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 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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This paper discusses contract law issues including decisions of relevance to commercial lawyers and business leaders giving a snapshot of particular principles of interest that arose in case law over the past 12 months.
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