When the Ontario government awarded a little-known company a contract to build two gas-fired power plants near Toronto in 2005, the move was hailed as a win for the environment, hydro consumers and the province's electricity system.
The company, Eastern Power Ltd., had never done anything that size before. But the government insisted the bid had been thoroughly vetted and Eastern would have to meet strict performance terms.
Today, the project is in tatters, an embarrassing and costly bruise on Dalton McGuinty's nine-year tenure as Premier of Ontario.
It has been scrapped without producing a single kilowatt of electricity. The project fell victim to the governing Liberals' promise in the dying days of last year's provincial election campaign to cancel it if re-elected because of mounting local opposition. The pledge helped save four Liberal seats in the area and secure Mr. McGuinty's minority government.
But at what cost? A review of thousands of internal government documents by The Globe and Mail reveal the troubled history of the plant, dubbed Greenfield South, and the lengths the government had to go to cancel the project. Officials in the energy sector also question whether Greg and Hubert Vogt, Eastern's owners, had the experience to take on such a large project.
The Vogts did not return several telephone and e-mail messages.
The brothers had been in the power business for years, but on a much smaller scale. Trained as engineers at the University of Toronto, they had pioneered a technology in the 1980s that turned trash into energy and won acclaim for building small methane-fuelled power plants at two landfill sites near Toronto. They came along at an opportune time, just as the government was looking to private players to produce power to help meet the province's growing electricity needs.
The brothers couldn't be more different. Greg is described as outgoing, confident, almost cocky. "He thinks he's the smartest guy in the room," said one lawyer who has tangled with him. Hubert is more reserved and rarely takes centre stage. One government official who worked at Eastern described the brothers in an internal e-mail as "secretive" and "private."
By the early 1990s the Vogts had become poster boys for the private-power movement and green energy in particular, so much so that Ontario Hydro featured them on the cover of a brochure. But privately, among some Hydro officials, the Vogts were known for something else, suing on several occasions.
Their first salvo came in 1998 when the Vogts sued Ontario Hydro over their 1994 power contract at one of the landfill sites, a 33-megawatt facility known as Keele Valley. The Vogts had been arguing about the 20-year contract for years and now demanded $121-million in damages. Other lawsuits followed, including one against the City of Guelph over a failed recycling venture. The Vogts eventually lost that one but the Hydro action dragged on for years.
None of that seemed to matter in 2005 when the Ontario government began looking for companies to build gas-fired power plants to address the province's looming electricity crisis and replace pollution-spewing coal-fired plants with cleaner sources of power.
"We were in a very urgent supply deficit situation at the time," said Jan Carr, former chief executive officer of the Ontario Power Authority, the agency created in 2005 as the government's electricity planning arm.
The Vogts joined the bidding, facing off against giants such as Alberta's TransCanada Corp . In the spring of 2005, Eastern Power won two of six contracts awarded, for a pair of plants in Mississauga. "They succeeded beyond their wildest dreams," Dr. Carr said.
The projects, dubbed Greenfield North and South, were each supposed to produce 280 megawatts of power, nearly ten times more than Eastern's landfill operations.
It didn't take long for problems to develop. Within three months of winning the contract, the brothers scrapped Greenfield North because they couldn't get financing. One month later, they tried to suspend the entire contract, citing delays in environmental reviews. More delays ensued and soon the OPA agreed to push back the date Greenfield had to produce power to 2014 from 2009. The agency also boosted Eastern's guaranteed revenue under the contract by 50 per cent to help cover mounting costs.
"Were we just being nice to them in agreeing to all this?" one OPA official asked in an internal e-mail dated Oct. 13, 2011. "It seems we made them a nice deal."
Meanwhile, local opposition to the plant was building, largely over concerns about its proximity to a hospital. The Vogts did little to ease residents' anger, recalled Greg Rohn, who chaired the Coalition of Homeowners for Intelligent Power.
By 2008 the Vogts had other challenges. An Ontario judge finally ruled on their 1998 lawsuit against Hydro, dismissing all but one small claim. In her decision, Madam Justice Denise Bellamy questioned Greg Vogt's testimony as unreliable and praised Hydro's witnesses as honest and truthful. She reluctantly set damages at $5-million for Eastern. The Vogts appealed, arguing damages should be at least $8.5-million and the appeal court ordered another hearing.
Back at Greenfield, the Vogts managed to secure construction financing in May, 2011, with a group of hedge funds led by Washington-based EIG Management Co. The terms were onerous. Greenfield could only borrow money on a monthly basis to cover approved construction costs and the $260-million arrangement carried a 14-per-cent interest rate.
The Vogts started construction in July and did not stop until November, when the government agreed to settle their Hydro lawsuit for $10-million – twice what the judge had suggested. That was just the start. The government shelled out a total of $180-million to pay off Eastern's suppliers, compensate EIG and help Eastern relocate the plant.
Dr. Carr said the aborted project symbolizes all that is wrong with the McGuinty government's "deeply flawed approach" to meeting the province's energy needs. "It's a breach of trust," he said.
Mr. McGuinty abruptly resigned and prorogued the legislature, just three days after the government released thousands of pages of documents about the compensation. He is making no apologies. "What stories have arisen as a result of those 56,000 pages of documents?," Mr. McGuinty said on CBC Radio this week. "Nothing, because we were up front and honest about everything."