Letter: Should we be negotiating with Quebec?

Published on November 22, 2016

Recent reports of negotiations with Quebec call for a review of the Quebec Superior Court decision rendered by Judge Martin Castonguay on Aug. 8, 2016 and dealing with the rights of Hydro-Québec during the last 25 years of the 65-year contract, from Sept. 1, 2016 to Aug. 31, 2041.

Here is what the Judge said, in his own words, as translated from his decision in French:

“The Court concludes that CF(L)Co has no right to the capacity and energy produced by the Generating Station with the exception of the power associated with the 300 (megawatt) Recall Block and the 225 MW Twinco Block and, for greater certainty, CF(L)Co holds no right to the capacity and energy that Hydro-Québec has not used but to which it is entitled due to having paid for it.”

Hydro-Québec contended that they have a right under the contract to all power, except for two blocks: one for 300 MW, the recall block, and 225 MW, which was reserved for industrial use in Labrador. The 65-year contract embraces a principal contract for 40 years and a renewal contract for 25 years, from Sept. 1, 2016 to August 31, 2041.

Nalcor contends that the renewal contract places a limit on the amount of power committed to Hydro-Québec, a limit which was not present in the principal contract. The Castonguay decision concluded that there is no reduction in the rights enjoyed by Hydro-Québec from the first 40 years to the second 25-year period.

Newfoundland and Labrador had counted on additional power being available from Churchill Falls, up to 1,600 MW, and Nalcor had also relied on a water management agreement which would enable CF(L)Co to meet its obligations to Hydro-Québec while also engaging in the swapping of energy between Churchill Falls and Muskrat Falls.

Under this banking arrangement, Muskrat Falls would generate power for Hydro-Québec and at another time would withdraw energy from the energy bank by accessing power from Churchill Falls. The court decision may prevent CF(L)Co from sending “banked” power to Muskrat Falls (Nalcor), other than power relating to the 525 MW recall and replacement blocks. This decision may undermine the effectiveness of the water management agreement.

There is not enough water to generate 824 MW of power and 4.9 billion kilowatt hours of energy, without an agreement to allow Churchill Falls power to be managed in concert with Muskrat Falls. Hydro-Québec was not a party to the 2009 water management agreement upon which we are relying and, on top of that, their contractual rights are protected under section 5.7 of the Electrical Power Control Act.

Negotiations with Hydro-Québec might lead to an effective water management agreement. Quebec is demanding that we withdraw all court action before they will begin negotiations. This pre-condition places us in a difficult position and should be resisted.

Negotiations with Quebec should be held in abeyance pending a full cost benefit analysis of the option of suspending this project and continuing with the transmission line alone. Such an analysis may confirm the merit of suspending work at the generation site and preserving the assets, while inviting Hydro-Québec to sell us any power we may need between now and 2041.

Our best strategy is to match the rates obtained by Hydro-Québec in other markets. Such a purchase of power from Quebec is likely to offer a lower cost option than the completion of the full Muskrat Falls project. It is also likely to be a lower cost option than negotiating a new water management agreement with Quebec.

It is a dreadful mistake to continue with this project. We need to measure the cost of stopping it and compare it with the cost of finishing the project. Right now there is no cost estimate for completion and we are flying blind. The June 24, 2016 cost estimate of $11.4 billion has been blown apart. It is time to stop tossing money into this money pit at a rate of almost $10 million daily, without respecting the public right to know the facts.

David Vardy

St. John’s