Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Saturday, August 3, 2013

Nalcor's Grand Larceny Over $100 Million

Grand Larceny means the unlawful acquisition of another's property on a big scale. That's what we have with the Water Management Agreement Nalcor had the Public Utilities Board here impose on CFLCo. It appears to be a large plan from the get go of former Premier Danny Williams while in office. You see, although the WMA says it must respect previous power contracts there is a catch - Force Majeure.

Force Majeure is a legal term in all contracts, which loosely means an act occurring that let's both parties to a contract out of its binding commitments. Normally a Force Majeure event would be an act of God like weather, or war, or insurrection, that kind of thing. In the case of the WMA it is given a whole new meaning. Here is its definition and application in the WMA:

" Force Majeure Event means an event, condition or circumstance or combination of events, conditions or circumstances beyond the reasonable control and arising without the fault or negligence of the party making a claim pursuant to section 14.4 of this agreement (the Affected Party) including without limitation:

(iv)  action of any government, legislature, court or other governmental
authority, compliance with applicable law, regulation or order of a govermental authority.

And which, despite all reasonable efforts of the Affected Party to prevent it or mitigate its effects, adversely affects the performance by such Party of its obligations under this agreement;

Okay, so that's a mouthful, but it essentially means if the government owned companies Nalcor or CFLCo are prevented by government imposed law or conditions from respecting the Power Contract with Hydro-Quebec, well, its not their fault. Even though the two companies are Crown corps, well, you get the idea. It’s a "wish we could do it b'ys but our hands are tied by this government who is a whole seperate entity from us" kinda thing (sarcasm intended).

Then there is this on the same issue:

" An Affected Party shall be excused from the performance of its obligations hereunder or liability for Damages to the other party, if and to the extent it shall be delayed in or prevented from performing or carrying out any of the provisions of this Agreement, except the   obligation to pay any amount when due, by reason of a Force Majuere         Event, provided that an Affected Party claiming a Force Majuere Event shall notify the other party of such Force Majeure Event, and shall use reasonable efforts, at its own cost, to mitigate the effects of the relevant Force Majuere Event and to remove the condition that prevents the Affected Party's performance, and shall perform its obligation as soon as possible and to as full extent as possible."

Loosely translated: " It's a get out of jail free card for Nalcor and CFLCo."  It means that Hydro-Quebec can not sue CFLCo or Nalcor if the government, through regulation, or say interpretation of the Power Contract, decides to take power from the Upper Churchill by using the WMA to do it. It's plain and obvious this is unconstitutional, and a violation of extra-provincial civil rights, but let's forget that for a moment. Let's look at the why.

Both Williams' grand Energy Plan 2007 and government policy require "full use" of the Churchill River's waters for power generation. Nalcor and CFLCo are required by law to follow that policy. That is their "Force Majuere Event". Out of their hands they will say. Just following government policy and regulation they will say. We would like to obey the Power Contract, but the government has our hands tied they will say. And so it goes. But what is the government of Newfoundland and Labrador aiming for?

How about in the vicinity of 1500 almost free megawatts of power from the Upper Churchill? Gilbert Bennett is on the public record, just once mind you, saying Hydro-Quebec is only entitled to about 3500 MW when the Power Contract renews in 2016. He says that once you account for that and 525 MWs of recall and Twinco power, there is a juicy bundle of about 1500 MW left over that Hydro-Quebec is not entitled to. His implication is that this power can be taken by Nalcor. Forget the fact the Supreme Court of Canada already found that concept to be illegal for a moment.

What is the big deal about 1500 MW of power you ask? Well that is about 28% of the power the plant could generate if it ran at full capacity. Yes you say, but Hydro-Quebec won't allow the plant to run at full capacity. They will just hold the juice back and produce what they need. They have the power to do that under the Power Contract, and have been doing it for almost 40 years you say. Well, that's all true, but the new WMA changes all that. Under the WMA all plants operating on the Churchill River must operate at 100% capacity. That would mean that extra 1500 MW will be there, by law.

So you ask, what is the big deal of having 1500 MW available for us? Well here is the kicker. All Nalcor has to do is pay the paltry price that Hydro-Quebec pays for the Upper Churchill power .002 cents per kwh starting in 2016. Nalcor can then sell the power and will make about $560-600 million per year in profit. Holy shit you say! That is the motherload considering Nalcor is only making less than a hundred million now, and is subsidized to do that by the government. What's wrong with that you say? Are you trying to give comfort to the enemy you say?

Well, it's like this, it would be a great plan...if it were legal. You see, the Supreme Court of Canada already ruled, in 1984, that Hydro Quebec owned all the rights to the power produced at the Upper Churchill til 2041, except that 525 MW of recall and Twinco power. Therefore, taking that power and "recalling" it is illegal. It means that we are stealing power we gave away until 2041.

Big deal you say, what are they going to do about it? Well, the what is a lawsuit I would imagine, along with an injunction no doubt. But what's the damage? Here I'll quote from the Department of Natural Resources legal opinion. It's on Section 92 rights to the water, but the result of a wrong approach is the same:

" In previuos litigation in Quebec relating to the recall case, also described earlier in more detail, the Quebec Courts found that CFLCo would be in breach of the Power Contract if it failed to deliver, even in response to a demand for Power from the Province.

If a court followed this reasoning, CFLCo would be in breach of the Power Contract once it started diverting water to Newfoundland and Labrador from Hydro-Quebec. In these circumstances, Hydro-Quebec would pursue monetary damages from CFLCo. The amount of such damages cannot be accurately predicted, but would be significant. This is because the purpose of such damages will be to place Hydro-Quebec in the position they would have been in had CFLCo not breached the contract.

Any damages would then raise another issue - whether CFLCo would be able to pay such damages. Any level of damages would be expected to drive CFLCo into insolvency and likely bankruptcy, unless 1) CFLCo was paid sufficient amounts for its redirected power in the province to meet Hydro-Quebec's damages demands or 2) Hydro-Quebec or the Province injected sufficient funds into CFLCo to keep it solvent...while the exact amount of compensation is unknown it can be reasonably    expected to be in the billions of dollars." Legal Options: S92A, Good Faith and Regulatory Proceedings in Quebec, November, 2012, Department of Natural Resources.”

So there you go folks. The big plan was to steal 1500 MW, use that profit to subsidize below cost sales to Emera in Nova Scotia, and put the rest in the bank. The results: Quebec lawsuits, invalid WMA, no water to run the dam at more than 20% capacity, billions in damages to Hydro-Quebec, and a bankrupt CFLCo. Grand Larceny of $500-600 million per year may have seemed like a good idea to our former premier, but somebody should have told him: " Crime doesn't pay."

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