Panel orders TransAlta to return coal generation units to service

July 26, 2012

On July 23, 2012, TransCanada Corporation announced that it received a favorable ruling from an independent arbitration panel regarding its dispute with TransAlta Corporation over TransAlta’s force majeure and economic destruction claims.

In December 2010, TransAlta shutdown two coal-fired generation units at its Sundance power plant just west of Edmonton (the Units) after testing revealed problems with the boiler tubes. TransAlta declared that the Units could not be economically repaired and claimed force majeure and economic destruction. TransAlta issued a formal notice of termination of the Power Purchase Arrangement (PPA) with respect to the Units in February 2011. TransCanada rejected these claims and the matter was referred to the arbitration panel pursuant to the dispute resolution provisions of the PPA.

The arbitration panel dismissed TransAlta’s economic destruction claim and upheld the PPA, ordering TransAlta to repair and rebuild the Units. The panel limited TransAlta’s claim for force majeure to begin from November 20, 2011, and to run until such time as the Units are restored and returned to service. TransAlta estimates the cost to repair the Units at about $190 million. The arbitration panel stated that TransAlta must now decide how it will honour this decision and establish a reasonable schedule to return the Units to service.

Under the PPA, TransCanada is entitled to 100 per cent of the generating capacity of the Units until the PPA expires at the end of 2017. Until the Units are returned to service, TransCanada will not realize these revenues, but it will be relieved from making capacity payments to TransAlta during that time.

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