The Power Contract vs. the Water Management Agreement

What most Newfoundlanders and Labradorians do not understand is the Lower Churchill hydro development is built on one foundation - the Water Management Agreement imposed by the Public Utilities Board on CFLCO and therefore Hydro-Quebec. The other thing they are not readily aware of is that when this agreement is found unconstitutional there is no foundation to build the Lower Churchill dams.
The Supreme Court of Canada, in 1984, found the Reversion Act to be unconstitutional:

"Where, however, the pith and substance (true purpose) 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 (unconstitutional because it is outside the province's powers)."

When I stood in the Supreme Court of Newfoundland and Labrador last month, challenging the Water Management Agreement (WMA), I outlined the many critical ways this agreement broke the Power Contract of 1969. I did so not to protect Quebec, but to stop our own government from delivering us to them. The following points were gone through point by point to illustrate to Madame Justice the depth of the betrayal. On this, Memorial Day in Newfoundland, I believe it is important to make these points public so the people of the province understand the sacrifice before it they are lead into it.

1. Power Contract:
"Recapture means any withholding from the power and energy agreed to be sold hereunder which may be made by CFLCO in accordance with the provisions of, and within the limits stipulated by, Section 6.6..."

WMA:
No definition for recapture.

My take: Any power generated at the Upper Churchill, except the power allocated to Twin Co that now belongs to Nalcor, and the 300 MW allocated to the province, cannot be taken from the Upper Churchill facility. Key phrase here is: "made by CFLCO".

2. Power Contract:
"Applicable Law: This Power Contract shall at all times and in all respects be governed by, and interpreted in accordance with, the laws of the Province of Quebec."

WMA:
"Applicable Law: This Agreement shall be construed, interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the Province (NL) and the federal laws of Canada applicable therein, and each party hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the Province..."

My take: The Power Contract puts the rights of the contract in Quebec, and thereby all the powers of the contract. The WMA changes the location of those rights to NL, with the goal of changing constitutional jurisdiction. In other words, by way of legislation the government is attempting to alter the practical jurisdiction of Quebec over the operation of the Upper Churchill.

3. WMA
"Entire Agreement: This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, undertakings, negotiations and discussions, whether written or oral."

My take: It pretty clear, the WMA states it is now the predominant agreement, which automatically subordinates the Power Contract and forces CFLCO to recognize the requirements of the WMA over those of the Power Contract between CFLCO and Hydro-Quebec.

4. Power Contract
"The parties hereto acknowledge that it is desirable for Hydro-Quebec to have the benefit of operational flexibility of CFLCO's facilities... Accordingly... Hydro -Quebec may request CFLCO to operate the Plant (includes reservoir) so as to supply Hydro-Quebec's schedule of power requirements...Hydro-Quebec may require deliveries which have the effect of varying the amount of water to be carried in storage at any time..."
   
WMA
"The Independent Coordinator (appointed by the NL government), shall, based on the information provided by the Suppliers (Nalcor and CFLCO), and in the exercise of reasonable judgement, establish short and long term Production Schedules for all the Production Facilities on the Churchill River...The Independent Coordinator shall determine the total power to be produced...The Independent Coordinator shall determine and prepare the Production Schedules which shall specify the amount of power to be produced by each Supplier's Production Facilities in accordance with this Agreement."

My take: It's pretty clear. The WMA takes the right of control of production given to Hydro-Quebec and gives it to the "independent coordinator" who is an appointee of the NL government.

5. Power Contract
"Either party may at any time, for the purpose of safeguarding human life or protecting from major damage the storage, generating or transmission facilities of CFLCO or the Hydro-Quebec system, discontinue or reduce, but only to the extent necessary, the supply of power and energy hereunder."

Power Contract
"The Firm Capacity shall be available at all times when Hydro-Quebec has requested it. In addition whenever additional capacity can, in the opinion of CFLCO, be made available, such capacity shall also be available to Hydro-Quebec on request."

WMA
"CFLCO and Nalcor shall adhere to the Production Schedules set by the Independent Coordinator... Each Supplier shall continue to have the same rights to store water in its reservoirs as it did prior to this agreement, while at the same time recognizing the requirement to, allow Energy Banking (the taking of power from the Upper Churchill from CFLCO to Nalcor) by the other Supplier pursuant to the terms of this Agreement."

My take: Under the Power Contract Hydro-Quebec has the rights to all the power produced at the Upper Churchill, and only loses control in case of a disaster or protecting its electrical system. Because it has first rights, any power taken from it, including so called Banked Energy to Nalcor would have to be purchased from Hydro-Quebec, unless it waived its rights to that power and money - which is highly unlikely. This is simply an attempt by Nalcor to force Hydro-Quebec to use or lose the power potential of the Upper Churchill - which conflicts with the Power Contract.

6. WMA
"In no event shall the generating Capability, storage capacity, or transmission Capability available to a Supplier from all Production Facilities on the Churchill River be less than the amounts of then available generating Capability, storage capacity, or transmission Capability of the Production Facilities owned by that Supplier on the Churchill River."

Power Contract
again: "The parties acknowledge that it is desirable for Hydro-Quebec to have the benefit of operational flexibility in relation to the Hydro-Quebec system. Accordingly: Hydro-Quebec may request CFLCO to operate the Plant so as to supply Hydro-Quebec's schedule of power requirements, provided that no such request shall be less than the Minimum Capacity...Hydro Quebec may require deliveries which have the effect of varying the amount of water to be carried in storage at any time..."

My take: The WMA here requires the Upper Churchill to operate at full capacity which gives Nalcor the flow of water they need to run the Lower Churchill dams. Without this clause, Hydro-Quebec could just keep running the dam for its requirements, as the Power Contract grants them the right to, and the Lower Churchill dams would be forced to run at just 20% capacity - a financial disaster.

7. WMA
"Energy Benefits: Energy Benefits for each Supplier shall be determined by the Water Management Committee, in accordance with the Agreement, for each period established by the Water Management Committee, which period shall not exceed a year...Energy Benefits means the Energy accruing to a Supplier for a period as a result of this Agreement in excess of the Energy that would be accrued to such Supplier for such period in the absence of this Agreement..."

Power Contract
Again "The Firm Capacity shall be available at all times when Hydro-Quebec has requested it. In addition whenever additional capacity can, in the opinion of CFLCO, be made available, such capacity shall also be available to Hydro-Quebec."

My take: The WMA gives the Water Management Committee the right to give power produced at the Upper Churchill to Nalcor, without a power purchase agreement with Hydro-Quebec to compensate it, at its terms, which translates into a forced recall of Upper Churchill power to Nalcor. In other words, Nalcor gets to take power that it has no right to, and doesn't pay anything for it. Great plan, except it's already proven law by the Supreme Court of Canada that this is unconstitutional and therefore illegal.

8. Power Contract
" Force Majeure: contract not terminated. No event or force majeure or of default hereunder shall give rise to, or result in, the termination of this Power Contract..."

WMA
"Force Majeure 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 to section 14.4 of this Agreement, including, without limitation:...(iv) action of any government, legislature, court or other governmental authority, compliance with applicable law, regulation or order if a governmental authority... An Effected Party shall be excused from the performance of its obligation 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..."

My take: In other words, while technically the agreement says the Power Contract can not be "adversely effected" it gives both CFLCO and Nalcor an out from respecting the contract by way of this WMA. It says a government action, regulation, act, etc can be a considered a Force Majeure, technically out of  the control of both CFLCO and Nalcor, yet both are owned primarily by the government. The effect of this clause is to give Nalcor and CFLCO legal cover from being sued by Hydro-Quebec for violating the Power Contract as they are simply following legislation. This clause makes obvious the government's intention to destroy Hydro-Quebec's rights under the Power Contract.

There are any number of additional issues with the WMA including such things as maintenance of the facility, and the like that also conflict with the Power Contract. What I have outlined above are some of the main points. What any Court must decide is whether or not the WMA "derogates" the terms of the Power Contract. If it does then its unconstitutional. Derogate is defined as: " To take away; detract. To deviate from a standard or expectation; to go astray." That is the standard the Supreme Court of Canada set down in the Reversion Act case of 1984. That decision was unanimous, and therefore that standard can not be altered by any court. The quote I placed in the second paragraph of this article rings loudly. Here is the second quote from that decision that you need to know:

"even if the flow of electricity to Quebec continued at the same rate and at the same price after coming into force of the Act, it would then be in the form of a privilege rather than an enforceable right. All 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."

A few of the local press, and some PC Party operatives have suggested what I am doing by challenging this agreement is assisting Hydro-Quebec. Some of my interested friends have noted that Hydro-Quebec hasn't said a word about it. Frankly, nobody has. Why? Well in Hydro-Quebec's case they are likely mad I've tripped up their ambush of Newfoundland and Labrador - waiting as they are for us to build it and then shutting us down in court..$10 billion later. In everyone else's case, well it's like a collective holding of the breath. So far at least $800 million has been spent by our government, and people cannot comprehend such a massive amount of money would be spent on something unconstitutional and therefore illegal. This also involves the governments of Canada and Nova Scotia.

Billions are at risk. The silence is deafening, but the facts remain.