Power contracts and power plays

Peter Jackson
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I keep coming back to a word, and that word is vexatious.

It’s a common legal term, and one that rose to prominence in the uproar over Bill 29, the province’s new access-to-information legislation that further restricts access to information.

A vexatious claim is one that is made with no real purpose other than to aggravate or undermine a given process. Such would be the case if, for example, journalist Craig Westcott filed a request to find out whether Danny Williams had been diagnosed with syphilis.

Now, I’m not necessarily saying the anti-Muskrat Falls coalition called 2041 Group is being vexatious, but there is something odd about its obsession with a phantom court action that may or may not occur in the future.

The purported legal risk in the Muskrat affair is that the Lower Churchill facility being built by Newfoundland’s Crown corporation, Nalcor, may be left high and dry if Hydro-Québec (HQ) decides it doesn’t like the way the water flows on the Churchill River.

Very briefly, HQ has a contract with the Churchill Falls (Labrador) Corporation (CF(L)Co) to provide it with a guaranteed amount of electricity per month. (There are other contracts and updates, but that’s the essence of it.)

To guarantee this supply, CF(L)Co was granted exclusive water rights at the head of what is now the Smallwood Reservoir.

In order for Muskrat Falls to be guaranteed enough power when it needs it, it has to reach a water management agreement (WMA) with CF(L)Co to distribute power in such a way that all contractual needs are met. This agreement is mandated by provincial law.

“Power,” in this case, can mean one of two things. It can mean the literal transmission of electricity from one plant to the other, or it can mean the release of water such that the plant needing power can generate it.

The 2041 Group argues that if Hydro-Québec doesn’t like the arrangement at any point after Muskrat Falls is built, it can throw a monkey wrench into the whole works.

It can either use its veto power on the CF(L)Co board (which is two-thirds filled by Nalcor) or launch a civil suit claiming its contract has been violated.

The first route is moot.

Hydro-Québec already vetoed a proposed bilateral agreement between the two companies — giving no reason — so the matter was referred to this province’s Public Utilities Board (PUB), as the law dictates.

There is varied speculation as to why HQ vetoed the initial request, but the company does say it likes to stay out of internal Newfoundland matters. That, in itself, would suggest HQ doesn’t consider the WMA to be any of its business. In fact, HQ did make a brief submission to the PUB noting that the proposed WMA recognizes its contractual rights and therefore it has no desire to intervene.

After extensive review and consultation, a WMA was imposed on both parties.

“Imposed” is perhaps too strong a term, since, CF(L)Co and Nalcor submitted nearly identical WMA proposals to the PUB.

So, where could a problem possibly arise?

The 2041 Group points to two scenarios. One is the possibility that HQ could challenge the fact that its electricity will, at times, not strictly be coming from the CF(L)Co plant but rather from the Muskrat Falls plant. Nalcor’s Gil Bennett has suggested such a complaint would be groundless — vexatious, even — as electrons are electrons. I also fail to see how the buyer would have any case if its desired product is being delivered.

The other possibility is that Muskrat Falls could be left bereft of power if Hydro-Québec challenges any obligation to provide it with either direct electricity or water when required.

I’ve spoken to Bennett about this, and will address it in more detail in my column next Wednesday. I’ve also been in contact with 2041 Group lawyers, who’ve spelled out their case in a little more detail.

In the meantime, John Samms has delved deeply into this subject on his blog, pressingpolitics.wordpress.com.


Peter Jackson is The Telegram’s commentary editor.

Email: pjackson@thetelegram.com.

Twitter @pjackson_NL

Organizations: Hydro-Québec, Muskrat Falls coalition, Public Utilities Board

Geographic location: Newfoundland

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Recent comments

  • Pierre Neary
    November 14, 2012 - 16:56

    Phantom or not Mr. Coffey was just pointing out the fact that with billions of our tax dollars on the line this may be an issue. Sounds like due diligence to me. Mr. Jackson needs to get over himself.

  • Maurice E. Adams
    November 14, 2012 - 09:04

    Hydro Quebec's 2009 response (in part) says:------ "Hydro-Quebec wishes to express to the Board its position that any water management agreement to be established by the Board must recognize that the CF(L)Co/Hydro-Quebec Power Contracts have the benefit of Section 5.7 of the EPCA. 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 EPCA, as does the water management agreement proposed by both Suppliers to the Board." --------- So, when you say that "HQ did make a brief submission to the PUB noting that the proposed WMA recognizes its contractual rights and therefore it has no desire to intervene."---- It is clear that "it has no desire to intervene" --- AT THIS TIME. Why would they? They will intervene, not before an Newfoundland quasi-judicial body, but at the place and time of THEIR choosing, that is, before the Quebec courts, where BY LAW, all matters related to Upper Churchill contracts MUST BE HEARD.

  • Maurice E. Adams
    November 14, 2012 - 07:18

    Pretty superficial and misleading representation of both the facts and much of the key arguments/concerns expressed by the 2041 Group. .........You fail to mention that (as I understand it) Hydro Quebec would have first rights to any additional power generated as a result of the Muskrat Falls/Water Management Agreement. Also, you misrepresent HQ's response. HQ said instead that it relied on its overriding/pre-existing rights as confirmed by this province's own section 5.7 of its own Electrical Power Control Act..... Intervening in the province's Water Management Agreement at this point would and could only weaken their own legal position later on ---- so that in itself (the very fact that HQ intentionally chose not to intervene at this point), not to weaken its legal position, shows that if and when necessary --- when it is to the best advantage of HQ, it will (as they have said when they say they will rely on their existing legal/contractual rights) exercise the rights that it believes that it clearly has. .... It will be too late to find that out AFTER Muskrat Falls is built. ..... Not your best work Peter.