28 March 2012

Coulda, woulda, shoulda: the Labrador hydro version #nlpoli

Sometimes completely separate events come together in a striking way.

Your humble e-scribbler and Jerome Kennedy, the provincial natural resources minister exchanged a couple of tweets on Tuesday.   The minister had called it an error that the 1969 Churchill Falls power contract included a clause that said the contract would be interpreted under the laws of Quebec.  If the contract was under the laws of this province, the government would be able to apply section 92A of the Constitution Act, 1867. Go back and read the Supreme Court cases, he suggested.

Well, let’s just leave that for another day without getting into the details.  The ongoing discussion among Labrador aficionados about 92A is long and complicated.

Let’s just look at the bit about an error.

Well, it is an error.

But it’s an error in hindsight.

And that’s hindsight with the benefit of section 92A that was added to the constitution in 1982 and not even dreamed about in 1969.  And that’s with the benefit of knowing what happened in 1976 when the Government of Newfoundland and Labrador effectively nationalised the company that signed the 1969 contract with Hydro-Quebec.

That company was Brinco and its subsidiary, the Churchill Falls (Labrador) Corporation. Brinco was a private company with its head office in Montreal. The guys who signed the 1969 contract had no idea that their company would all but vanish in 1976 and that the Canadian constitution would change or that this might somehow matter to them.

Meanwhile, earlier on Tuesday, your humble e-scribbler had a chat with someone else about Nalcor’s lawsuit against Hydro-Quebec over the 1969 contract.  You can find CBC’s online story about it on the New Brunswick CBC site.  They also posted the motion to start legal proceedings that Nalcor’s lawyers filed in Montreal against Hydro-Quebec.

The motion doesn’t argue that Hydro-Quebec screwed Brinco. It doesn’t say that the HQ boys used insider knowledge to gain some advantage improperly.  They didn’t use any of the usual descriptions people in Newfoundland and Labrador have for the 1969 contract.

Instead you see stuff like this:

13. When the contract was signed, neither party believed or had any reason to believe that the North American electricity markets would become more competitive, and
CFLCo in particular had no reason to believe that future US open access regulations would in effect enable CFLCo to transmit energy through Hydro-Québec's transmission network to the US or other markets;

14. Nor was there any reason to believe that the commercial value of the energy sold would increase over time. To the contrary, it was generally expected that with the advent of nuclear power plants, the value of that energy might well decline over time;

15. Thus, the contract contains no escalation clause but rather provides for a gradual reduction in the purchase price, a clear indication that the extraordinary increase in
energy prices to their present level was neither foreseen nor foreseeable when the Power Contract was signed;

No one saw anything coming.

Neither Brinco nor Hydro-Quebec “believed or has any reason to believe” their assumptions would turn out to be wrong.

And that declining price is not the result of some evil French plot to oppress the poor benighted folk of the Happy Province. Nope, it was the result of a mutual understanding of what would be fair given all those reasonable assumptions both parties had at the time they signed the deal.

Things changed after that and both parties to the agreement these days have recognised the need to change it.  Unfortunately, they haven’t been able to cut a deal.  So now, Nalcor is in court to get a Quebec court to order a resolution.

Without getting into any more of the argument than that, it is curious to see the extent that both the natural resources minister and the government’s lawyers use hindsight when talking about the 1969 contract. 

Jerome Kennedy used it in a fairly typical way.  Hindsight has been the usual way some politicians in Newfoundland and Labrador use to paint the 1969 contract as the Great Injustice or the Quebec Plot or the Great Give-Away or whatever injustice they pledge to avenge.  For Kennedy it was along the lines that if only they hadn’t made that big mistake back then, we could easily fix the problem.

For the lawyers, the deal was wonderful in the beginning.  Things turned out differently.  So in hindsight, we need to go back and rework the original deal because the situation is changed.  No one did anything wrong but we still need to fix things.

It will be fascinating to see how the courts in Quebec and later the Supreme Court in Ottawa deal with the Nalcor lawsuit.

And it will be really interesting in future years to watch as the Muskrat Falls gang deal with the impact of hindsight applied to their deal.

- srbp -


rod said...

This motion is dated February 2010.
The argument, while being a real tear jerker, doesn't overpower the claim that a contract is a contract.

Standing in court and yelling, "It's not fair." doesn't cut it.

Roger Grimes's deal with Hydro Quebec is looking better and better all the time.

rod said...

Government press release I'd like to read.

Dunderdale resolves to develop the full lower Churchill project, with Gull Island and Muskrat falls, and to sell the power to Quebec at the border for the going wholesale price.

Ed Martin tenders his resignation.
Nalcor placed under the control of the public tendering act, and the auditor general is given free reign to audit their books and purchasing practices.

Natural gas from the Grand Banks is to be carried by pipeline to the Avalon Peninsula for a large thermal generating plant capable of 2000 megawatts.

Edward Hollett said...

Enjoy your delusions, man, especially if they are natural.

rod said...

That's me buddy. Delusional.

bouchecl said...

I was amused by section 35 of the statement of claim. The "unique" and "unprecedented" contracts has at least one precedent.

In 1912, the Pittsburgh Aluminum Company (later known as Alcoa) was looking to increase output at its Massena, NY smelter and joined forces with two Quebec-based companies, Montreal Light, Heat and Power and Shawinigan Water and Power to create a joint venture, the Cedar Rapids Manufacturing and Power Company to build a 81 MW power plant on the Saint Lawrence River and a power line crossing the territory of Quebec, Ontario and New York State to feed the plant.

The joint venture agreed to an 85-year contract in which 58 MW of capacity was sold for $2.30/MWh (2.3 mils/kWh). In 1944, the Quebec Hydroelectric Commission (Hydro-Québec) ends up with the plant as part of the nationalisation of MLH&P but keeps delivering the power at the agreed price, even when Alcoa is selling the power to Cornwall, Ontario. "This is a ridiculous contract, but we have to honour it", wrote an HQ official in a 1964 memo.

In 1983, Alcoa got tired of the deal, and called HQ to sell the power line and contract. A deal was reached in December 1985, 14 years before the term.

Moral of the story: I guess CF(L)Co lawyers haven't read the French edition of Wikipedia :)