Nalcor's Stan Marshall is Lying

Stan Marshall, the newly appointed CEO of Nalcor Energy is lying to the people of Newfoundland and Labrador. He is deliberately misleading the people of the province about the ramifications the Quebec Superior Court decision has on the Muskrat Falls dam. It's as plain and simple as that, and it needs to be exposed. Our provincial media have attempted to get unfettered interviews with both Marshall and Premier Dwight Ball on the matter, but have been completely rebuffed. The only commentary made by Marshall was made during his quarterly report to shareholders (us) via teleconference, and he only answered certain questions before the live feed of the teleconference suddenly discontinued leaving media and citizens alike shaking their collective heads. However, what he did say is simply not true.

"That court case will have no major impact on Muskrat Falls whatsoever" Stan Marshall.

That is just a blatant lie to the people of the province. A deliberate attempt to mislead. Here's why:

The Quebec Court:

[1151] The Court declares that the rights granted to Hydro-Quebec under section 4.1.1. of the renewed contract, including its right to programming and planning of power and energy, are in no way limited, circumscribed or restricted, on a monthly basis, for the purchase of blocks of power subject to a ceiling the amount would be established on the basis of the concept of 'Continuous Energy' laid down in the renewed contract, and they can be exercised in relation to any of the available power and all the energy produced at the plant, excluding power and energy associated with the block of 300 MW and the Twinco block."

What does that mean?

Well this is what Section 4.1.1. of the Power Contract requires:

Operational flexibility the parties hereto acknowledge that it is desirable for Hydro-Quebec to have the benefit of operational flexibility of CFLCo's facilities in relation to the Hydro-Quebec system. Accordingly:

i)  Hydro-Quebec may request CFLCO to operate the Plant so as to supply Hydro-Quebec's         schedule of power requirements; and

ii)  Hydro-Quebec may require deliveries which have the effect of varying the amount of water to be carried in storage at any time, providing that, in so doing, sufficient water is left in storage so the Minimum Capacity can always be maintained.

Translation? Hydro-Quebec has the right to force CFLCO to run the Upper Churchill dam for its needs - free of any restriction (ie: Water Management Agreement) : " (Hydro-Quebec's) right to programming and planning of power and energy are in no way limited, circumscribed or restricted". It's very plain English.

Here is what the Water Management Agreement states is the purpose of the WMA:

"The objective of this Agreement shall be the coordination of the Power generation and Energy production in the aggregate for all Production Facilities on the Churchill River to satisfy the Delivery Requirements for all Suppliers, in a manner that provides for the maximization of the long term Energy - generating potential of the Churchill River, while ensuring that the provisions of any Prior Power Contracts are not adversely affected."

So the WMA "requires" the "coordination" of power and energy producers on the Churchill River for the "maximization" of the power potential for Muskrat Falls. Later on in the document the WMA requires that "all production facilities run at full capacity". In other words, Nalcor and the government are trying to take away the right Hydro-Quebec has to determine the production scheduling at the Upper Churchill so they can run enough water down river to keep Muskrat Falls producing power. Unfortunately for them, the Power Contract states that is NOT allowed, and the Quebec superior Court just found that as well as noted above. They didn't find like that because they are a "Quebec Court". They found that based on being able to read the English written in the Power Contract, which apparently Nalxcor and this government cannot.

A further illustration of that exact same point comes from the illustrious VP of Nalcor Gilbert Bennett (October 22, 2012):

“The water management agreement between Nalcor Energy and Churchill Falls defines how the two companies manage the flow of water on the upper and lower Churchill River to optimize and maximize output of the river,” said Gilbert Bennett, Vice President, Lower Churchill Project. “No agreement or consent by Hydro-Quebec is required to provide water management certainty for the lower Churchill developments.” The full press release is here .

Unfortunately for Nalcor, and this province, Quebec does have to give consent, because it just had that right reaffirmed in the latest court decision. The WMA also allows the government through its controlling interests in both Nalcor and CFLCO, to appoint a Water Management Committee, who then in turn appoint an "Independent Coordinator". Here is the duty of that so-called Independent Coordinator as per the WMA:

"The Independent Coordinator shall, based on the information provided by the Suppliers, and in the exercise of reasonable judgment, establish short and long term Production Schedules for all Production Facilities on the Churchill River, through the coordination of production scheduling of the Suppliers based upon the use of the aggregate generating Capability, storage and transmission facilities of any Supplier on the Churchill River, in accordance with the objectives set out at Section 3(1) of the Regulations and with this Agreement"

There you have it. The government of this province was trying to wrestle away control of the Upper Churchill from Hydro-Quebec by installing an "Independent Coordinator" to take over production scheduling - essentially from Hydro-Quebec. As you can see from the Court's declaration above, that in itself is a violation of the Power Contract.

So, the number one pillar of the Water Management Agreement has fallen. Hydro-Quebec, not the provincial government's "Independent Coordinator" has the absolute right to set its production requirements at the Upper Churchill. There never was a question about this if you had read the Power Contract (and its renewal). Now it's been reinforced in a Declaratory Order by the Quebec Superior Court. So it is enshrined in a court order. So to do otherwise would be too deliberately breach an order of the Court.



"What we were hoping for is we'd get more power for ourselves, and that will not be the case under this decision." Stan Marshall.

That's an understatement that frankly an attempt to mislead the public. In fact, if you recall Cathy Bennett's statement the there was a "a complex interweaving of multiple business cases" then you are closer to the truth. (Here's the story on that). Perhaps the best way to illustrate their plan was a conversation Gilbert Bennett had with John Samms back in 2012 when these arguments were flying about:

Bennett:  I agree with this – the GWAC is effective during the winter months. However, section 2.1 of the Renewed Power Contract entitles HQ to take the Continuous Energy in each month, including during the winter. Referring to Volume 1 of our application to the PUB for the water management hearing, the average production at CF is about 34 TWh. If we deduct the 2.36 TWh and 1.97 Twh for recall and Twin Co respectively, we’re left with approximately 29.7 TWh for HQ, or approximately 2.5 TWh per month. Interestingly enough, this means the plant will deliver on average just over 3470 MW for HQ + 525 for NLH/Twinco (or 3995 MW out of 5428 MW) over the course of a month, meaning that HQ can have “additional capacity”, they cannot have it all of the time, as they will exceed their energy allowance. This point ensures there will be lots of opportunities to withdraw stored energy from CF, even in the winter. (The math above is 2,500,000 MWh/mo [30 days/mo]/[24 hr/day] = 3472 MW

So, doing the math, Bennett was stating that Nalcor could take approximately 1500 MW of power/energy from the Upper Churchill, and that Hydro-Quebec would have no right to it, because the "Energy Allowance" imposed on Hydro-Quebec by the WMA would deny Hydro-Quebec the right to that power. Of course, that was an absolute farce from the get go. The Power Contract, and its renewal, clearly states Hydro-Quebec has the right to all power produced at the Upper Churchill - other than 300 MW recall and the Twinco Block. There was never any dream in hell that this province could get 1500 MW from the Upper Churchill.

In fact, here is what the recent Quebec Court decision stated:

" [1154] The Court declares that until August 31, 2041, CF{(L)Co will have no right to any amount of power and energy produced at the plant (Upper Churchill), with the exception of the power and energy associated with the block of 300 MW and the Twinco block."

Plain and simple, and exactly what the Supreme Court of Canada found in its 1984 decision in the Water Reversion Rights reference case. What don't they understand about only 300 MW of recall and the Twinco block? It was ruled on by the highest court in the land 36 years ago...

In any case what does it mean? Well, right off the top it means the people of the province were obviously manipulated right from the beginning. It is just so evident to be utterly, blatantly obvious. But, what does it mean for the Muskrat Falls dam? Well, it's the death nail.

First of all, Nalcor can no longer take "banked power" or "banked energy" from the Upper Churchill - a key component of the agreement. Essentially, the "banked" refers to Nalcor taking power from the Upper Churchill, and at some point down the road returning it so their would be "no adverse" affect on the Power Contract. One problem. Hydro-Quebec is and was, and will be until 2041 entitled to that power and energy period. That means that if Nalcor wants it, or needs it to make Muskrat Falls operational, then Nalcor will have to pay Hydro-Quebec for it. So instead of getting that "banked power" from the Upper Churchill at the same price Hydro-Quebec gets it at (.0020 of a cent a kwh) Nalcor will have to negotiate a market price for a power purchase agreement with Quebec - which could range from 5-10 cents a kwh. A massive cost increase to operate Muskrat Falls. Or worse case scenario, Hydro-Quebec may not agree to a power purchase agreement at all - which would mean Muskrat Falls could only operate at about 29% firm capacity (look at your bill tripling at a minimum if that happens).

So recall if you will the often made statements by the provincial government and Nalcor that Muskrat Falls would have profits of $500 million a year. Guess what. That was based on getting that free 1500 MW of power a year they planned on illegally taking from the Upper Churchill (see Gilbert Bennett's comments above). Now, they have zero free MW to sell, so the first and most obvious impact of the court decision is there will be no profit from Muskrat Falls, and no $500 million to create "revenue" for the provincial government or to subsidize your power bills (as they promised they would). The next big effect is that Nalcor's ability to pay for the project will be disastrously crippled with Muskrat Falls running at 20% capacity. In fact Nalcor admitted the planned Gull Island dam would be in the same straights. Here is an excerpt from their pre-filed evidence to the PUB when they sought the WMA in 2009:

" Under average conditions, the resulting production at Gull Island would be 1,519 MW for the first 20 days and 443 MW during the last 11 days of March. During a dry period, this scenario would require production levels of 1,471 MW during the first 20 days of March, and 395 MW during the last 11 days. Consequently, without a water management agreement, Nalcor would be limited to approximately 400 MW of continuous delivery in a power purchase agreement for Gull Island. Such an arbitrary constraint on lower Churchill delivery schedules is unnecessary and is incompatible with the concept of the efficient use of the resource."

In other words, the Power Contract is an arbitrary barrier to the Lower Churchill dams. Yet, that is what the Court's decision just found - the Power Contract guarantees Quebec that right.

The same Nalcor evidence stated:

"In the absence of a water management agreement, Nalcor would not even have advance knowledge of expected flows from the Churchill Falls facility to enable it to take steps to
mitigate spillage through advance drawdown of the lower Churchill reservoirs In the absence of a water management agreement, Nalcor would be required to utilize the  water as it became available.  Given the limited storage capacity in the Gull Island reservoir  (approximately three to four days of maximum flow from the upper Churchill facilities),

Nalcor would have to turbine the water and produce energy at the time that it was 

available; it would be required to “chase the flows” from the upper Churchill."  

There you go, Nalcor's own words as evidence. The court's decision makes it clear that Nalcor will now have to be "chasing the flows".

So without the ability to take over the operations of the Upper Churchill, Nalcor cannot control the flows of water or power. It also cannot control the reservoir levels at the Upper Churchill. It cannot take banked power or energy from the Upper Churchill to sell on the US market and then return that power back at some later time for free. It cannot take 1500 MW of power from the Upper Churchill and sell it to the US or any other market and make $500 million a year in additional profit. In fact it can't do one single thing the Water Management Agreement attempted to do. In fact, the Water Management Agreement itself breaches the Power Contract as it was obviously, and admittedly created to manage the Upper Churchill and Lower Churchill as if it ever had the right to do so with the Upper Churchill. It never did after 1969, and we knew that back in 1984.

So is Stan Marshall lying and misleading the public about the effect of the Quebec Court decision on the Muskrat Falls dam? Yes he is. No different than the man that preceded him with the exception he was trotted out as being the "straight shooter". Does the Quebec court decision kill the Water Management Agreement? In enforceability yes. The government can leave it on the books, cover its ears, and continue with the dam construction if it wants, but that doesn't change the inevitable. When the dam is ready it won't be able to operate past 20% capacity - except in a month or two around spring runoff. When the bills come through, and there is no way to pay them, that reality will be there for all to see. Apparently it takes that hear before people act to save their own hides. In any case, yes Stan Marshall, you are lying and misleading the people of this province on what that Quebec Court decision really means for Muskrat Falls - and of course that's all of us.