Where’s Joey? The Churchill Falls contract signing, 1969

Signing the contract to develop Churchill Falls in 1969 are, left to right, Yvon de Guise and Jean-Claude Lesard of Hydro Quebec and Donald McParland and Eric Lambert of Brinco, the private sector company that held rights to develop natural resources in Newfoundland and Labrador. [Photo reproduced from Philip Smith, Brinco: the story of Churchill Falls, (Toronto: McClelland and Stewart, 1975).]

Contrary to popular mythology the Government of Newfoundland and Labrador did not negotiate the deal to develop the hydroelectric complex at Churchill Falls.

 

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The Can Opener II

Just in time for Halloween, there’s a remake of an old horrorshow:  the local economist who makes dubious assessments that seem a wee bit tinged by things non-economical.

Used to be Wade Locke was the regime-supportive economist of record.

Now it’s Jim Feehan, a guy with a record of producing dubious bits of research on partisan political subjects.  He also co-wrote a paper on another local partisan favourite, the 1969 Churchill Falls contract.  The article  was titled “The Origins of a Coming Crisis” but at no point in the article is the crisis ever described. That should make you scratch your head just a wee bit in scepticism.  

Anyway…

Jim Feehan told local CBC radio listeners Friday morning that while this New Brunswick power deal looks like a good one in that rates will be stabilised after a series of increases, public debt will be hacked down and pulp and paper mills will benefit from lower rates, this deal isn’t really so good because once it is sold, NB Power can never come back again.

In other words, even though this deal is great from the standpoint of an economist, people should maybe think twice because of things the economist commenting knows nothing about.

Like say law.

You see, as the Fortis expropriation in this province demonstrates, even in the worst possible case in New Brunswick, there is nothing like this that can’t be undone. 

But why would you want to expropriate or buy back a debt pig like NB Power if the new arrangement delivers all the economic benefits the economist noted but downplayed?

Well, there’s a question for us to ponder as we wait for the great news in Labrador Feehan’s predecessor once predicted. In the meantime, don’t hold your breath expect an answer to that one from Feehan.

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A curious misuse of words

Over the past couple of years, Premier Danny Williams and his cabinet got into the habit of referring to 2041 as the year that the Churchill Falls hydro project and all its power would be “repatriated” to Newfoundland and Labrador.

Leave aside the Mad Hatterish implication of talking about a river as if it had somehow been removed physically from the province.  Just look at the words used by the Premier Hisself:

2007 – Danny Williams’ speech to the Board of Trade: 

And in 2041, we will repatriate the Upper Churchill and take back what is rightfully ours. [Underlining in original]

2008 – Danny Williams, on the occasion of a land claims deal with the Innu:

"We all look forward, with great anticipation, to that day in 2041 when the Upper Churchill is finally repatriated to our province, once and for all," Williams said.

2009 – Danny Williams, during his little tirade aimed at Randy Simms:

And as well by then we will have wind on, we’ll have gas on, we’ll have the Churchill on, we will have repatriated the Upper Churchill, a lot of wonderful things happening in Newfoundland and Labrador and…

Hmmm.

Some of you may be wondering what is so special about 2041.  Well, that’s the year the contract with Hydro Quebec expires, the contract that sees power go to Hydro Quebec at ridiculously low prices.  In 2041,  Churchill Falls (Labrador) Corporation will find itself with 5400 megawatts of power and the ability to sell the power to whatever customer comes knocking.

And what of Hydro Quebec?

Well, it will still own one third of CF(L)Co unless it sheds its shares in the meantime. 

So with the Quebec Crown corporation still owning one third of Churchill Falls, the falls wouldn’t exactly be “repatriated” then, would they?  Hydro Quebec would still get a huge piece of the action from the falls.  That hardly seems like any sort of redress for the grievance found in the original contract.
But here’s the question:

When – if ever – might the falls be considered to revert entirely, and unquestionably, to the people of Newfoundland and Labrador?

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NL caught screwing with Churchill Falls: the quotes

Yet more on the story of the year that everyone has thus far ignored.

1.  What part of “F**k off!” wasn’t clear?

From Dave Bartlett’s story on page three of the Wednesday Telegram (not online):

“They [Churchill Falls (Labrador) Corporation lawyers and directors] felt that we had extinguished their rights to the whole watershed area that they require to produce electricity in the Upper Churchill and that would cause them some concern,” said [natural resources minister Kathy] Dunderdale.

Dunderdale is quoted elsewhere in the story as saying that there was possibly some “ambiguity” in the 2008 legislation.  “Ambiguity” means doubtfulness or uncertainty over the meaning of words or phrases. 

Extinguishing a company’s rights to their business doesn’t sound like something that is a bit “iffy”.

2.  I don’t think that’s the conspiracy they meant…

Kathy Dunderdale, from debate on emergency legislation to change the “ambiguous” wording of the water rights reversion bill to something a bit more concrete:

Mr. Speaker, my head is kind of spinning with some of the things that we have heard here today. There are conspiracy theories all over the place. So much of this, of what we heard this afternoon, is so far out in left field that I am not even going to bother to comment on it, Mr. Speaker.

…

Certainly I am not assigning, nor is this government assigning, any motive to the board of CF(L)Co. We believe that they are negotiating this agreement in good faith. CF(L)Co has an issue, the lawyers have an issue, with the definition as it exists in the current legislation, and because of that ambiguity that is in that legislation we are back here today doing the amendment.

Of course not, Kathy.  The people who found out you were trying to f*ck them over would logically not be the ones with ulterior motives.

But since you insist you weren’t trying to screw them (now that you got caught)  let’s leave it at that.

3.  Dunderdale, on one alternative to the emergency session:

If this definition issue caused CF(L)Co to delay entering into the agreement Nalcor Energy still had the option of placing the proposed agreement in front of the Public Utilities Board and asking for an agreement to be imposed upon the parties. This would be a legitimate process, Mr. Speaker, as provided for under the legislation, but it would take up valuable time - time that is better applied to other tasks before us in advancing the project.

Furthermore, Mr. Speaker, if the agreement was put before the PUB for consideration, the PUB will be considering a proposed agreement that was subject to the same ambiguous definition of the Lower Churchill River raised by CF(L)Co.

Translation:  we were really worried about costly, embarrassing and ultimately unsuccessful legal action when CF(L)Co sued our asses off.  calling the House together in a hurry is way cheaper.

4.  No deal is imminent.  There are a few people running around St. John’s who think this emergency session means there’s a Lower Churchill deal around the corner.

Guess again.

There are only two serious issues holding up the project:  markets and money.  Four years after the “go it alone” option, note what Dunderdale listed in the House as two of the outstanding issues to be settled:

Some of these outstanding issues include ratification of the New Dawn Agreement with Innu Nation; an environmental assessment, which is expected to be complete next year; finding customers for the power, and obtaining financing for the project… [ Emphasis added]

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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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Fantasy Island II: Churchill Falls and s.92(A)

Tom Careen of Placentia is apparently vying for the title of Chief Fantasist here on Fantasy island.  He’s become a regular letter writer to the Telegram usually on some topic out of the nationalist collection of fairy tales.

His latest one is an old nationalist chestnut, namely the Churchill Falls deal:

On page 191 of the Young Commission report, there is this paragraph: "In several meetings, we heard that Newfoundland and Labrador should pursue its constitutional rights under Section 92A of the Constitution Act, 1867, to access power and energy from Churchill Falls for industrial purposes in Labrador and on the island."

This is supposedly a magic solution to the 1969 contract that sees Hydro Quebec buy power from Churchill Falls at an extraordinarily low rate until 2016.  At that point, the contract automatically renews until 2041 at an even lower rate.

Now it would appear that these people  - careen included - actually bothered to read section 92(A), an addition to the Constitution Act in 1982.  That will become plain in a moment.

What they are talking about is actually the now famous Churchill Falls legend about a power corridor through Quebec which – if you believe this part of the fairy tale – the request for which the federal government rejected in the 1960s for fear of inflaming Quebec separatists.

This is where the problems start.

Firstly, it doesn’t appear such a request was ever made in the first place, in order for it to be rejected.

Second, there was little incentive for the Newfoundland government to make the request in the first place.  Churchill Falls may have been a deal between a private company – BRINCO – and Hydro Quebec but the project was one of Joe Smallwood’s great provincial projects.  Anyone recall his words at the sod-turning, the bit about “our river”?

Well, one of the reasons why Smallwood most likely never made the request in the first place is that it would have been made under the old section 92 (10).  In effect, had the request on the power corridor been made and accepted, the entire project would fall under federal jurisdiction and the entire Churchill Falls venture would have become a federal Crown corporation.

Not a provincial project any longer, but a federal one with no Joe Smallwood to take any of the credit for bringing it about.  He’d have had to take a back seat and watch as one of his favourite pet projects was ripped from his hands all in order to deal with the tough negotiating position Hydro Quebec was taking.

Despite there being virtually no evidence the power corridor was anything more than a weak-assed bargaining ploy by Smallwood on behalf of BRINCO, the legend persists.

And, it appears that the whole myth has morphed from 92 (10)(a and c) to s. 92(A).  on the face of it you can see how the whole thing changed simply in the retelling:  there’s a ‘92” and an “a” in both;  all you drop is the “10”.  Stranger things have happened.

Of course, you’ll notice that at no point does anyone who mentions 92(A) usually ever discuss what the clause actually says.  There is a summary on page 116 if the final report from the Young Royal Commission but that only highlights the shortcomings in Careen’s idea. All s.92 (1) does is ensure that the provincial governments can make laws governing non-renewable natural resources.   The Young commission makes several recommendations but they are really vague.  The wording is essentially that the provincial government should look after the best interests of the province including taking into consideration s.92(10).

But they don’t recommend anything specific and that is telling.

Simply put, there is nothing specific in s.92(10) that provides any solution to the Churchill Falls contract power rates.  The provincial government can tax power exports but it can tax in such a way as to discrimination against export power.  In other words, any tax applied to Churchill Falls  - virtually all of which is exported - would also apply to power from Holyrood or Baie d’Espoir, all of which is consumed inside the province.

Tom Careen would have known that if he’d bothered to read the Constitution Act or even notice what the Young commission report actually says when it summarises what s.92(10) says.

Then  again, as Chief Fantasist you wouldn’t be interested in anything except…well…fantasy.

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Paying not to produce electricity

A drop in electricity demand in North America will see Hydro Quebec paying some of its suppliers not to produce electricity in the next year, according to le devoir.

Selon les documents déposés devant la Régie par la société d'État, ses surplus d'approvisionnements s'établissent à 11,3 TWh pour l'année prochaine. Le chiffre inclut les volumes d'énergie différés par le passé. De ce volume important, Hydro-Québec souhaite désormais soustraire les 4,3 TWh de la centrale de Bécancour. «Notre contrat avec TCE nous permet de payer pour la non-livraison d'électricité», a commenté Guy l'Italien, porte-parole d'Hydro-Québec. «Cette option nous coûte, dans le contexte actuel, moins cher que si nous décidions de prendre possession de l'électricité pour la revendre sur le marché.» La Société n'a pas été en mesure hier d'indiquer si des clauses similaires étaient présentes dans ses contrats d'approvisionnement avec d'autres de ses fournisseurs.

HQ is looking to shutter a natural gas generator operated by TransCanada Energy and pay the company $250 million under the terms of the contract between the two companies.

In the near term, HQ may also wind up with a significant surplus of generating capacity as it looks to bring the La Romaine and other projects on stream.  HQ will go ahead with the megaprojects since it has the capital and will look to recover its costs over a very long time span.

A drop in energy demand and competition from other electricity generators will likely also lessen the chances the provincial government’s cherished Lower Churchill project will find favourable capital arrangements.  The $6.0 to $9.0 billion project remains chronically about two to three years behind schedule in its most recent iteration. 

The project also doesn’t have a single customer to date outside consumers on the island portion of province.  They would be – in effect – forced to subsidise the massive project by virtue of having an infeed line strung to the Avalon peninsula even though demand on the island could be met through other less costly means.   Other than that, there are no signed power purchase agreements.

Interestingly, as demand has lessened, interest in the project has increased, particularly within the Maritime provinces.  Federal cabinet minister Peter Mackay and Prime Minister Stephen Harper recently toured the proposed dam sites by helicopter.

Of course, weakening demand and a proponent jammed up for cash and pushed along by its own hyper-torqued rhetoric might create a much better circumstance for energy buyers looking to strike a favourable long term deal.  That’s very similar to the situation that led Brinco to sign a disastrous deal with Hydro Quebec in 1969, with the backing of the provincial government.

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h/t to Claude Boucher.

November 2008 Churchill Falls fire knocked out two of 11 generating units

A fire last fall at Churchill Falls knocked out two of the 11 generating units at the facility, Newfoundland and Labrador Hydro confirmed for Bond Papers Monday.

Repairs began immediately after the fire and one of the two disabled generators returned to service in February.  Repairs continue on the other.

The fire damaged cables connecting the underground transformers to transformers on the surface. There were no injuries.  The fire was contained on the surface by Churchill Falls fire and security staff.  Newspaper reports at the time indicated that the facility was evacuated as a safety precaution.

An investigation into the fire is expected to be completed shortly at which time further details will be released.

A January 16 story in the Montreal Gazette warned readers to be cautious about their power consumption. Winter is normally a time of heavy demand in Quebec.  As the Gazette reported:

Hydro's provincial grid is stretched especially tight these days because two turbines in Churchill Falls, N.L., that normally supply Hydro-Québec with 1,000 megawatts were damaged by fire in the fall.

CFLCo’s Churchill Falls facility generates in excess of 5400 megawatts.

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Churchill Falls “go-it-alone”: not so much edition

It’s not like you haven’t heard this before but the provincial government isn’t going alone on the Lower Churchill if the Lower Churchill goes at all. 

[Gilbert] Bennett indicated that the go-it-alone option is not the only one on the table for the potential megaproject.

"The preferred alternative is for us to lead the development of the project," Bennett said.

"That statement has been made certainly by government on many occasions. From our perspective, our job at this point in time is to collect the data necessary to give government the information they need to make a decision. So I'm not going to comment on partners, sources of equity, at this point in time."

This story – from the Wednesday telegram confirms what Bond Papers said in 2006: the thing is more show than substance and the thing can only work if other people chip in to pay for it.

When the project was announced, though, the Premier wasn’t quite so equivocal as to call going it alone merely a “preferred” option:

- "The purpose of the announcement today was to indicate that the Government of Newfoundland and Labrador, and the people of Newfoundland and Labrador, are going to do this project themselves."

- "...but the big message here is that we are masters of our own destiny, that Newfoundlanders and Labradorians are in control of this project for the benefit of Newfoundlanders and Labradorians."

- "By taking the lead we are in full control of the project, unlike the circumstance with the last government; that project, basically, was going to be controlled by Quebec..."

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One down…

One to go?

So if expropriating assets - “repatriating them” in WilliamsSpeak – worked in the AbitibiBowater case, what are the odds the provincial government might try to re-mount the water rights reversion fix for the Churchill Falls contract?

He did promise to seek “redress” and “repatriating” those assets would really make his place in the history books.

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The 800 megawatt controversy

Former premier Brian Peckford tried to set the record straight today on a controversy over a deal in a the 1970s to bring 800 megawatts of power from hydroelectric power in Labrador to the province.

Peckford appeared in an interview [link to podcast] with CBC St. John's Morning Show host Jeff Gilhooley.

The deal is mentioned in a new biography of Frank Moores, premier from 1972 to 1979 in whose administration Brian Peckford served as energy minister.  The book by Janice Wells - author of the Gin and Tonic Gardener books - contends that Peckford scuttled the deal between Moores and Quebec Premier Rene Levesque.  The deal required that the province, which had nationalised the Churchill Falls Labrador Corporation, cease any legal efforts to contest the 1969 Churchill Falls contract in exchange for the power or revenues equal to that much energy.

Wells claims that Peckford was in tears with agitation and threatened to resign taking with him half the cabinet.  She reportedly includes a valuation of the deal by Memorial University economist Wade Locke that the 800 megawatts would have been worth $4.0 billion over time. Wells discussed the supposed deal in an interview with Gilhooley that aired on October 23 [link to podcast] and refers to the episode as a failure on Moores' part.

Since the book isn't generally available in bookstores yet, it is difficult to know what sources Wells relied on for her version of events or if she cites any specific references.  Peckford contends he did not speak with her beyond a single conversation.

There is confirmation of the episode and of the general interpretation offered by Peckford in his interview.  That confirmation comes from Jason Churchill's summary of hydroelectric development in Labrador that he completed for the Vic Young commission.  Churchill writes:

Meanwhile, there were numerous other attempts and near-breakthroughs during Moores’ premiership. In the late 1970s, Quebec Premier Rene Levesque made a special trip to St. John’s to attempt to entice Moores into accepting a deal to start hydroelectric development on the Lower Churchill River. Levesque’s proposal involved a trade-off; Quebec was willing to be generous, in terms of benefits, in exchange for Newfoundland and Labrador relinquishing any future rights to challenge the 1969 Churchill Falls Contract. Meetings appeared on the verge of success as the two Premiers were planning on making a joint announcement. There was, however, a rub. On this occasion Moores’ Minister of Mines and Energy, Brian Peckford, was only informed of the Premier’s plans just previous to the proposed announcement. Peckford
emphatically rejected the idea of giving up in perpetuity any rights to seek redress of the infamous 1969 Contract. His emphatic objections were sufficient to thwart the proposed deal.54

On another occasion, Peckford was engaged in positive negotiations with his Quebec provincial counterpart Guy Joron. Peckford described Joron as being “extremely understanding of [Newfoundland’s] situation”. With the tacit permission of Premier Levesque, Joron had appeared willing to contemplate changes to the 1969 contract as long as it was part of a broader project to develop the Churchill River Basin. However, this idea of linking changes in the Upper Churchill contract to develop the sites on the Lower Churchill River brought strong opposition from Hydro-Quebec officials who thwarted the efforts of the Quebec Cabinet Minister.55

The footnotes for these paragraphs reveal the sources. Note that Churchill interviewed senior public servant Vic Young for his account.  Wells states that a portion of the intense discussions took place in Young's office.

54 Interview Jason Churchill with Brian Peckford, 3 December, 2002. Interview Jason Churchill with Vic Young, 18 December, 2002.

55 Interview Jason Churchill with Brian Peckford, 3 December, 2002.

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The Matshishkapeu Accord?

Some curious details lay in the clauses of an agreement announced today between the provincial government energy corporation and representatives of the Innu people of Labrador. Any lawyers out there who want to offer a different view or take issue with the following are welcome to do so.

Churchill Falls

CFLCo Privatization:  In the Upper Churchill section, for example, there is reference to a potential sale of the Newfoundland and Labrador interest in Churchill Falls Labrador Corporation to as yet unknown private investors. The "parent company" is the province's energy corporation.

For all the nationalist posturing by the current administration, it's curious to see a contingency established for the sale of such an important asset.  Language referring to the privatization of public companies exists in the energy corporation legislation.

Just the existing project:  The compensation payments to the Innu apply only to the existing physical plant of CFLCo.  Any expansions in the future aren't subject to the agreement.

Don't count your Chickens:  Clause 2 (a) establishes an annual payment of $2.0 million paid by the provincial government to the Innu Nation but it only begins on ratification and execution of the impact and benefits agreement...for the Lower Churchill project. No Lower Churchill;  no cash

Don't count your Chickens 2: Clause 2 (b) provides for an additional 3% of dividends received by the provincial government "directly or through a corporation owned by the Province." Someone might want to double check.  The Province - i.e. the provincial government - doesn't get CFLCo dividends directly.

As for a corporation "owned by the Province", that would refer to Nl Hydro, the company that holds the provincial government's 65% interest in the company that runs Churchill Falls.   It used to be held by NL Hydro and that company didn't declare any dividends in 2007.  Three percent of zero is...well... zero. Let's not even get into a discussion of the express statement that the percentage would only be paid on dividends on common shares.

Count those Upper chickens for the last time:  The payments under Clause 2 (a) and (b) are effective only if the Innu agree to give up any and all claims past, present and future related to aboriginal rights on the Churchill Falls project.

Lower Churchill

Don't count the Lower chickens either: Any payments are expressly tied to the sanction of the Lower Churchill project.

Don't count your chickens 3: The energy corporation will pay a minimum of $5.0 million annually to the Innu Nation from the period between first project sanction and first commercial power.  The payments run for a maximum of 10 years and can stop if the project stops for some reason.

After first commercial power, the energy corporation will pay the greater of the minimum payment and five percent (5%) of annual Net After Debt Cash Flow.

Sounds wonderful, except for two things.  At the front end of this project - if it even starts in the first place - that net after debt cash flow might be a really tiny number. It could be a negative number.  Read the definition of net after debt cash flow contained in the agreement and you can see the only thing not included in the calculation is the proverbial kitchen sink purchase and operating costs on the outhouses at the site, amortized over the life of the project and including an allowance for annual kitchen sink replacement, repair, refit, redesign and eventual decommissioning.

That would be very bad for the Innu because of the second thing.  Clause 3(c)(ii) states that 10 years after project sanction, that minimum payment of $5.0 million is equal to zero.  Nada. Zip.

And remember, the clock starts ticking from project sanction, not from construction.  If it takes the project 10 years to get on stream, the Innu could wind up receiving nary a penny once the power starts flowing. 

The ghost in the turbines:  Talk about your Churchill Falls.  Oy vey!

Even with that deal the provincial government gets something.  In this case, the Innu will have to settle all claims for the promise of getting $50 million ($5 million a year for $10 years).  And at the point power starts flowing? Potentially receiving absolutely nothing at all or a trifling amount for an unknown point beyond that.

Of course, if the corporation is sold off in the meantime, then the whole thing stops anyway. The agreement is oddly silent on that eventuality but odds are the clever legal bunnies working for the energy corporation know that not much would come of an Innu legal challenge. 

In order to get the first cash, they have to sign away all future claims and indemnify the energy corporation to boot.

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Churchill Falls: facts versus stuff that isn't factual

[revised 05 Sept 09]

Justice minister Jerome Kennedy referred to it.

Bill Rowe - former Smallwood era cabinet minister, the first Man in a Blue Line Cab and current talk show host at voice of the cabinet minister - tossed out the supposed refusal by the Government of Canada in the 1960s to grant poor, beleaguered Newfoundland a power corridor through Quebec back in the 1960s. In a conversation with some caller from Ontario, Rowe used the corridor story as an example of one of the Grievances Against Ottawa.

They are factual or based on facts, Rowe insisted, or words to that effect.

Well, there are facts. That is things which have been established to be true and accurate based on research and evidence.

And then there is stuff that isn't factual.

Like the myth of the power corridor and the refusal.

The only - that's right the only - publicly available account of the issue available appears to be a research paper by Jason Churchill for the Vic Young Royal Commission several years ago. Odds are good most of the people running around telling the facts haven't read Churchill's account, which is, it should be noted, based on considerable research.

Churchill argues that "the Quebec negotiators were aided by successive federal governments that both actively and passively failed to enact legislative measures which would have granted Newfoundland and Labrador unfettered access to the North American energy markets."

In making that statement, though, Churchill notes that at the time - chiefly 1964-1966 - the Government of Canada lacked any coherent national electricity policy. As such it is difficult to lay blame or responsibility for subsequent events solely at the feet of the federal government. Incidentally, Churchill's source on the lack of a coherent policy is no less an authority than John Crosbie saying exactly that.

The Diefenbaker administration proposed a national electricity grid in 1962. Quebec - and Newfoundland - opposed the idea as being solely within the sphere of provincial sovereignty under the constitution.

For his part - as Churchill notes - Smallwood preferred to develop Churchill Falls through the privately-owned BRINCO and quite evidently with Quebec as the partner. Smallwood wasn't prepared to have the federal government take control of a provincial area of responsibility.

However, "[f]ormer provincial and federal cabinet minister John Crosbie stated that when Smallwood rejected Levesque’s nationalisation offer, 'a golden opportunity disappeared'. The argument being that had the project been jointly developed, the subsequent profits would have also been shared equitably [between Newfoundland and Quebec]."

At this point in the narrative, though it is worth quoting Churchill's account in it's entirety. His version is succinct even though the issues are complex. Incidentally, the numbers in the text refer to footnotes in the original.

In the summer of 1965, the previous question of nationalisation of BRINCO was solved for Levesque by the federal government. Despite Smallwood’s refusal to nationalize BRINCO, a cheaper mill rate was secured for Hydro-Quebec when the Public Utilities Income [Tax Transfer] Act was changed. There was a 50 per cent to 95 per cent increase in the transfer to the provinces of taxes collected from utility companies. Newfoundland and Labrador passed the additional savings on to BRINCO which consequently allowed the Corporation to sell electricity to Hydro-Quebec at a reduced price.(31)

This federal action did not improve Newfoundland’s disadvantaged bargaining position. In 1966, a frustrated Smallwood lashed out and threatened to bypass the Quebec government and appeal directly to Prime Minister Lester Pearson to declare the Churchill Falls project to be in the national interest. Smallwood drafted a letter for the Prime Minister formally requesting:

the Government of Canada to invoke Paragraph (c) of Clause 10 of Section 92 of the British North America Act. If the Government of Canada would proceed forthwith to build a transmission line from Churchill Falls to a point where it would tie in with power grids in Eastern Canada it would ensure an immediate start on the construction of the Churchill Falls power project itself. In that case the power would be in production and available to consumers in Canada in 1971. (32)

This declaration would have enabled the federal government to transcend provincial jurisdiction.(33) Theoretically, this would have allowed for the construction of transmission lines through Quebec and directly to the markets [elsewhere] in Canada and the New England states. However, based on available evidence, it does not appear that the request was ever formally presented.

Former BRINCO President, Henry Borden, claimed that he and associates convinced Smallwood to defer making the request until news of Quebec’s response to a proposal was received. The positive response from Quebec in October 1966 made Smallwood’s request irrelevant. Another explanation given by former Smallwood cabinet minister and long-time friend, Frederick Rowe, argued that fears of Quebec nationalist terrorism was enough to dissuade Smallwood from proceeding. (34)

Of the various explanations presented, the one most relevant to the potential role of the federal government was related by Newfoundland and Labrador lawyer, Cabot Martin, who had interviewed Smallwood. Martin was told the Premier met Pearson personally to discuss the option but was rejected before he could formally present the request. Smallwood stated:

Mr. Pearson said, ‘Joe, I know why you are here and if you ask me I’ll have to say yes, otherwise we would not really be a country. But I’m asking you not to ask me because we will not be able to keep the towers up.’ Joey paused, then looked at me as if to ask ‘What would you have done?’ and said ‘So I didn’t ask him.’35

There are two major implications of the stories related above. The first is that Newfoundland’s interest was set-aside in the name of national unity and due to fears of nationalist violence in Quebec. If this is so, subsequent ramifications of the eventual 1969 contract illustrate that the province has paid, and continues to pay, a phenomenal price for its contribution to national unity. The second implication is that the ultimate power to make the request still resided with Smallwood who appeared to have the option of pressing the issue further. It was Smallwood who decided to either wait for a Quebec response, and/or not ask Pearson due to fears of the consequences of his request to have the project declared in the national interest.

When Smallwood did not press the issue of establishing a power corridor through Quebec, the province failed to achieve a stronger bargaining position for BRINCO with Hydro-Quebec. Despite the difficulties inherent in negotiating at a disadvantaged position, a Letter of Intent was signed in October 1966 which allowed construction to begin at the Churchill Falls site.(36)

In his account, Churchill does not make plain how the entire situation can be laid solely at the feet of the federal government.

The matter is, in fact, considerably more complex. Churchill shows in several key places, for example, where decisions taken by Smallwood and others facilitated the bargaining position subsequently taken by Quebec.

Moreover, while Churchill includes original documentary evidence for some of the discussion, his only source for the Pearson refusal is a 1996 article by former Peckford era policy advisor Cabot Martin published six years after Smallwood died and some 15 years after Smallwood had suffered a debilitating stroke.

Smallwood's memoir, I chose Canada, contains a reference (pp.466-467) to such a request. The account notes that Smallwood had lunch with J.W. Pickersgill and John Turner and discussed the request for the Government of Canada to declare the project of national importance under section 92 of the constitution.

There is no reference whatsoever to any discussion with Pearson at that point, September 12, 1966. Smallwood inserts in his memoir - essentially extracts from his desk diary for the period - a discussion of the potential problems with a corridor through Quebec, including safety from attacks by terrorists and it is at that point he makes a comment quoted by Churchill in his footnotes the value of the national designation. Smallwood makes an additional comment, which Churchill did not use, which may give a clue to Smallwood's own preference in bargaining with Quebec:

The threat might, however, be more effectual than reality. It was much like our repeated threat to nationalize (BRINCO).

The letter to which Churchill refers was drafted on September 29 and, as Churchill notes, appears to have gone unsent. In other words, the power corridor idea appears to have been a bargaining ploy by Smallwood.

None of this means that Cabot Martin's account of what Smallwood supposedly told him later in life is wrong or false either. By the time Smallwood and Martin spoke, details of the disastrous 1969 deal had already become part of the provincial political culture as the symbol of resource give-aways. Smallwood may well have mis-remembered events almost two decades earlier for any of a number of understandable reasons.

For example, it would be far better to blame Ottawa - an old provincial politician's trick - or leave the impression, as Churchill suggests as one possible explanation, that Smallwood made the only decision he could in order to save the nation. Subsequent events notwithstanding, Smallwood was not prepared to risk the country he'd chosen for what he had described in his memoir as a risky proposition in the first place. Smallwood's account turns a failed bargaining ploy and its ignoble consequences into the noble self-sacrifice of a statesman and, by extension, his beleaguered people.

No matter how one looks at it, the available evidence does not support the claim, no matter how much the story is handed around, that the federal government refused a demand to invoke a constitutional provision and force a power corridor through Quebec.

The power corridor story has become, like the entire Churchill Falls saga, nothing more than a convenient story to be trotted out by politicians past and present when it suits their purposes.

The story, however, is no more factual than any other fairy tale.

-srbp-

The Four York Harbourmen

Monty Python used to do a sketch in which four elderly gentlemen sat about inventing ever more outrageous stories about how tough it had been growing up in their little corner of Yorkshire.

It loses a lot without the broad Yorkie accent but there were a couple of gems like:

"There were hundred and fifty of us living in shoe box in middle of road."

The climax of the sketch is Eric Idle, as the fourth Yorkshireman, who finally launches into a tirade:

Right. I had to get up in the morning at ten o'clock at night half an hour before I went to bed, drink a cup of sulphuric acid, work twenty-nine hours a day down mill, and pay mill owner for permission to come to work, and when we got home, our Dad and our mother would kill us and dance about on our graves singing Hallelujah.

FIRST YORKSHIREMAN: 

And you try and tell the young people of today that ..... They won't believe you.

ALL: 

They won't!

It's like the Upper Churchill and the lengths some people go to "prove" just exactly how bad Hydro Quebec is screwing us. We already blogged this, but the whole subject is a goldmine of information.