Hydro-Quebec ups the stakes in latest gambit

Peter Jackson
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If anyone still harboured doubts about the wily business acumen of Hydro-Quebec, this would be the week to cast them off once and for all.

The Quebec utility made a stunning move Monday, clearly designed to cast doubts on the viability of the Muskrat Falls project while shoring up its water rights regarding the Upper Churchill River.

In an application filed in Quebec Superior Court, Hydro-Quebec has requested a declaratory statement confirming its rights with respect to Upper Churchill power generation. Specifically, it focuses on its core right under the original 1969 contract to purchase any additional power deemed available by the operators, the Churchill Falls (Labrador) Company (CFLCo).

It’s certainly a vindication of sorts for the famous five St. John’s lawyers, 2041 Group. They warned months ago that a water management agreement (WMA) between CFLCo and this province’s Crown agency, Nalcor, raised serious legal questions.

Nalcor’s Gil Bennett has insisted the WMA is sound, and does not threaten Hydro-Quebec’s contracted supply of power. But the wording of the 1969 contract, along with subsequent bilateral agreements, is open to interpretation.

One of the key 1969 clauses is 6.4, which states that, on top of the monthly allotments of power spelled out elsewhere in the contract, “whenever additional power can, in the opinion of CFLCo, be made available, such capacity will also be made available to Hydro-Quebec on request.”

At the very least, Nalcor should be double-checking its legal standing. It may even be prudent to put a hold on things until the legal landscape becomes a little more clear.

What’s so infuriating about all this, of course, is that Hydro-Quebec officials have remained characteristically mute about Muskrat Falls from Day 1. There is no way to deal with them, to smooth out concerns or reach mutually acceptable terms.

When the WMA was first proposed, Quebec members of CFLCo used a veto to reject a bilateral agreement, which forced the matter before Newfoundland’s Public Utilities Board (PUB). No reasons or explanations were given.

But Hydro-Quebec did submit a letter to the PUB in 2009, during hearings on the WMA:

“We note that the Nalcor Application, as well as the Nalcor and CF(L)Co submissions of December 10, 2009, acknowledge that the CF(L)Co/Hydro-Quebec Power Contracts are protected by Section 5.7 of the (Electrical Power Control Act), as does the water management agreement proposed by both Suppliers to the Board.

“In such circumstances, Hydro-Quebec has decided not to intervene in the Nalcor Application.”

Its question before the courts now, therefore, seems highly duplicitous, if not vexatious.

It’s worth noting that Nalcor also has court cases working their way through Quebec courts regarding hydroelectricity. It has challenged rulings by the Quebec regulator with respect to gaining access to power corridors through Quebec. And it’s challenging the 1969 Upper Churchill contract under a “good faith” clause in Quebec civil law.

It would be naïve to think there’s not a bit of tit for tat in the most recent filing.

It’s true there is some ambiguity in the contractual language. In many ways, it boils down to one question: would the co-operative approach to power generation between the two plants constitute “operational flexibility,” as cited in the contract, and would that mean Hydro-Quebec can claim additional power is being generated?

Law student John Samms blogged extensively about the WMA when the controversy arose last winter.

“It's not surprising that (Hydro-Quebec) would try and get their contractual rights generously defined,” he told me Monday. “It seems to me they’re trying to give ‘operational flexibility’ an extremely broad meaning,” Samms said. “In the end it comes down to whether the WMA breaches the power contract. I haven't seen any evidence to suggest it does.”

Peter Jackson is The Telegram’s commentary editor. He can be contacted

at pjackson@thetelegram.com.

Organizations: Hydro-Quebec, Quebec Superior Court, Crown agency Public Utilities Board

Geographic location: Quebec, Newfoundland

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Recent comments

    July 24, 2013 - 21:37

    There is a policy or guidelines when drawing up a contract that benefits both sides equally, there remains a lot of unanswered questions with the Upper Churchill Falls Development Contract. The delegates from Newfoundland that travelled up to Quebec to sign the agreement to build the Upper Churchill Falls Power Development were very qualified people, capable of signing a contract that would benefit both NFLD & QUEBEC. But these delegates were killed when returning home on board CFLCO private jet. This left Quebec with the only copy of the contract. So far Quebec got $90 Billion to Newfoundland's $1 Billion. This is definitely not a fair and just contract, very one-sided. Quebec thinks they own Labrador. All of this information can be found on-line and this should be investigated through the courts.

  • Jon Smith
    July 24, 2013 - 11:43

    Quebec's rights to flexible use of the Upper Churchill water and power is entrenched for about 44 years now and has been tested in every way in the courts and upheld by the Supreme court of Canada. This is not likely to ever change until 2041. Negotiation is always possible but court proceedings would have to stop. You cannot negotiate with someone you continually have before the courts. The giveaway forced upon Joe Smallwood is a bitter pill. But is the present giveaway to Nova Scotia any different? Even though spin was put on to disguise the giveaway of 30 % of the power from Muskrat. will the smell of that giveaway ever go away. And on top of that the good people of Nova Scotia want more from their oil rich neighbouring beggars. The least Newfoundland can do is try to protect its own ratepayers who will subsidize the rates for power sold into the mainland as much as possible. Make sure we can operate Muskrat while all the rights of Quebec are protected and make sure Nova Scotia cannot get extra blood out of the turnip. Take a page out of Quebec's energy strategy: the first objective is to protect the ratepayers in price and reliability and the second objective is to use the energy as a lever for economic development and the third is to sell power outside the boundaries where it can be profitably done. If Nalcor cannot do all of that, it should shut this project down-No more giveaways.

  • Cyril Rogers
    July 24, 2013 - 11:31

    The PC's and NALCOR could cut their losses at about ONE billion, if they stopped now....rather than spend more than TEN billion on a wasteful money-losing project. Better yet, in 2015, both the PC government and NALCOR need to put out to pasture.....because neither of them represents the best interests of the province. They have only tried to convince us that they do. Instead, they are holding this province back by concocting wasteful schemes and squandering our oil dollars.

  • hmmm
    July 24, 2013 - 07:50

    Seems strange that HQ waited until after the decision out of Nova Scotia. Perhaps it's a response to the possibility that its strangle hold on Labrador is about to be broken.

  • Joe
    July 24, 2013 - 07:49

    No one wants to talk about Danny's help for Hydro Quebec when they wanted to take over supplying Hydro power in New Brunswick. What goes around comes around.

  • John Smith
    July 24, 2013 - 07:01

    I don't see any evidence to suggest it does either.As long as HQ gets it's allotment of power from the UC, then the contract is being met. This does show that Quebec is irritated, which is something...at least. When you consider that the upper Churchill constitutes about 6.5% of the total hydro output of HQ, it's hard to understand why they would be so against the small domestic, muskrat dam. But that's quebec for ya...they think they own Labrador, and will do anything they can to stymie NL.

  • Maurice E. Adams
    July 24, 2013 - 06:33

    Well, now that you have an opinion from a law student, Peter, I feel very much assured that my children`s, and my childrens' childrens' future, is well protected...... There is nothing vexatious about what HQ is doing. They said in their Dec. 2009 letter to the PUB they rely on their contractual and EPCA rights (3 times, court confirmed, contractual rights). They are now acting on that. .... THAT, I would submit, is as clear as the quick clay pug at the North Spur. What does that say about our own government and Nalcor, both of whom in the past, and still do, dismiss this major risk to their pet project..... Will our government oil revenues and future power bills being used to further benefit Quebec? Or is it Nova Scotia? Or both?

    • Attacking the messenger
      July 24, 2013 - 13:12

      At least he's a student of what he is talking about. You don't have any degrees in statistics, economics, finance, engineering, or law but it doesn't stop you from voicing your opinions.

    • Just Sayin
      July 24, 2013 - 16:56

      Maurice is a student of all those subjects, although without a degree, so as qualified as Dunderdale. One may have a degree and still be wrong. Muskrat Falls doesn't meet the smell test. And many critics with university degrees have said so. Maurice's web site offers his opinions as well as those of critiics of Muskrat Falls, some with degrees, Peter says it may be prudent to put a HOLD on things....... This sounds wise, maybe Maurice and others missed this, as Peter is not much known for wisdom. Perhaps it would have been wiser to have put this legal issue to the courts before the Muskrat Falls sanction? Haste makes waste? Frank Moores but a big hole in the ground, at a cost of 70 million in the 70s. Now we have another hole, Gilbert Bennett's hole, which he says is as big a the Egyptian Pyramid. To get this far, this hole has now cost us 700 million. If we hold up the hole, as Peter suggests, will it become another useless hole? A useful hole is good, we all know that , but a useless hole .... well, it's just dumb. Could it be that our world class engineers and energy company are dumb? I hope not. They have degrees, right? Is there such a thing as a dummy degree, and if not, should there be? They may come in handy. This turn of events is making us all look dumb. Ray Guy warned us. And if we didn't listen to the wisest journalist amongst us, will anybody listen to Peter, when he says to hold the hole. The idea isn't original, as some have called for this for months, before the hole was really a hole. Is a hole a asset or a liability? I guess it depends if your a critic or proponent of holes. Frank's hole served no purpose. Time will tell about Gilbert's hole.

    • Attackinig the messenger
      July 25, 2013 - 08:30

      Just Sayin, you missed the point. Maurice dismissed a person's opinion because it came from "a student". But here is Maurice, who is not a student in any field related to Muskrat Falls, regularly voicing his opinion. Keep in mind that in the past when other people dismissed Maurice's opinion, because of his lack of education in these fields, he would claim they were attacking the messenger. Ask yourself this, If the law student had voiced an opinion that agreed with Maurice's position, then do you think Maurice would have dismissed him as a student? Of course not.

    • Just Sayin
      July 25, 2013 - 16:25

      Attacking the Messenger....Yes , Maurice is sort of attacking the messenger, which he often accuses others of doing, and his site doesn't carry much other than what supports his opinion as a critic of that project. But you say he is not a student of any subject relative to the issues of Muskrat Falls. I believe you are wrong on that, and so his opinion is as valid as Simms, an intelligent student. Opinions should be supported by facts when possible. And one shouldn't hide the facts, for a project as costly as this. I would like to support MF, but the facts, for many areas of study, don't support it. Maurice does cite a lot of facts among his many opinions. Not all of his opinions are factual. And his opinions cover a broad range of areas of study. If you wish to attack Maurice, I suggest you challenge what he lists as facts, and not misrepresent as to what he is a student of. Otherwise you, too, are attacking the messenger, right?

    • Attacking the messenger
      July 26, 2013 - 14:51

      Here's the point your missing: How can Maurice criticize another opinion for being from a student when he himself is not a student in any field related to MF (he may be well read on the subject but that is not the same as being a student). Secondly, he complains when people attack him for not having the education or experience and here is doing the exact same thing. I am not attacking Maurice's opinions or position on MF. My problem is how he can attack or dismiss another persons opinion for doing exactly what he himself is doing. Do you see the difference?

  • JM
    July 24, 2013 - 05:26

    You suggest that the WMA will not breach the contract. However, if you review Exhibit CE-53 Rev. 2 on the PUB website (http://www.pub.nf.ca/applications/MuskratFalls2011/files/exhibits/abridged/CE-53(R2)-Public.pdf) there is a reference to the Water Management Fee. This equates to 5 $/MWhr. I would query with Nalcor if this fee is associated with the Firm Capacity Penalty of Article VIII of the 1969 Power Contract (Which can be found on Ed Hollet's blog page). This is a real question which should be asked of Nalcor. If the answer is yes, well the WMA is indeed premised on not meeting the full obligations of the 1969 Contract (under penalty). Under Quebec contract Law the requirement for 'specific performance' may be that CFLCo receive a court order that the contract can not be knowingly violated (ie; do not plan to use a Penalty). Although the WMA is still valid, the ability for CFLCo to provide capacity to Nalcor would permitted beyond the 300 MW recall provision. The WMA then becomes ineffective. With no WMA, Nalcor can not be certain of getting the full output from Muskrat when they need it. The minimum flow of the river would produce about 175 MW from MF, which would be all Nalcor could guarantee. This would mean no fixed contracts, and Holyrood would have to stay on for reliability reasons. I am no lawyer, but as someone who have read the contracts I understand Hydro Quebec's perspective. The right thing for Nalcor to do is to release their legal opinions to our PUB for review. You have to remember Newfoundland have lost every court case on this contract, in the Quebec, Newfoundland and Supreme Courts. Every premier of the day said their case was solid. This project is in serious trouble. The Premier and Ed Martin need to take their head out of the sand, and start telling people the truth here. 700 million spent to date, with no certainty it will ever achieve it's goals.