Briefing Note

A Summary Of The Flaws Observed in the OPA's Contracting Process for

The Oakville Generating Station (OGS)

A Brief Review of the Facts: The proposed Oakville Generating Station was a 975-megawatt gas-fired plant to be built with no buffers - within 320 metres from the nearest school and only 400 metres from the nearest homes. The nearest office complex was less than 65 metres away. Ten thousand homes, sixteen schools, five seniors' residences and eight day care centres were within three kilometres of the site.

On February 7, an explosion at a not-yet-completed Middletown, Connecticut gas-fired power killed six people and injured more than 20 others. It reportedly damaged homes more than 1.5 kilometres away. The blast blew out windows and cracked the foundations of homes up to 5 kilometres away. The Middletown facility was a 620-megawatt plant - about a third smaller than the proposed Oakville plant. It was built on a site that was approximately ten times the size of the Oakville site.

The following are some of the issues that arose from the ill-conceived decision making process to build a natural gas fired power plant on the Ford site in Oakville. Some of these issues can be addressed by establishing minimum buffer zone requirements and siting policies for future natural gas power projects, while others would require an overhaul of the province's procurement process for future energy projects.

  1. In our view, the most important flaw in this process was the failure to properly identify and assess key risks relating to community health and safety, and environmental impacts before a 20-year, $1.2 billion contract was awarded to TransCanada Energy Limited (TCEL). It is difficult for us to understand or accept a procurement process where the risk assessment is conducted after a billion dollar contract is awarded – particularly in an airshed already considered to be "stressed" by the Ministry of the Environment (2006 Clarkson Airshed Study).
  2. In our view, the failure to engage the Town of Oakville and its citizens in a substantive and meaningful way in the selection process before the contract was awarded created another major challenge. This left the Town in a situation where it had to consider adopting an interim control bylaw, which was then attacked in the courts by TransCanada, the company that was awarded the contract. In this process, power generating companies were often referred to as "power partners" whereas the Town and the Town and its citizens were not. Municipalities and their citizens must be a partner in the process and agree to the location of large natural gas fired power plants before contracts are awarded. In fact, Oakville wasn't even a proposed location for TCEL in responses to the RFQ so the community was playing "catch-up" from the start.
  3. In our view, the timing of the environmental assessment was wrong. Once TransCanada Corporation, the parent company of TCEL, announced to its shareholders and the public markets, that it had won this contract and that it expected to earn 9.5%, after tax, for the next 20 years, it became impossible for it to objectively conduct an environmental assessment.
  4. There appeared to be an assumption in this process that natural gas fired power plants were inherently safe and the only challenge was to design a plant that would fit in the selected site in a cost effective manner. Unfortunately, the tragic explosion at the Kleen Energy gas fired power plant in Middletown, Connecticut proved that this assumption was wrong.
  5. Moreover, environmental assessments and safety evaluations were conducted by TCEL and contractors hired by TCEL, a process through which the province abdicated its stewardship of the environment and safety. Such a process is a dangerous example of the fox guarding the henhouse. There is no reason why the potential participants cannot jointly fund an objective process run independently by the province.
  6. The Province of Ontario and the OPA do not have any established regulations for buffer zones or set backs for natural gas fired power plants, so prudent safety considerations were not properly addressed and accommodated until they were raised by citizens groups after the contract was awarded. Buffer zones are required in all other significant forms of development, such as landfills, windfarms, propane fuelling stations, and railway corridors.
  7. In our view, the combination of a Ministerial Directive and the Ontario Power Authority's (OPA) decision not to require an "individual environmental assessment" (IEA) were errors in judgement that meant, amongst other things, that better and safer alternatives could not and were not properly considered or explored in this process. During the debate, it became clear that viable and cost effective alternatives did exist.
  8. In our view, the cost justification for the project was flawed. It appears that the $1.2 Billion contract awarded to TransCanada was three times the cost estimates set forth in the OPA's Integrated Power Service Plan (IPSP) and exceeded the OPA's own estimate of the total costs involved in converting and operating the facility in Nanticoke (which many considered a better alternative).
  9. We understand that the OPA's IPSP was supposed to be an important strategic underpinning of the planning and supporting rationale for specific decisions to build the OGS (and other power projects), but it had many flaws and problems, was never approved, and was ultimately withdrawn. As well, the OPA's forecast of electricity demand that was used to justify this decision was also seriously flawed.
  10. The Oakville plant would have produced enough power for 975,000 homes, while Oakville has less than 80,000 homes. This led many Oakville citizens to conclude that this plant was not being built for local power generation, as stated by the OPA, but to supply the broader Southwest GTA. Not only was the OPA's rationale apparently misleading, but it simply did not make sense. The Halton Hills plant has enough capacity to supply the Halton Hills region, including Oakville, and, as the government itself acknowledged when cancelling the Oakville plant, reduced power demand in the GTA simply made the Oakville plant unnecessary. The OPA needs to be more transparent and forthright in its dealings with communities affected by its plans.
  11. The Request for Proposals for building the plant strictly limited the geographic area in which the bidders could find potential sites, and, in so doing, left bidders with few options and caused many viable alternative sites to be eliminated from consideration. TransCanada officials told C4CA in meetings on December 3 and 9, 2009, and told members of the general public at a February 10 open house, that the Ford site was not their first choice or the best location, but the RFP's geographic restrictions left TransCanada and other bidders with few choices. Also, TransCanada's President, Energy and Executive Vice-President Corporate Development, stated in the company's November 4, 2009 third quarter results conference call that the RFP limited potential sites to "a very, very restricted area."
  12. In our view, there were technical problems in the process as well. Public documents led citizens to conclude that the successful bidder, TCEL and the Oakville location were not qualified at the RFQ stage. It is still not clear how the legal entity TCEL could have been awarded the $1.2 billion contract since it appears that it was not qualified under the RFQ, which should have precluded its participation in the RFP. Allowing companies to transfer qualification under a procurement process undermines the entire purpose of such a process.
  13. The citizens also had many questions about the scoring given to TransCanada in the RFP evaluation process. For example, TransCanada's Business Development Project Manager, stated in an Ontario Municipal Board hearing on October 15, 2009 that the company had received full marks for making progress on municipal approvals in the RFP scoring. This statement, however, is inconsistent with the facts. The Town of Oakville, the City of Mississauga, the Region of Halton and the Region of Peel were all opposed to the plant and on record with their opposition. Other community opposition to the plant included C4CA and area residents, the Medical Officers of Health in Peel and Halton and many other health practitioners, Clean Affordable Energy Alliance, Oakville Green, Sierra Club of Peel, the Oakville Sustainability Initiative and the Peel Catholic District School Board. The OPA would not provide information or details on the RFP scoring and it continues to fight releasing the scoring under the RFP evaluation, despite such scoring being required to be released by the Privacy Commissioner of Ontario in numerous precedents of which the OPA has been made aware.
  14. In our view, the OPA's procurement process appears to be focused almost entirely on pricing, and gives almost no consideration to the ability of developers to meet timelines, milestones or environmental approvals. For example, having an environmental approval in hand, or stating that you will obtain it, appears to be essentially worth the same in the scoring process, which does not make sense.
  15. Many citizens suspected that the option to purchase the 13.5 acres from Ford for a reported $50 million was significantly in excess of the land's fair market value at the time of the purchase. Indeed, a professional appraisal obtained by C4CA concluded that the Ford land was worth less than $5 million – if the land had no environmental issues, which we believe is not the case. As a result, the land purchase was perceived by many in the community – rightly or wrongly - as an indirect way for the Province to provide assistance to Ford during the recent recession. At the very least, the inflated price of the land would have been an additional cost passed on to ratepayers.
  16. Under the current process, real estate related issues are a major factor in the site selection. It is our belief that the Province should pre-qualify sites that meet all safety, energy and technical requirements of an energy project.
  17. Finally, the OPA has indicated that it adopted a set of Guiding Principles, which are published on the OPA's website, and state:

    "Transparency: We carry out our work with openness and integrity.
    • Our processes and outcomes are open and clear to both internal and external stakeholders.
    • We treat our business partners with fairness and integrity.
    • We strive to earn the trust and respect of all those with whom we deal.
    • Our communications both internally and externally are clear, candid, open and reliable."

    In our view, the process to build the OGS in Oakville and award a $1.2 billion contract to TCEL, was not an open and transparent process, and therefore did not meet the OPA's own guiding principles. It has been impossible for citizens and taxpayers to assess how applicants were qualified and proposals assessed. 24 Freedom of Information requests from the local MPP, Kevin Flynn were filed and turned down by the OPA.

Conclusion: The significant flaws observed in the Oakville siting and procurement process should not be repeated. The process for the siting of natural gas fired power plants in Ontario must be changed immediately.