Yesterday evening, former MPP George Smitherman appeared as a witness supporting Windstream in its $475 million NAFTA suit against the Canadian government. Over the course of about 2 hours, Mr. Smitherman delivered what appeared to me to be a broadside against the Canadian taxpayer with little push back from Canada’s lawyers.
Mr. Smitherman was asked to introduce himself to the Tribunal. He served three terms as an MPP, held portfolios of Health & Long Term Care and Energy & Infrastructure, and served as Deputy Premier. He explained that in the McGuinty government, a handful of top officials spoke with the authority of the Premier on issues of policy and that all major policy initiatives or changes in direction had to be cleared by “The Centre”, meaning the Premier’s Office.
After a very brief examination-in-chief, he was cross-examined by lawyer Shane Spelliscy, who like many on the legal team for Canada, was one of the litigators in the Mesa case (pending a decision since that hearing ended in 2014).
Initial questioning established that Mr. Smitherman was active in the green energy sector in the year after leaving government but his primary activity in this period was to run for mayor of Toronto. Over the course of his testimony, he made several witty remarks about his unsuccessful foray into municipal politics.
Central to the government’s case is a twisty-turny hypothesis. Canada is saying the Ontario government was not prepared from a regulatory perspective to accommodate the development of the off-shore wind industry and that Windstream should have known this fact and abandoned its effort to develop the 300 MW, 130 turbine off-shore wind power project the Ontario government had contracted Windstream to build. In aid of this hypothesis, Mr. Spelliscy presented Mr. Smitherman with a press release issued after he had resigned from the government, the gist of which was that the government was putting off-shore wind development on hold pending the need for more “research”. Mr. Smitherman’s response was, ‘No one discussed with me during the development and early FIT period that the government wasn’t ready to accommodate the development of off-shore wind’ (My effort to record direct quotations should be taken as approximations only.) Elsewhere over the course of the testimony, Mr. Smitherman stated that the ministers of Environment and Natural Resources during his time expressed strong support for the Green Energy Act and the rapid expansion of green power production.
Mr. Spelliscy cleaved to Canada’s ‘not ready’ hypothesis, asking Mr. Smitherman several times to agree that there was significant uncertainty about the possibility of developing off-shore wind power during the early FIT period. Mr. Smitherman pushed back, pointing out that the government put a high priority on two issues during his time there — energy and infrastructure. The combined portfolio of energy and infrastructure had been ‘custom designed’ for him by the Premier. While in government, he had confidence in the ability of the government to overcome the obstacles that might otherwise interfere with the development of green energy.
Mr. Spelliscy engaged in repeated, and what appeared to me to be, fruitless efforts to question Mr. Smitherman on whether he would have been involved in the selection or evaluation of individual FIT applications. Even if the answer had been yes, no sane witness in Mr. Smitherman’s position yesterday would have made such an admission without being forced into a corner by compelling documentation. Mr. Smitherman easily repelled this lame fishing trip.
One of many planks in Windstream’s case points to a letter Windstream had received from then Minister of Natural Resources Minister Cansfield early in the FIT era inviting Windstream to apply for a FIT contract. Mr. Spelliscy tried to focus attention on a couple of words in this letter of encouragement wherein Minister Cansfield stated that the letter did not constitute a guarantee that Windstream would be successful. Another lame line of cross-examination crashed and burned on that one too.
In October 2009, Minister Cansfield presented a speech detailing a government review of the process of releasing Crown land to green power developers. Mr. Spelliscy tried to pump this speech up as another example that off-shore wind development was an untenable venture at the time. Mr. Smitherman rubbed that line out by responding that the speech was ‘another piece of progress’. He explained that government often works by incrementally proceeding toward objectives and that the review of site release rules was such a step.
Mr. Spelliscy managed to make George Smitherman appear to be a statesman.
Re-examination by Windstream’s lead counsel continued to build Mr. Smitherman’s standing. Mr. Smitherman had an opportunity to recycle the government’s Green Energy Act talking point that small municipalities had ‘difficulty dealing’ with set-backs for wind power and, therefore, the government had to step in to upload responsibility for zoning. The government’s decision to set the province-wide onshore wind power set-back at 550 meters sought to appease opponents of wind power while allowing development to proceed. ‘Political science was a big part of that decision,’ said Mr. Smitherman.
Mr. Smitherman noted that the government’s delays in processing Renewable Energy Approvals caused the government to extend in-service deadlines for many FIT proponents.
In response to re-examination, Mr. Smitherman repeated that making the Green Energy Act successful was ‘one of the government’s biggest priorities’ during his time as minister.
Throughout his testimony, Mr. Smitherman was effusive about green energy and its developers. For example, he described the establishment of the Renewable Energy Facilitation Office as having the purpose of coordinating the actions of government to encourage green power development. REFO was ‘to make sure we were living up to the messages we were giving that Ontario was open for green energy developers’. ‘The government of the day was motivated to assist developers to bring their projects into operation.’ He regretted that REFO had not been more successful.
It wasn’t until questions from the panel that Mr. Smitherman became vulnerable.
After some preliminary niceties, one of the panelists asked the question I most wanted to hear an answer to, ‘Why do you appear as a witness for the claimant when the claimant is claiming hundreds of millions in damages from the Canadian government? What is the message you are trying to send to the panel?’ Mr. Smitherman started his response stating that Windstream had brought witness statements from Ontario government representatives to his attention before he had any commercial engagement. He said that, after seeing their claims, he felt motivated to set the record straight.
This element of Mr. Smitherman’s explanation makes sense to me. Statements made by Ontario government representatives appear to be riddled with inconsistencies and revisionist history. For example, a central plank of the government’s case rests on former Minister Wilkinson claims that as environment minister he made the decision to impose a moratorium on wind power and he took this decision due to scientific uncertainty over potential impacts on drinking water and other potential harms. A clear trail of email documents and meeting records adduced appear to indicate that the decision was taken by the Premier’s Office for political reasons, with the “Precautionary Principle” attached later to throw off the gullible.
Mr. Smitherman’s response continued with the assertion that the government’s evidence today over-emphasizes claims about risks the developer faced. Again, this explanation makes sense to me.
Next came Mr. Smitherman’s claim to high principle. ‘I don’t want Canada to become a banana republic.”
Isn’t that rich?
The popular connotation for a ”banana republic” has become divorced from its historical meaning. Mr. Smitherman appears to have meant that he does not want Canada to become a place where rules and contracts are ignored. He did not appear to mean that he does not want Canada to become a place where a few favoured elites benefit when foreign commercial interest intervene to strip local resources in a way that terribly disadvantages poor people, as was the case during much of the 20th century in, for example, Guatemala and Honduras.
Many, many citizens of rural Ontario where unwelcome wind power developments sprang up on the other side of their property lines and who have seen the impacts on their power rates might argue with Mr. Smitherman that his legacy has been to push their neighborhood in the direction of the historical meaning of a banana republic.
Next, a panelist asked, “Are you endorsing the claimant?” To which, Mr. Smitherman replied that the government of Ontario ‘did not fully comply’ with its obligations to Windstream. He added that while he was in government, government broadly approved two main initiatives — green energy development and infrastructure spending.
Next: ‘How could the (off-shore wind) moratorium have worked (or been implemented)?’ (My recollection of the exact phrasing of the question is foggy.) Answer: The Premier or his senior staff would have had to declare a consensus that the previous direction of development was not going forward.
Next: Upon what kind of economic analysis was the GEA based? Did you consider the impact on power rates? (I wanted to give the panel a standing ovation at this point, although I was viewing proceedings by livestream in an isolated room.) Answer: The Ministry of Finance was responsible for estimating that the Green Energy Act would create 50,000 jobs. The Ministry of Energy & Infrastructure did a study on the impact on power rates and ‘to the best of my memory, the impact was 2-3%.’ He then quipped, saying ‘that expectation has been met and exceeded’. Several people in the hearing room laughed, but I couldn’t tell who. Mr. Smitherman went on, saying that FIT is wrongly blamed for rate increases, that only the costs of FIT power are transparent as compared to other sources of generation, and that a significant portion of the rising cost is due to the need for transmission and distribution investments driven by the 2003 blackout.
Had the lawyers for Canada been adequately prepared and interested in revealing the true nature of Windstream’s star witness, they had abundant opportunities. They might have pointed out that Minister Smitherman’s case for the Green Energy and Green Economy Act drove off his twin claims that the legislation would drive the need for further transmission and distribution investments (long after 2003 had been dealt with) and that “We anticipate about 1% per year of additional rate increase associated with the bill’s implementation over the next 15 years.”
The lawyers for Canada might have made use of the work of Ontario’s Auditor General. The AG has found that when the Ontario government initiated its Green Energy Act transformation of the province, the government had no plan as to how to make green energy work, ignored the advice of its internal experts, had no analysis to support many of its key initiatives, and generally had no care about the cost impacts. I remind readers that many of the lawyers representing Canada were previously acting for Canada on the Mesa Power NAFTA case. Reports of the Ontario Auditor General documenting Ontario green energy disaster were adduced in that proceeding.
Alas, Canada’s lawyer sat idly by on all these points.
Question: Was the 2-3% annual increase acceptable? Answer: Yes. Closing cost power meant that anything we replaced it with would cost more, and besides, almost all electricity costs are covered by ratepayers.
Keep in mind that the subject of this hearing is a wind power contract with payments pegged at 50% above the payments to onshore power, where the onshore power purchase program created a gold rush for green energy carpetbaggers. Notice also the importance in Mr. Smitherman’s mind of the costs of his decisions not impacting government’s accounts.
Question: What about NIMBYs? Answer: NIMBYs became ‘intensely well organized’. Wind power gave rise to NIMBYs because the windiest areas are on the shores of the Great Lakes ‘where city people like to visit’. The Ontario Liberal party’s concern for the wellbeing of province’s rural citizens was prominently on display.
The only effort Canada’s lawyers made in response cross-examination was to spar with Mr. Smitherman over the distinction between the Premier driving consensus in cabinet vs. the principles of ministerial responsibility. That sparring came to nothing.
I have some sympathy for Windstream in all this. McGuinty’s venal political considerations appear to be the root cause of the company being treated unfairly. Windstream did not create the rules and appears to have played by the rules as they existed at the time. I object to some of those rules, but that is beside the point. That Canadian taxpayers are at risk for the shenanigans of McGoo’s gang is disgusting but it is the reality of this situation. This NAFTA suit illustrates the depth of rot that has crept deeply into the fabric of our society due to politicization of the power system. When Ontario turns its mind to stabilizing its power system, there is hard work ahead.