NL Should Simply Accept Upper Churchill Contract

Having been born, raised and now living in the province of Newfoundland and Labrador I make this suggestion only after careful consideration of what it might mean for my continued physical well being, especially if taken out of context. I also make it with the best of intentions and the best interests of the province in mind.

Earlier this week the government of Newfoundland and Labrador through CFLco, the operator of the Churchill Falls generating station, issued a request to Hydro Quebec asking them to consider renegotiation of the lopsided Churchill Falls contract. That request came after receiving a number of legal opinions, from what Premier Danny Williams referred to as, “some of the best legal minds in Quebec”. Fair enough, but I wonder if the people of the province should just learn to accept the existing contract as a part of the past and instead focus on the future. I wonder as well if the time, money and resources now used to fight the original 1969 contract might also be better spent looking forward instead of back.

Quebec’s quick and clear response to the province’s request was not an unexpected one by anybody in Newfoundland and Labrador, or at least it shouldn’t have been. Not in light of a study undertaken by the Economic Council of Montreal that shows 75%of Hydro Quebec’s profits are directly due to cheap power from Churchill Falls Labrador. The response was a simple and unequivocal no.

The question now becomes, “What should Newfoundland and Labrador do about that denial?”

This isn’t the first time the province has tried to re-open the original contract. In fact they’ve tried several times over the years through political avenues and with legal challenges in the Supreme Court of Canada. All attempts have been unsuccessful so far. That isn’t to say this latest effort, should it ever actually proceed to the Quebec courts, might not end differently. It may have merit or it may not, that remains to be seen. Regardless of any of that, I wonder if renegotiation of the original contract should even be the target of this or any future attempts at seeing justice done.

There is one aspect of the Churchill Falls dynamic that has never been tested in any court, either provincially or federally, yet it begs for just such a challenge. I’m not referring to the original contract itself, which is set to expire in 2016, about the same time any legal case would likely take to wind its way though the court system. I’m speaking instead of the automatic 25 year renewal clause that will kick in when that original contract expires.

Perhaps it’s truly time to accept the original Upper Churchill contract for what it is and focus on the 6 years it is still in force to challenge the upcoming contract renewal before that agreement is actually implemented.

Based on the legal opinions presented this week by CFLco, a challenge to the renewal contract might stand a far better chance of success and the salient aspects of Quebec civil law now being spoken of are only the tip of the iceberg.

There are those who question whether the Quebec civil law touted by Newfoundland and Labrador as the basis of its latest attempts would even apply retroactively to a 1960’s contract since that law itself was only implemented in the mid-nineties. The renewal on the other hand is set to come into effect years after that law was first put on the books providing Newfoundland and Labrador with additional support for action on that front.

The renewal is considered to be automatic however in essence it is still a new contract, one that includes an even lower power purchase price for Hydro Quebec than existed under the original contract. Challenging that renewal, before it is implemented, would allow the province to follow an entirely new avenue of action, one where Quebec civil code references to “good faith” and “equity”, might still be valuable as supporting arguments but need not form the main thrust of the province’s case.

In 2005 Professor James Feehan and Historian Melvin Baker, of Memorial University, presented a research paper entitled, “The Origins of a Coming Crisis – Renewal of the Churchill Falls Contract”. Their investigation into the events surrounding the renewal aspect of the agreement was later published in the Dalhousie Law Journal.

Feehan and Baker’s effort uncovered evidence of conflict of interest and the use of inside information by Hydro Quebec during the negotiation process. They supported those findings with newly uncovered documents and meeting minutes from the period that were not previously known to exist.

In the end the researchers came to the conclusion that this was a situation where Hydro Quebec used information about the financial position of CFLco it should never have been privy to in a bid to force the last minute inclusion of the renewal clause into the original contract. According to the researchers Hydro Quebec used this information to demand CFLco either “take it or leave it” eventually leading the company “take it”, a decision that made no sense in a business context except, as Feehan and Baker put it, they were acting under “duress”.

In the words of the researchers, the events raise questions of “…conflict of interest, economic duress…business ethics” and “law”.

Personally I’d love nothing more than to the true owners of Churchill Falls gain some kind of redress after decades of living with the one sided Churchill Falls contract but in reality that contract will effectively end in just 6 years and after decades what’s a few more years. Any legal challenge would likely take at least that long. Wouldn’t the time be better spent challenging the 25 year renewal contract which, as my dear Father has been known to say, “…is an entirely different kettle of fish”.