TORONTO - There's a murky tale behind the building of a casino energy plant that's at the heart of a brewing scandal at Ontario's troubled lottery corporation and two multimillion-dollar lawsuits.
How taxpayers ended up shelling out $81 million for what currently amounts to a conventional boiler and cooling room emerges in the convoluted narrative contained in dozens of pages of documents filed in provincial court.
Both the Ontario Lottery and Gaming Corp. and Buttcon Ltd. -- part of the consortium that designed and built the plant -- accuse the other of mismanagement, incompetence, and threats that soured their business relationship and sent costs soaring to twice the original budget.
But they leave many questions unanswered, such as the true value of the plant, which one 2008 report pegged at between $21 million and $78 million.
The OLG decided to build the Windsor Energy Centre, which sits on top of the casino's parking garage, to provide energy for the expansion of Caesar's Windsor.
Court documents say it heats, cools and provides backup power to the casino, but doesn't generate electricity and isn't connected to the local grid as originally intended.
The agency harbours little hope of getting what it paid for without sinking more money into the facility.
It believes "large portions" of the energy centre will have to be redesigned and constructed, and equipment will need to be replaced. It currently has four natural-gas fired generators, but they've never been turned on, the OLG said in court documents.
"Even with the redesign and reconstruction work, as a result of problems created by Buttcon's design, the energy centre will be unable to operate in an efficient, cost-effective manner," the OLG said in its statement of defence.
Forensic accountant Al Rosen, who examined a report that attempted to attach a value to the plant, said he's baffled by how the OLG got into the mess.
"One of the factors obviously is, 'Do I have the power to run this?' because (the casino) is sort of a year-round Christmas tree, the way they've got the thing lit up," he said.
"So what went through their brain at that time, not to allow them to factor in one of the huge costs, which would be electricity? So there's some error at the very beginning in the planning stages."
The problems seem to have started when the OLG let Buttcon start construction before the two sides reached a final agreement on who would own and operate it -- a three-year battle that both sides now plan to settle in court.
The saga began in September 2006 when the $439-million expansion of the casino was already underway.
The OLG realized it needed a separate energy centre for heating, cooling and "standby electrical needs" for the expansion, which included a 400-room hotel tower, a 5,500-seat entertainment centre and 100,000 square feet of convention space.
It had a deal with the Windsor Utilities Commission to buy energy for the original casino complex, which it believed could be amended to include the new facilities, according to an affidavit sworn by Larry Flynn, an OLG executive who oversaw the project.
That option was "ruled out" and Plan B -- building a new facility with the commission -- never got off the ground.
So the OLG decided to hire someone to design, build, operate and own the plant. It intended that the company would bear the costs of building the plant in exchange for a long-term agreement to supply energy needed for the new casino facilities.
Later that month, the agency reached an agreement to "negotiate exclusively" with a consortium consisting of Buttcon, Embedded Energy Inc. and Black & Mcdonald Ltd., "in hopes of eventually reaching an agreement." The OLG denies Buttcon's claim that it ever awarded them a contract.
Construction of the plant started even as negotiations dragged on, and the project was fraught with problems.
The OLG, which is countersuing Buttcon for $60 million, claims Buttcon misled the agency and had no experience in constructing or operating an energy centre, leaving behind a poorly-designed plant that can't be safely connected to the local power grid.
It also accuses Buttcon of using underhanded tactics to force the OLG to pay its bills for the plant, including slowing down construction and threatening to disrupt a Celine Dion concert in February 2009.
At one point in 2007, Buttcon offered to buy the plant for the amount of money that had already been sunk into its construction, and agreed to take on the costs of completing the project.
The OLG believed another member of the consortium, River Oaks, was interested in buying the plant and decided to let both companies bid on it. Only Buttcon made an offer, but the OLG rejected it and retained ownership of the plant, Flynn said.
Meanwhile, the costs of building the plant were soaring. In August 2007, the projected costs had climbed to $54.5 million -- about $2.5 million more than Buttcon had originally forecast -- and the OLG had sunk $36.4 million into the plant, more than half of its budget, said Flynn.
By February 2008, the projected costs had risen to $61.5 million, about $6.5 million more than previously approved by the OLG's board of directors and $11 million more than Buttcon had predicted.
The OLG said it started asking more questions about the bills Buttcon submitted and its sub-contractors. When the agency put a hold on payments, the OLG alleges that Buttcon retaliated by threatening to walk off the job, forcing the agency to pay under protest.
With the opening of the casino expansion just months away, the OLG retained Buttcon Energy -- an affiliate of Buttcon Ltd. -- in April 2008 to operate the plant for 18 months at $224,000 a month.
The two sides even tried mediation, but never came to a final agreement on the terms by which Buttcon would own and operate the plant, according to the OLG. That deal never materialized because the OLG didn't want to pay the sums Buttcon was demanding, Flynn said in his affidavit.
"Whatever trust and confidence the OLG may once have had in the plaintiffs no longer exists," he said.
"OLG has been dissatisfied for a long time with the performance of both Buttcon companies and has no desire to enter into long-term contracts with either of them."
Buttcon, which is suing the OLG for $355 million, denies the allegations made by the OLG in its statement of defence, saying it was strung along for months by lottery executives who assured them that Buttcon would eventually own and operate the plant.
The agency, which has gone through three CEOs since the project began, has no mandate to be in the energy business, Buttcon points out in its statement of claim.
Buttcon alleges that the plant was originally "off book," a claim that the OLG denies.
The plant itself was constructed "to full compliance" with the OLG's design specifications, said Michael Miller, Buttcon's lawyer.
The OLG is now fighting a legal battle at taxpayers' expense to hold on to a plant that it claims isn't up to spec, he said.
"I'm not sure what the fight is," Miller said.
"It's like saying, you sold me a car and it doesn't work. We're saying, OK, we'll buy the car back. They said, no, we won't sell it to you."
Finance Minister Dwight Duncan, who took over responsibility of the OLG five months ago, has rejected calls for the provincial auditor to look at the books, saying the truth will come out in court.
The circumstances around the plant's creation is "rather bizarre" and one of the reasons why Duncan cleaned house at the OLG in August, just a few weeks after he assumed responsibility for the agency from then-cabinet minister George Smitherman.
But Duncan said he doesn't know whether taxpayers' money was wasted on what Opposition critics are now calling the "Dwight Elephant."
"My view is that we'll see what the rationale was, we'll see how these things get resolved when people have to give testimony under oath," he said.
