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Report On Business Canada faces $568-million NAFTA claim by Windstream Energy

Wind turbines near Grand Valley Ontario.

Glenn Lowson/The Globe and Mail

A panel of international arbitrators is beginning a hearing Monday into a massive NAFTA claim by a company that says its planned offshore wind energy project in Lake Ontario was unfairly cancelled.

Windstream Energy LLC is asking for damages of up to $568-million, claiming that its proposed 100-turbine wind farm five kilometres offshore near Kingston had the legs knocked out from under it when the Ontario government suddenly announced a moratorium on offshore wind developments in February, 2011.

The case pits U.S.-based Windstream against the Government of Canada, rather than Ontario, because under the NAFTA process Ottawa is considered to be responsible for the actions of the provinces. The claim was filed under the "Chapter 11" investor protection sections of NAFTA.

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The slow-moving arbitration process has been under way since Windstream first filed a notice of intent to submit a claim in 2012, but it is just now going to a hearing. A three-member panel convened by the Netherlands-based Permanent Court of Arbitration is set to hear arguments at a dispute resolution centre in downtown Toronto. The panelists are investment treaty law experts from Finland, Spain and the United States. Two weeks have been set aside for the hearing.

In its claim, Windstream says it had signed a power contract with Ontario's power authority and had posted $6-million as security, before the moratorium was announced. Under NAFTA, investments by U.S. companies in Canada cannot be expropriated without compensation, Windstream said in its claim, and the moratorium amounted to an expropriation that made its investment in the wind project worthless.

In its filings with the tribunal, the federal government said Ontario had the "right to proceed with caution" on offshore wind, and NAFTA doesn't prohibit "reasonable regulatory delays." The Windstream project was high-risk in any event, the government submission says, and it had no investment value because it could never have been built within the deadlines of the contract.

Under NAFTA, there have been about a dozen Canadian investment disputes that have gone to arbitration and been ruled on or settled. Trade lawyer Larry Herman of Herman & Associates said the government has lost a few, but "the general trend in these investment arbitrations has been to recognize that governments – when it comes to health and environmental protection and various other areas where the public good is at issue – have a right to regulate."

In the few claims that have succeeded, the financial amounts awarded to the claimants were relatively low, he said.

There is one other NAFTA claim in progress that involves Canadian wind farms. Texas oil billionaire T. Boone Pickens's company Mesa Power Group LLC has demanded more than $600-million because it failed to get Ontario contracts for four proposed on-shore wind power projects.

Mesa said political interference doomed its plans, and that preferential treatment was given to other companies. The case was heard by a NAFTA arbitration tribunal in October, 2014, but a ruling has not yet been issued.

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One non-NAFTA dispute over Ontario's offshore wind moratorium involves Toronto-based Trillium Power Wind Corp., which, like Windstream, had planned a project in Lake Ontario near Kingston. It sued the Ontario government for putting the moratorium in place just as it was about to sign a big financing deal for the project.

Trillium's initial claim, filed in Ontario Superior Court in 2011, demanded $2.25-billion in damages from the government, but most of the grounds for the suit were thrown out of court. However, in 2013, the Ontario Court of Appeal said the company could go ahead with one specific allegation – that the government's decision amounted to "malfeasance in public office." The case has not yet gone to trial.

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