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Thursday 1 September 2016


The recent Decision of the Quebec Superior Court rejecting Nalcor’s interpretation of the Upper Churchill Renewal Contract constitutes a very significant loss for Newfoundland and Labrador. 

The loss is felt not just because Nalcor was barred from accessing surplus energy from the Upper Churchill. It skewers the concept of water management on the Churchill River, a Plan essential to maximizing the power potential of Muskrat Falls - especially the plant's capability to meet maximum scheduled demand. Water management is pivotal to any claim to viability of the project.

The Water Management Agreement (WMA), approved by the provincial PUB, is best understood as an “energy bank”, one that makes provision for an independent coordinator to record power delivered to the Upper Churchill from Muskrat and from the Upper Churchill to Muskrat when the plant was capable of producing surplus energy. In that way the water flows are coordinated and their conversion to electricity maximized.

Water management is a perfectly sensible idea. But it can’t be implemented if the legal authority to operate it is void.

What really makes the Decision of the Quebec Superior Court (QSC) so beguiling is Nalcor’s recklessness given that it knew - prior to Muskrat sanction - the WMA might be a problem. Hydro Quebec (HQ) refused to sign off on the Agreement in the first place. For that reason, the fact that it is called an "Agreement" seems fanciful.

The Crown Corporation had been warned that it ought to seek a Declaratory Judgement from the Courts (a legal determination by a court that resolves legal uncertainty) before proceeding with the Muskrat Falls project.

The leadership at Nalcor was deaf to the critics of the project even though able lawyers like Bern Coffey, Dennis Browne, Cabot Martin, and the late Ed Hearn laid out solid legal reasons, including the experience of having lost repeated attempts to seek redress on the unconscionable 1969 Upper Churchill Contract. “Billions of dollars are at stake”, Bern Coffey, representing the 2041 Group, told a Press Conference. “Legal certainty is required, particularly in light of Hydro-Quebec’s past success in defending its power contract rights…(t)he point is simply that the outcome of any such legal proceedings is far from certain.”

The Quebec Superior Court’s (QSC) Decision was absolute. Nalcor cannot claim a single victory despite having originally made several claims on the Upper Churchill. In summary,  the QSC

- denied Nalcor’s interpretation of the Renewal Contract and declared that HQ has the right to purchase any energy produced in excess of the amount specified in the contract.

- confirmed HQ’s right to both the energy and capacity of the Upper Churchill (except for the amounts committed under the Recall and the Twinco Agreements).

-  confirmed HQ’s right to schedule the energy produced from Churchill Falls.

Though Nalcor denies the fact, the decision confirming HQ’s right to schedule the energy from the Upper Churchill was especially a devastating blow to the Muskrat Falls project.

Nalcor’s position that the Quebec Court’s Decision has no bearing on Water Management is not sustainable. It is tantamount to an untruth, a lie, a predetermined and deliberate attempt to give cover to a Nalcor leadership unwise enough to pursue Muskrat sanction in spite of the risks involved.

Having thrown caution to the winds, as it rolled the dice on the judicial outcome, Muskrat Falls may be reduced to as little as 180 MW when the Upper Churchill is operating at minimum allowable capacity - enough power to supply only Nalcor’s obligations under the Nova Scotia Block.

Nalcor denies that outcome. The Nalcor Press Release made this assertion:

“The Water Management Agreement was not the subject of this action commenced by Hydro-Qu├ębec in the Quebec court… the Water Management Agreement (WMA) established by the Public Utilities Board (PUB) (will be) governed by the laws of Newfoundland and Labrador and subject to the jurisdiction of the Newfoundland and Labrador Courts.” It goes on to add: “The WMA optimizes production for facilities on the Churchill River and ensures that Muskrat Falls and CF(L)Co. can meet their contractual obligations while ensuring that the provisions of the Churchill Falls Renewal Contract are not adversely affected.”

Nalcor’s conclusion is wrong. The Corporation cannot have it both ways.

On the one hand, Nalcor makes the admission that the WMA is an instrument “governed by the laws of Newfoundland and Labrador…” but, on the other, it doesn’t add that the Upper Churchill Contract is subject only to the laws of the Province of Quebec. Therefore, the QSC’s ruling confirming HQ has the right to schedule the power production at the Upper Churchill effectively removes water management from the control of Nalcor. Even the NL Courts cannot impact the Upper Churchill Contract as prior legal losses regarding water rights, suffered by the Province, confirm.

Strangely, Nalcor CEO Stan Marshall argues the case doesn’t affect the WMA – he states the case was about who owns the output of the Upper Churchill.

He acknowledges that Nalcor thought they had the rights to a certain block of power but that the QSC says they have to give it all to HQ.

Deliberately or otherwise Marshall doesn’t connect the dots. Let me explain.

CFLco and Nalcor essentially made the pitch to the QSC that under the Renewal Agreement CFLco was to deliver certain blocks of power to HQ monthly. They asserted that as long as HQ got those blocks of power they couldn’t say anything about where the power came from. Within that interpretation the WMA could be applied.  But the QSC confirmed no such arrangement. The Court said HQ is entitled to the whole output of the Upper Churchill plant.

Given the right to schedule the power, Nalcor gets to direct the facility. Under this edict the whole idea about banking and swapping power, between the Upper Churchill and Muskrat Falls, what the WMA is designed to do, simply collapses.

That means the WMA cannot be implemented without a side deal with HQ.

Let me state the case in a different way.

The QSC did not award HQ the equivalent of the power output from the Upper Churchill….it awarded HQ the whole output. Hence, Stan Marshall’s assertion the WMA is untouched is wrong. It is simply not true.

The QSC left no wiggle room.

Now, if CFLco receives an instruction from HQ and one from Nalcor which request do you think CFLco is required to carry out?

Fundamentally, the Court said contractual rights of the 1969 Contract remain unamended. The Court confirmed that any end run, like that contemplated by the WMA, is a fiction.

Nalcor does not want to admit they have a problem.  They only want the problem to go away. But for that to occur Nalcor will have to grease the palms of HQ.

The real risk, however, is that Nalcor will attempt to disguise the problem……resolving it in a side deal with HQ without the public ever knowing the cost.

It is time for Nalcor to stop lying to the public.

Stan Marshall could have taken a different approach in his response to the QSC Decision. He could have laid out the truth about the mess the Dunderdale Government got the province into; a mess inspired under the leadership of Ed Martin and Gil Bennett.

Marshall could have said the lying has got to stop, that the public interest is best served if the truth is consistently the basis of public policy issues and challenges including those where bureaucrats and politicians have made a whip for the public’s posterior.

We all know Premier Ball still supports Muskrat. He is still uttering foolish claims in the tradition of former Premiers Kathy Dunderdale, Tom Marshall, and Paul Davis. Their claims of profitability and with respect to water management never did add up. In the post-QSC world the idea that the WMA is sustained is a cruel joke. The public will deal with Premier Ball in time.

But Stan Marshall could have said to the Premier: do you really want me to say those untruths about the position the province is in following the ruling of the QSC?  He could have said… I won’t say that…I will ruin my reputation.

That is what strong people do, isn’t it?

Likely, Stan Marshall is unwilling to acknowledge publicly that he is trying to get the best stinky deal possible with HQ.

But he should remember that any deal he strikes will still be based upon a lie told to the Newfoundland public. I suggest, Sir, we have had enough of that.

Finally, if Stan Marshall really believes the Water Management Agreement is unaffected by the Decision of the QSC, he should tell his PR people to stop snowing us with bafflegab.

Marshall should just show us the legal opinions (which have been paid for with public money) that support his assertions regarding the effectiveness of the Water Management Agreement following the QSC Decision. He should also hold up for public scrutiny all the opinions that placed this Province in front of the QSC in the first place- as Nalcor continued to spend billions.  

Let those who have to pay for this debacle see who is responsible.

Mr. Marshall: when does the new era of accountability and transparency you promised begin? 
Editor's Note: Readers looking for more detail on the purpose of the Water Management Agreement, the consequences of it not being applied, the risks Nalcor took in essentially rolling the dice in the face of continuing to commit billion of dollars to the Muskrat Falls project, or of the claims Nalcor attempted to defend when Hydro Quebec challenged the Corporation in the Quebec Superior Court ,are referred to this Uncle Gnarley Post: THE QUEBEC SUPERIOR COURT GIVES NALCOR NOTHING: WATER MANAGEMENT A PIPE DREAM