Ode to Joi: The untold story of NB Power's deal with a Florida hydrogen startup
How flattery, connections and looming carbon costs led to a $13M partnership
In the early days of their courtship, NB Power and Joi Scientific lavished compliments on each other.
"This could be a worldwide game changer," NB Power CEO Gaëtan Thomas enthused in a July 4, 2016, email after his first visit to Joi's offices at the Kennedy Space Center in Florida.
Gary Chaikin, Joi's Canadian sales representative and the first official from the Florida startup to make contact with Thomas, responded with an equally fulsome ode.
"What you and NB Power are doing is visionary and will undoubtedly put NB Power on the global list of the most innovative places," Chaikin told Thomas in a July 22 email.
The exchange is contained in hundreds of pages of documents obtained by CBC News through a right-to-information request.
Those documents show not everyone was as smitten by Joi's vow to convert seawater to hydrogen power at an industrial, and profitable, scale.
Mike Sellman, a U.S. nuclear power specialist on NB Power's board of directors, said Joi appeared to be claiming it could break one of the fundamental laws of science.
There was scepticism, obviously, on everyone's part. When someone tells you they've got the holy grail, you step back.- Norm Betts, former NB Power vice- chair
"You can't get more energy out than you put in," he wrote in an email exchange with senior NB Power staff. "This flies into the face of what Joi Scientific seems to be saying."
"I am very much of the same mind," replied Dean Taylor, a senior nuclear official at NB Power, calling one of the Joi claims "dubious."
But two months later, Taylor wrote he had "stumbled across" data in an academic paper that convinced him Joi's claims were "in line" with the study.
NB Power signed a licensing agreement with Joi that fall and transferred $5 million US, or about $6.7 million Cdn, to the company. That fee granted the Crown corporation the right to eventually use, resell and profit from Joi's hydrogen technology.
'Delays and technical challenges'
Now that agreement and Joi's science are facing increased scrutiny after CBC News revealed that shareholders were told this summer the technology has not worked as advertised.
Joi acknowledged problems for the first time Friday in an email to CBC News.
"While we have encountered delays and technical challenges, we are working through these issues with our partners," said Joi's marketing vice-president Vicky Harris.
She said Joi is "as committed as ever to continuing our work on our seawater-based hydrogen technology" and is confident the company is "on the right path to create a new, cost-effective, and clean energy source in the form of green hydrogen."
'He knew somebody that knew somebody'
There are two stories about how Joi Scientific first connected with NB Power. MLAs on the select committee on Crown corporations heard both versions at a hearing Nov. 1.
In one, it was the utility's reputation that caught Joi's eye. Thomas told MLAs that NB Power was punching above its weight, chosen as one of the top 20 innovative power companies in North America and sending its CEO to speak at a big conference in San Francisco.
"They came to us," he said. "They saw how innovative we were."
The second version is a more human, old-fashioned, classically New Brunswick tale.
Norm Betts, a member of NB Power's board of directors, "knew somebody that knew somebody that knew somebody, apparently," according to board chair Ed Barrett, and suggested Thomas "take a look" at Joi.
Betts, a business professor and former provincial finance minister, confirmed in an interview he'd been on the board of a retail technology company with a Toronto businessman who was also "the person responsible for Joi in Canada."
He would not say if that was Chaikin, the company's Canadian sales representative.
'The holy grail'
There was another connection: Zack Pate, a pioneer in the nuclear power industry, was on Joi's advisory board. Pate had done work with NB Power in the sixties, Betts said, and had even bought an iconic Chestnut canoe to take home with him.
"Gaëtan said, 'If Zack Pate is involved, this must be something,'" Betts recalled. Chaikin arranged for Pate to call Thomas early in the discussions.
Thomas, Barrett and Betts, then vice-chair of the NB Power board, soon flew to Florida to meet Joi's executives and take a look at their technology.
"There was scepticism, obviously, on everyone's part," Betts said. "When someone tells you they've got the holy grail, you step back."
Betts argues that Barrett's version of the initial contact doesn't contradict Thomas's account, in which Joi noticed NB Power's willingness to try new things.
"They obviously know about NB Power," he said. "It's a pretty small world and they follow each other."
Betts said he decided to recuse himself from future NB Power board discussions about the partnership because of his connection to Joi's Canadian representative, even though Betts had no investment in Joi and was never paid by the company.
"Good governance dictated declaring a potential conflict, which I did from the beginning," he said.
Betts was confident other board members could verify Joi's claims.
"There's some pretty strong minds there," he said. "I assume they did their homework."
The Belledune dilemma
Looming over NB Power's discussions with Joi, as it looms over all of the Crown corporation's plans, was the future of its Belledune generating station, its last coal-burning plant.
A draft cabinet document from 2016 even referred to the Joi proposal as the "Belledune Hydrogen Project."
The plant between Bathurst and Dalhousie employs more than 100 people and provides 20 per cent of the electricity NB Power sells within the province.
But under the Trudeau government's national climate plan, it must stop burning coal in 2030. Technology doesn't yet exist to replace its electricity with wind and solar power, which are unreliable and can't be stored, according to Thomas.
Ottawa has also imposed a carbon tax on New Brunswick and other provinces without their own carbon pricing. In 2016, NB Power estimated it was facing costs of $1.5 billion, translating to an additional eight per cent increase on power bills.
But Thomas estimated that converting Belledune to hydrogen would allow NB Power to run the plant until 2043, "preserving the associated jobs and regional economic benefits" while also reducing emissions.
At the time, "the play was [$1.5 billion] hanging over our head versus a $12 million investment," Thomas told the committee.
"That's what the play was. And the potential was, yeah, probably 50-50 at the time. But most of these innovations are like that."
In August 2016, Joi and NB Power agreed on talking points that called the company's hydrogen technology "the perfect expression" of Canada's plan to reduce emissions and meet its Paris climate agreement targets.
"WOW!!! Very well done!" Thomas said when Joi sent him a final version of the document.
'The big kicker'
Former Liberal cabinet minister Donald Arseneault said in an interview that another tempting aspect of the Joi deal for Thomas and NB Power was the potential profit-sharing if the technology worked and was purchased by other utilities.
"That was the big kicker," Arseneault said.
Thomas alluded to that before the committee on Crown corporations.
"Whoever cracks the nut on this, it's a trillion-dollar industry, the hydrogen economy. So, it's a high risk, but there were some high rewards for NB Power."
Arseneault was the minister for the Regional Development Corporation when NB Power came looking for an initial $5 million US. "We knew what the risk was," he said, but "you hope you can trust the whole organization of NB Power."
Other Belledune options
The province had another option for Belledune. Nova Scotia signed an "equivalency agreement" with Ottawa to keep burning coal past 2030 in return for reducing the same amount of emissions elsewhere.
But Brian Gallant's Liberal government opted against that, preferring to seek a new technology — biomass, natural gas, or hydrogen — to replace coal at the plant.
"We want to move in a new direction, something that's very innovative, and we've got great opportunities right on our doorstep here," then-energy minister Rick Doucet said in December 2017.
An NB Power briefing note to Doucet claimed Joi's process was "consistently repeatable" and its methodology was "reasonable and justifiable." Test results "exceeded 100%" return on energy, "consistent with the claims made by Joi Scientific."
The note also said a senior nuclear physicist at NB Power "has gained sufficient knowledge to understand the system's operation at a basic level and has confidence that the technology could be readily transferred to NB Power."
Lack of expertise
The current deputy minister in the Energy Department, Tom MacFarlane, told a committee of MLAs on Nov. 7 that staff there lacked the scientific skills to advise Doucet and the Regional Development Corporation about the NB Power-Joi pitch.
"We wouldn't have had expertise and didn't have any expertise in that area," MacFarlane said. "We weren't in a position to offer much advice to government in terms of whether this technology was viable, not viable."
Nor was the Jobs Board, a committee of cabinet ministers supported by a three-person secretariat of staffers. NB Power prepared a PowerPoint that said "energy output exceeds input" in Joi's technology, but no one at the board had the background to verify that.
"I was not asked to provide input into R&D-related files as I have no expertise in this area," said David Campbell, who held the title of chief economist at the secretariat.
"My assumption is that Gaëtan and his team must have vetted the firm and the concept before requesting funds from government."
'All the right questions'
At the committee hearing Nov. 1, Thomas and Barrett said there was plenty of scrutiny by NB Power's directors, which include veterans of the nuclear industry and other power utilities.
They "know this industry inside out" and were "asking all the right questions," Barrett said. "I'm quite confident that the board and the governance piece of this has been handled quite correctly."
Thomas said they were "subjected to a lot of questions from cabinet ministers" when they presented there, though confidentiality rules prevented him from saying more.
He also told the committee that he couldn't identify who did third-party verifications, also because of confidentiality requirements.
"We did the due diligence. We had independent validation and measurements. But there were parts that could not be measured. Some assumptions had been made."
Thomas is an electrical engineer who has spent his entire career with NB Power. He plans to retire next spring.
Betts calls him "an operator" in the positive, technical sense of the word. "His fundamental concern is keeping the lights on." Belledune represented a challenge, Betts explained, and "he would look at this from an operational, solve-the-problem point of view."
To add another layer of oversight, Thomas took a seat on Joi's board of directors. While he gets no pay and owns no stake in the Florida company, the position gives NB Power "some insight into the development of the technology," Barrett said.
"It's good governance. … We have a keen interest in making sure the technology works and that we follow the advancement of the technology."
'A call to action'
Emails obtained by CBC News also show Thomas's enthusiasm for big ideas and grand visions. At least twice, he shared articles about new energy concepts, referring to one as "a call to action."
Another article, about a proposed hydrogen power plant in Nebraska, prompted a cautionary reply from Keith Cronkhite, NB Power's vice-president of business development.
The Nebraska proposal reminded Cronkhite of Atlantic Hydrogen, a Fredericton company that received $4.7 million from New Brunswick taxpayers before going bankrupt in 2015.
To MLAs, Thomas portrayed himself as someone willing to override the doubts of some of his own staff.
He said he faced scepticism from NB Power engineers about $6 million worth of new technology that allowed the company to avoid a $400 million upgrade to transmission lines to Nova Scotia.
The decision is saving NB Power $14 million per year by allowing it to run the Coleson Cove plant less often, but if he'd listened to the sceptics, that never would have happened, he said.
"When you look at the overall portfolio, I think on innovation, we're doing generally well. "On this one, time will tell."
But Thomas also acknowledged to MLAs that he may have been too enthusiastic on Joi.
"We're not saying there's guaranteed results," he said. "I probably made a mistake. I was probably overly optimistic earlier in the thing, but we're still very cautiously optimistic that it can go. … We believe we did the right thing. We certainly had the right intentions."
A slice of federal green dollars
NB Power's hydrogen hopes were also premised on a belief Ottawa would subsidize Belledune's shift away from coal.
The Trudeau government planned to allocate $673 million in infrastructure funding to New Brunswick, including for "green economy" projects. Arseneault, whose riding was near Belledune, wanted some of it for the plant there.
With half of the $10 million US licensing fee from the province through the Regional Development Corporation, NB Power asked the federal government for the other half, a request co-ordinated by the Atlantic Canada Opportunities Agency.
But Ottawa doesn't subsidize Crown corporations like NB Power, which are deemed to have enough resources themselves, or companies like Joi without operations in Canada.
"It didn't materialize," Thomas said of the federal funding. "They did not match the province's commitment. … They never came to the table."
Nor did Ottawa ever complete its own due diligence into Joi.
"We didn't get there," Thomas said. An ACOA spokesperson refused to discuss the application.
NB Power antes up
With Ottawa out, NB Power needed to find the second $5 million elsewhere. Thomas asked the board to approve paying it out of the utility's own research and development budget.
"We had to make our commitment or walk away, so we decided to continue," he said.
During the Nov. 1 committee appearance, Green Party Leader David Coon questioned whether that was allowed under the Electricity Act, which gives NB Power its mandate.
Thomas responded that nothing in the law prohibited it, either.
"You did not find in the act where we couldn't do this," he said, "because if you did, you would have pointed it out instead of grandstanding."
Peter Hyslop, a former public intervener at the Energy and Utilities Board and a frequent critic of NB Power management, said Thomas has a point.
"There's nothing in the act that says 'don't do anything,'" he said. NB Power "is supposed to administer the electricity system, and I'd be willing to say they'd have the broad power to look at projects that would enhance the electricity system.
"I'll leave it to others to say whether they made the right decision or not."
The deal goes quiet
At a news conference in December 2017, Thomas talked for the first time about seawater-to-hydrogen at Belledune but didn't name NB Power's partner.
CBC News identified Joi Scientific a month later, though another year went by before the two organizations publicly confirmed the partnership.
During that quiet period, NB Power sent the second part of the licensing fee, $5 million US, to Joi. The initial 2018 target date for a Joi prototype at Belledune came and went.
Flattering the new PC minister
As NB Power and Joi prepared to announce their deal early in 2019, Thomas emailed new Progressive Conservative Energy Minister Mike Holland a briefing note about it.
Though the new PC government opposed the Trudeau climate plan, the briefing note repeated the 2016 line that Joi's proposal represented the "perfect expression" of the federal Liberal targets.
The NB Power CEO added a personal note to Holland.
"I am very appreciative of your support and the fact we have a very decisive government on these critical files," Thomas wrote. "I feel we have advanced more files in less than 2 months than in the whole calendar year in 2018."
From fact to 'claim'
A month later, on Feb. 26, 2019, NB Power and Joi announced their agreement. "Joi Scientific's Hydrogen 2.0 technology uses a high efficiency, high throughput system to liberate hydrogen from untreated seawater," the release said.
At the Nov. 1 committee hearing, People's Alliance Leader Kris Austin read that line back to Thomas.
"Is that a fact?" he asked in light of CBC's reporting that the technology wasn't working as planned.
"Well," Thomas replied, "that's what we — we claimed — what they claimed at the time. It's a claim."
The CEO also told the committee that the technology "is still promising, but not to the same levels we initially thought."
'The plan has to be changed'
He also told the committee that because of the disappointing test results in Florida, "the plan has to be changed," shifting from on-demand energy generation to large-scale storage and possibly removing Belledune as the site for a prototype.
"We have to replan this."
The same day, Thomas briefed Holland about the testing. The minister's subsequent public statements were succinct and blunt.
"Up until this point, we haven't seen results that prove viability, so therefore I'm assuming that maybe there is no viability," he said Nov. 7.
Final testing is due in December and after that, he said, "either you send me somebody from MIT who says, 'Eureka!' or it didn't deliver the results and then we wrap things up."
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