Ontario Gas Scandal Doppelgänger

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.)

Sources

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.

Gold Rush

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.

Federal Taxpayers

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.

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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.

20 Comments

  1. It continues to be so very disheartening when another layer of evaporating taxpayer money is uncovered. Having said that, thank you for pulling another layer more into the open, Tom.
    I also see the large amount of money local citizen groups such as in Prince Edward County and on Amherst Island are spending to protect their health and local sensitive & biodiverse communities from wind developers and the Ontario government. Some of this is purely to prove the obvious existence of endangered species habitat that the developers’ well paid consultants’ extensive surveys didn’t cover or our government ignored/covered up. Iam referring to Blandings Turtles and numerous other species.
    Interesting to see Ontario Government and precautionary decision making in same sentence. I appreciate their subtle humour with that one. Sarcasm intended.
    We have a major generational mess well underway and a multi billion dollar tab to look after. Very disheartening.

  2. I believe the government was fully committed to offshore wind as in the Long Term Energy Plan EB-2007-0707 of which the content is difficult to access now compared to when first posted.

    In Exhibit C-9-2, Attachment 8, is a Thursday, December 14,2006 letter from Mark Bell of Invenergy Canada to Amir Shalaby, VP Power System Planning of the then OPA which is now the IESO, Re; IPSP Discussion paper 5:Transmission.

    Copied to;
    Robert Hornung, President CanWEA
    Paul Norris, President, OWA
    Hon. Minister of Northern Develpoment and Mines, Rick Bartolucci

    Within the letter is reference to several requests for transmission line investments” To facilitate the use and development of renewable energy resources.” Manitoulin Island Wind Development** is second on the list with a reference contained at the end of the letter.

    **Western Manitoulin Island has an above-average wind regime, and is very sparsely populated. There is ample room on the island and adjacent offshore shallow water areas (away from popular yachting routes) for large-scale wind energy exploitation.We would like you to consider that the Manitoulin Island enabler transmission line runs west along the island, as well as south to exploit the Wikwemikong Unceded FN/ Brookfield/Northland potentials.

    We will be approaching you separately on this subject.

    • “exploit the Wikwemikong Unceded FN/ Brookfield/Northland potentials.”
      !!!!!
      WHAT DOES WIKI SAY ABOUT THAT?
      As has often been rued, the Left never rests…hence the price of freedom is indeed eternal vigilance, sadly we have been caught napping.

      Thanks to Tom we have a clearer view of the enemy.

  3. A very insightful document, thank you. With the way the Ontario government has handled most things of importance up to this point, I am not surprised that federal taxpayers may be on the hook for almost half a billion dollars. I’m sure, with lawyers’ fees, expert fees and all the rest, that the final bill could turn out to be around a cool billion.

    I’ve learned a lot from reading this. Thanks again.

  4. As usual well researched and well written. Thanks Tom. Some saw it as a small victory when the gov’t put a moratorium on off-shore. I didn’t see it that way. All the Liberals were really doing was keeping their target electorate immune to offensive RE development.
    The GTA, six years into the GEA, may as well have a sign that declares it a “renewable energy free zone”, while many rural areas are still seeing projects proceed against local wishes. Had those off-shore projects proceeded and impacted condo or high value lakeshore residential views/values or recreational sailing etc., the GEA and its Liberals authors would have been dead in those waters.

  5. I wrote a rather lengthy diatribe about this and a couple of other lawsuits including the Mesa/Pickens one back in April, 2013. In it I took at a look at some of the claims made in the NAFTA submissions by the Windstream proponents which seem way off base. It is also interesting to see the rather apparent influence that CanWEA had over the Energy Minister’s (past and present) versus the ratepayers and voters in the province in the document(s) Tom references. I found it particularly interesting that Robert Hornung was aware of a review of the LTEP before the Ministry officials were as noted in the documents submitted to the arbitration counsel.

    I think my review dovetails nicely with Tom’s excellent presentation here. Find my review here:

    http://freewco.blogspot.ca/2013/04/green-energy-act-lawsuits-minister.html

  6. The damage done by this government and its energy policies will take time to be fully exposed. Many people are working hard to do this. Rural residents whose lives have been seriously disrupted are not going to rest until their homes are made safe from industrial wind turbines and infrastructure….nor should they. Some deserve to be fully compensated.
    Who will pay for these siting mistakes?

  7. Pingback: Ontario Gas Scandal Doppelgänger | Mothers Against Wind Turbines Inc.

  8. Very interesting article. This case is sadly well under the public’s radar. The current power regime in Ontario is opaque, chaotic and corrupt. This needs to change. There should also be some mechanism whereby the federal government could recover the cost of adverse NAFTA awards from rogue provincial agencies or goveenments.

  9. Is this another example of “it’s never too late to do the right thing”? The Dalton Gang may well have cost the taxpayer/ratepayer another half a billion dollars. Why have we not heard about this before? We know that political staff continue to interfere with the contracts despite the Premier’s assertion that they are forbidden to do so. How are these disasters to be avoided?

  10. My take on all of this – having been in the field of alternate energy many years ago when it was far less politically popular – is where did the Ontario government get the impression that investing in solar and/or wind energy would bring viable financial returns that could be fed into government coffers?
    All governments hire Engineers whose job – we all assume – is to advise people with a surfeit of technical ignorance, on whether or not a project is (a) technically implementable, and (b) economically viable.
    If so, then we must assume that the Ontario government chose (a) not to ask its Engineers for their estimations or educated opinions, (b) asked its Engineers for their estimations or educated opinions, but rejected them in favour of ideological considerations, or (c) the Engineers themselves saw fit, for their own reasons, to either ignore their own better judgement, or worse, that they did not have the intellectual means to form a viable judgement based purely on technical and financial considerations. Of course the Engineers themselves may understandably have preferred to protect their own jobs, considering that the orders to “make it happen” were no doubt being given from up above… ‘way up above.

  11. Great post, thank you. What I can’t believe is the fact that most people are still unaware of the magnitude of the subsidies….oh and the cloak and dagger techniques of the Liberals….who for some reason were put in office, after McGinty’s quick exit.

  12. Pingback: Top 10 posts on TomAdamsEnergy.com and Tweets for 2016 | Tom Adams Energy - ideas for a smarter grid

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