Firms abuzz over potential power windfall in Ontario

- There's a buzz in the 44th-floor offices of McMillan Binch LLP at BCE Place in downtown Toronto. It's the buzz of electricity.

But not the literal kind.

Three new recruits are talking up the likelihood of a law industry windfall as Ontario gets set to embark on a colossal expansion of its vast hydroelectric system.

"One way or the other, there's got to be $40-billion worth of investment in construction," says a smiling Mike Richmond, one of the trio and a senior associate with the firm's energy practice. "On the financing side, the tax side, the corporate side, the construction side, the labour side, there is a lot of legal work to be done."

Mr. Richmond is referring to provincial Energy Minister Dwight Duncan's projected cost of keeping the lights on in Canada's most populous province over the next 15 years. In the words of the minister, it will be "one of the largest peacetime investments in Canadian history."

It's also a key reason why McMillan Binch recently lured Mr. Richmond, a former policy adviser in the energy ministry, to the firm as a senior associate, along with Kristi Sebalj, a regulatory and environmental specialist, and Scott Stoll, an engineer as well as a lawyer, from Toronto energy law boutique Power Budd LLP.

With mergers and acquisitions work nowhere what it used to be and competition for clients as intense as ever, electricity is emerging as a potential new growth area for major Ontario law offices, along with such areas as intellectual property and investment trust deals.

"This frankly is a bit opportunistic on our part," says Chris Germanakos, head of the firm's energy practice. "These new hires allow us to consolidate and expand our existing practice area."

And McMillan Binch isn't the only firm bulking up in anticipation of a boom.

Fraser Milner Casgrain LLP last month brought on Ron Clark as energy group co-chairman. Mr. Clark had also been at Power Budd, recently renamed Power LLP after a series of departures, including that of chairman Peter Budd for personal reasons. And Gowlings LLP last December hired long-time Ontario Liberal energy critic Sean Conway as a policy adviser.

"The fact that I had spent a lot of time as an elected official at Queen's Park involved with several inquiries and select committees looking at the various problems and challenges facing Ontario Hydro and the whole question of electricity -- I think that was obviously of some interest to Gowlings," Mr. Conway says.

While some firms have been expanding their energy teams, others with an already substantial presence in the sector -- notably Osler Hoskin & Harcourt LLP, Ogilvy Renault LLP, Borden Ladner Gervais LLP and Stikeman Elliott LLP -- are watching the market carefully. And never more intently than this week.

Soon Mr. Duncan is expected to table legislation outlining the McGuinty government's plans for luring new power investment to the province, including the degree to which it will let the free market rule prices.

While the details have been kept secret, a series of pronouncements over the past several months have given observers cause for optimism, including the projection that the province's capacity of approximately 30,000 megawatts would have to be expanded by 25,000 megawatts over the next 15 years, a more than 80-per-cent jump.

"It's huge numbers, absolutely staggering numbers," says Chris Portner, a partner at Osler Hoskin & Harcourt.

If growth in the power supply comes to pass as many believe it will -- with everything from new nuclear plants to gas-fired generators to windmills to steam co-generation facilities -- there will be much contract drafting to be done. Not just by specialized lawyers practised in arcane matters of electrical current and regulatory law, but also by more conventional teams versed in mergers and acquisitions work, capital markets, taxation and real estate.

Adding to the size and urgency of the expansion is the fact that Premier Dalton McGuinty has pledged to shut down Ontario's five coal-fired power plants by the end of 2007, which now generate almost one-third of the province's power.

"There are no quick fixes here," says Charles Keizer, national co-chairman of the energy law team at Ogilvy Renault. "We will see energy being in the forefront for some time to come."

Many in the energy sector have been waiting years for business to pick up after having had their hopes dashed repeatedly by public policy reversals.

Visions of a potential electricity boom first formed in the late 1990s, when former premier Mike Harris's Conservatives legislated the breakup of Ontario Hydro into five companies and eventually promised to deregulate prices and privatize Hydro One, the transmission and distribution company that was severed off from Ontario Hydro.

Investor optimism flourished, with foreign firms starting to make overtures and Bay Street set to pocket a sweet sum from the initial public offering of Hydro One.

Then it unravelled, with two Hydro One unions managing to scuttle the IPO and new Conservative leader Ernie Eves backing off from the open market.

Since then, Ontario's energy system has been the subject of two major studies, one tabled last December by former federal energy minister Jake Epp and one released in March by former deputy prime minister John Manley, both critical of the province's ability to provide sufficient, reliable and moderately priced supplies of electricity.

Those conclusions, plus the McGuinty government's pronouncements that it wants to avoid false starts and ensure a stable investment environment by embracing at least some degree of deregulation, have renewed optimism among lawyers that business will flourish much more than during the aborted boom of the late 1990s.

"We're going to see more growth now," Mr. Clark says.

And advocates of a free market argue that deregulation would create a wealth of opportunities for many sectors of the economy.

"Geographically and otherwise, Ontario is well-positioned to become an electricity hub in North America," Mr. Portner says. "The province also has the infrastructure for it. It not only has the technology infrastructure to do this but is also the centre of the capital markets in Canada and has got all of the professional infrastructure, whether it's in investment, accounting, banking, engineering, in which we could have basically supported a new regional electricity market."

That, Mr. Portner says, would be good news for engineers, the construction industry, investors and market intermediaries who would get involved in the sale and commoditization of energy futures and other energy products.

And, of course, for lawyers.