Guaranteed: Stopping the proposed project would be a net savings to Ontarians

Summary
One reason given by Premier Ford’s government as justification for reneging on the promise to stop the proposed hydro-electric generating station at the Bala falls is that it would cost too much.

This is incorrect:

• If there is a cancellation cost payable, it would be far less than the money payable to the proponent over the 40-year term of their FIT contract. The result is the province would save approximately $70M.
• But we believe it is more likely there is no cancellation cost payable, so the province – and all Ontario tax payers – would save over $100M.

So no matter how the proposed project is stopped, it would not cost anything. Instead Ontarians would save millions of dollars.
 

Detail
At a press conference on August 29, 2018, one of the reasons Premier Ford cited in explaining why he intended to renege on his promise to stop the proposed hydro-electric generating station at the Bala falls was that the cancellation costs: “could range anywhere from $20M to $100M”.

The next day, Parry Sound – Muskoka MPP Norm Miller began responding to e-mails he had received over the previous months with a standard reply which stated: “We were informed it would cost between $40 million and $100 million or more to cancel this project now.”

While there are several ways the proposed project could be stopped without any costs payable, even if there were costs payable they would be far less than the amount saved, as follows:

1. The industry guideline is that hydro-electric generating stations cost approximately $5M per megawatt of capacity. This is confirmed at the top of page 5 of a report prepared for the Ontario Ministry of Natural Resources of Forestry entitled: “Economic Impact of Waterpower Projects on Crown Lands in Ontario”.
   The most recent and credible information from the proponent for the proposed Bala project is that it would have a capacity of 4.45 MW, so the cost should be 4.45 MW × $5M/MW, which is less than $23M.
    
2. Even if the proponent spent millions more on their approvals and paying overtime or being over-charged by their Québec-based contractor, the total cost should be less than $30M. As the proponent is now only about half-way through their claimed two years of construction, their costs incurred would be even less.
    
3. The proponent could claim lost future profits (as their parent company is attempting for the cancelled Big Thunder wind park), but this is unjustified, for example:
   1. Feed-In Tariff contract version 1.3 (which was current when the proponent signed their FIT contract) states in Section 13.1 that lost future profits will not be paid.
   2. The legislation for the cancellation of the proposed White Pines wind turbine project in Prince Edward County specifically states in Section 6(8) there will be no compensation for lost future profits. This is reasonable, as if the proposed project never produced any profits to the developer, the developer should not receive any profits.
   3. While this October 2014 legal opinion from Queen’s University Professor Bruce Pardy confirms the government has the authority to unilaterally cancel contracts, this July 2018 legal opinion from Mike Richmond of law firm McMillan LLP states at the bottom of page 3 and top of page 4 that compensation would not be paid for lost future profits.
       
4. In 2011 we posted this calculation showing that over the 40-year term of the proponent’s FIT contract, the government of Ontario would pay the proponent a subsidy of over $100,000,000 over what would have been payable for the same hydro-electric power from other sources, such as from the two existing hydro-electric generating stations which Ontario Power Generation own and operate just downstream on the Moon River.
   1. Due to provisions in the FIT contract to allow for inflation, this subsidy would be even greater now.
   2. As as noted here, this power would be generated when it is least needed, yet Ontarians would be forced to pay for it even when lower-cost power is available from other sources.

Conclusion
Therefore:

• If there was a cancellation cost payable, the net savings to Ontarians would be over ($100M – $30M =) $70M.
• It is more likely there would be no cancellation costs payable, so Ontarians would save over $100M.

The government of Ontario therefore has two choices:

• They could continue to renege on their promise to stop this proposed project, and this would cost Ontarians over $100M for power that is not needed.
• They could honour their promise, and save at least $70M.

We therefore look forward to explaining the details to the provincial government.