Hydro Quebec's Court date with Nalcor

On the 28th of August, a little over a week from today, sudden death should be coming to the Lower Churchill project. Hydro-Quebec has filed for a declaratory judgement in Quebec Superior Court against CFLCo. According to Hydro-Quebec, CFLCo has been selling power over the 300 MW recall limit to Newfounland and Labrador Hydro in contravention of the Power Contract (1969), and have been doing so since June, 2012 -which is also when construction began on the Muskrat Falls project.

Couple problems with this. The most obvious one is of course it breaks the Power Contract which means, among other things, we will be responsible for damages to Hydro Quebec. However, the bigger by far problem is a ruling against this province means the Water Management Agreement is effectively gutted.

Nalcor's publicly stated plan is two fold. Firstly, Nalcor asserts it can take power from the Upper Churchill as "banked power". However, the Power Contract does not allow any taking of power other than the 300 MW of recall we already get, and the 225 MW that was Twinco's share that now belongs to CFLCo under the Shareholder's Agreement. Second, Nalcor and the Premier have stated Hydro-Quebec is only entitled to a fixed block of power once the agreement renews in 2016, and the remainder belongs to Nalcor. Under that scenario Gilbert Bennett of Nalcor has publicly stated the province could take 1500 MW of power. That power would be purchased from CFLCo at the same price Hydro-Quebec pays and be resold for a profit of about $600 million a year.

However, it's just pure fantasy. The Supreme Court of Canada ruled unanimously in 1984: " 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." That means CFLCo or Nalcor or whomever is not entitled to any power from the Upper Churchill, other than the recall power, until 2041. Period. End of story. It's plain English.

The second right Hydro-Quebec wants declared is its right to operate the plant to its benefit. The aim of course is to stop Nalcor, and the government's Water Management Committee, from taking operational control of the facility that the Water Management Agreement allows them to do. The Power Contract again clearly states that both CFLCo and Hydro-Quebec recognize and agree to operating the plant for Hydro-Quebec's interests.

The point is that on August 28, 2013 Quebec is going to win. What does that mean in reality? It means that the two pillars the government's Water Management Agreement are built on will be destroyed. Considering that CFLCo could only argue in court it was taking this power based on provisions of the Water Management Agreement, the Superior Court may find as well that this agreement is unconstitutional. It might go that far, or it might not. Either way, it guts the Water Management Agreement. Both Nalcor and Hydro-Quebec publicly say the court action is not about the Water Management Agreement, but it is quite obviously so. Even Dunderdale, firing from the lips as usual, stated in a moment of fury that it was meant to stop Muskrat Falls. She added that there were measures to "mitigate" such a ruling though.

Here is what she meant: " Force Majeure event means... (iv) action of any government, legislature, court...and despite all reasonable efforts...adversely affects the performance by such Party of its obligations under this agreement." In other words, Dunderdale was tipping her hand, by way of her mouth, that despite a court decision on the Power Contract rights she intends to proceed with construction of the dam, and taking the power, etc under the Force Majeure terms in the Water Management Agreement.

So, on the one hand, the Superior Court decision in Quebec should stop the project in it's tracks, it won't. Hydro-Quebec will then sit back and watch us build the dam knowing full well it has its rights secured, and that it made our government fully aware of those rights. In that way it can go for damages so large as to bankrupt CFLCo. That's why my lawsuit to get an injunction is crucial. Hydro-Quebec won't stop us from cutting our own throats. Why would they? They have the total Upper Churchill facility to gain. It's up to us to stop the government and Nalcor from doing this damage to us. So, in a week you can expect Hydro-Quebec to win in the courts and our government/Nalcor to continue the Muskrat Falls project. Meanwhile, its been almost three weeks since my leave for appeal was filed here, and Nalcor has been delaying the setting of a date for its hearing.

Egypt-into the Heart of Darkness

The slaughter of lives and the ideal that is democracy is reverberating from the narrow streets of Cairo to the hearts and minds of free men and women throughout the world. The fact that it is Muslim blood now, or Christian or whatever later is irrelevant to the unfolding tragedy. Death does not know nationality or religion.

In the West we must face the very real stain that we watched while an infantile democracy was cut down by a military obsessed with control. As an Orwellian travesty unfolded in the overthrow of the unpopular Morsi government, democratically elected as it was, the great western powers sat on their hands of self-interest, and gazed at the dethroning of the foundations of their very own societies - democracy.

Democracy. The moral authority to go govern. Given by the people. Not all the people mind. It never is. There are always oppositions. That is part of democracy to. Sometimes the governing party loses the support of the majority, and even its base. When Mulroney left power his party's popularity was about 25%. He brought in free trade, the GST, Meech Lake, etc. None of which was supported by a majority. People protested. They protested for a long time. They were not slaughtered in the street. They were not wounded in the thousands. And, despite the probable fantasies of many, the military did not remove him from power and replace his government. Nor did they unilaterally amend or suspend the Constitution.

Why? We know better. We know that politicians are going to put their friends in high places. We know they are going to represent and defend their interests. We understand that, as repugnant as it is, the pure ideals of democracy are often stained by the dirty hands of men and women of greed and ambition. Yet, at a deeper level, we know that to betray our end of the democratic deal is to defile it as much as those who do so at the highest levels. That if we let go of the sanctity our society is built on, at least in our hearts, that all that remains is anarchy - rule of the mob. We understand that is where our society evolved from, and not where it is meant to return to.

That is our great legacy to the world. Our example of living in peace with ourselves and others. That the rule of law governs us all, the mighty and the citizen, and to be any other way would be to fall back into the law of the jungle. That is where Egypt has now gone, and we, to our absolute discredit, have turned our backs on the very principles our own society is based upon.

We have given the extremists, whatever their bent, their war cry: democracy means nothing unless it is convenient; the rule of law means nothing unless it is convenient; the dignity of men and women can only be defended by the rifle barrel; respect and tolerance are for the weak; and solace can only be found in the tightly bound confines of our beliefs - whatever they may be.

Quietly watching the Egyptian army destroy everything we believe in, simply because it suits our immediate tastes, is a lesson that is only bound to come back to us many times multiplied. The world watches, and as it watches, the wrong lessons are learned.  The bar is set. The rule of the mob over the rule of democratically enacted law is a terrible precedent. Why would anyone think that precedent would only be confined to Egypt or the Middle East, or wherever? Who’s to say that as citizens become disenchanted with high unemployment in Spain, or wherever that they would not see this as a legitimate means for change there? Same goes for Greece, or Ireland, perhaps even here. This is the danger of washing our hands like Pontius Pilate. It is our sin above all others because we know better.

The Canadian government, and the US government for that matter, are being beyond irresponsible to offer the resistance of Neville Chamberlain "peace in our time" to the atrocities of the Egyptian military. To accept that the Egyptian military had a right to overthrow an elected government because it was not representing all its citizens is beyond irresponsible actually. It is akin to watching the rape of democracy, and doing nothing. Doing nothing while Egypt descends into the heart of darkness - and takes our great ideals with it.

The End of Feudal Politics in Newfoundland and Labrador

Friends say to me often that others approach them, and ask them "You know him, what is Cabana's agenda." I suppose it's a fair question. People don't always have an agenda when they do things they believe in, but in this case, to be honest, I do have an agenda as well.

Shortly after being railroaded by the fixed leadership race for the PC Party I gave an interview with the Telegram, January 24, 2011 to be exact. I was shocked that such a violation of fundamental democratic principles could happen in my country. I made a promise to myself and the people of Newfoundland and Labrador that I would end the "feudal politics" of this province. A tall order to be sure, and not something you can ever hope to do by yourself, but an honourable goal none the less. I made the following statement to that paper, which holds true today:

"They're in for a fight if they want to fight."

Apparently, the political establishment, small as it is in this province, never took that promise very seriously. They instead resorted to defiling my family name, insulting me on the airwaves of the province, blackballing me in the halls of power. In other words, the usual treatment for anyone who dares to challenge the established order and their plans for the province and its people. What they did not bank on, frankly, is the power of the human spirit. Of course that can be said of many dictatorships new and old around the world. What can also be said is that "an idea is more powerful than any army."

However, change requires leadership. It has always been that case since the beginning of time and it remains true today. What people have in their hearts may remain just there if there is no leadership to bring that change to life. And as I learned as a young military officer, you can only lead from the front. As I also learned: "Who dares Wins".

So, over the last two years, I've taken that training to heart. I've placed myself, as one local radio commentator noted, "in the centre" of the battle over Muskrat Falls. The same commentator at one time referred to me publicly as a "dangerous zealot". Another local blogger, Edward Hollett, referred to me as a "martyr on a zealot's cross."
Apart from the inflamatory nature of their words, both have some points in common: to stand up for what you believe in is futile; to advocate against the wishes of the political class is dangerous; and to be the one that leads that change is self-serving. All the hallmarks of people who have bought into the political cast system.

Canada is not, however, India. We do not believe in cast systems. They are a relic of a different age long since relegated to the history books. Yet, in this province the political and business cliques have decided this system suits them well, and they have no intention to change it. They perceive such threats to their dominance as revolution, when in fact it is evolution. And this is their great sin.

Muskrat Falls, in fact the Lower Churchill project, is the battle ground that this conflict will be decided. Many of the people have been deeply offended by Bill 29, which stripped the public of essentially any right to access to information that the government possesses. Aboriginal people's have been denied the ability to stop their lands and waters from being poisoned by mercury. Citizens have been lied to about the very legality of the water management agreement that allows the project to go ahead. The project has been pushed ahead. Not by the PC party, but by all members of the political establishment's elite. There is as much silence or support amongst some of the Liberal party back room as well. The "boys" in St. John's have had their way, and the rest have had to fall in line. Those days are over.

The provincial political establishment is now facing its very own armageddon - one of its own making. The Lower Churchill project they so desperately imposed on the people of our province is mere weeks from imploding. An implosion that will shake the very foundations of the political establishment, and forever change the way Newfoundlanders and Labradorians view their political masters and themselves. A long over due destruction of the political class that has kept them in servitude for hundreds of years.

A new political and business reality is about to be born on the Rock. The era of feudal politics is dead. For the people of this province it couldn't come soon enough.

Is Newfoundland and Labrador Ready to Lose the Upper Churchill?

Is Newfoundland and Labrador ready to lose the Upper Churchill hydro-electric dam and facilities? Every single Newfoundlander and Labradorian would say a resounding "No". However, we are getting very close to that position, and here's how.

Just say for a moment that Hydro-Quebec or I are successful in the challenges on Muskrat Falls in Court, but Nalcor keeps building the dam and taking power from the Upper Churchill as it apparently is now (according to Hydro-Quebec's Statement of Claim). Where does that leave us? According to the legal opinion given by lawyers at the province's Natural Resources department it leaves us with billions in penalties and costs to Hydro-Quebec  which, according to the opinion, would bankrupt CFLCo unless the provincial government dumped money in to pay the costs off. However, it's not that simple.

When Dean MacDonald and Brian Tobin agreed to sign the Shareholder's Agreement of 1998, they gave Quebec some powers over that scenario. The Agreement gives Hydro-Quebec a veto over the following as it pertains to CFLCo's finances:

3.3.2 Any sale, assignment, transfer, lease or exchange of all or substantially all of the property of CFLCo or any Subsidiary of CFLCo.

3.4.2 The adoption of the annual operating budget and the annual capital expenditure budgets of CFLCo and any variations thereto which would result in the increase or decrease of any such budget by $10 million in the aggregate or $5 million for any particular budget item.

3.4.4 The issue of any Shares or any Rights, except for Rights attaching to subordinated debt obligations, or the issue of any shares or any debt obligations of any Subsidiary of CFLCo.

3.4.5. Any loan or borrowing on the credit of, or any issue, reissue, sale or pledge of debt obligations of, or the grant of any financial assistance, guarantee or security by CFLCo or any Subsidiary of CFLCo in each case having an aggregate principal amount of $25 million or more (whether it be one or more trenches), except for subordinated debt obligations.

8.1 Pre-emptive rights. Subject to Sections 8.3 and 8.4, no shares or rights may be issued by CFLCo to any shareholders or to any other Person (the "New Issue Securities") unless CFLCo shall have first offered it to N&LH and any permitted transferee of N&LH and to HQ and any permitted transferee for the same pro rata to their respective Pro Rata Shares, at the same price and on the same terms and conditions as those offered in respect of the New Issue Securities.

In other words, Hydro-Quebec could veto CFLCo from going into bankruptcy. Or, more dangerously, it could veto the acceptance of any financial assistance by the provincial government to keep CFLCo from going under.

If CFLCo is without funds to pay Hydro-Quebec the court awarded costs it would be unable to operate the dam. It would frankly be unable to meet its payroll. Should that happen, the Power Contract states:

             Should CFLCo, not being prevented by any event of Force Majuere, be unwilling at any time to operate the Plant, and should the plant then be operable, Hydro-Quebec, if not then in default here-under, shall have the right to cause the plant to be operated for the account of CFLCo in accordance with sound utility practises until CFLCo itself resumes such operations.

So, in other words, Hydro-Quebec can force CFLCo not to accept financial assistance from the province, and it can refuse to let CFLCO go bankrupt, and simply take over the operations of the plant while the bill for damages to CFLCo keeps rising to the point of being impossible to pay.

If the provincial government tried to sell some or all of its shares Hydro-Quebec gets first rights to them. If the provincial government tries to issue bonds Hydro-Quebec gets first rights to them as well. And that's only if Hydro-Quebec doesn't use its veto to stop that from happening in the first place.

Consider though that the province wants the Muskrat Falls dam operational by 2016, and consider damages start from that point, Hydro-Quebec can sit on those damages year over year until 2041. By 2041 those damages would be, or could well be, in the vicinity of $25 billion, not including interest. At that point Newfoundland and Labrador would have no choice, but to surrender the dam in its entirety to Quebec.

Is this what we really want? Are we ready to lose the Upper Churchill to Quebec?

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."