Quebec Inc. and Ontario renewables: was due diligence done?

Part 2: a look at Axium Infrastructure, and a review of OEB responsibilities

After reading Part 1 of this short series, you might ask, who or what is Axium Infrastructure?

From all appearances, it seems Axium was created by a group of individuals with the help of Fiera Capital Corporation. Fiera Capital Corp.* is a major Quebec-based investment manager with assets under management (AUM) of C$144.9 billion** as of March 31, 2019.   They once held a 35-percent interest in Axium Infrastructure Inc. but U.S. regulations appear to have forced them to divest their holdings, as noted in a press release of December 21, 2015.   The divesture was apparently due to Fiera’s substantial share ownership by National Bank of Canada and Fédération des caisses Desjardins du Québec and related to U.S. banking regulations. The press release stated their 35 percent ownership in Axium Infrastructure was purchased by Axium and the shares were subsequently cancelled.

Finding specific details about Axium’s capital base, financers or assets is difficult. A press release they issued January 3, 2018 claimed “Axium manages dedicated infrastructure funds having approximately C$2.8 billion in assets under management as of September 30, 2017, as well as more than C$1 billion in co-investments.” One should assume those AUM have grown since Sept. 2017.

A visit to Axium’s website starts with the following: “Created in 2008, Axium Infrastructure is an independent investment firm dedicated to investing in core infrastructure assets. The firm is employee-owned, aligning the interests of the management team with limited partners. It benefits from the capabilities of a group of professionals with extensive infrastructure backgrounds. Its management team comprises infrastructure investment specialists with decades of combined experience acquiring, developing, financing, operating and managing infrastructure assets.”

So, who are those employees and “limited partners” who own Axium Infrastructure Inc.? The “team” is identified on the Axium website for all to see, but not the “limited partners.”

The three most senior executives of the “team” are all ex SNC Lavalin employees. Axium’s President & CEO is Pierre Anctil whose bio identifies him as the co-founder of Axium and a former General Manager of the Québec Liberal Party, a position he held from 1988 until early 1994 when he was appointed to the Chief of Staff to the Quebec Premier, Robert Bourassa. Anctil’s bio goes on to note he joined SNC in 1997 and in 2001 was promoted to Executive Vice-President and Member of the Office of the President. He left SNC in early 2008 and shortly after co-founded Axium.

What came to light about Mr. Anctil in the Quebec Charbonneau Commission*** investigation into companies illegally giving money to Quebec’s political parties is interesting. This is from a CTV March 2014 report: “Yves Cadotte, a vice-president at SNC-Lavalin, testified at Quebec’s corruption inquiry that company executives and some of their spouses donated over $1 million to the Liberals and Parti Quebecois between 1998 and 2010.” The article goes on to say, “Cadotte testified former SNC Vice-President Pierre Anctil, a former strategist with the provincial Liberals, handed him the cash to give to Union Montreal fundraiser Bernard Trepanier. The fundraiser shared an electoral office with former executive committee chairman Frank Zampino.”

The Montreal Gazette on November 11, 2014 reported: “The new portions of the affidavit released Monday reveal that two former SNC vice-presidents, Normand Morin and his successor Pierre Anctil, each told police that their job included the unofficial responsibility of monitoring and arranging for political financing. The men said that former SNC-Lavalin CEO Jacques Lamarre informed them of this responsibility, and that they were in contact with businessman and Liberal fundraiser Marc Bibeau to arrange for donations to the Liberals. SNC-Lavalin’s employees acted as straw man donors, Morin and Anctil confirmed, and the company reimbursed them. There were also allegedly cash payments.”

Second in command at Axium is Stephane Mailhot, President & Chief Operating Officer. Mr. Mailhot’s biography on the site notes: “In 1999, Stéphane was named vice president of SNC-Lavalin’s Investment division where he was responsible for the evaluation, negotiation and management of investments in infrastructure and public-private partnership projects.” One of the PPP projects undertaken by SNC, referred to as MUHC (McGill University Health Centre-a $1.3 billion contract) resulted in bribery charges against several SNC employees and a February 2, 2019 CBC article noted: “when Quebec police started digging into the process that led to that contract, they uncovered what one detective called “the biggest case of corruption fraud in Canadian history.” The amount involved in the bribery case was said to be $22.5 million. Despite the police action, SNC-Lavalin sued MUHC for $330 million in respect to that contract, and in an article dated January 8, 2018 apparently agreed to a settlement of $108 million. There was no indication in any of the articles carrying the story about the MUHC bribery charges of any involvement by Mr. Mailhot.

The third former SNC Lavalin executive is Jean Eric Laferrière, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Axium.   Mr. Laferrière’s position with SNC started as Legal Counsel, Legal Service, from June 2000 to Dec. 2006 and he rose through the ranks to become SVP, Legal Affairs from Aug. 2012 to May 2016 when he left and joined Axium. On April 30 2019 a story broke on the CBC related to illegal political donations to the Federal Liberal Party by SNC Lavalin employees and while Mr. Laferrière’s name is not mentioned, one of the non-executive employees commented; “Lefebvre said he understood that the president of the company at the time, Jacques Lamarre, initiated the scheme and that the legal department at SNC-Lavalin had signed off.” One wonders if Mr. Laferrière was aware of this while in the legal department of SNC-Lavalin?

From all information available, it appears none of the top three Axium Infrastructure executives have been charged by the RCMP or Quebec police for the three unrelated criminal events that seem to have taken place while they held senior positions at SNC Lavalin.

Ontario Energy Board and due diligence

It is disconcerting that Ontario’s regulator, the OEB ignored protocol by issuing the generating licence in respect to the application by Nation Rise. They should have overruled the Ministry of the Environment, Conservation and Parks for the issuance of the REA two days before the election writ was dropped. They could also have overruled the IESO for their issuance of the NTP issued before the newly elected government had even named their cabinet ministers. They could also have queried Nation Rise in respect to claiming financing had not been arranged, but appear not to have done so. The other aspect is their “due diligence” in respect to Axium Infrastructure’s majority acquisition of Nation Rise was non-existent.

One should also wonder why it took the OEB over two months to grant the generating licence to EDPR for the Nation Rise project and then only eight days after granting the licence, Axium suddenly announced the majority acquisition of the project? The obvious question is, was the party responsible within the OEB for granting the licence aware of the upcoming acquisition announcement causing them to issue it, or were they oblivious to the upcoming takeover?

Finally, after the OEB received Axium Infrastructure’s newly created subsidiary’s application why would the OEB simply tell them “the OEB does not intend to issue a notice of review of the proposal”? There was no effort made on the part of the OEB to conduct proper due diligence on this file which should be worrisome to all of Ontario ratepayers.

Ontario’s ratepayers will be sending billions of dollars to “Quebec Inc” for intermittent and unreliable renewable energy in the form of wind and solar generation, and our regulator appears to have simply blessed it. The OEB treats its “Vision” as if it doesn’t exist as their treatment in this case fails to promote “outcomes and innovation that deliver value for all Ontario energy consumer.”

There are no outcomes in this case delivering any value for Ontario’s energy consumers.

PARKER GALLANT

 

 

*Fiera Capital, subsequent to the sale of their interest in Axium Infrastructure, formed a wholly owned subsidiary that has also been buying up Ontario renewable generation as noted in an article from January 2017 announcing the purchase of solar assets from NextEra of Florida.                                                                                                                                                               **Fiera’s AUM at $144.9 billion is slightly less than Ontario’s 2019/2020 planned budget spending (before interest costs) of $150.1 billion.                                                                                                                                                                                    ***The commission was created by Jean Charest and launched in October 2011 and cost $45 million.

 

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“Quebec Inc” scoops up Ontario renewable energy projects

Valuable contracts with above-market rates for wind and solar power are attracting investor attention

Perhaps unbeknownst to many, Ontario’s electricity ratepayers are accumulating debt in the electricity file (Fair Hydro Plan or FHP); that debt will reappear in future years to ensure electricity rate increases exceed inflation by a wide margin.

The cause of the FHP debt can be traced to the Green Energy Act (GEA) and the FIT and MicroFIT contracts handed out by the Ontario Liberal Government under Premiers McGuinty and Wynne.  Those lucrative above-market (confirmed by the Auditor General) contracts were granted to mainly foreign-owned companies. The companies rushed to Ontario to take advantage of the above-market rates offered for renewable energy of the wind and solar variety.

Many of those foreign-owned companies are now leaving Ontario, cashing out on the lucrative contracts by selling them to willing buyers. Our provincial neighbour “Quebec Inc.”, with its cheap electricity prices, is rushing in to scoop up many of those contracts along with others like the Canada Pension Plan Investment Board (CPPIB). The latter purchased NextEra’s portfolio (Head Office Florida) of 396 MW of wind and solar contracts, paying $1.871 million per MW for a total of $741 million CAD and assuming the debt (US $689 million).

“Quebec Inc’s” acquisitions are more “under the radar” and most costs are unknown, but some of the bigger investment players with Quebec headquarters are very active.

The one recent acquisition from “Quebec Inc.” caught the attention of many in Eastern Ontario was the purchase of a controlling interest in the unbuilt 100-MW Nation Rise wind power project in North Stormont, south of Ottawa. When newly elected Premier Ford’s government announced they were cancelling 758 renewable wind and solar energy projects, most Ontarians thought Nation Rise would be one of: it wasn’t. Somehow the bureaucrats in the former Ministry of the Environment and Climate Change managed to issue the REA (renewable energy approval) just a few days before the election writ was dropped despite wind power and this project in particular being a prominent election issue.

To top things off, the IESO (Independent Electricity System Operator) were satisfied that EDPR had met their “key development milestones” and issued the NTP (Notice to Proceed) on June 13, 2019, days after the election and weeks before the Ford government announced the new cabinet.

When the approval became public, community group Concerned Citizens of North Stormont, stepped up their fight to stop the power project.

Project developer EDPR then sold off controlling interest in the Nation Rise project along with other existing operating projects. Before that happened however, EDPR submitted an application dated October 11, 2018 to the Ontario Energy Board (OEB) for a electricity generation licence. Question 13 of the application asks the question; “Has the applicant secured financing?”

EDPR ticked the NO box.

The OEB appears to have overlooked the lack of secured financing (based on the application) and granted the licence December 20, 2018 without comment.

EDPR is a subsidiary of EDP a global energy company with its headquarters in Portugal and with significant renewable energy assets in North and South America. With 2,300 industrial wind turbines in the USA, EDP rank third in installations.

EDP has been a takeover target for several years by Three Gorges, a Chinese state-owned company who are already a significant shareholder. Because of the Chinese state ownership the US government expressed concerns with the possible purchase by Three Gorges. The principal concern is the volatility of US electricity grids and security issues surrounding them. Other EU countries with EDP electricity generation assets are also concerned with grid security issues in the event of a takeover by Three Gorges.

In the midst of takeover buzz, EDPR suddenly sold off controlling interest in some of their North American generation assets to a Quebec-based company, Axium Infrastructure Inc. Eight days after the OEB blessed the EDPR licence application for Nation Rise, Axium issued a press release announcing they had closed an agreement to acquire an 80-percent interest in three wind power projects, totaling 499 MW in the U.S. and Canada from EDPR.

Nation Rise was one of those acquired.

A month and a half earlier, Axium was the lead investor in the purchase from U.S.-based Pattern Energy Group of a 90-MW minority interest in the 270 MW K2* wind generation project. The purchase price was CAD $216 million.

Following OEB’s approval of the EDPR Nation Rise generation licence, Axium Infrastructure submitted an application to the OEB dated January 14, 2019 seeking approval of their majority (80 percent) acquisition. The application form asks no questions about financing, nor does it ask questions about bankruptcy or criminal issues for either the company or individual officers, unlike the “generation licence” application format.

The application to the OEB indicated Axium held investments in seven of Ontario’s wind turbine developments and 19 solar projects. It also included the following: “After completion of the Proposed Transaction and the Project, Axium and its affiliates will have a generation capacity of 1,050 MW** on a gross basis and 563 MW on a net basis within the Province of Ontario.”

On February 28, 2019 Axium issued a further press release reporting they acquired a 50-percent interest in a 101-MW solar portfolio in Ontario from Mitsubishi Corporation.

In short, Axium has been very aggressive in acquiring Ontario’s foreign-owned wind and solar projects and Ontario’s regulator, the OEB, have blessed everything Axium has done.

That’s obvious if one reads the short letter dated February 14, 2019 from the OEB notifying  Axium about their Nation Rise acquisition: “the OEB does not intend to issue a notice of review of the proposal.”  Was this due diligence?

Tomorrow, in Part 2 of my look at the “Quebec Inc” acquisition spree, I will attempt to explore who is behind Axium Infrastructure, the interaction with the Ontario Energy Board and how the latter executes its Vision: “The OEB supports and guides the continuing evolution of the Ontario energy sector by promoting outcomes and innovation that deliver value for all Ontario energy consumers.”

PARKER GALLANT

 

*K2 was a Samsung project commissioned in September 2015 so has about 17 years left in its contract and if it operated at 30% of capacity would generate approximately $540 million in gross revenue over the remaining term of its contract for the 90 MW of capacity now owned by the Axium consortium.                                                                                                                                 **That amount of renewable generation would represent approximately 14% of all current operating renewable wind and solar in Ontario.

 

 

 

The political web of EDPR and the Nation Rise wind power project

 

The power from Nation Rise would be like a fly on an elephant in terms of Ontario demand. Cancelling would save hundreds of millions.

Last week, a news article appeared in the Nation Valley News reporting the local Conservative MPP, Jim McDonell’s response to a question asking on why the government hasn’t cancelled the 100-MW Nation Rise wind power project. Mr. McDonell said, “We’ve always been clear: We would cancel any project we could cancel economically,” and he added “… we just can’t spend a billion dollars to cancel a project and get nothing from it.”

The same day, a press release from the Ford government noted that Premier Doug Ford told people attending the annual Rural Ontario Municipal Association (ROMA) conference, that “We’re lowering electricity costs”

I am at a loss to explain Mr. McDonell’s suggestion that cancellation of the Nation Rise IWT project would cost the same as the McGuinty/Wynne gas plant moves, but that’s what he said. It’s worth a look back at how this power project came into being, as it illustrates the disaster that has been Ontario energy policy for the last 15 years.

The Nation Rise wind project was one of five awarded contracts in March 2016; after that, its history gets really interesting … and very political.

Cost of the project

The Independent Electricity System Operator (IESO) at that time noted the average price for all the projects proposed was $85.90/MWh (or 8.5 cents per kWh). Over 20 years that would produce revenue of about $450 million, or less if their bid was lower than the average..

If the project were cancelled, no court would award them the full contract amount; it is more likely the government would be on the hook for perhaps 5 to10 % of that amount (on the high side).

There is no doubt that cancelling this project would save Ontario citizens hundreds of millions.

Timing of the approval

According to the Environmental Registry the Nation Rise entry for the Renewable Energy Approval or REA is dated May 7, 2018 and indicates it was loaded to the registry May 4, 2018.  That is just four days before the writ was drawn up by former Premier Kathleen Wynne, formally announcing the upcoming Ontario election.  It was known* the voting date would occur on June 7, yet the REA — a major decision — was given by the Ministry of the Environment and Climate Change (MOECC).  At that time, not only were polls forecasting a defeat for the Liberal government, “electricity prices” and hydro bills were a major election issue. The MOECC issued the decision anyway.

Is the power needed?

In 2015 (before the IESO called for more wind power proposals) Ontario had a huge surplus of generation. Our net exports (exports less imports) were 16.8 TWh (terawatt hours) or enough to supply almost 1.9 million average households (over 40% of all Ontario households) with their electricity needs for a full year.  It cost ratepayers an average of 10.14 cents/kWh to generate that power which was sold for an average 2.36 cents/kWh, representing a cost of $1.3 billion to Ontario’s ratepayers.

Due to the highly intermittent nature of output from wind turbines, the IESO’s projections of long-term capacity use only 12% of the nameplate capacity for wind power installations when calculating their contribution to overall capacity. So for Nation Rise, the IESO is projecting that the useable contribution of the project will be 105,120 MWh — just .0765% of the IESO’s forecast power consumption of 137.4 TWh. That is a fly on the flank of an elephant, in my estimation.

Cancellation of Nation Rise would not affect the long-term supply of electricity for the people of Ontario.

Worse, adding more capacity, particularly from an intermittent source, could result in more spilling of hydro, more curtailment of wind power generation, additional nuclear shutdowns or steam-off, all of which would drive Ontario’s electricity bills rates higher.

Property value loss

The property losses in value caused by the presence of 33, 650-foot industrial wind power generators throughout the countryside in the Nation Rise project will be in the tens of millions of dollars according to a study which notes: “Using research completed recently by a land economist with the University of Guelph and published in Land Economics, Wind Concerns calculates that overall, the property loss for houses within 5 km of the 33 planned turbines could be $87.8 million. Using other research that is less conservative, however, the property value loss could be more than $140 million.”

A loss of either magnitude would impact North Stormont’s realty tax base leading to either significant drops in revenue for the township or realty tax increases as a multiple of the COL (cost of living).

And then there’s the water

One condition among many in the REA given to EDP/Nation Rise was related to identifying and mapping all water wells in the project area within a set range of any proposed equipment, meteorological tower or wind turbines. This was due to concerns about construction activities on the local aquifer. While EDP identified 444 wells, the community group says there are more than 800 homes within the immediate project. Water wells in other areas of Ontario and elsewhere have become contaminated allegedly due to drilling and vibrations from wind turbines. There is significant concern about contamination of the wells, and the assessment taking place.

North Stormont is dairy farm country, and each farm operation uses thousands of litres of water every day — what would be the effect on these businesses, and Ontario’s food supply, if suddenly, the water wells were not functioning?

Who is EDP?

EDP (parent of EDPR) is a Portuguese utility company partially owned by two of the Chinese government’s companies; China Three Gorges (23.27%) and CNIC Co., Ltd., (4.98%) and the former has been trying for several years to acquire the balance of the shares. That attempt is speculated to be off; however, a recent NY Times article suggested otherwise, based on discussions with Portugal securities regulator CMVM.

Where is democracy?

North Stormont, where the Nation Rise wind project is planned, declared itself an “unwilling host” in 2015, well before the award of the contract or the issuance of the REA. The people perhaps relied on promises made by former energy minister and Ottawa Liberal MPP, Bob Chiarelli, when in 2013 he declared: “It will be virtually impossible for a wind turbine, for example, or a wind project, to go into a community without some significant level of engagement”. Despite their council passing the unwilling host motion, and also joining the 117 Ontario municipalities demanding a return of local land-use planning for energy projects, the IESO still granted Nation Rise the contract.

There are many questions about this project and many reasons why it simply isn’t needed. Cancelling this contentious project is a perfect way to lower future electricity costs, directly.

PARKER GALLANT

*The Toronto Star reported in an article dated October 19, 2016 the next Ontario election would be on June 7th, 2018