01 June 2008

Energy Corporation of Newfoundland and Labrador (Part 2)

[This post was originally scheduled to post in June 2008.  For some reason, it never appeared. Your humble e-scribbler found it recently and decided to post it retroactively with the original date.  Note that it is an unedited draft. Some of the links may have changed since 2008.  The comments come entirely from the original version of the bill and were made prior to any actual experience with the corporation.]

In Part 1, we offered some links to information on or related to the Energy Corporation of Newfoundland and Labrador (EnerCorp).

In this part, we will take a look at some specific issues that have come up as a result of proposed amendments to the energy corporation act.

Space does not permit a detailed dissection of the entire energy corporation and all the issues surrounding it nor will the following offer any views on the merits or demerits of the energy corporation and the legislation under discussion.

Instead, we will look at four specific aspects dealt with in the provincial government news release on the amendment bill and attempt to describe what the provisions of the bill mean.

1. Establish public accountability process.

The Energy Corporation Act establishes that the corporation is accountable to the legislature through the minister and cabinet.

EnerCorp is an agent of the Crown. As such:
A Crown corporation that has agent status enjoys the constitutional immunities, privileges and prerogatives that are enjoyed by the Crown and can bind the Crown by its acts.

The Crown is ultimately fully liable and financially exposed for all actions and decisions by its agent corporation while the corporation is operating within its mandate. In other words, the corporation's assets and liabilities are the assets and liabilities of the government. [Emphasis in original]
Bill 35 further develops the accountability process in several specific ways.

First, it establishes that unless otherwise indicated in the approval given by cabinet to establish
a subsidiary, the subsidiary will be incorporated under the provincial Corporations Act or the appropriate legislation of any other jurisdiction.

A subsidiary established in this way is not an agent of the Crown. That means that:
the government is not legally liable for the specific actions of the corporation, unless the corporation acts under explicit direction of the Crown, and has, in the eyes of a court, created a common-law principal-agent relationship.
A non-agent corporation would normally be subject to federal, provincial and municipal taxation like private sector corporations.

As well, the subsidiary may be a partnership involving both EnerCorp and non-EnerCorp companies. The agreement establishing the partnership or joint venture may specify financial arrangements, the distribution of shares, as well as the distribution of seats on the subsidiary's board of directors.

Bill 35 does not alter the existing subsidiaries, namely Newfoundland and Labrador Hydro, Churchill Falls Labrador Corporation, Twin Falls Power Corporation, Lower Churchill Development Corporation (non-operating) and Gull Island Power Corporation (non-operating).

Overall, this approach is consistent with past practice in Newfoundland and Labrador and with the Government of Canada.

Second, EnerCorp is required to hold an annual general meeting to which the public are admitted and to issue an annual report. (s. 5.1 and s. 5.2) A private sector corporation's annual general meeting would normally be held to allow shareholders to vote on certain measures such as electing new directors and to receive reports from the corporation.

In this case, however, directors of EnerCorp are appointed by cabinet. The subsidiaries are governed by their own articles of incorporation. Members of the public may attend such a meeting, but there is no indication what status they might have beyond that of silent observer.

In the case of the annual report, EnerCorp is required to present its consolidated financial statements and such other reports on its activities as it may wish to report on or as directed by the minister. Whether or not this provision applies to any subsidiaries would appear to depend on the articles of incorporation.

Third, Bill 35 provides that EnerCorp and its subsidiaries are subject to audit by the auditor general, to the access to information act and similar statutes, the extent of disclosure beyond cabinet is restricted more than in the existing legislation.

For example, the access to information act (ATIPPA), already provides for withholding commercial information. Bill 35 changes that significantly by defining "sensitive commercial information", giving EnerCorp's chief executive officer the power to determine what constitutes sensitive commercial information under the Act and requiring that his decision be followed by the auditor general and other officials

Under Bill 35, "sensitive commercial information" is defined as:

information relating to the business affairs or activities of the corporation or a subsidiary, or of a third party provided to the corporation or the subsidiary by the third party,...
In other words, all information is potentially "sensitive."

The test or procedure for determining sensitivity is given at s. 5.4:

where the chief executive officer of the corporation or the subsidiary to which the requested information relates reasonably believes
(c) that the disclosure of the information may
(i) harm the competitive position of,
(ii) interfere with the negotiating position of, or
(iii) result in financial loss or harm to
the corporation, the subsidiary or the third party; or
(d) that information similar to the information requested to be disclosed
(i) is treated consistently in a confidential manner by the corporation, the subsidiary or the third party, or
(ii) is customarily not provided to competitors by the corporation, the subsidiary or the third party.

If the corporation consistently considers the number of its employees to be sensitive information, then it must be withheld from disclosure.

In the case of the auditor general, the same general approach applies. As well, in the event of a dispute, the chief executive officer's decision must be followed with the withheld information provided to cabinet in a separate report:
In the case of a disagreement between the auditor general and a chief executive officer respecting whether information in a draft report is commercially sensitive information, the auditor general shall remove the information from the report and include that information in a separate report which shall be provided to the Lieutenant-Governor in Council in confidence as if it were a report to which section 5.5 applied.
Some additional specific types of sensitive information are given in Bill 35 which must be withheld. These include:
financial or commercial information, including financial statements, details respecting revenues, costs and commercial agreements and arrangements respecting individual business activities, investments, operations or projects and from which such information may reasonably be derived,

information respecting legal arrangements or agreements, including copies of the agreement or arrangements, which relate to the nature or structure of partnerships, joint ventures, or other joint business investments or activities,....
It is not clear whether cabinet may make or would make such information public general terms or if it would be kept confidential. It is also not clear to what extent any changes to the organization of a subsidiary - for example, in its ownership other than a complete withdrawal of any EnerCorp interest - would be disclosed under this Act.

- srbp -