Memo to OPA re DRAFT Contract Ontario Power Authority

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Memo to OPA re DRAFT Contract Ontario Power Authority Powered By Docstoc
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                                                                                          Oakville, Ontario
                                                                                          Canada L6H 7H7

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To:            Ontario Power Authority
From:          Algonquin Power
Date:          July 16, 2008
Re:            Comments on FIT Contract

Section 1.5(b): This section discusses the possibility of the OPA making changes for “Other Suppliers”.
Suggest revising to “Other Suppliers who have similar Supplier’s Economics”.

Section 1.6: suggest adding after “the economic effect” the words “and legal intent”.

Section 2.1(a): suggest adding after “all relevant” the words “and material”.

Section 2.2(c) suggest detailing the principles for approvals.

Section 2.2(d) and similar clauses that allows for prior approval by OPA: suggest putting in a timeframe
for approval.

Section 2.4: The Pre-Construction Development Costs are to be paid from OPA to the Supplier. Suggest
that engineering, procurement and construction services costs should be included.

2.4 (b)(iii): there may be other reasonable conditions other than just the issuance of a notice to proceed,
dictated by e.g., banks, laws and corporate governance requirements.

2.4(c ) indicates that the OPA may keep the Initial Security. This does not seem fair in instances where
failure to complete the NTP Request is caused by items outside the control of Supplier.

Section 2.5: Suggest revising to “The Parties agree to use best commercial efforts to cause Commercial
Operation to be achieved in a timely manner…” because it cannot be guaranteed and we would not want
to therefore be in breach. S

Section 2.7(a) suggest: all applicable “material” requirements

Section 2.7(b): suggest allowing for delivery to another location/ if agreed to by OPA.

Section 2.7 (c ): suggest allowing for supplementation of different or new or differently described
Renewable Fuels in the future.

Section 2.8: Do not understand why the OPA needs to have insurance rights as though it was an owner of
the Facility or a lender.

Section 2.8(c): Suggest that this paragraph is not needed if Supplier covenants to comply with Laws.
Also here the OPA is speaking to the practices of the Supplier, which are within the Supplier’s and not
OPA’s domain.

Section 2.10: Do not understand why the benefits of environmental legislative regimes that are targeted to
owners should be transferred to the OPA.

2.10 (c ): requirement that the OPA provide approval to costs prior to them being incurred. Suggest that
the costs just be submitted and justified after the fact for expediency purposes.

3.2: similar to 2.10: Do not understand why the benefits of ecoENERGY should be shared with OPA.

3.3: The definition of Related Products is tied to the future in that it is ties to a Facility that does not yet
exist, but the definition of Future Contract Related Products also is future oriented. The definitions

4.1: suggest revising so that Supplier notifies the OPA of “material” errors and omissions in any such

5.4(d): suggest that there is no principled reason for Force Majeure to also extend the date for providing
the security.

Article 9: there is mention of cure periods and extensions thereto. It is suggested that the extensions
should not be for a specific number of days, but rather should be for so long as reasonably required to
cure, or wording to that effect.

Section 7.1(b) allows a Receiving Party to disclose Confidential Information in connection with any
litigation unless the party obtains a protective order. In the context of litigation it may be that the
Confidential Information is subject to some form of privilege. Would the protective order contemplated
by this section extend to a claim for privilege in the context of litigation?

Section 7.1(d) states that the Supplier consents to the disclosure to Company's Representatives, on a
confidential basis, of any information received by the OPA in respect of this Agreement and for such
internal purposes as the OPA may reasonably determine from time to time. We would prefer that the
disclosure not be for "such internal purposes as the OPA may reasonably determine from time to time".
We have no way of knowing about the content or use of information disclosed for such internal purposes.

9.2(a) provides for the remedy of termination, and 9.2(b) (i) and (ii) provide for remedies of money
payments “in addition to the remedy set out in 9.2(a). The same concept, ie. that there can be termination
and payments, is also in 9.2(d). The Supplier is of the view that the remedies available should be either
termination and the payment of amounts owing up until the date of termination or the payment of
specified amounts arising from the particular Event of Default. If the OPA terminates, then the Agreement
is terminated and the payment amounts set out in the Agreement should no longer be available: the OPA
should have to prove actual damage in a damages claim.

9.2(d) remedies that allows the OPA to set off payments and draw on the Completion and Performance
Security: it should be clarified that the amount of set off or draw should be limited to the amount of
damages incurred by the OPA arising from the Event of Default. This may be less than the amount of the
Completion and Performance Security, and if the OPA takes the full amount of the security, it will be
unjustly enriched.

9.2(a) – is there a time frame for terminating?

The sections that provides for the payment of liquidated damages in (i) and (ii). These are generally
considered to be a genuine pre-estimate of damages, and not a penalty. Would like to understand/ see the
estimations of damages that support the view that these are genuine pre-estimates of damages.

Section 9.2(d) provides that if the Agreement is terminated for certain reasons, the OPA has an option. It
is not clear what the option is, because the next sections just indicate the different remedies available
depending on the time of the Termination Date. 9.2(d)(i) provides wording of what occurs if the
Termination precedes the Commercial Operation Date, and 9.2(d)(ii) provides wording of what occurs if
the Termination is on or after the Commercial Operation Date.

-      In the first case, Supplier shall pay as liquidated damages a sum equivalent to the amount of
       security provided by Supplier, and the OPA shall be entitled to retain all security provided by the
       Supplier and exercise all other remedies available to the OPA.

-      In the second case, the OPA shall be entitled to retain all security and exercise all other remedies
       available to OPA .

It appears that these 9.2 sections are stating that if termination occurs prior to the Commercial Operation
Date, then Supplier has to pay liquidated damages, AND the OPA can retain all security AND the OPA
can sue for damages. This wording appears to allow recovery in three different ways for the same
damage. It also appears that these sections are stating that if termination occurs on or after the
Commercial Operation Date, then the OPA can retain all security AND the OPA can sue for damages.
This wording appears to allow recovery in two different ways for the same damage. It is submitted that in
both cases the recovery should be either actual damages as proven or a genuine pre-estimate of damages.
The comments made above relating to the interplay of the termination and the damages remedy apply here
as well.

Section 10.1(b) obligates that party claiming Force Majeure to provided notice within 10 Business Days
of the date that it knew or ought to have known that the event could impact the schedule. We suggest that
the determination of the time when a party ought to have known whether a Force Majeure event could
impact the schedule is a determination made after the fact, and the Supplier should not be in breach or
disentitled to invoke Force Majeure (as indicated in 10.2(g)) if it is not able to make such determination
with the 10 Business Days of this retroactively determined date.

Certain sections (10.1(c))requires the invoking party to remove the Force Majeure. It is suggested that in
situations like an act of God, it is not the Force Majeure event that needs to be removed, but rather the
effects or impacts of the Force Majeure event.
Section 10.1(f) provides for the extension of a Milestone Date. Subsequent Milestone Dates would
logically need to be extended by the same amount of time.

Sections 01.1(g), (h) and (i) all provide wording that termination will occur “without any costs or
payments of any kind to either Party”. We suggest adding after “or payment” the words “or liability”.

The Section 10.2(f) exclusion speaks to “other financial cause”. It is not clear what this means. Suggest
revising to add

We has several comments on the definition of Force Majeure in section 10.3. Section 10.3(d) basically
indicates that Force Majeure for strikes/labour disputes can only be claimed if the strike/labour dispute is
a general industry strike. A party is not able to control strikes/labour that are not part of a general
industry strike/labour dispute, and these localized strikes/labour disputes should also constitute a Force
Majeure. A covenant could be added that the Supplier would use Reasonably Commercial Efforts to
settle the strike/labour dispute.

10.3(e) speaks to delay or disruption in supply of fuel. It is submitted that delay or disruption in the
supply of any other required inputs should also constitute Force Majeure in accordance with the terms of
this Section.


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