Kate Chisholm gets nod for coal talks

DEAL-MAK­ING AWARD

National Post (National Edition) - - FINANCIAL POST - JIM MIDDLEMISS

Kate Chisholm has seen a fair share of deals over her nearly 30-year ca­reer as a lawyer, and she knows that deal­mak­ing comes in all shapes and sizes.

In fact, it’s not al­ways the merger and ac­qui­si­tion deal with the most ze­ros that has the big­gest im­pact on a com­pany, says the se­nior vi­cepres­i­dent, le­gal and ex­ter­nal re­la­tions, at Cap­i­tal Power Corp.

That was the case in the deal that made her the re­cip­i­ent of the 2017 WCGCA deal-mak­ing award. Chisholm was ac­knowl­edged for her work in ne­go­ti­at­ing a $734-mil­lion com­pen­sa­tion agree­ment with the Al­berta gov­ern­ment over its plan to phase out coal-gen­er­ated elec­tric­ity by 2030.

Ed­mon­ton-based Cap­i­tal Power, a growth-ori­ented North Amer­i­can power pro­ducer, de­vel­ops, ac­quires and op­er­ates power gen­er­a­tion in­volv­ing a va­ri­ety of en­ergy sources. In 2009, the com­pany, which now owns more than 4,500 megawatts of power gen­er­a­tion at 24 fa­cil­i­ties, was spun out of Ep­cor Util­i­ties Inc., the City of Ed­mon­ton’s power com­pany.

Chisholm says the Al­berta gov­ern­ment’s de­ci­sion to scrap coal-fired power gen­er­a­tion would have “stranded” bil­lions of dol­lars in cap­i­tal in­vest­ment that power com­pa­nies had made there.

“This was go­ing to wipe out a lot of our share­hold­ers’ in­vested cap­i­tal,” she says. The com­pany’s stock price be­came “very vo­latile,” set­ting up for some tough ne­go­ti­a­tions.

It didn’t help that at the time of the Novem­ber 2015 an­nounce­ment, the newly elected NDP gov­ern­ment was still get­ting its feet un­der it. It was grap­pling with fi­nan­cial mar­kets and un­der­stand­ing the com­plex­ity of the elec­tric­ity mar­kets and the im­pact of elim­i­nat­ing coal.

Adding to the prob­lem was a law­suit the gov­ern­ment had brought against a num­ber of power pro­duc­ers, in­clud­ing Cap­i­tal Power. It tar­geted firms that had ex­er­cised clauses in their power-pur­chase agree­ments al­low­ing them to walk away from deals to buy elec­tric­ity from coal­fired fa­cil­i­ties that had be­come un­prof­itable un­der the new reg­u­la­tory regime.

Al­berta was Cap­i­tal Power’s core mar­ket; much of the prov­ince’s power comes from coal. “There isn’t a hospi­tal, school or any­thing that isn’t re­liant on coal,” Chisholm says.

That led to ne­go­ti­a­tions, which lasted al­most a year, be­tween the gov­ern­ment and power pro­duc­ers; Chisholm led Cap­i­tal Power’s ne­go­ti­at­ing team. She says the en­vi­ron­ment was much dif­fer­ent than a typ­i­cal M&A deal. “If a deal falls apart, both par­ties walk away and there is no dam­age. There was no walk­ing away from this.”

And, “we were ne­go­ti­at­ing un­der a mi­cro­scope,” she says of the pub­lic at­ten­tion on the deal.

The ne­go­ti­a­tions were in­tense; one of Cap­i­tal Power’s ob­jec­tives was to set­tle the prov­ince’s law­suit as part of the com­pen­sa­tion deal.

The big­gest chal­lenge in such ne­go­ti­a­tions, she says, is that “ev­ery­one per­ceives there would be a win­ner and a loser. The art is turn­ing it around so that it be­comes a win-win.”

That means find­ing com­mon ground. “You re­ally have to talk through what are peo­ple’s fun­da­men­tal ob­jec­tives,” and thereby build trust.

Al­berta achieved its car­bon emis­sion re­duc­tion num­bers, while the pro­duc­ers that agreed to set­tle their claims will be paid from a car­bon tax be­ing im­ple­mented as part of the gov­ern­ment’s Climate Lead­er­ship Plan. Cap­i­tal Power will re­ceive an­nual pay­ments of $52.4 mil­lion for 14 years, and it agreed to con­tinue to par­tic­i­pate in Al­berta’s elec­tric­ity mar­ket.

At the time of the deal, Cap­i­tal Power CEO Brian Vaasjo said in a state­ment that “the set­tle­ment is rea­son­able be­cause it re­pays share­hold­ers for the strand­ing of cap­i­tal due to the 2030 trun­ca­tion of coal emis­sions, while also rec­og­niz­ing the po­ten­tial for ex­tend­ing the eco­nomic lives of cer­tain fa­cil­i­ties through con­ver­sion to nat­u­ral gas.”

He added, “the prov­ince com­mit­ted to im­ple­ment its Climate Lead­er­ship Plan in a way that would be fair to com­mu­ni­ties, com­pa­nies and work­ers, and avoid un­nec­es­sar­ily strand­ing cap­i­tal. To­day’s agree­ment ful­fils that prom­ise to our share­hold­ers.”

Fi­nal­ists in the deal mak­ing cat­e­gory in­cluded: M. Joanna Cameron, vi­cepres­i­dent, le­gal and gen­eral coun­sel of NexGen En­ergy, Ltd.; Ran­dall C. Chatwin, vice-pres­i­dent and as­sis­tant gen­eral coun­sel of Gold­corp Inc.; Deepk Hun­dal, vi­cepres­i­dent, gen­eral coun­sel and cor­po­rate sec­re­tary, Ero Cop­per Corp.; Ke­van King, se­nior vice-pres­i­dent and gen­eral coun­sel, Vere­sen Inc.; and Dar­ren J. Watt, se­nior vice-pres­i­dent, gen­eral coun­sel and cor­po­rate sec­re­tary, Ritchie Bros. Auc­tion­eers Inc.

Clarke Barnes of Fasken Martineau Du­Moulin and Kate Chisholm, QC, se­nior vice-pres­i­dent, le­gal, Cap­i­tal Power Corp., this year’s Deal-Mak­ing Award win­ner.

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