Why Muskrat Falls MUST be Defeated

Why oppose Muskrat Falls? Having studied the project, the industry, and the demographic/economic position of the province there are many reasons. I won't get into any of them here except one. Muskrat Falls, indeed the entire Lower Churchill project, is based on an unconstitutional foundation - the Water Management Agreement imposed by the Public Utilities Board.



As I stood in the Supreme Court of Newfoundland and Labrador this past week a distant decision weighed on my mind - the Supreme Court of Canada decision of 1984 on the Water Reversion Act. So, I began my final argument with a quote from that decision that eerily mirrored the government's language of today:

"It was argued by the Attorney General of Newfoundland and Labrador that control over the power generated at Churchill Falls is essential for the effective management of its water resources and to meet the energy needs of the Province. However, it is not for this Court to consider the desirability of legislation from a social or economic perspective where a constitutional issue is raised."

Now have a read of the Water Management Agreement's opening words:

"it is declared to be the policy of the Province that, amongst other things, all sources and facilities for the production, transmission and distribution of Power and Energy in the Province should be managed and operated in a matter that would result in the most efficient production, transmission and distribution of Power and Energy and, where necessary, all Power, Energy, sources and facilities of the Province are to be assessed and allocated and re-allocated in the manner that is necessary to give effect to such a policy."

In other words, Nalcor is taking over the operational control of the Upper Churchill plant, and will "allocate and re-allocate" the power generated by it so its lower Churchill facilities will be able to function.



Essentially, the provincial government is attempting to achieve most of the objectives of the Reversion Act of 1984, just by different means. As we all know, the Water Management Agreement is meant to allow Nalcor to take power from the Upper Churchill when the Lower Churchill does not have enough water to operate, and then send that power back to the Upper Churchill plant at its convenience. Essentially, recalling power when it wants from the Upper Churchill.



The Power Contract defines recall as:

"...CFLCO may, on not less than three years prior written notice to Hydro-Quebec, elect to withhold from the power and energy agreed to be sold hereunder blocks at a specified load factor per month...not more than 90%, which blocks in the aggregate shall not exceed during the term hereof 300,000 kilowatts for a maximum withholding of 2.362 billion kilowatts per year."

In other words, only 300 MW of power can be withheld by CFLCO. The rest must be offered for sale to Hydro-Quebec. So, if Nalcor wanted to take power from the Upper Churchill it must reach an agreement with Hydro-Quebec to buy that power from them. Then consider the finding of the Supreme Court of Canada on who owns the power produced by the Upper Churchill:

"...the company signed a contract (the Power Contract) with Hydro-Quebec whereby it agreed to supply and Hydro-Quebec agreed to purchase virtually all of the hydro-electric power produced at Churchill Falls for a term of 65 years."

The Supreme Court of Canada found that "virtually all" the power "produced at Churchill falls” must be sold and supplied to Hydro-Quebec - Not from Muskrat Falls, or Gull Island. Nalcor and the government have attempted to change the ownership of power produced at the Upper Churchill, and place it in their control - in direct contravention of the Power Contract - which is unconstitutional.



In fact, the Supreme Court of Canada further stated, and this speaks directly to the Water Management Agreement:

"As soon as the Reversion Act came into force, Hydro-Quebec's right to receive power according to the terms of the Power Contract would be effectively destroyed. Even if the flow of electricity to Quebec continued at the same rate and for the same price after the coming into force of the Act, it would then be in the form of a privilege rather than an enforceable right. All of this, in my opinion, points to one conclusion: the Reversion Act is a colourable attempt to interfere with the Power Contract and thus to derogate from the rights of Hydro-Quebec to receive an agreed amount of power at an agreed price."

The government and Nalcor both argued throughout the hearing that the legislation says "no adverse effects" to previous power contracts are allowed - and that is what the Water Management Agreement says, but that's not the standard set by the Supreme Court of Canada. It said no "derogation" of rights. Derogation of rights means taking away of rights - whether it's adverse or not is subjective and irrelevant according to the Supreme Court.



So why did Williams and company use that phrase instead of the one insisted upon by the Supreme Court? It's quite simple. They tried to make it constitutional by including language that on the face of it seemed to safeguard Hydro-Quebec's rights and therefore be constitutional, but check out what the Supreme Court said on the Reversion Act:

"Where however the pith and substance of the provincial enactment is the derogation from or elimination of extra-provincial rights then, even if it is cloaked in the proper constitutional form, it will be ultra-vires. A colourable attempt to preserve the appearance of constitutionality in order to conceal an unconstitutional objective will not save the legislation."

So, why would Williams attempt to get around Hydro-Quebec this way? People close to him that I’ve interviewed suggest its his ego. That he was so obsessed with getting the best of Hydro-Quebec, and being recorded as the one who did it in the history books, that he became reckless. Perhaps that is true. I don’t know the man enough to be certain. However, I am certain that once the terms of the Water Management Agreement are forced on Hydro-Quebec, they will sue as they always have. When the government and Nalcor argued in Court that I was merely speculating as to what could happen, I brought it to the Court's attention that Quebec has never once left a challenge to their rights under the Power Contract go undefended. That there is a long history of Court bouts and that Quebec has not lost a single case. In fact, on the balance of probabilities, it is almost 100% certain Quebec will do the same in this case as it has in the past. The difference between this time and the Reversion Act attempt in the 1980's is back then the government had the sense to go to the Supreme Court of Canada first before it implemented the agreement or spent any money. That way it was just out the legal fees. This time they are attempting to build an entire dam complex, and transmission system, estimated to cost between $7-10 billion first. Of course that means adding that cost to our gross debt of $13.4 billion. But that isn't where it ends. Once the dam is built, Hydro-Quebec could easily refuse to ever come to an agreement with us, and the dam would operate at 20% capacity until at least 2041. The financial impact of that is permanent financial devastation to the people of the province.



The government's own legal opinion, in the publication "Legal Options", states:

"If a court followed this reasoning, CFLCO would be in breach of the Power Contract once it started diverting power 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...Any level of damages would be expected to drive CFLCO into insolvency and likely bankruptcy."

Bottom line, even though that legal assessment referred to the Section 92A strategy to get Upper Churchill power, it equally applies to the Water Management strategy.

This is why I have brought the fight to the province and Nalcor, to stop them from allowing Hydro-Quebec to destroy us before they get the chance. Yes, a lot of money has been spent, but nothing compared to what would be in store for us. I just couldn't stand by and watch Williams and company do this to us.