Windstream Energy LLC v. The Government Of Canada (I)

Windstream Energy LLC, a U.S.-based renewable energy company, secured a contract under Ontario’s Feed-in-Tariff (FIT) Program in 2010 to develop a 300-megawatt offshore wind energy project near Wolfe Island in Lake Ontario. The FIT Program was designed to promote renewable energy investment by guaranteeing long-term, fixed-premium pricing for electricity sold to the Ontario grid. Windstream’s contract, awarded by the Ontario Power Authority (OPA), required the company to bring its project into commercial operation by May 4, 2015. In February 2011, the Government of Ontario imposed a moratorium on offshore wind projects, citing the need for further scientific research on their environmental impact. This decision significantly impacted Windstream’s ability to proceed with its project, as it prevented necessary testing and created regulatory uncertainty. Windstream contended that this moratorium rendered its project unfinanceable and worthless, given that investors were unwilling to support a project with such high regulatory risks. The company initiated arbitration under NAFTA Chapter 11, seeking CAD 475 million in damages, arguing that Canada had violated its obligations under the treaty by failing to provide fair and equitable treatment, by discriminating against Windstream in favor of other energy developers, and by effectively expropriating its investment. Canada countered that the moratorium was a necessary and legitimate policy decision based on scientific concerns. It further argued that Windstream had not suffered actual expropriation, as the FIT contract remained legally in force and the company’s CAD 6 million security deposit was still recoverable. Canada also maintained that Windstream was not treated unfairly or discriminatorily, as the moratorium applied to all offshore wind developers equally. Jurisdiction: The tribunal, constituted under the UNCITRAL Arbitration Rules, had jurisdiction under NAFTA Chapter 11, which governs disputes between foreign investors and host states. A key jurisdictional issue was whether the actions of the Ontario Power Authority (OPA), an entity responsible for energy contracts in the province, could be attributed to Canada. Initially, the tribunal reserved judgment on this issue, intending to address it during the merits phase. Ultimately, however, it found this question moot, as the breach of NAFTA was attributed to the Ontario government’s conduct rather than any actions of the OPA. This determination allowed the tribunal to focus on whether Ontario’s regulatory decisions violated NAFTA’s investment protection standards. Merits, Damages and Costs: On the claim of expropriation under Article 1110, the tribunal ruled against Windstream. It found that there had been no indirect expropriation because the FIT contract was still in effect, meaning Windstream retained the legal right to develop the project if the moratorium were lifted. Furthermore, the CAD 6 million security deposit remained intact and could still be recovered, undermining Windstream’s claim that its investment had been entirely deprived of value. As a result, the tribunal concluded that Windstream had not suffered a substantial deprivation of its investment, a necessary condition for establishing expropriation. On the claim of minimum standard of treatment under Article 1105, the tribunal found that while Ontario’s decision to impose the moratorium itself was not wrongful, its failure to clarify the regulatory uncertainty surrounding offshore wind development constituted a breach of NAFTA. The tribunal noted that although the government cited scientific uncertainty as justification for the moratorium, it failed to follow through with sufficient research to resolve those concerns. Moreover, Ontario did not take adequate steps to address the legal and contractual limbo in which Windstream found itself after the moratorium. Instead of either completing the necessary studies to develop a regulatory framework or formally terminating Windstream’s contract under the law, the government left the project in an indefinite state of uncertainty. The tribunal ruled that this failure to act was unfair and inequitable, violating NAFTA’s fair and equitable treatment standard. On the claim of discrimination under Articles 1102 and 1103, the tribunal rejected Windstream’s argument that it had been treated less favorably than other energy developers, such as TransCanada and Samsung. The tribunal found that these companies’ projects were not offshore wind projects and thus were not in “like circumstances” with Windstream. Additionally, other offshore wind developers had received even worse treatment than Windstream, as their projects were outright canceled. Consequently, the tribunal dismissed Windstream’s discrimination claim. In determining compensation, the tribunal rejected Windstream’s proposed valuation using the Discounted Cash Flow (DCF) method, which is typically used for projects with an established revenue stream. Instead, it adopted a comparable transactions methodology, assessing the value of similar offshore wind projects in Europe. Based on this approach, the tribunal valued Windstream’s investment at EUR 21 million (CAD 31.2 million) but deducted CAD 6 million to account for the recoverable security deposit. This resulted in a final damages award of CAD 25.2 million. The tribunal also awarded CAD 2.9 million in legal costs to Windstream, requiring Canada to cover 50% of the company’s legal expenses. However, it declined to award pre-award or post-award interest, reasoning that Canada was expected to comply with the ruling promptly. In 2017, the Government of Ontario fully satisfied the award, bringing the dispute to a close. Conclusion: The tribunal found that Canada breached NAFTA Article 1105 by failing to clarify the regulatory uncertainty caused by Ontario’s moratorium on offshore wind projects. However, it dismissed claims of expropriation (Article 1110) and discrimination (Articles 1102 & 1103), ruling that Windstream had not been substantially deprived of its investment and was not in “like circumstances” with favored energy developers. As a remedy, the tribunal awarded CAD 25.2 million in damages and CAD 2.9 million in legal costs to Windstream but denied pre-award or post-award interest. The Government of Ontario fully complied with the ruling, settling the award in 2017.