Save the Bala Falls

The quick answer is because if you ignore all the important details of the local economy and public safety, it would be the most desirable to develop.

Many wonder why would the Ministry of Natural Resources select Bala for a proposed hydro-electric generating station, given the many issues of public safety and  negative impact to the area’s economy. One answer is this 57-page report entitled Evaluation of Small Hydro Potential for Selected Dams owned by the Crown, for which the MNR commissioned Acres International, and which was completed in May 2000.

This analysis considered ten potential sites in Muskoka, and estimated the profitability of the five most suitable for development for generation of electrical power.

And as shown on page 8 (detailed analysis begins on page 27), the site that would produce the highest profits would be at the Bala falls. It is important to note that this analysis only estimated the costs of construction and expected revenue from the generation of electricity – aspects not considered include: negative economic impacts, disruption to in-water recreational activities, risks to public safety, or existing land uses such as portaging.

Interestingly, the conceptual drawing on page 35 (which, strangely, does not show the Muskoka Road 169 bypass which was built 35 years prior) of this report is the same drawing as the Bala proponent provided in their 2004 Statement of Qualifications. Perhaps not surprising then is that in this Statement of Qualifications, the proponent’s proposed development partner is the same Acres International (later bought by Hatch Ltd., who later did all of the environmental assessment work).

This unbalanced view of the situation continued as the Bala proponent was required by the Ministry of the Environment to provide an Economic Impact Study. As noted here, the report (also 57 pages) did not survey tourists as to why they visit or how much they spend, did not ask local businesses about any possible negative economic impacts. Clearly, not looking at the negative impacts could only produce a useless report, yet this was accepted by the Ministry of the Environment.

This misleading and simplistic view of hydro-electric power generation continued as the MNR commissioned a very detailed study completed in April 2012. This 63-page report is entitled Economic Impact of Waterpower Projects on Crown Lands in Ontario. While some type of  “purpose-built model” was developed, the assumptions were not disclosed. And again negative impacts were not considered. We therefore sent this letter to the MNR, and received this response. Remarkably, the MNR simply replies that providing a balanced view of the economic impact was “beyond the scope of this project”. This is beyond silly. The entire process claims to be logical, but in a classic government example of “form, not function”, has become a farce of ignoring any sound reasons why it should not proceed.

The MNR believes that the rules that apply to everyone else do not apply to them, for example:

• When it was found that the proposed generating station would not comply with the requirement of Section 3 of the Public Lands Act (which requires at least 25% of the shoreline frontage of water bodies to be reserved for public access), the MNR provided a calculation which did not follow their policy (PL 3.02.01) written specifically for this calculation.
• When the MNR asked for and received written historical proof that the Bala Portage has always been south of the Bala north falls, the MNR simply ignored this because the Ontario Office of the Surveyor General has no records of any portage routes in Bala (when clearly there would have been at least one somewhere).
• The MNR accepted the alternate portage routes suggested by the proponent even though Transport Canada’s approval did not consider the land ownership or public safety concerns of these.
• Even though the proposed generating station would create treacherously turbulent water just a few feet from a very popular in-water recreational area, the MNR simply says it would be the proponent’s responsibility “to ensure appropriate public safety measures”. The proponent just says they have “no plans for fencing”, but without asking their lawyers or insurance company what the required safety measures would be, that is a meaningless and misleading statement.

For a proposed project which the proponent has had ten years to think about, the proposed hydro-electric generating station at the Bala falls is currently in a bizarre state of confusion, for example:

1. The proponent’s application to Transport Canada stated in-water construction work would begin within a time window when such work is not allowed by the Ministry of Natural Resources (MNR). That is, the proponent would be doing in-water construction work for which they do not have approval from the Ministry of the Environment.
    
2. The MNR believes that the approval Transport Canada provided earlier this year included assessing impacts to marine navigation for the Mill Stream and Moon River, but the current rules are that Transport Canada would not have done this safety assessment.
    
3. The proponent has reneged on important and fundamental commitments they made in the competitive process through which they were selected by the MNR. This “materially inaccurate or misleading information” from the proponent enables the province to cancel this mess without cost or liability.
    
4. The proponent provided incorrect information, as they stated their new 2012 plans would be a positive impact to the Bala Portage, when in fact they would permanently eliminate and obstruct it. Such negative impacts require consultation with First Nations, but due to the incorrect information from the proponent this has not yet occurred. So far the Canadian federal and Ontario provincial governments have not met with the Wahta Mohawks to begin this required consultation process. The Wahta have therefore sent this August 24, 2014 letter and this November 12, 2014 letter.
    
5. The proponent’s construction plans have more than a one in four chance of flooding Lake Muskoka. While the proponent says they could remove their upstream cofferdam in such an emergency, this is not a credible claim. How would they ever get insurance for such a high risk to private property and public infrastructure.
    
6. Commercial operation of the proposed hydro-electric generating station would not be permitted until:
   • Amendments to the Muskoka River Water Management Plan are approved (this would be a lengthy and difficult process, and it appears this 699-page document has never been amended before, and the committees involved list 35 people, some of whom have passed away or no longer hold the office or position they did nine years ago when this document was approved).
   • The proponent signs the MNR’s maintenance agreement for the Bala dams. The proponent would then be financially responsible for all minor maintenance of both Bala dams – but it has not yet been agreed what constitutes “major” and “minor” maintenance, and the proponent “negotiating” this when they would already be in construction would be a completely weak negotiating position.
      
7. From the MNR, the proponent still needs; Plans and Specifications approval, a Work Permit, a Lease to Construct, and a Waterpower Lease Agreement – the latter two are legal agreements which would take months to finalize.

All of the above will result in delays, extra costs, and significant risks.

If the proponent would provide sound information to refute any of this, maybe we’d have to “agree to disagree”. But the proponent simply does not offer any believable information to justify their actions. For a company hoping to right now be getting final approvals, raising construction financing, and preparing to begin construction, this is bizarre.

So as a service to those in the investor community that may be considering getting involved with this proposed project, we offer this Guest Editorial.

Editor’s note: This guest editorial is provided for the benefit of the investor community.

The Quick Take

This proposed development project has unusual and unaddressed risks, such as:

• The developer provided conflicting information to different government agencies, which then relied on this information in providing subsequent approvals. The result has to be something signficant, such as an approval is cancelled, or the construction schedule is significantly extended.
   
• The Crown refuses to acknowledge that the developer provided incorrect and misleading information and as a result First Nations were not notified or consulted on this important land issue.
   
• The developer’s construction plans have more than a one in four chance of causing flooding of Lake Muskoka, and the proposed contingency plans are unworkable.
   
• Transport Canada’s approval did not consider some important land ownership and public safety issues, and their only guidance so far is that affected people should directly sue the developer.

These are all issues which should be of concern to potential investors. Also of concern is that the developer has not refuted these.

The Concerns

In my past experience investigating potential development-based investments, I have found that it is usually difficult to learn about the risks of technical projects. Therefore, as a service to other potential investors in this planned project to build a hydro station in Bala, Ontario, I offer the following.

Current risks for the proposed construction of a hydro station in Bala, Ontario

1) Investor risk: Before proposed construction

1. As noted here, the developer made commitments to the Ministry of the Environment which are different and conflict with information submitted to Transport Canada. This is a concern, as follows:
   • The developer’s written information to Transport Canada states that they plan work for which they do not have approval from the Ministry of the Environment. At the very least, this would result in delays while it all gets sorted out, but it also reflects on the credibility of the developer and raises more serious questions.
   • For example, delaying the start of work by the six weeks required may result in there not being enough time for the work which would need to be completed before the next spring freshet, as their upstream cofferdam must be removed by then. Therefore, work would need to be delayed until after the spring freshet, and some work may need to be repeated, such as rebuilding the upstream cofferdam. The result would be many months of delay to the schedule, and additional costs.
   • But perhaps the bigger concerns are that the developer may be trying to avoid earlier commitments without being caught, or they are demonstrating they are poor at scheduling work or that they do not have the people with the required skills and abilities to get this work done efficiently.
      
2. The Wahta Mohawks have given notice that the “Crown’s Duty to Consult has not been fulfilled”. It appears that the Crown has not responded to these concerns, as that the Crown often so chooses to do. Such actions by the Crown require that if the First Nations are serious, they need to initiate legal action.
   It should be noted that a remarkably similar situation has recently ocurred: In both cases the main decision-maker is the same person – Anthony Zwig, who is the President of Swift River Energy Limited (the Bala developer), and who is also the President and CEO of Horizon Wind Inc. (the developer for a proposed project to install approximately  20 wind turbines in Thunder Bay).
   • After years of community opposition, as reported here, in March 2014 the Fort Williams First Nations filed an injunction against the Ministry of the Environment due to their lack of consultation. As reported here, the judge heard the case in June 2014 and in July 2014 decided an injunction would be premature. However, in August 2014 the Ontario Power Authority terminated the developer’s Feed-In Tariff program contract due to project delays. Without a contract to get paid for power produced, this had the effect of cancelling the proposed wind turbine project (it is not clear whether the developer is still appealing this).
   • The summary is, after years of effort and slow progress getting approvals, this same developer has recently had a proposed project cancelled when the local First Nations claim to have unaddressed issues. If any of this is applicable to the similar Bala situation, it would be of concern to potential investors.

Potential investors would typically want these issues resolved before they invest.

2) Investor risk: During proposed construction

1. Historical data shows there is more than a one in four chance that a high-flow event would occur and the result would be the developer’s construction plans would cause flooding in one of two ways:
   • The developer claims that to avoid flooding Lake Muskoka they would quickly remove their upstream cofferdam. But this would flood the construction site, which would likely cause a year delay (as many construction stages cannot be done during certain time periods).
   • For many reasons, it is instead more likely the developer would have to let Lake Muskoka flood, and this would likely result in legal action (you can be sure that among the 3,400 private property owners on Lake Muskoka there are many very good lawyers and others with the means to pursue collecting on their losses and damages – and the publically-available flow data would later show whether the developer’s plans directly resulted in the flooding).

   It is most unusual for a developer to not have acknowledged or addressed this major risk with their proposed start of construction only months away.

2. Most every aspect of the proposed construction site would result in difficulties and therefore additional time and cost required:
   • The site is very small, is surrounded by water, highway, or designated heritage lands – and the entire site would need to be excavated, leaving no room for materials or equipment storage.
   • All equipment and materials storage would need to be stored either across a one-lane temporary construction bridge or across a highway with a complicated access.
   • The majority of the local population do not want this proposed project, making for a more difficult work environment.
   • Traffic managment and flagmen would be required for all site entrances.
   • The highway guardrail would need to be removed for some construction stages, but this would likely endanger the public.
      
3. All of the above increase the likelihood of delays, and delays would be a problem as:
   • The upstream cofferdam must be removed for at least April and May.
   • In-water work is not allowed from April 15 to July 1.
   • Work in the winter may be too difficult and slow (for example, after construction began, the developer for the Wasdell Falls hydro-electric project, which is 40 km south, decided not to work through the winter).

   The result is that any delays would quickly multiply and may become a year of delays – and the resulting extra costs would also quickly multiply.

The potential flooding risk appears to be significant and should be addressed before investors commit. It would be helpful to see a detailed schedule to see how likely it would be that the upstream cofferdam would need to be reinstalled after the spring freshet. Other construction risks would be factored into the return expected from this investment opportunity.

3) Investor risk: During proposed operation

1. The MNR apparently believes that marine navigation on the Moon River and the riparian rights of downstream property owners would not be affected because Transport Canada has provided approval under the Navigation Protection Act.
2. Also, the developer would permanently obstruct and eliminate a historic portage and the alternate routes suggested have significant land ownership and safety concerns.

Transport Canada has apparently not assessed either of these issues because the developer did not “opt-in” under the NPA, as the Moon River and Mill Stream are “non-scheduled waterways”. Transport Canada states it would be up to individuals affected to resolve this through the Courts.

The result may be lawsuits, with a result that the proposed generating station may not be allowed to operate in the summer. This would certainly significantly affect the on-going profitability of the proposed project.

Potential investors would typically want these unknowns to be resolved before they invest.

Background context

While investors in development projects will be flexible about when operations and payments to them begin, investors will need credible information that:

1. They will not lose any money (that is, the project would always be worth at least what they invested in it). In the Bala situation there would no guaranteed value to any of the money that would be invested, as the MNR will always own the land and the government could cancel all permits and approvals without compensation.
    
2. Additional investment will not be required, for example, for cost overruns due to unexpected construction or technical difficulties. This is a concern because as detailed above, there are many risks, several of which the developer should have addressed already, but has not.
    
3. They won’t have any liability for losses, for example to pay to make the site safe if the project must be stopped and abandoned, or the project is sued due to being found to have caused flooding, or there is a fatality when someone gets caught in the intake or tailrace (while insurance covers this risk for every other hydro station, this site is unusual being very close to both in-water recreational areas and private residences).

The problem in this situation is that Swift River Energy Limited and its parent company do not have staff with experience and history with hydro-electric power  development. They use contractors, so do not have company history and knowledge with hydro-electric power development. The contract project manager does not appear to have experience with managing an entire hydro-electric development project of this size through to commercial operation. The fact that the developer has been pursuing this project for ten years and does not have all required approvals, and as listed above, there are significant outstanding issues does not provide comfort.

Projects such as this are typically built through the creation of a partnership:

• The developer becomes the General Partner, and contributes the opportunity, their expertise and industry experience and contracts, years of planning and approvals, the detailed design, and day-to-day management of the project.
• The investors become Limited Partners and contribute most of the funds – often 85% in return for ownership of 50% of the project and therefore they would receive 50% of the profits from operations.

This arrangement has proven to work very well for experienced developers and for projects which do not have cost overruns. The weakness of this leveraging is how to handle cost overruns.

Potential investors would feel they have already taken their risk by investing their money and would expect the developer to pay any cost overruns, as the developer would be responsible for all of the project planning and management, contractor selection, and detailed design. This can quickly become a big problem. For example, if the proposed Bala hydro station is expected to cost $30M to build, then the developer might contribute 15% of this, which would be $4.5M. If the developer values their contribution of the opportunity, design and approval work at $2.5M, then they may only contribute an additional $2M of cash to the partnership. If there is a 5% cost overrun then an additional ($30M x 5% =) $1.5M of cash would be needed.

Typically, when addtional cash is required, the project is already delayed, so the investors would be losing confidence and may decide to not contribute addtional cash. The developer may offer to contribute the cash required in return for increased ownership of the partnership and a priority on receiving payments (which would permanently reduce or even eliminate any profits from their investment). If neither party contributes the required funds then the project would likely go bankrupt and be abandoned, with resulting years of lawsuits on outstanding debts or costs to make the site safe (as the developer’s signed Lease to Contruct with the MNR requires).

Summary

The overall summary is that for me, and at the current time (January 2015), this proposed project has too many significant and unaddressed risks.

We’ve all heard about the huge costs the province felt they had to (and did) pay to cancel the construction of the Mississauga and Oakville generating stations which were to be powered by natural gas. A question then is would the province have to pay to cancel the proposed hydro-electric generating station at the Bala Falls.

This process began in 2004 when the Ontario Ministry of Natural Resources began a Competitive Site Release process. The first step of this was to qualify potential bidders and this was followed by soliciting proposals by issuing a Request for Proposal (RFP) to them.

The MNR sent the proponent the RFP along with a letter dated March 7, 2005 which stated that the proponent had met the first “qualification” step. Excerpts from this RFP are at the bottom of this article.

Examining the MNR’s RFP, the proponent’s subsequent July 5, 2005 proposal, and the current situation, we note the following:

1. The RFP required that proponent issue a Notice of Commencement within six months of award (that is, their being awarded “Applicant of Record” status, and so they are called the proponent).
   • The MNR notified the proponent of this award in a letter dated August 9, 2005 which also noted the proponent had up to 12 months to issue the Notice of Commencement (which informs the public of the beginning the environmental assessment process). The proponent did issue a Notice of Commencement on March 8, 2006, but this stated “Public Information Centres will be scheduled to be held in Bala and Toronto during the summer of 2006”. There never was a Public Information Centre held in Toronto, and there was no Public Information Centre held in the summer of 2006. So this was an unfulfilled and meaningless Notice of Commencement.
   • Another Notice of Commencement was issued on August 8, 2007, which was 24 months after award.

   So this certainly did not meet the RFP requirements. 

2. The RFP required that the proponent issue their Environmental Screening/Review report and issue their Notice of Completion within two years of award. The proponent accepted this, as their 2005 proposal stated: “It is noted that the EA must be completed within 2 years of selection”.
   • However the Notice of Completion was issued on October 9, 2009, which was more than four years after award and more than two years after the Notice of Completion.

   So this certainly did not meet the RFP requirements. 

3. The RFP required that the proponent consider public access for traditional uses, yet their current plans would permanently obstruct and eliminate the Bala Portage, which is certainly a traditional use.
   • We note the proponent accepted this obligation as their 2005 proposal stated: “… these restrictions will not generally diminish the public’s enjoyment of the area for swimming, boating, fishing, picnicking and hiking”.

   So this certainly did not meet the RFP requirements and the proponent’s proposal commitments. 

4. The proponent’s 2005 proposal stated that: “Swift River is aware that the Bala site has substantial beauty for the local population, both permanent and summer residents, and is a tourist gem for the people of Ontario. This is clearly recognized in our proposal”. Certainly one example is that the proponent’s 2005 proposal stated their design would be: “a low-profile power house built mostly underground (bunker-type). Its roof will be below road level and only some 5 ft above ground level, creating an excellent vantage point for visitors to view the surrounding lake, falls and parkland.” Clearly these statements by the proponent would therefore have been an important factor in their being selected through the MNR’s competitive process.
   However, the proponent’s drawings submitted to Transport Canada in 2014 show that in fact their design would be more than:
   • 28′ above the road level (not below it).
   • 10′ to 40′ above ground level, and the structure would be more than 55′ above the Moon River.
   • 52′ wide, and obstruct the view down the river, and not provide any look-out or viewing platform.

   We note the MNR’s RFP reserved the right to “disqualify any Applicant whose Proposal contains … materially inaccurate or misleading information”, and this certainly is significant inaccurate and misleading information (the proponent’s design reneges on many other commitments in their proposal, as shown here).

   Of course, the proponent would claim the project is now far past the RFP part of the process. But the proponent chose to not conform to their own proposal for known-crucial aspects – for the same site as their original proposal. And the proponent chose to delay divulging this crucial information for so long – in fact they still have not made these dimensions public. So the proponent will have to deal with the situation they knowingly created.

In summary, the proponent has not met the reasonable and clearly stated requirements of this competitive site release process and therefore the MNR would be justified in exercising their right to cancel this process without any liability to pay or otherwise compensate the proponent for their expenses or other costs.

Excerpts from the RFP which the MNR sent to the proponent on March 7, 2005 (blue emphasis added) …

v. Site Release RFP Incorporated into Proposal
All of the provisions of the RFP are deemed to be accepted by each Applicant and incorporated into each Applicant’s Proposal.

D. Work Plan
The operator must be willing to submit Notice of Commencement within six months of award; commence an Environmental Assessment within two years of award; …

Category 2: Technical and Feasibility of Project …

The items listed below must be addressed: …

Recognition of the ‘technical’ issues. Plan to address the technical issues and the approach to deal with these issues.

The applicant will need to consider the need for scenic flows, public access for traditional uses and continuity of business in the local area.

4. The applicant will be responsible for:

c) Indemnifying the Crown against all claims, actions and/or obligations that may arise as a consequence of the operation of the dam structure

d) Operations and maintenance of the dam structure will be carried out according to current and future provincial standards. … The onus is on the applicant to examine the structures and determine the extent of repairs necessary to meet dam safety and discharge criteria consistent with the dam operational plan, any and all legal requirements and direction by the Ministry.

APPLICANT COSTS
Liability for Expenses Incurred by Applicant

… The MNR shall not be liable to pay any Applicant costs under any circumstances. In particular, the MNR will not reimburse the Applicant in any manner whatsoever in the event of rejection of any or all Proposals or submissions, or in the event of the cancellation of this Site Release RFP. By submitting a Proposal in response to this Site Release RFP, the Applicant irrevocably and unconditionally waives any claims against the MNR relating to the Applicant’s costs.

2.0 General Terms
i. Reserved Rights of the MNR
The MNR reserves the right to: …

g. disqualify any Applicant whose Proposal contains material misrepresentations or any other materially inaccurate or misleading information;
j. cancel this RFP process at any stage;

… and the MNR shall not be liable for any expenses, costs, losses or any direct or indirect damages incurred or suffered by any Applicant or any third party resulting from the MNR exercising any of its express or implied rights under this RFP.

APPENDICES TO ‘SCHEDULE A’
Appendix A: Statutory Declaration

I, •
OF THE •
IN THE •
SOLEMNLY DECLARE THAT …

2. All statements, specifications, data, confirmations, and information that have been set out in the Proposal, including, without limitation, the Technical and Financial Questionnaires, are complete and accurate in all material respects.

Above is one photograph of the Thanksgiving 2014 Rally at the Bala Falls, which was reported by MooseFM and the Gravenhurst Banner.
 

Other recent articles are (newest at the bottom) …

1. The October 1, 2014 issue of What’s Up Muskoka had an article covering Peggy Peterson.
    
2. An October 11, 2014 article and video segment by CBC Sudbury (click for a translation).
    
3. CBC Ontario Morning‘s Wei Chen interviewed Allan Turnbull on October 14, 2014 (to listen, click the triangle at the left end of the player below) …

    

4. On October 16, 2014 Allan Turnbull was interviewed by James Carroll on Hunters Bay Radio’s Green Tapestry show (which is usually hosted by Peggy Peterson who at the time was on day 45 of camping at the proposed construction site). Each of the two segments below is about ten minutes in length …

    

5. An October 2014 blog entry by John Wright about Peggy Peterson, the Muskoka Lorax protecting our trees is here.
    
6. Long-time supporter Kim Ward of the Bala Bay Inn has this one-minute announcement on MooseFM (October 23, 2014) …

    

7. On October 23, 2014 Peggy Peterson was interviewed by James Carroll on Hunters Bay Radio, click here to hear (to start the audio, click the triangle at the top-left or the bottom-right).
    
8. On October 30, 2014, Peggy Peterson was able to host her own Green Tapestry show on Hunters Bay Radio, and she interviewed Allan Turnbull …

    

9. On December 30, 2014, Peggy Peterson was interviewed by MooseFM …

    

10. Peggy Peterson and this proposed project was front page news in the January 2, 2015 issue of the Globe and Mail. Two page article here, and text version here.
     
11. On January 29, 2015, James Carroll interviewed Allan Turnbull on Hunters Bay Radio’s Green Tapestry show. Allan clearly explains how the proposed hydro-electric generating station at the Bala falls is an example of Ontario’s misguided energy policy which costs all consumers and businesses in Ontario just to pay disproportionate profits to developers to create generating capacity that isn’t needed.

     

12. On February 12, 2015 MooseFM interviewed well-known energy critic Tom Adams. Read and listen to the interview here.