Terence Corcoran: McGuinty’s dark secrets on cancelled power plants revealed
National Post
Terence Corcoran | Oct 31, 2012 8:35 PM ET | Last Updated: Nov 1, 2012 9:49 AM ET
More from Terence Corcoran | @terencecorcoran
More from Terence Corcoran | @terencecorcoran
REUTERS/Mark Blinch
Dark secret: Ontario Premier Dalton
McGuinty speaks to the media after making an announcement to resign from
the leadership of the Ontario provincial Liberal party in October.
Documents show cancelling Oakville plant alone will cost $1-billion
As Premier Dalton McGuinty prorogued the Ontario legislature and announced his retirement last month, he would have known that some of the darker secrets of his government’s handling of energy policy would soon come to light. Today, those secrets — until now buried in 56,000 pages of released but unreadable documents — are appearing in the open.
In sordid and alarming detail, the documents show that the McGuinty government’s cancellation of gas plants in Oakville and Mississauga are likely to cost as much as $1.3-billion, possibly more. Killing the Oakville plant and moving it to Bath will alone burden Ontario ratepayers and taxpayers with costs that exceed $1-billion.
These numbers — openly discussed in documents as part of the government’s legal negotiations with TransCanada Energy and other companies — are a far cry from the $40-million Energy Minister Chris Bentley recently announced as the cost of killing the 900-megawatt Oakville Generating Station.
More than the numbers, the documents — analyzed by Toronto energy consultant Tom Adams in a posting to his website Tuesday and in FP Comment Thursday — also show that the premier’s office played a role in the gas-plant debacle. Under instruction, bureaucrats and government agency staff, especially at the Ontario Power Authority (OPA), were also dragged into litigation negotiations aimed at containing the major liabilities the government had created.
In May 2011, a presentation to the board of directors of the OPA, which runs electricity policy under cabinet directives, outlined the negotiation spiral. Titled “Winding Up the Oakville Generating Contract” and “prepared in contemplation of litigation,” the presentation summarizes the history of the government’s battle with TransCanada Energy (TCE), which had a signed contract to build the plant. In March 2011, the government offered TCE a settlement worth $462-million, which TransCanada rejected.
In April, the government came back: “OPA was instructed by the government to make a second counterproposal to the TCE proposal…. It had an effective financial value of $712-million. On 29 April TCE rejected the government-instructed counter-proposal.”
The government was clearly over a litigation barrel. The same OPA board presentation spelled out the stark options. A graphic shows the “worst case” cost of going to court at about $750-million that could be awarded to TransCanada in compensation for the government’s breach of contract.
TransCanada asked for more than $900-million. Mr. Adams says that so far he has been unable to find the final settlement number within the 56,000 pages of documents.
But there are clearly more costs to ratepayers than the TCE settlement. Moving the Oakville plant to Bath requires building transmission lines, a point made in an October 2010, email from Rick Jennings, assistant deputy minister at the Ministry of Energy. The OPA, he said, estimated that “the transmission investment required would be in the order of $200-million … [including] a combination of three transmissions projects” that would run through urban areas.
But that also would not cover all the added costs. Moving the gas plant out of Oakville still created a vacuum in the Toronto electricity market, said Mr. Jennings. “It is worth noting that the new transmission alternative would still require new generation to be built at another location capable of delivering power to the Greater Toronto Area.”
Mr. Adams estimates that building a 300-megawatt plant to service Toronto as a replacement for Oakville could run to $350-million. Adding that number to the new transmission costs and the settlement with TCE brings the total cost of getting out of the Oakville plant to more than $1.2-billion.
Exactly how much leverage TransCanada held over the government isn’t clear, but it appears to be a powerful incentive for the government to settle on a big number. Mr. McGuinty plays a role. In March 2011, JoAnne Butler, vice-president of energy resources at OPA, wrote to staff and executives at the OPA describing what she called a “no win” situation.
“Litigation is not preferred. It is not cheap; we will not necessarily win and the ratepayer will get no [megawatts] out of it. TCE will litigate based on the promises received by them from the premier’s office.”
The nature of these “promises” from Mr. McGuinty isn’t stated, and Mr. Adams says he has not found any direct clues in the documents. It is clear, however, that the PO — the premier’s office — crops up as a player in the documents.
So do big-name Toronto law firms, such as Osler Hoskins and Lang Michener, which were copied on email after email as the litigation threat grew.
Meanwhile, the costs of the other project cancellation, the 300 MW Greenfield South Project in Mississauga, appear to be higher than the $190-million disclosed. In November 2011, OPA chief executive Colin Anderson asked his staff to provide a breakdown of the Mississauga cancellation. He received a table titled “Summary of Costs Associated with Winding Up Greenfield South Project.” It showed evaporation of $150-million in sunk costs, $70-million in lost profits on clean energy contracts and other costs of $20-million, for a total of about $240-million.
Mr. Adams, in his posting Tuesday, identifies that other transmission-line costs related to Mississauga are still unaccounted for.
Mr. Anderson, CEO of the power authority, was concerned about the impact of these breach of contract settlements on ratepayers. “What is our guestimate of ratepayer impact and when?” he asked in an email. He wondered if the costs could also be spread over four years, to make the numbers look small.
The final costs are still unknown. The Mississauga price tag is not readily discernible in the documents at this point, says Mr. Adams. In both Oakville and Mississauga cancellations, the OPA and government appear determined to keep the litigation risks and the costs out of the public eye.
Ms. Butler, OPA vice-president of energy resources, exchanged emails with Michael Killeavy, OPA director of contract management, over what to say about the Oakville cancellation. “If anyone asks about the costs or where we are on the [Oakville Generating Station], I will say: ‘TransCanada and the OPA are currently discussing the disposition. … Costs, if any, associated with the disposition … are undetermined at this time.”
During negotiations, OPA — under government oversight — seems to want to deny TransCanada’s right to lost profits on the Oakville cancellation. Michael Killeavy wrote to lawyer Sabastiano Rocco at Osler, Hoskin in February 2011, asking: “When might we get your opinion on whether residual value of a project might reasonably be considered as damages for a breach of contract? We need to meet with TCE next week to ‘negotiate’ alleged loss of profit on [Oakville] and it would be helpful to have your opinion before we meet.”
Mr. Rocco’s response was that they might be wise to bring in a financial expert from one of the financial firms to get a “commercial/business” perspective as opposed to simply a legal interpretation of the issue.”
Mr. Adams, in his posting on the 56,000 documents, runs through other disclosure issues. But there is clearly more to come out of the documents. As more and more experts and media review their content, the more the McGuinty government’s handling of the Oakville and Mississauga gas plant projects will loom as a major policy and fiscal disaster, part of a pattern that reaches throughout the province’s electricity industry.
As Premier Dalton McGuinty prorogued the Ontario legislature and announced his retirement last month, he would have known that some of the darker secrets of his government’s handling of energy policy would soon come to light. Today, those secrets — until now buried in 56,000 pages of released but unreadable documents — are appearing in the open.
In sordid and alarming detail, the documents show that the McGuinty government’s cancellation of gas plants in Oakville and Mississauga are likely to cost as much as $1.3-billion, possibly more. Killing the Oakville plant and moving it to Bath will alone burden Ontario ratepayers and taxpayers with costs that exceed $1-billion.
These numbers — openly discussed in documents as part of the government’s legal negotiations with TransCanada Energy and other companies — are a far cry from the $40-million Energy Minister Chris Bentley recently announced as the cost of killing the 900-megawatt Oakville Generating Station.
More than the numbers, the documents — analyzed by Toronto energy consultant Tom Adams in a posting to his website Tuesday and in FP Comment Thursday — also show that the premier’s office played a role in the gas-plant debacle. Under instruction, bureaucrats and government agency staff, especially at the Ontario Power Authority (OPA), were also dragged into litigation negotiations aimed at containing the major liabilities the government had created.
In May 2011, a presentation to the board of directors of the OPA, which runs electricity policy under cabinet directives, outlined the negotiation spiral. Titled “Winding Up the Oakville Generating Contract” and “prepared in contemplation of litigation,” the presentation summarizes the history of the government’s battle with TransCanada Energy (TCE), which had a signed contract to build the plant. In March 2011, the government offered TCE a settlement worth $462-million, which TransCanada rejected.
In April, the government came back: “OPA was instructed by the government to make a second counterproposal to the TCE proposal…. It had an effective financial value of $712-million. On 29 April TCE rejected the government-instructed counter-proposal.”
The government was clearly over a litigation barrel. The same OPA board presentation spelled out the stark options. A graphic shows the “worst case” cost of going to court at about $750-million that could be awarded to TransCanada in compensation for the government’s breach of contract.
TransCanada asked for more than $900-million. Mr. Adams says that so far he has been unable to find the final settlement number within the 56,000 pages of documents.
But there are clearly more costs to ratepayers than the TCE settlement. Moving the Oakville plant to Bath requires building transmission lines, a point made in an October 2010, email from Rick Jennings, assistant deputy minister at the Ministry of Energy. The OPA, he said, estimated that “the transmission investment required would be in the order of $200-million … [including] a combination of three transmissions projects” that would run through urban areas.
But that also would not cover all the added costs. Moving the gas plant out of Oakville still created a vacuum in the Toronto electricity market, said Mr. Jennings. “It is worth noting that the new transmission alternative would still require new generation to be built at another location capable of delivering power to the Greater Toronto Area.”
Mr. Adams estimates that building a 300-megawatt plant to service Toronto as a replacement for Oakville could run to $350-million. Adding that number to the new transmission costs and the settlement with TCE brings the total cost of getting out of the Oakville plant to more than $1.2-billion.
Exactly how much leverage TransCanada held over the government isn’t clear, but it appears to be a powerful incentive for the government to settle on a big number. Mr. McGuinty plays a role. In March 2011, JoAnne Butler, vice-president of energy resources at OPA, wrote to staff and executives at the OPA describing what she called a “no win” situation.
“Litigation is not preferred. It is not cheap; we will not necessarily win and the ratepayer will get no [megawatts] out of it. TCE will litigate based on the promises received by them from the premier’s office.”
The nature of these “promises” from Mr. McGuinty isn’t stated, and Mr. Adams says he has not found any direct clues in the documents. It is clear, however, that the PO — the premier’s office — crops up as a player in the documents.
So do big-name Toronto law firms, such as Osler Hoskins and Lang Michener, which were copied on email after email as the litigation threat grew.
Meanwhile, the costs of the other project cancellation, the 300 MW Greenfield South Project in Mississauga, appear to be higher than the $190-million disclosed. In November 2011, OPA chief executive Colin Anderson asked his staff to provide a breakdown of the Mississauga cancellation. He received a table titled “Summary of Costs Associated with Winding Up Greenfield South Project.” It showed evaporation of $150-million in sunk costs, $70-million in lost profits on clean energy contracts and other costs of $20-million, for a total of about $240-million.
Mr. Adams, in his posting Tuesday, identifies that other transmission-line costs related to Mississauga are still unaccounted for.
Mr. Anderson, CEO of the power authority, was concerned about the impact of these breach of contract settlements on ratepayers. “What is our guestimate of ratepayer impact and when?” he asked in an email. He wondered if the costs could also be spread over four years, to make the numbers look small.
The final costs are still unknown. The Mississauga price tag is not readily discernible in the documents at this point, says Mr. Adams. In both Oakville and Mississauga cancellations, the OPA and government appear determined to keep the litigation risks and the costs out of the public eye.
Ms. Butler, OPA vice-president of energy resources, exchanged emails with Michael Killeavy, OPA director of contract management, over what to say about the Oakville cancellation. “If anyone asks about the costs or where we are on the [Oakville Generating Station], I will say: ‘TransCanada and the OPA are currently discussing the disposition. … Costs, if any, associated with the disposition … are undetermined at this time.”
During negotiations, OPA — under government oversight — seems to want to deny TransCanada’s right to lost profits on the Oakville cancellation. Michael Killeavy wrote to lawyer Sabastiano Rocco at Osler, Hoskin in February 2011, asking: “When might we get your opinion on whether residual value of a project might reasonably be considered as damages for a breach of contract? We need to meet with TCE next week to ‘negotiate’ alleged loss of profit on [Oakville] and it would be helpful to have your opinion before we meet.”
Mr. Rocco’s response was that they might be wise to bring in a financial expert from one of the financial firms to get a “commercial/business” perspective as opposed to simply a legal interpretation of the issue.”
Mr. Adams, in his posting on the 56,000 documents, runs through other disclosure issues. But there is clearly more to come out of the documents. As more and more experts and media review their content, the more the McGuinty government’s handling of the Oakville and Mississauga gas plant projects will loom as a major policy and fiscal disaster, part of a pattern that reaches throughout the province’s electricity industry.
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