Monday, September 13, 2010

Wall government refusing to disclose terms of Northland Power PPA’s; 9 out of 11 SaskPower board members donated to Saskatchewan Party

True to its word, SaskPower has refused to disclose the terms of two power purchase agreements (PPA) it signed with Northland Power Inc.

In February 2010, SaskPower entered into a 20-year PPA with Northland Power, a private company based in Toronto, to provide 261 megawatts (MW) of based power to the provincial electrical grid in 2013. The natural gas-fired facility will be located in the North Battleford area, with construction expected to begin in July 2010. Generation facilities that provide baseload power provide energy at a constant rate. [SaskPower news release, Feb. 8, 2010]

Prior to that, in September 2009, Northland Power was chosen to provide 86 MW of peaking generation for SaskPower, beginning in December 2011. The companies signed a 25-year PPA. Northland Power will construct and operate a natural gas power station near the Tantallon Switching Station, located 40 kilometres north of Moosomin. Facilities that provide peaking power can be brought into service quickly to meet sudden increases in demand. [SaskPower news release, Sept. 24, 2009]

SaskPower’s news releases omitted key information about the agreements.

According to Northland Power Income Fund’s annual information form, filed with securities regulators in March of this year, under the PPA’s the projects “will receive monthly payments that are designed to cover all fixed costs and investment returns.” The agreements also provide “protection against changes in the market price of natural gas, as fuel costs are passed through to SaskPower.” Furthermore, the contractual structure of the projects “is designed to ensure predictable, stable and sustainable cash flows over the entire” term of the PPA’s.

Or to put it another way, the one-sided deals guarantee a profit for Northland. What they ensure is a predictable, stable and sustainable cash flow from Saskatchewan to Ontario.

At the February announcement, Gary Wilkinson, vice-president of planning, environment and regulatory affairs for SaskPower, said the company’s “top priority… is to ensure that the province’s residents and businesses have a reliable and sustainable supply of electricity for years to come.” [New North Battleford plant to provide power to grid (StarPhoenix, February 9, 2010)]

SaskPower is more than capable of fulfilling its mission by developing these types of projects on its own. Any profits would remain in Saskatchewan; however, the Wall government has chosen to send those dollars east to a private company in Toronto.

At a sod turning ceremony in North Battleford on June 14, 2010, for the North Battleford Energy Centre, Garner Mitchell, acting president and CEO of SaskPower, said the terms of the PPA are confidential.

“These are very complex contracts,” Mitchell said, adding the deal includes “everything from capital and fuel to labour costs and financing. So there are many factors that go into it. That’s why we don’t go public (with the contract details).” [Officials break ground on $700M plant (StarPhoenix, June 15, 2010)]

With that in mind, on June 16, 2010, an access to information request was submitted to SaskPower for copies of the two PPA’s. SaskPower’s legal department responded two weeks later to say that because the information requested affects the interest of and/or relates to a third party, it was required to contact the third party involved, presumably Northland Power, to see if they had any objections to releasing the records.

On August 20, 2010, SaskPower disclosed the documents, but with most financial, commercial, scientific, technical or labour relations information supplied in confidence by Northland to the provincial government blacked out, pursuant to section 19 of the Freedom of Information and Protection of Privacy Act.

The PPA’s are written in legalese and dense technical jargon. So unless you’re a lawyer or work in the industry they’re likely to be incomprehensible to most people.

The peaking PPA was made September 22, 2009, between SaskPower and Spy Hill Power L.P., a subsidiary of Northland Power Income Fund.

Under the agreement, Spy Hill is to construct, at its sole cost and expense, the power plant on land leased from SaskPower at $1.00 a year plus GST. [Schedule C]

SaskPower is required to arrange for the construction and commissioning of the natural gas delivery facilities by TransGas so that natural gas may be delivered to the Spy Hill Power Plant on or before the target interconnection in-service date of September 1, 2011. [Sec. 7.1 (a)]

SaskPower shall, at its expense, procure and arrange for the supply and delivery of all natural gas required to commission, test and make available Spy Hill’s facilities and supply metered energy. [Sec. 7.1 (b)]

Spy Hill will receive and purchase all metered natural gas supplied by SaskPower at the daily spot gas price per gigajoule (GJ) as listed in the Canadian Gas Price Reporter published by Canadian Enerdata Limited. [Sec. 7.3]

The PPA contains a number of base tariffs payable by SaskPower for all electrical generation capacity and metered energy received and all other ancillary services. The Wall government is refusing to reveal the cost of these rates to the people of Saskatchewan. [Schedule E] The tariffs include:

▪ Availability Tariff – to compensate Spy Hill for its cost of capital relating to constructing and maintaining its facilities amortized over 25 years, and for the ancillary services provided from its power station. The rate will increase annually on January 1st by an amount equal to 2% of the tariff in effect during the preceding operating year.

▪ Interconnection Recovery Tariff – to compensate Spy Hill for its cost of capital associated with interconnecting its facilities with SaskPower’s transmission system.

▪ Energy Tariff – to compensate Spy Hill for the natural gas consumed in the course of supplying metered energy.

▪ Starts Tariff – to compensate Spy Hill for the natural gas consumed and equipment wear and tear incurred during the course of starting its facilities and ramping to full load and back down to gas supply shutoff.

▪ O&M Tariff – to compensate Spy Hill for its variable cost of operating and maintaining the power plant. The O&M Tariff, the fixed “per turbine” portion of the Starts Tariff and the LD Cap will increase annually on January 1st by an amount equal to the percentage change in the SCPI (the “All-items Consumer Price Index” for Saskatchewan not seasonally adjusted, as published by Statistics Canada) over the immediately preceding operating year.

▪ Synchronous Condenser Mode Tariff – to compensate Spy Hill for making available or delivering synchronous condenser services to SaskPower.

The total cost of the Spy Hill project is approximately $145 million.

In a joint venture, Aecon Group Inc., Canada’s largest, publicly traded construction and infrastructure development company, and Black & Veatch, a leading U.S.-based engineering, consulting and construction company, were awarded an approximately $60 million contract to build the peaking plant. [Aecon Group Inc., News Release, June 30, 2010]

According to financial records filed by the Saskatchewan Party with Elections Saskatchewan in April 2010, Aecon Group Ltd. contributed $374.64 to the party in 2009.

The baseload PPA was made February 5, 2010, between SaskPower and North Battleford Power L.P., a subsidiary of Northland Power Income Fund.

Under the agreement, North Battleford Power is to construct a nominal 260MW natural gas fired combined cycle power generation station by the target commercial operation date of October 1, 2013. The facility will be constructed on a 20 acre parcel of optioned land located at SW SEC 7 TWP 43 REG 15 W3M in the RM of North Battleford #437. [Schedule A]

On the labour front, the company is required to “give full and fair opportunity in the provision of goods and services and in employment opportunities in connection with the construction and operation of the Facilities to residents of Saskatchewan, all within the context of a competitive business environment.” [Sec. 4.3 (g)]

North Battleford Power is required to procure and arrange for the supply and delivery to its facility all natural gas required to commission, test and operate the plant. However, section 10.2 of the PPA indicates that the company “will receive compensation for the costs of the supply and transportation of all natural gas required in accordance with Schedule D [the tariff and pricing schedule].”

Additionally, the agreement notes that if the rate structure of any of the transporting pipelines changes, then either party may, by notice to the other given within sixty days of the change to the rate structure, require that the variable and fixed gas transportation costs be adjusted or supplemented to reflect the new rate structure and recover what would be the actual costs of transporting natural gas on the pipeline route.

If the parties are unable to agree on such ‘redetermination’ within sixty days the matter will be resolved through a dispute resolution process. [Sec. 10.2]

This would seem to favour North Battleford Power. The pipeline or ‘deemed route’ appears to involve such companies as NOVA Gas Transmission Ltd., EnCana Corporation, TransCanada Corporation, and TransGas Limited. The cost of transporting natural gas is more apt to go up than down.

Similar to the peaking agreement, the baseload PPA contains a tariffs and pricing schedule outlining the amounts payable by SaskPower over the next 20 years. The Wall government is refusing to disclose those as well. [Schedule D]

▪ Capacity Tariff – to compensate North Battleford Power for its cost of capital relating to constructing and maintaining its plant amortized over 20 years, and for the ancillary services and operating reserve provide from the facilities. The rate will increase annually on January 1st by an amount equal to 2% of the capacity tariff in effect during the preceding operating year.

▪ Interconnection Recovery Tariff – to compensate North Battleford Power for its cost of capital associated with interconnecting the power plant with SaskPower’s transmission system amortized over 24 months. Once the final interconnection cost has been determined by SaskPower, the base interconnection recovery tariff will be adjusted up or down in proportion to the difference between the preliminary interconnection cost and the final interconnection cost, retroactive to the commencement of the commercial operation date.

▪ Energy Based Pricing – to compensate North Battleford Power for the natural gas consumed in supplying metered energy and for variable operating and maintenance to produce such metered energy.

▪ Pre-COD Charges – SaskPower must pay the ‘full load price’ (the price for certain of the metered energy expressed in dollars per MW hour) described in section 1.3 (Energy Based Pricing) for all energy delivered prior to the commercial operation date.

▪ Fixed Natural Gas Transportation Costs – SaskPower is required to pay these costs monthly to North Battleford Power. They are subject to adjustment in accordance with section 10.2 (Gas Transportation Costs) of the PPA and section 7.3 of schedule D (Tariff Escalations), which is intended to be a flow through of the fixed tariffs and costs actually paid by North Battleford Power to the transporting pipelines on the ‘deemed route’ to deliver the quantity of natural gas required to produce the full load capacity level at the full load heat rate.

The total cost of the North Battleford project is budgeted at approximately $700 million.

Construction of the facility began in May 2010. It is being built under an engineer, procure and construct contract by Kansas City based Kiewit Power Partners. [Northland Power Income Fund, News Release, August 30, 2010]

Saskatchewan Party financial records show that Peter Kiewit Sons, Co., a subsidiary of Kiewit Corporation, donated $2,267.49 to the party in 2009.

Resistance from SaskPower to privatize power generation was probably non-existent given that since forming government, the Saskatchewan Party has gradually stacked the Crown corporation’s board of directors with party supporters and contributors. The process started on January 22, 2008, when deputy premier Ken Krawetz, the then acting president of the executive council, signed an order in council firing the entire board.

Nine out of the eleven current SaskPower board members appear to have contributed to the Saskatchewan Party either as an individual or through their business. In several instances, the company they work for has also donated to the party. These include:

▪ Joel Teal, Chair, is the president of Dundee Developments/Homes by Dundee. Since 2003, Teal has donated $2,832.87 to the Saskatchewan Party and Dundee Development $11,284.06.

▪ Bill Wheatley, Vice Chair, is managing director, chief compliance officer and general counsel at Greystone Managed Investments Inc. in Regina. In the 1980’s, he served as chief of staff to finance minister Gary Lane in the disgraced Grant Devine Tory government. Wheatley has contributed $34,739.54 to the party since 2003, and Greystone Managed Investments $1,296.64.

▪ Mitchell Holash is a partner in the law firm of Holash Logue McCullagh in Prince Albert. He contributed $723.00 to the party in 2009 and the law firm $500.00 in 2007.

▪ Judy Harwood is the general manager of the Park Town Hotel in Saskatoon. She has donated $1,411.74 to the Saskatchewan Party since 2003.

▪ Michael (Mick) MacBean is the founder, CEO, and director of Diamond Energy Services, which has contributed $4,580.46 to the Saskatchewan Party since 2003. MacBean served as chairperson of the Enterprise Saskatchewan Energy Sector Team, another rat’s nest of Saskatchewan Party supporters. SaskPower was named by the sector team on at least two occasions as being a barrier to development. Once for its “regulations” and the other through “increases in power costs – the monopoly does not provide for competition and choice.” MacBean lives in Swift Current, Premier Brad Wall’s hometown.

▪ Bryan Leverick is the president of Saskatchewan-based Alliance Energy Ltd. Since 2003, Leverick has donated $1,775.00 to the party and the company a whopping $25,910.48.

▪ Ian Coutts, the president and co-owner of Coutts Agro Ltd., contributed $500.00 to the party in 2003.

▪ Lorne Mysko and his wife operate Riverview Bed and Breakfast in Saskatoon. He has donated $257.60 to the party and the business $500.00.

▪ Nick Kaufman is an associate of counsel at McCrank Stewart Johnson Barristers and Solicitors in Regina. Kaufman has contributed $500.00 to the Saskatchewan Party and the law firm $4,469.21.

The remaining two board members, Chief Tammy Cook-Searson and Gina DeVeaux, do not appear to have contributed to the party.

Wall gov’t fires SaskPower board, Jan. 2008

Wall gov’t begins appointing Sask. Party
friends and contributors to SaskPower board, Feb. 2008


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