Quebec appeals court decision on Churchill Falls contract no win for Newfoundland and Labrador #nlpoli

Media reports, political comments, and pundit opinions are wrong about the decision last week by the Quebec Court of Appeal in a case about the renewal clause of the 1969 Power Contract between Churchill Falls (Labrador) Corporation and Hydro-Quebec.

The Court decision leaves Hydro-Quebec with virtually all of the electricity produced from Churchill Falls and, most importantly, operational control of water flows on the river.  This will have an adverse impact on Muskrat Falls. As a result, CF(L)Co is likely to appeal the decision.

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The Quebec Court of Appeal ruled last week that Hydro Quebec retained operational control of electricity production at Churchill Falls. It made a minor change to an earlier decision by the Quebec Superior Court in a decision from 2016.

That’s why Hydro-Quebec issued a statement that it was satisfied with the outcome of the decision.

In other words, English-language media reports and political commentary got it wrong when they claimed “Quebec's top court rules for N.L. in Churchill Falls dispute with Hydro-Québec” (Canadian Press) or “A Victory For NL In Long-Standing Legal Battle With Hydro-Quebec On Upper Churchill” (VOCM).

The English-language reports focused on the idea that Hydro-Quebec could only buy electricity from Churchill Falls up to a maximum each month under the terms of an automatic renewal to the 1969 power contract between Hydro-Quebec and Churchill Falls (Labrador) Corporation.  VOCM went a step further in the mistake department my making it sound like both Hydro-Quebec and Newfoundland and Labrador Hydro could sell electricity from Churchills Falls. 

The clue that something was amiss in the English-language coverage is the statement from Nalcor that said the Quebec Court of Appeal “had ruled substantially in favour” of CF(L)Co on the question of Continuous Energy.

Here’s why.

CF(L)Co v. Hydro-Quebec (Court of Appeal) #nlpoli

The full text of the Quebec Court of Appeal decision in Churchill Falls (Labrador) Corporation v. Hydro-Quebec:  pdf

Sucks to be you Update:  Did CBC NL suck back this tweet linking to their story on the Churchill Falls decision:

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Access denied: CFLCo and Hydro-Quebec version #nlpoli

Churchill Falls (Labrador) Corporation tried but failed in 2012 in an effort to see hundreds of thousands of pages of confidential Hydro-Quebec documents on the 1969 Power Contract between CFLCo and Hydro-Quebec.

A decision by the Quebec access to information commissioner in November 2012 denied CF(L)Co access to the documents under a section of the provincial access to information law that excludes requests that are so large that answering them would interfere with  the normal operations of the public body.

Curiously enough that’s exactly the same ruling the Newfoundland and Labrador access commissioner made on a 2008 case involving a request for access to e-mails in the Premier’s Office. In his decision, filed in January 2009, the provincial access commissioner determined that:

the number of e-mails encompassed by the request was over 119,000. At a rate of 500 e-mails per day, it would take about 8 [sic] months to process the request. The Commissioner found that this was an unreasonable interference with the operations of Executive Council.

 

Dunderdale using rigged deck against public on Muskrat Falls

Whenever anyone moans about the 1969 power contract with Hydro-Quebec they can thank the last four Premiers of Newfoundland and Labrador – from Beaton Tulk to Kathy Dunderdale – for guaranteeing Hydro-Quebec’s unaltered command of Churchill Falls power.

In order to hide her own financially disastrous Muskrat Falls megaproject from public scrutiny, Kathy Dunderdale is using a cabinet order issued in December 2000 when Beaton Tulk was the placeholder Premier between Brian Tobin and Roger Grimes.

Take a look at the order – Regulation 92/00:

3. Newfoundland and Labrador Hydro is exempt from the Electrical Power Control Act, 1994 and the Public Utilities Act for all aspects of its activities pertaining to the Labrador Hydro Project as defined in section 2.

But how is the Labrador Hydro Project defined?

That’s where you get to see the gigantic mess that Tulk started and the rest have continued.

The exemption order doesn’t just apply to the Lower Churchill and all the transmission facilities associated with it, as most people assume.

Nope.

Here’s the very first thing included in the definition of  the “Labrador Hydro Project”:

… generation and related facilities at Churchill Falls , Labrador

In one clump of eight words, cabinet destroyed any power the Public Utilities Board had under the Electrical Power Control Act, 1994 to manage electricity in the province to make sure that ordinary citizens get the cheapest possible electricity. 

Under the EPCA, 1994,  the PUB was supposed to be able to review electricity generation in the province to make sure consumers don’t get wallet-raped in order to have heat and light to their homes.  Newfoundland Power or Newfoundland and Labrador Hydro could ask the PUB to review demand and supply in the province.

As then-Premier Clyde Wells put it in 1994:

[The Electrical Power Control Act]  authorizes the Public Utilities Board to redirect any power - any power, no exceptions - to meet the needs of the people of this Province. Not expropriating anything from anybody. It is to manage the power that is generated in this Province in such a manner as to first and foremost meet the needs of the people of this Province. It makes no specific reference to Upper Churchill. It makes no specific reference to power companies. It makes no specific reference to any individual generator of power.

But with Churchill Falls exempt from the Act, those sections of the Act that would protect consumers are useless.

Kathy Dunderdale can get on open line and talk all she wants about legal opinions that warn against using powers under section 92a of the Constitution Act, 1982.  Truth is there is no risk:  there are no powers since she and her current cabinet colleagues decided to to uphold the December 2000 exemption.

Tulk and his cabinet may have signed them away, but every cabinet since then has endorsed them.  Kathy Dunderdale and her cabinet are actually proud of their decision.

It gets better, though.

In the fall of 2000, the provincial government issued a series of orders that exempted every major hydro-electric project on the island portion of the province from the EPCA.  Those exemptions still exist even though several of the projects are now owned entirely by Nalcor as a result of the 2008 expropriation bill.

What that means for consumers is that Nalcor alone can decide what it wants to do with those sites. Even if there was plenty of electricity available for Nalcor to meet provincial needs at the lowest possible cost without building Muskrat Falls, there is no way the Public Utilities Board could force Nalcor to halt the megaproject and do the sensible thing.

Once a line to Nova Scotia flows through, Nalcor can ship discount power out of the province from its island generating sites and force local consumers to use super-expensive Muskrat falls power all thanks to decisions dating from the fall of 200 and endorsed by every administration since.

So the next time Kathy Dunderdale talks about independent reviews or asking the PUB to do anything, just remember:  legally, the regulatory deck is stacked against consumers.  The whole thing is a giant set-up to favour Nalcor and its corporate partner Emera.  Beaton Tulk may have started it, but Kathy Dunderdale and the current cabinet have made it their own.

Just in case you think Kathy Dunderdale doesn’t like Hydro-Quebec, just remember that she and her predecessor spent five years trying to get HQ to take an ownership stake in the Lower Churchill. 

And she never said boo to anyone until long after her secret efforts failed.

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PUB quietly imposes water management deal

The public utilities board imposed a water management agreement on NALCOR and Churchill Falls (Labrador) Corporation on March 9, 2010. The reasons for the decision were filed separately ,

The PUB didn’t issue a news release when it issued the order, nor did it issue any sort of media advisory or news release on the half day of hearings it held into the application.

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The 1969 Churchill Falls Power Contract

For those who might be interested in these things, here’s the 1969 power contract between Hydro-Quebec and Churchill Falls(Labrador) Corporation in pdf format.

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Hydro Quebec has leverage on Danny Williams

If Premier Danny Williams listened to Opposition Leader Danny Williams he’d know what went wrong with efforts to develop Labrador hydroelectric power.

Here’s Danny Williams in November 2002 in full fury over a proposed deal on the Lower Churchill:

Mr. Speaker, could the Premier please tell the people why he did not use the Lower Churchill as a bargaining lever to address the inequities of the Upper Churchill contract? Would the Premier explain why he quit on the objective of every single Government of Newfoundland and Labrador since the deal was signed over thirty years ago?

Leverage.

Before he got elected, Danny Williams said there would be no deal on the Lower Churchill under his administration without redress for the 1969 Churchill Falls contract.

He rejected a joint Hydro Quebec/Ontario Hydro/SNC Lavalin proposal to develop the Lower Churchill in partnership with Newfoundland and Labrador Hydro.

Williams gave away what he himself described in 2002 as leverage.

That part was reported by the conventional media.

Then Williams went a step further.

After rejecting the proposal out of hand in order to “go-it-alone” and in complete contradiction to his own stated commitment on redress,  Williams then spent five years secretly trying to get Hydro Quebec to take an ownership stake in the plan to develop 3,000 megawatts on the Lower Churchill leaving the 1969 contract “to one side”.

According to the province’s natural resources minister:

“We know that if you come in here as an equity player that you have to have a good return on your investment. And we want you to have a good return on your investment.”

That part of the saga – Williams secret efforts, without redress - hasn’t been reported by the conventional media and likely never will.

At the same time as he was trying to court Hydro Quebec as a business partner, Williams lambasted Quebec as politically volatile:

Three weeks ago, in a bid to garner support for the massive Lower Churchill hydroelectric project in Labrador, Williams said Canada should reduce its reliance on energy from Quebec because the province is too politically unstable.

"The more we can spread out our energy supply means that we won't be totally dependent on Quebec for energy which, given the volatility of the politics in Quebec, could be a very, very sensitive situation in the years to come,'' Williams said Sept. 27.

He later apologised if anyone took offense but would not withdraw the remark.  Williams said he was only described the “reality.”

Not surprisingly, Hydro Quebec wasn’t interested in any Lower Churchill deal involving Danny Williams. 

With the Quebec market gone and the Ontario one looking less promising, Williams and his crew looked elsewhere.  

A potential deal with Rhode Island (not that far from New York city - died for an obvious reason:  Lower Churchill power was simply too expensive.  By the time the very expensive project got its power all the way to Rhode Island – along with all the American-side wheeling charges -  Rhode Islanders just wouldn’t/couldn’t afford the bill.  And let’s not even start talking about the depressed prices and forget the race to develop cheaper alternatives that are just as or even more green than Gull Island and Muskrat Falls.

Not content with the failures to date, the Williams’ administration then tried to undermine the 1969 contract with a clumsy legal ploy that would have given control of the entire Churchill River to the provincial energy corporation.

That failed too.

With no markets, no money could be raised.  And with no markets and no money, the very expensive project just wouldn’t fly. Even Danny Williams had to admit the obvious, recently.

And now, with that as prologue, Danny Williams and his energy corporation are turning back to an idea he rejected five years ago: redress for the 1969 Churchill Falls deal.

Theirs is nothing more than a dolled up version of an old whine:  “Aw come on, it’s just not fair.”

And it isn’t fair, really.

But that doesn’t matter, as Danny Williams, opposition leader, and Danny Williams, lawyer, know very well. Without some sort of leverage, there isn’t any way to get at the 1969 contract and amend its terms.  Whatever leverage he had, Danny Williams has managed to either fritter it away or take a giant axe to it.

About the only saving grace for Newfoundlanders and Labradorians is that Hydro Quebec is unlikely to take the request to renegotiate the deal seriously; not likely that is, unless there is a chance of making it even sweeter for them in other ways.  There are always things that could get better for Hydro Quebec.

Take, for example, the tax free status of the project until 2016.  In the early 1990s, HQ wanted to have that extended as part of a Lower Churchill deal.  The idea fell on the deaf ears of the Liberal administration of Clyde Wells.

Maybe Danny Williams would be more amenable given that he is quite obviously jammed up:  he needs a political score for the 2011 election much more than Hydro Quebec needs any talks or more money.

Then there is the issue of shares.  Right now Hydro Quebec holds about 35%. Danny Williams has already said that he was willing to see Hydro Quebec gain a good return on its investment.  Perhaps more shares in CFLCo and a new corporate structure could be worked out in exchange for cash.  That way, Hydro Quebec gains back some of the cash it would have to pay the corporation it already owns a significant chunk of:

[Claude Garcia] also noted that new benefits to the project operator, Churchill Falls (Labrador) Corp., would also provide some juice to Hydro-Quebec because it has a one-third interest in it. Nalcor Energy holds the remainder.

And after all, Williams is on record as saying that  - at some point – principle converts to cash.

Even without the prospect of a deal, Hydro Quebec can win big concessions just for talking.  They can get Williams to shut up about transmission on the Lower Churchill.  They can get him to withdraw NALCOR’s current procedural assault on Hydro Quebec Transenergie’s wheeling rates.

Maybe there’s something else no one has even thought of yet.  After all, re-opening the contract, as NALCOR has asked, means putting everything on the table.

Hydro Quebec actually has nothing to lose in entering talks quietly.  In fact, they have everything to gain.  On the other side, Danny Williams and NALCOR – like BRINCO 40 years ago – are in a tough spot.

Leverage.

It’s great when you have it.

Sucks when you don’t.

And right now Danny Williams and NALCOR have no leverage.

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Fire cost NALCOR $18 million in lost revenue

A fire at Churchill Falls last November cost the province’s energy corporation a total of $18 million in lost revenue in late 2008 and early 2009 under the Guaranteed Winter Availability Contract (GWAC) with Hydro-Quebec.

NALCOR Energy released updated information in response to a request from your humble e-scribbler.

The fire occurred November 3, 2008 in a cable shaft at the Churchill Falls generating station and caused what a NALCOR spokesperson described in an e-mail as “extensive damage”.  Damage knocked two of the plant’s 11 turbines out of action and reduced overall generating capacity by a reported 1,000 megawatts.

According to the spokesperson,

This contributed to the decrease in GWAC revenue to Nalcor Energy in 2008 of $8.4 million and year-to-date 2009 of $9.6 million. No penalties [for non-performance] apply under GWAC.

One of the turbine/generation units was back in action by February 2009.  Repairs to the second unit were completed over the summer.

Under the GWAC,  Churchill Falls Labrador Corporation [CFLCo] agrees to supply Hydro-Quebec with a set amount of power during HQ’s high demand winter season apparently in addition to that supplied under the 1969 contract.  The power is used in Quebec. 

GWAC is one of several elements of a 1998 deal that included the recall and resale of a block of 130 megawatts of power and a new shareholders agreement for CFLCo between majority shareholder Newfoundland and Labrador Hydro and minority shareholder Hydro-Quebec.  

In the recall component of the deal, NL Hydro recalled a block of power under the 1969 contract and then resold it to Hydro Quebec at new, higher rates.

The recall element of the agreement has now been replaced by a new deal to wheel upwards of 800 megawatts of Churchill Falls power to the United States through Quebec.  Newfoundland and Labrador Hydro pays Hydro Quebec’s transmission corporation $19 million annually in fees for wheeling the power under terms set down by Quebec’s provincial energy regulatory board.

NL Hydro gets  about the same net price for its power under the wheeling deal with Emera and Hydro Quebec as it did selling the power directly to Hydro Quebec. 

Note that some of the links on GWAC are no longer active. They seem to have disappeared in a series of routine redesigns of websites in the provincial government and in the development of the new NALCOR website.

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Curiouser and curiouser!

Even in the Land Through the Looking Glass that is Newfoundland and Labrador these days, a news release about an emergency session of the House of Assembly to deal with an amendment to  a single piece of legislation is very odd, indeed.

As the official version puts it:

In the course of negotiating a water management agreement for the Churchill River, CF(L)Co advised Nalcor that it felt aspects of the Energy Corporation of Newfoundland and Labrador Water Rights Act infringed upon its water rights lease for the Churchill Falls development. This was not the intent of the act, and government has agreed to amend it so as to avoid any ambiguity.

First of all, one must realise, of course, that NALCOR is the parent of Churchill Falls (Labrador) Corporation or CFLCo.  It holds 65% of the shares, in fact, and the two companies are not completely separate entities.  They are rather closely and intimately connected, in fact.

Second of all, one must also note that the section of the Electrical Power Control Act 1994 requiring a water management agreement came into effect this past January. 

In 2007, the current administration introduced this amendment in the legislature requiring two companies trying to generate hydro from the same river to come to some agreement on water sharing have one imposed by the public utilities board.   For whatever reason the current administration did not give it force of law until early 2009.

Third of all, the original lease that CF(L)Co holds has been around since 1961.  its provisions are well known to a host people inside and outside the provincial government.   in fact, given the history of the lease, it’s probably one of the most well studied and well-understood pieces of legal documentation existing anywhere in Canada.

And that’s the really odd thing.

Well, aside from the oddity of the company effectively negotiating with Itself, and then notifying Itself in the course of negotiations that Itself had a problem with something Itself had been party to previously because that infringed on something else Itself had also been party to much earlier.

You see, there is nothing that would have been noticed during the negotiation of a water management agreement for the Churchill River since January 2009  involving NALCOR, Energy Corporation, Newfoundland and Labrador Hydro or CF(L)Co or whatever name the Crown version of Sybil is using at the moment that wasn’t painfully obvious to NALCOR,  Energy Corporation Hydro or CF(L)Co or Sybil, as she then was, when the provincial government introduced the changes to the EPCA, 1994 in 2007 and then introduced the Energy Corporation of Newfoundland and Labrador Water Rights Act in early 2008.

What seems to be up for discussion here is something  your humble e-scribbler pointed out back in February. 

If that weren’t enough, changes to the Electrical Power Control Act – passed in 2007 but only quietly implemented after the expropriation in December 2008 – ensures that NALCO can enforce its control over future developments through the Public Utilities Board.

If one takes the implication from a set of Hydro Quebec questions about the Lower Churchill environmental assessment, the proposed water management regime appears to require that Churchill Falls be run in such a way as to maximize the generation at the Gull Island and Muskrat Falls dams under all contingencies. 

This might adversely affect CF(L)Co and some of its contractual arrangements to supply power.  It would also seem to go against several sections of the original lease.

If the government news release is clear – and that is by no means obvious – then the emergency session of the legislature is likely to be about passing an amendment that removes the last clause of the water rights act.  That’s the one that requires a water management agreement be reached or that one be imposed by the public utilities board.

What’s so interesting – if that’s the case – is that this is coming in an emergency session and not simply held for the fall sitting.  An amendment to the legislation could have been made later on with the requirement to produce the amendment being made a condition of any water management agreement.

There must be some sort of threat at work here, something much more significant than the prospect of an agreement between  “Nalcor Energy or its subsidiary and CF(L)Co”.  Incidentally, CF(L)Co is a subsidiary of NALCOR. 

Rather, there might not be much hope of a deal at all in the near term.  Instead,  CF(L)Co  - perhaps at the insistence of one of its shareholders – is protecting its interests and ensuring that the legal problems inherent in the EPCA amendment and the water rights act be eliminated now, without question or condition.

And if it was anything else, like say a repeat of the old water rights reversion act, then the thing would have been trumpeted in news conference held by the Premier.  Something says he just wouldn’t be able to resist the temptation to grandstand against any slight. 

Nope.  This is something government is trying to downplay, somewhat.

But rest assured:  emergency sessions like this one don’t happen every day and they sure as heck don’t come for a routine amendment, even if it is one intended merely to avoid “ambiguity”.

There’s something big behind this.

And it may not be pretty for the Lower Churchill project.

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Hydro inks electricity deal with Emera

State-owned energy company Newfoundland and Labrador Hydro has inked a two-year deal with Emera to for the latter to broker the sale of up to 250 megawatts of power from Churchill Falls into the north-eastern United States.

On the face of it, the deal looks like an arrangement to sell power on the spot market instead of the guaranteed purchase arrangement it replaces.

Premier Danny Williams said the agreements mean the province will get the “lion’s share” of the profits from the sale of the power. He said the $40 million to $80 million per year expected for the province comes after HQ and Emera Energy take their cuts.

Williams told members of the media today that, as the price of energy goes up, the revenue for the province will also increase.

By the same token, as prices go down so too would revenue, presumably.No details of the financing were released outside of estimates that Hydro would receive between $40 million and $80 million annually for the power, depending on electricity prices, the available power and the load capacity on the grid at the time of sale.

A separate five year agreement with Hydro Quebec Transenergie, owner of the Quebec energy transmission grid, facilitates the sale. News media reports have been erroneously playing up the Quebec angle on the story even though that aspect was pretty straightforward.  Since the American federal energy regulator established a free markets policy in 1992, Canadian electricity markets have had to adopt what is known as an open access transit tariff for electricity that allows power to be wheeled competitively across the province at rates set by the provincial electricity regulators.

Quebec Transenergie didn’t have much choice, provided the existing grid could handle the load. by the same token it’s unclear what New Brunswick premier Shawn Graham meant when he stated that he would not stand by and allow energy to be wheeled through his province at the expense of development in his province.  New Brunswick will have to abide by the same free market rules as other energy-producing provinces if it wants to sell power into the United States.

Interestingly, the sale is being handled by Newfoundland and Labrador Hydro, although the power is generated by Churchill Falls Labrador Company.  While Hydro used to be the CFLCo parent, the two are now sister companies within the provincial umbrella energy corporation.

The power deal appears to replace a similar arrangement with Hydro Quebec known as the guaranteed winter availability contract.  First signed in 1998, the GWAC saw Hydro recall 130 megawatts of power from Churchill Falls under the terms of the 1969 CFLCo development agreement and then re-sell the power to Hydro Quebec at a defined price far above the pernicious terms of the 1969 deal.

The original three-year GWAC contract was renewed for a further three years in 2001 and then for five years by the current provincial government. The five year deal expired on March 31, 2009. The five year deal generated $46 million revenues annually.

The GWAC was a way of forestalling a possible bankruptcy by CFLCo since the 1969 agreement returned insufficient revenue to keep the company solvent over time. The original news release, linked above contained a background presentation but this has disappeared from the provincial government website.

The original GWAC became the subject of some controversy with accusations arising from then opposition energy critic and current Hydro board chairman John Ottenheimer.

It is unclear from Thursday’s announcement if the GWAC and the related shareholder’s agreement within CFLCo have expired, been replaced or will be honoured in some other way. CFLCo is owned by Newfoundland and Labrador Hydro (65.8%) and Hydro Quebec (34.2%).

That information might change the claim today that Hydro captures the “lion’s share” of the revenues from the Emera deal.

Also unclear at this time is the status of the 225 megawatts of power from Churchill Falls that currently flows to western Labrador through Twin Falls Power Company.  Twin Falls was a joint venture of the two iron ore companies in western Labrador and BRINCO.  The power plant was shut down and TwinCo received a guaranteed price on a block of Churchill Falls power.  That agreement expires in 2014.

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