutor in the Livingston and Miller gas scandal cover-up criminal cases is keeping an eye on witnesses appearing in the Windstream case.
Personal Note on Conflicts
In 2013, Windstream, having observed my Gas Busters work, sought to retain me to assist in analyzing the role of politics in the power system decision-making process. I declined to avoid conflicts with my focus on consumer issues.
Samsung at the Front of the Line
It isn’t clear to me how Windstream think it helps their case but another of Windstream’s allegations relates to the Korean giant Samsung and provides a tantalizing suggestion about what might be going on behind the scenes at Queen’s Park. Folks might remember that Minister Smitherman had conferred especially beneficial prices and transmission reservations on Samsung in return for wind and solar investments. Windstream suggests that one of its solar projects was treated less favourably (correction inserted here) by the government than a comparable Samsung project:
“In July 2011, just two months after the OPA rejected Windstream’s proposal to build a 100 megawatt solar project, Samsung issued a Notice of Proposal to build a 100 megawatt solar project in the Counties of Lennox and Addington and the City of Kingston. The project, called the Sol-luce Kingston Solar PV Energy Project, would occupy a virtually identical footprint as Windstream’s proposed solar project, and, like Windstream’s proposed project, would connect to a 230 kv circuit on the X3H transmission line. Samsung did not have a FIT contract for this project when Ontario rejected Windstream’s proposal to build a solar project. Rather, Samsung signed a power purchase agreement with the OPA for this project in August 2011.”
The government counters that Samsung did not have a FIT contract for its solar development but a Green Energy Investment Agreement instead and therefore the circumstances of the two firms are not comparable. Not so compelling.
Green Energy Act Job Creation for Lawyers
Folks trying to keep track of Ontario’s Green Energy Act’s record, this isn’t the first time where taxpayers are exposed to potential damages.
Mesa Power, owned by U.S. financier T. Boone Pickens, is seeking $653-million in damages under a NAFTA challenge, accusing the Ontario government of fiddling the Green Energy Act rules to shower massive power subsidies on Liberal-connected firms. There is lots of coverage available on that one, here is one that seems helpful.
The $50 million provincial suit is also brewing over a failed wind project near Thunder Bay.
Other coverage of Windstream
When the Windstream case was launched, and the Toronto Star was better equipped to keep track of such things, there was a little coverage.
TVO has one recent piece that focuses on considerations about international trade agreements, particularly whether they weaken our environmental rules. Notice that there are two factual errors in the second paragraph.