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Ontario had awarded Eastern Power Ltd. the contract to build a Mississauga gas-fired generating station in 2005.Fernando Morales/The Globe and MAil

Ontario's governing Liberals were at a loss on how to make good on a campaign pledge to halt construction on a power plant west of Toronto, allowing the developer and its financial backers to gain the upper hand in negotiations and extract lucrative settlements, documents show.

The government paid $10-million to settle an unrelated lawsuit with the developer – twice what a judge recommended – and paid a group of hedge funds $30-million more than they put up for the project, according to thousands of pages of correspondence and court documents reviewed by The Globe and Mail.

The Liberals ultimately paid $190-million to cancel a power plant that would have cost about $350-million to build.

The documents reveal that Premier Dalton McGuinty's government scrambled to contain the fallout from cancelling the Mississauga plant, a decision the opposition said was motivated by a desire to save Liberal seats in the 2011 provincial election.

At one point, the government hired a team of Bay Street lawyers for three days, with one charging $625 an hour, to provide "expedited" advice, the documents show. The government also became ensnared in lawsuits in Ontario and New York, where the hedge funds were accused of demanding a "criminal rate" of interest.

The government released 56,000 pages of documents in connection with the two power plants, one in Mississauga and another in Oakville, under orders from the Speaker of the Legislature.

It released a second tranche of 20,000 pages just three days before Mr. McGuinty announced on Oct. 15 that he was resigning after nine years in office and that he had asked the Lieutenant-Governor to prorogue the legislature. All business has ground to a halt, including committee hearings into allegations that the government had not disclosed all the documents or revealed the true cost of cancelling the power plants.

The documents shed light on why it took nine weeks to stop construction on the Mississauga power plant and why the tab kept growing for taxpayers during the 10 months it took to settle the matter.

Project Vapour Lock, as it was known inside government, consumed the attention of Mr. McGuinty himself, as well as officials in cabinet office and in the ministries of the Attorney General and Energy. This is not to be confused with Project Vapour, the code name for the cancelled Oakville plant, where construction had not yet started.

"There would never be that kind of panic unless there was political direction," said Progressive Conservative MPP Rob Leone, who tabled the motion for the documents last May and who questioned the absence of documents from government officials.

The Mississauga situation was especially problematic for the government because construction was well under way when the Liberals made their mid-campaign announcement on Sept. 24, 2011, that they would relocate the plant if re-elected. The government had awarded an iron-clad contract to Eastern Power Ltd. back in 2005 to build a 280-megawatt, gas-fired power plant. Once re-elected, it could not simply tear up the contract.

About 20 per cent of the plant was built by the end of September, 2011. As 90 building tradesmen worked at the site, preparing the foundations and supporting structure for the gas turbine, which Eastern had already purchased, and generator, Mr. McGuinty was telling reporters that "talks are continuing" when asked when construction would stop.

"That's not working for him any longer," Giles Gherson, deputy minister of policy and delivery in cabinet office at the time, said in an e-mail to Colin Andersen, chief executive officer of the Ontario Power Authority.

The day after the Oct. 6 election, Mr. McGuinty sought the advice of Shelly Jamieson, cabinet secretary at the time.

"He has asked for staff to be creative," says an Energy Ministry official in an e-mail to a colleague. Ms. Jamieson, meanwhile, "asked the Premier to caution political staff not to talk about options, make promises, etc."

The government examined the pros and cons on a number of options, including unilaterally cancelling the contract, passing legislation to terminate it or even having Eastern Power finish building the plant but making sure it would never operate, the documents show.

At the direction of the Premier's Office, the Ontario Power Authority, the agency that was in the unenviable position of having to negotiate with Eastern Power and EIG Management Company, the group of Delaware and Cayman Islands hedge funds, reached out in October of 2011 to the company to begin discussions.

But bureaucrats at the OPA soon learned that if they wanted Greg and Hubert Vogt, Eastern Powers's owners, to stop construction, first they had to resolve the brothers' long-standing legal dispute with the old Ontario Hydro over a separate contract involving a small power plant they built at a landfill site in Vaughan, north of Toronto.

An energy ministry official said Greg Vogt was "adamant" about linking a settlement of litigation over the landfill site with talks on the gas plant. "If Vogt continues to be SOB then what's next?" the official asked in an e-mail.

The Ontario government paid a $10-million settlement to Eastern Power – twice as much as a judge recommended – and construction stopped at the Mississauga site last Nov. 21. The government agreed last July to pay $85-million to an Eastern Power subsidiary, $88-million to the hedge funds and another $7-million for site-specific costs.