23 November 2012

Gil Bennett won’t re-tweet this post #nlpoli

After a few weeks’ break, Telegram editor Peter Jackson had another go Thursday at the water management controversy involving Nalcor and the 2041 Group.

Jackson wrote about it in his Hallowe’en column. After digging up some additional information, he went back at it again.

Jackson comes to the same conclusion as before, namely that the lawyers are wrong:  there’s no issue.  Jackson quotes Nalcor vice president, the engineer who is running the Lower Churchill project.  What’s interesting though is that after more research, Jackson still missed a crucial – albeit maybe subtle – detail.

For starters, let’s just recall what the 2041 Group lawyers are talking about.  Jackson summed it up neatly enough in October:
Lawyers Bern Coffey and Dennis Browne argued last week that Quebec could veto water management measures taken on the Churchill River to accommodate both Churchill Falls and Muskrat Falls. That’s because the water management agreement between the two is subservient to the contract between Churchill Falls and Quebec.
Now let’s look at part of Gil Bennett’s comment that Jackson uses in the most recent column on the controversy:
“There is no situation where either CF(L)Co or Nalcor would … interfere with the operation of the (Hydro-Québec) power contract.”
Bennett is coming at the issue from the standpoint of what Nalcor could do that might affect Hydro-Quebec’s 1969 contract.  It’s likely a very touchy issue at Nalcor since the controversy in 2008-2009.  If you recall, a clause in the 2008 Water Rights Act was worded in such a way that it assigned Nalcor the right to manage the water flows on the entire river, contrary to the 1961 lease held by Churchill Falls (Labrador) Corporation.

Caught in the Act

The issue is so sensitive that the provincial government called an emergency session of the legislature in 2009 to change the offending sections of the 2008 law.  Kathy Dunderdale was natural resources minister at the time.  She repeated several times in introducing the 2009 amendment bill that government had no intention of screwing with the lease in 2008. 

What’s interesting is that in 2008, Dunderdale talked about the water rights provisions in an earlier statute, Lower Churchill Development  Act  passed in 1979. She said the government would go down a different route than the one covered by that Act and so they needed a new Act on water rights.  It’s curious that the 2008 Act, as passed, used a different definition than the 1978 Act to grant – ostensibly – the same rights.

Anyway,  this is a touchy issue and Nalcor has been consistent in stating that nothing they are currently up to will in any way interfere with the 1969 contract and the 1998 Guaranteed Winter Availability Contract (GWAC).  Nalcor is not doing anything to interfere with Hydro-Quebec.  Hydro-Quebec will get the electricity those contracts specify.  Got it?  Bennett said very much the same thing on VOCM’s Nightline a couple of weeks ago.

A Crucial Issue

Here’s the point that Jackson missed:  Bennett answered a question that the 2041 Group didn’t ask. Bennett is talking about what Nalcor might do to interfere with Hydro-Quebec. That’s the question Jackson erroneously attributes to the lawyers.

But Jackson’s  wrong.  The lawyers are wondering what Hydro-Quebec might do to interfere with Nalcor’s plan.

That’s the really important angle because both Nalcor and the 2041 group agree that the water management agreement is key to making Muskrat Falls work.  If Nalcor can’t get reliable access to consistent water flows, then what it gets out of Muskrat Falls would be dramatically lower than current estimates.  Here’s a bit of an SRBP post on this point that puts it in perspective:
2250 MW installed [at Gull Island] but capable of producing only 400 MW reliably. That’s only about 17%.  If you had the same situation at Muskrat Falls,  the 826 MW of generation would spit out – reliably – the equivalent of only about 140 MW.
In both his comments to VOCM and his comments to Jackson, Bennett talked about what Hydro-Quebec will get, looked at from an engineering perspective.  Here’s a bit from Jackson’s column:
First, he said a clause in Hydro-Québec’s power contract entitles it to extra capacity if available. The 2041 Group has suggested that could allow Quebec to demand power designated for Muskrat Falls under the WMA.
“(They’re) wrong on that point,” said Bennett. “It’s the difference between capacity — what the plant is capable of producing — and the energy requirements of Hydro-Québec.” HQ can vary the amount of production it requires on a day-to-day or hour-to-hour basis, he said, and can get more than what’s known as its “firm” capacity outlined in the contract.
Again, Bennett has answered a point other than the one raised by the 2041 Group.  It’s not about sending enough electrons down the line to meet the amounts specified in the 1969 contract or, as Bennett seems to suggest in that comment, what they might need at a given time.

Hydro-Quebec Optioned All the Capacity

The point the lawyers are making is that, outside of the 525 MW from Churchill Falls available to CFLCo, all the capacity at Churchill Falls  is optioned by Hydro-Quebec.  There simply isn’t any surplus capacity at Churchill Falls that isn’t already spoken for. Therefore, the Churchill Falls plant may not be able to generate electricity for Nalcor, if that’s what Nalcor contends the water management agreement allows.

As for requirements, it doesn’t matter what Hydro-Quebec requires in the middle of any given afternoon.  Quebec has already optioned the capacity, whether they need it – require it – or not.

Bern Coffey is one of the lawyers raising questions about the water management agreement.  To illustrate the extent of HQ’s options, he pointed out to SRBP a section of the 1999 CFLCo shareholders’ agreement.  Hydro-Quebec agreed that it would not exercise its right to take up the 225 MW of power currently allocated to Twin Falls Power Corporation when the TwinCo contract expires in 2014. In order to agree not to exercise a right,  argues Coffey, Hydro-Quebec either had the right or the parties believed it had the right to scoop up the 225 MW in 2014 under the terms of the 1969 contract and the 2016 renewal agreement.

The lawyers go a step further.

“The 1969 Hydro-Quebec Power Contract, the 2016-2041 Renewal Contract, and the Guaranteed Winter Availability Contract (expires 2041) are all agreements for the supply of power by CF(L)Co to Hydro-Quebec from the Churchill Falls Plant using water in the Churchill Falls reservoir,” Coffey wrote in an e-mail.

“While Nalcor maintains the source of the electrons CF(L)Co delivers to Hydro-Quebec doesn’t matter, no one knows whether the courts would support Nalcor’s position.”  Nor does anyone seem to know what Hydro-Quebec might argue, Coffey noted.

“If the courts were to decide Hydro-Quebec has a right to receive its power from the Churchill Falls Plant, there could be no ‘Nalcor production for CF(L)Co’ delivered to Hydro-Quebec. Under the WMA regime, without ‘Nalcor production for CF(L)Co’ there can be no 'CF(L)Co production for Nalcor.'”

Everyone has Opinions.  This Needs Certainty.

Coffey acknowledged that the 2041 group arguments are opinions.  But, Coffey noted the same thing applies to Nalcor:

“Any legal opinions that Nalcor has are, no matter how well researched and reasoned, just that, opinions. Legal certainty, on the other hand, is attained by agreement between the interested parties or, in the absence of such agreement, a definitive court determination.”

The court decision, of course, would be made on the basis of legal arguments, not engineering, or, as Nalcor has been know to use, imagineering.