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.

UPDATED Nalcor Energy, Fasken Martineau, PC Party of NL

UPDATED

After going through the records again, two further donations were found in 2007 by the Fasken Martineau firm. One was from Garfield Emerson for $1,000.00 to the PCs, and one was from a Fasken Martineau subsidiary named FMD Ontario Inc., Toronto, for $5,000.00 to the PCs. Which brings the totals for Fasken Martineau partners and companies up to $45,650.00.

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Sometimes it's painful to do investigative work on the workings of our government in this province. It's painful because, no matter your political bent, you want to believe that things like greed and corruption are things that happen elsewhere, and not here. You want to believe that people in office have some standard of conduct, and it's just those with an ax to grind that throw mud at essentially good people. Then there is the reality - it's worse than we could possibly imagine. This post covers such a case.

Fasken Martineau (FM) first appeared on the Newfoundland and Labrador political donation scene in 2002, while the Liberals were in power. They made a one-time donation to the Liberal Party of $2,850. FM was involved with some minor contractual issues then respecting Newfoundland and Labrador Hydro, but nothing significant.

Then, in 2007, thing started to change. The Williams government began ramping up its strategic battle with Hydro Quebec - including numerous amendments to the Electrical Power Control Act. It was a very busy time. Concurrently, FM reentered the province's political scene. It was an election year, and suddenly a group of Quebecers became very interested in contributing to Newfoundland and Labrador politics, but only to one party - the PC Party. Now, the blog Labradore brought some attention to this at the time in a general sense, which included a comment from Danny Williams, then Leader of the Official Opposition, to the governing Liberal Party:

" Do you think it is appropriate that you should solicit and accept donations from someone with whom you are entering into negotiations to deal away the resources of this Province? Is that a conflict of interest? Do you see anything wrong with that? Because the people of Newfoundland certainly do."

Apparently times change, and with them values. The PC Party under Williams began accepting political donations, including direct general election contributions, not from the law firm of FM, but from its partners. At that time, and remaining the same today, corporate political donations in Quebec were banned. You had to be a registered voter in Quebec to make a political donation, and it had to go through a registered Party agent in Quebec. In any case, 2007 saw six partners of FM from the Montreal office make political donations to the PC Party:

Sylvie Bourdeau                 $ 500.00
Karl Dewaide                    $ 500.00
David Lemieux                  $ 500.00  (GE)  (Now with Norton Rose Montreal)
Xeno Martis                      $1000.00 (GE)
Allan Ranger                      $ 500.00  (GE)
Andre Turmel                    $1000.00  (GE)

Then in 2008 a similar occurrence:

David Lemieux                  $ 450.00
Xeno Martis                      $ 900.00
Robert Pare                      $ 900.00
Daniele Picotte                  $ 900.00
Allan Ranger                     $ 450.00
Andre Turmel                   $ 900.00

Just a note at this point. You will notice by these two years of donations that certain partners consistently make higher donations than others.

In 2009, and 2010 the donation pattern switched to corporate donations, with no partner donations to the PC Party:

2009 - Fasken Martineau  (Montreal)  $10,200.00

2010 - Fasken Martineau  (Montreal)  $  9,500.00

Then, in 2011, there were no donations by either FM or its partners. In 2012, the old pattern of donations resumed where the firm did not make donations to the PC Party, but the partners did:

2012
Pierre-Olivier Charlebois         $    500.00
Andre Durocher                      $ 1,500.00
Ron Ezekiel                             $    500.00
Helmut K. Johannesen             $    500.00
Xeno Martis                            $ 1,500.00
Angela Onesi                           $    500.00
Daniel Picotte                          $ 1,500.00
Allan Ranger                           $ 1,500.00
Andre Turmel                         $ 3,450.00

The 2013 numbers are not public yet, and Elections Newfoundland and Labrador has not answered my email inquiring as to the date they may be released.

Here are the partners from FM involved with these donations:

To be clear, I have made written requests to FM, the PC Party of NL, and the Government of NL, Nalcor Energy and have not received any responses. I asked them to comment on the political donations. Here's why.

FM has been retained by Nalcor Energy for legal services. Not just any legal services, but the legal services surrounding the Lower Churchill project. The individual details of this service are confidential, but some parts are available for the public. Take this declassified confidential report from Nalcor regarding "3rd Party Vendors as of September 30, 2011:

This report states that Nalcor hired FM for: "Legal Services - strategic, Quebec regulatory, water management, Quebec civil, Ontario regulatory, PPA" and that it received from Nalcor for:

Muskrat Falls                   $1,111,174.23;

Labrador Island              $2,477,105.14; and 

Transmission Link

Total                              $3,588,279.37.

That was as of  the September, 2011. Then there was this: 

http://www.fasken.com/en/5-billion-muskrat-falls-hydroelectric-generating-facility-and-the-labrador-island-transmission-link-projects-reach-financial-close/ 

FM was the chosen law firm for the federal loan guarantee of $5 billion dollars for the Muskrat Falls project. The details of that contract have not been released by the government. However, it is interesting to note that Guy Giorno, of http://www.fasken.com/guy-giorno/ , former Chief of Staff to Stephen Harper until 2010, belongs to the same firm that is donating to the provincial government.

 Giorno most recently acted as counsel for Nigel Wright during the Senate expense scandal allegations 

http://www.huffingtonpost.ca/2013/06/03/guy-giorno-harpers-former_n_3378099.html and has just been announced as new legal counsel for the Conservative Party of Canada:

http://www.thestar.com/news/canada/2014/02/10/guy_giorno_tapped_as_conservatives_legal_adviser.html

To top things off, we have Jacques Audette, a partner at FM being arrested by the Quebec anti-corruption squad   http://www.canadianlawyermag.com/legalfeeds/804/Faskens-Montreal-partner-arrested.html in April 2012. 

Given the evidence that is in the public domain, it is clear and obvious that the law firm of Fasken Martineau (Montreal Office), and its partner were funneling political donations to the PC Party of Newfoundland and Labrador. It is clear they were under contract with Nalcor while doing so. It is clear they advised Nalcor on the water management agreement, and other issues solely relating to Muskrat Falls and the Lower Churchill. It is clear that conditions of the original loan guarantee, requiring no litigation be impending or undergoing regarding the Lower Churchill project be active, were tossed to the side when Stephen Harper suddenly agreed to wave all those conditions that would protect tax payers from massive losses from a Hydro-Quebec lawsuit (currently underway in Quebec) despite at least five separate lawsuits pending against the project. It is clear that Giorno is a very close confident of the Prime Minister. 

All these things are very clear and supported by evidence. What are the conclusions an average person could come to given these facts? 

1.   Fasken Martineau, and its partners were rewarding the PC Party of Newfoundland and Labrador for contracts they had secured with Nalcor Energy. It defies imagination the FM and/or a series of their partners in Montreal, Quebec, would suddenly become so enamored with a PC Party in Newfoundland and Labrador that they would donate to it while having contracts with the government, but not before that. The facts show a structured and repetitive donation schedule between partners that remains consistent to this day - or at least until the last released reports of 2012. Rewarding public officials or political parties for doing business with the government is a criminal offense http://quesnelnews.com/ethics_criminal_code_handout.pdf

An investigation is required by the RCMP as to the seriousness of these contributions, but the evidence available publicly points to this.

2.   The PC Party accepted political donations from FM under these circumstances, and is subject to the same conclusion, and also requires an RCMP investigation.

3.  Perhaps most disturbing, although that is saying something, is the connection between the Prime Minister's Office, FM, Nalcor, the PC government of the province, and the loan guarantee. Given the sudden dropping of the lawsuit-free requirement of the original terms for the loan guarantee, and the sudden dropping of them by Stephen Harper (defying all logic and reasoning), and given the fact that FM was hired by Nalcor to deal with the water management agreement and the loan guarantee, the issue begs the question: Was the PMO influenced by Fasken Martineau partner, and now Conservative Party of Canada counsel Guy Giorno to drop the protection of the original terms of the loan guarantee which protected taxpayers? Was that influence exercised by way of paid lobby by Nalcor Energy? The evidence points in that direction, but requires an RCMP investigation.

What is clear through all of this is despite the PC Party's stand against Quebec, and the federal government, they had no problem taking their money and influence/advice under the leadership of the guy who said:

 " Do you think it is appropriate that you should solicit and accept donations from someone with whom you are entering into negotiations to deal away the resources of this Province? Is that a conflict of interest? Do you see anything wrong with that? Because the people of Newfoundland certainly do."

Danny Williams, Leader of the Official Opposition, 2002.

Whatever Mr. Williams said, these circumstances have been filed with the Quebec anti-corruption squad, and will form the basis of a formal complaint to the RCMP.

The PUB Complaint on Muskrat Falls filed

Today myself and five other people filed an official complaint with the Public Utilities Board (PUB) here in the province. These people come from all over the province - Labrador, the Northern Peninsula, and here on Random Island.

The provincial government designed its Lower Churchill strategy around pushing public oversight of the project beyond us. It exempted Nalcor from PUB scrutiny. Ditto for the entire Lower Churchill project, including transmission lines, dams, everything. It had the whole deal sown up, except for one thing. In order to allow for the Churchill dam projects, Muskrat Falls now and Gull Island later, the government amended the Electrical Power Control Act in 2007 to allow it to effectively force CFLCo to break the Power Contract with Hydro-Quebec. When Hydro-Quebec's directors on the CFLCo Board vetoed the proposed Water Management Agreement, leaving the door open for Nalcor to go to the PUB. The PUB dutifully implemented the agreement as they were required to do under the Act.

The government had a plan. It can be found further on in the Electrical Power Control Act. Specifically, it allows the government to declare a "State of Emergency" if for "some reason" it should be in a situation where it does not have enough power or water to supply the power "needs" of the province. The way to look at this is the government is essentially creating its own state of emergency. The Supreme Court of Canada has already ruled legislation like this is unconstitutional. The government knows this. There plan is simple: build the dam by legislating away any legal opposition; have the dam and more importantly the transmission lines built before their case with Hydro-Quebec goes to Court; and when the Court sides with Hydro-Quebec declare a state of emergency.

Under that state of emergency the provincial government appoints an Emergency Coordinator, who decides who gets what power, including Hydro-Quebec and the Upper Churchill. The state of emergency stays in place until the government decides it's over. There is no legislated criteria for when it starts or when it ends. All of this has been tested in the Supreme Court of Canada, and all of it has failed - completely. That's my problem. I know it's going to fail. When you know something is going to fail, and you know your fellow Newfoundlanders and Labradorians are going to be sacrificed in the process, you have two choices: do nothing and let it happen; or do something and try to stop that sacrifice. I chose the latter.

I have already filed a lawsuit that is going through the Courts, and is in the Appeal Court now. And, today, myself and five others filed an official complaint with the PUB over that same Water Management Agreement. The government had to open their flank by giving the PUB the power to order a water management agreement, but in doing so they also left the power with the PUB to rescind the agreement. Perhaps, even more importantly, the Public Utilities Act requires that when a complaint is filed, and it involves a question of law, the PUB must refer it to the Supreme Court of Newfoundland and Labrador, Court of Appeal for a judicial reference. Essentially, the agreement will be judged on its constitutionality. So, while the government has done everything it can to avoid a judicial review of the water management agreement until the dam is built and it's too late, they left the power with the PUB to do just that. All it took was five people to sign an official complaint to put it before the PUB. That's what we did today. Now it's up to the PUB to follow the Act and send it to the Appeal Court for it's day of judgement. The official complaint is below:

    

Can Alderon Iron Ore Have Their Power Lines?

Alderon Iron Ore Corp has been launching an all out offensive over the last three weeks to get their $300 million transmission lines run from the Upper Churchill facility to Lab West, and of course their Kami mine site. Without the power line, Alderon claims its Chinese financing will dry up within mere weeks, and the project will be moth balled. Alderon has been able to get Loud Labradorian MP Jones to screech for them. They have got the towns on board with agreements, and the hollering that comes from that. They even inked a deal with the Innu. They are crossing their "I's" and dotting their "T's" in a virtual hearts and minds campaign aimed at putting pressure on the ...PC government.

Pressuring the PC government? Aren't they supposed to be allies in the whole Muskrat Falls rah-rah team? That is the way it was til a short while ago. Now suddenly Alderon is threatening the taxpayers that if they don't come up with $240 million (our share of the $300 million) they will take their toys from the sand box and leave. The press are covering the whining. Dutifully printing out Alderon's words. Funny enough not allowing comments on the stories - at the CBC anyway. Yes, all in all, it's a typical Newfoundland railroading job on the taxpayers.

Strange that the media aren't asking a few really pertinent questions of our politicians like: 1. Does the Power Contract allow us to add any transmission systems to the Upper Churchill; Does the Shareholders Agreement of 1999 play a role; and why would we invest in a $300 million line when the Quebec lawsuit will be before the courts until at least 2018? Never hear a single word about these issues in our press. Not a word. Bizarre. Truly bizarre. Do we have an investigative press here at all, or is that simply restricted to why buddy had to wait three hours in the E.R.? Is all about the cat in the tree, or the skater, or the garbage collection? Is there not at least one press person, other than the true giants of media here (the open line show's hosts) that can look and report an issue in depth? Warn the people? Inform the people? Doesn't appear so, and that makes us truly unique in Canada.

Should we place one penny in the Alderon/Lab West transmission line? No. And frankly neither should Alderon's shareholders. Bottom line is without a court tested water management agreement, so there is actually power to send down the transmission line, and until Hydro-Quebec get's on board and allows the modification of the Upper Churchill facilities (which in the Power Contract includes roads, lines, town site, everything) no more power can be sent to Lab West - not one kwh.

It's time the government was honest with the people, and say: " Look we came to an agreement with Hydro-Quebec to swap documents and examine each other's witnesses, and that's agreed by court order to take to August 2015, then we go to court, and then we may have to appeal all the way to the Supreme Court of Canada. We feel it would be irresponsible to spend money on a line like that until we are sure we can send power down it. Wouldn't be fair to taxpayers or Alderon's shareholders."

That would be the truth, but this government isn't known for being truthful. It is known to be manipulative, secretive, and hell bent on screwing us (Abitibi - case in point). If the PCs want to turn things around it will take baby steps with big impact. This will be a test for the "new" leadership. This is also a test for the opposition parties. Why would they promote this line given the circumstances? Is it all about politics or is there a sense of duty. A sense that there is a common sense voice that can be trusted? I guess we'll see, but decision makers be aware. The days of making deals to make the boys happy, and sacrifice the people, are over. Govern yourselves accordingly.  

Newfoundland's Final Humiliation

There are few things that Newfoundlanders, and the province in general, are more afraid of than being made to look stupid. No body does. However, here it is taken to a higher level. There is a history of the "Newfie jokes" or even the just the term "Newfie" by itself, that boils the blood. The connotation is that somehow a Newfoundlander is doomed by birth right to be inferior to the rest of Canadians.

There are a lot of theories on why Newfoundlanders are so self-conscience about what others think of them. My own theory is that losing your country to become a province is a hard pill to swallow. It affects the collective psyche in ways that run deep and can last a long time. It's doubly hard for a proud people. That's why even today you will commonly hear the young and old refer to Canada as a separate entity: "just got back from Canada". Of course the reality is one doesn't leave Canada if travelling to the mainland. The reality is we are one country now, but the ground between the soul and reality is murky at best.

Another source of humiliation, that has become anger and resentment, is the Power Contract 1969 with Hydro-Quebec. In that case Premier Smallwood, all busied with big names like Winston Churchill and the Rothschilds, had the province agree to a 198 year lease of the Upper Churchill that allowed the Power Contract to be signed and gave Quebec control of the facility for a pittance. The actual annual pittance today is about $2 billion for Quebec and $65 million for Newfoundland and Labrador. Since the early 1970's the dollars from the project have left the province and the people followed. Smallwood's great cry was "industrialize or perish". The result was Quebec industrialized on cheap Labrador electricity and Newfoundland perished.

Fast forward to 2003, and the election of Danny Williams and the PCs. Williams got elected just as the beginnings of oil money started coming in. Williams was determined to undo the wrongs of the Power Contract, bring back nationalistic pride that he saw as robbed by the agreement, and show Hydro-Quebec the door. He created the "Energy Plan" in 2003, created a state owned monopoly (Nalcor) in 2007, and amended/created all types of legislation in between time to put the path in place. Come hell or high water he was going to make things right. Most Newfoundlanders, including this one, applauded at the notion of historical redress.

Then it came off the rails. Hydro-Quebec's directors on the board of CFLCo (the corp jointly owned by Hydro-Quebec and Newfoundland and Labrador Hydro 'NL Hydro') vetoed the Water Management Agreement that Nalcor's directors on NL Hydro and Nalcor itself had negotiated. Within a month Nalcor was knocking on the Public Utilities Board's (PUB) door for an imposed Water Management Agreement (WMA) - as per the aforementioned  amendments Williams did to legislation back in 2007.

The PUB passed the Water management Agreement, without as much as a coma being changed, just as Nalcor had put it forward. Apparently, in June 2012 Nalcor began taking more MW from the Upper Churchill than it was allowed - which the WMA authorizes them to do. Quebec sat back and waited.

As part of my own lawsuit against the Government and Nalcor regarding the Muskrat Falls project, I served Hydro-Quebec with a letter inviting them to be an intervenor in the case. I informed them contractual rights under the Power Contract would be at issue. My purpose was to put them on formal notice, that if they refused to act they would be acknowledging the province's right to usurp their Power Contract rights. That would set a legal precedent, and they would be unable to come back at a later date and argue they were unaware of the case. In a sense, I pushed them from waiting in ambush for us to finish Muskrat Falls and then take us to court. Within 2 days of my initial injunction failing at the Supreme Court of Newfoundland and Labrador, Hydro-Quebec filed suit in the Superior Court of Quebec - ambush firmly tripped.

On January 20, 2013, 11 days from now, Hydro-Quebec's motion will be heard. It asks the Court to declare two things: 1. That Newfoundland and Labrador is not entitled to more than 300 MW of recall power plus the old Twinco block; and 2. That it has the right to manage the facility (which includes roads,switchyards,etc) in accordance with its needs - and only its needs. Both these rights are firmly established in the Power Contract and the Supreme Court of Canada's Review of the Reversion Act 1984. This province has no chance, and when I say no chance I mean zero chance, of winning these issues in court.

Getting to the meaning of the title of this article - the final humiliation. Estimates of exactly how much money has been spent on Muskrat Falls so far are hard to get. Conservatively it ranges from $800 million to $1 billion. Now the people of Newfoundland and Labrador, blinded by the nationalistic rhetoric of the Williams years, have to face the reality that the very foundation of the Muskrat Falls/Lower Churchill project is not valid. Without it there is no "banking" of power, no lines to mines, no power for the Island and no power for Nova Scotia. It is the kind of disgrace you don't wish upon your worst enemy. Williams will have succeeded in giving the province one last real humiliation on the national stage - one his old friend Harper was only too eager to assist with. For that I can not forgive him.  

Alderon's Muskrat Falls Headache

A few weeks ago, Alderon Iron Ore Corp's Mark Morabito went "off his head" during a radio interview with VOCM during an open line radio show. He blasted the provincial government for not passing the environmental process for the Kami mining project in Labrador. He also criticized the failure of Nalcor and the government to sign a power supply agreement and build a $150 million power line system from the Upper Churchill to Lab West (and his mining project). Clearly, that line and power purchase agreement are crucial to the mine moving ahead. Here is an excerpt from Alderon's subsequent press release:

" We were informed of the status of power and various other files under review by the Provincial Government. Following our discussions with the Minister and his officials, we are confident that these matters are being pursued diligently and expeditiously, " says Tayfun Eldem, President and CEO of Alderon. " The Government's approval to build the power line is crucial to Alderon securing the previously announced debt financing and we are pleased that the Premier has expressed her support for the power line." 

"Is crucial..to securing...financing." Interesting. All along the story about Alderon and Muskrat Falls has been Alderon doesn't need Muskrat Falls power unless it doubles its production down the road. Now it is suddenly necessary for financing. Of course. Alderon is calling it the "line", but the bottom line is Nalcor has no excess power to send on that line, so it would have to be power created at Muskrat Falls, and relayed through the Upper Churchill, and out to Lab West (and the mine). FYI on the environmental study issue - Alderon has to pay its Chinese partners $3 million a month for each month the approval fails to come through starting January, 2014 (which is now).

So, given the heavy weights behind Alderon, and all the dollars involved, how is it that Nalcor hasn't committed to the power line and a power supply contract to Alderon yet? According to earlier statements the price pure kilowatt hour has been agreed to. The problem is in the amount of power to be supplied. The answer lies in the Power Contract of 1969, and the Water management Agreement.

All Nalcor's, and the provincial government's plans involved implementing the WMA, which would allow Nalcor to take over the operation of the Upper Churchill. With that control, Nalcor could take power almost at whim from the Upper Churchill, and redistribute it as it wanted. For Alderon that would mean a secure power source. Whether Alderon's early founders Forbes and Manhattan were sold a bill of goods on the validity of this plan is uncertain. Who sold them on it? Williams? Altius? Both? It's hard to say right now. When push came to shove, and all the glossy pictures and back slapping were done, reality hit home. 

Hydro-Quebec filed suit, which will be heard January 20, 2014. That is a suit Hydro-Quebec is going to win, and when it does, the WMA is not worth the paper it is written on. What does that mean for Nalcor? It means Nalcor will not be able to take 1 MW of power from the Upper Churchill, other than the recall they already have (and is fully consumed). Nalcor knows this. They are playing a very dangerous, and frankly stupid, game of chicken with Hydro-Quebec that we can not win. 

What does that mean for Alderon? It means Nalcor can not commit to the power supply, and therefore it means there is no rationale reason to build a $150 million power line system. Unfortunately for Alderon, it has already used the credibility of Forbes and Manhattan's Chinese connections to make inroads - and promises. Now those promises are in serious doubt. Loss of face with the Chinese is a very, very bad thing.

In some ways there is a little poetic justice here. Danny Williams, the former Premier that brought in all the legislation that is now before the Court in Quebec, is also a main player in Alderon. Now his own legislation is hurting Alderon's chances of getting off the ground. Mean while, Dunderdale and company sit on the environmental application, likely as an out for them. It's all a bit of devilish karma coming to bite some people right in the arse. It begs the question: does Alderon have a Plan B to buy power from Hydro-Quebec, and if not why not? Politics is best suited divorced from the board room.

Borrowing from Peter to Pay Paul - Nalcor, the Government of NL, and Us

The government of Newfoundland and Labrador is about to make us the laughing stock of the country - again. What's the old saying: fool me once, shame on me, fool me twice, shame on you? That is the stunning revelation written by The Telegram's reporter James MacLeod. His story, printed in this Saturday's paper  http://www.thetelegram.com/News/Local/2013-12-21/article-3552189/Power-play/1 … says it all - if you read between the lines, and it's not that hard to do.

First off, Nalcor rolls out two new names as reps for the company: Greg Jones (Marketing Manager); and Rob Henderson (Vice-President of something or other). Until now the primary spokesperson from Nalcor has been Vice-President in charge of Muskrat Falls Gilbert Bennett. The other spokesman, on a less frequent basis, has been Nalcor President Ed Martin. Secondly, the announcement comes just before the Christmas holidays, and after the House of Assembly is closed until spring. The most shocking thing though is the message - we are going to be buying power from the US.

Come again you say? We are going to be buying power from the US? Wasn't the plan to be selling power into the US market? The newest twist on the Muskrat Falls fiasco is, in reality, a stunning admission that the Water Management Agreement (WMA) is unconstitutional, and here's why.

Mr. Jones and Henderson state the plan is to allow water to build up in the reservoir, and during this period the dams would be shut down. During the shut down process the province would buy power from the US market. Once the dam reservoir is full, we stop buying power from the US. Sound familiar? It should. It is a seriously bastardized version of the whole "banking" energy plan of the government and Nalcor. Under that deal, enshrined in the WMA, Nalcor would take power from the Upper Churchill when it needed the power and then send the power back during the spring when its reservoir was full, and the dam could operate past 20% firm capacity. This "new" US purchasing of power, in theory, would replace the need for the WMA.

That raises a number of very serious questions, or it should. First, its a stunning admission that the WMA is a deeply flawed document, and the government broke the law by passing it in the first place. If the WMA was legal, Nalcor could take all the power they needed at any time, and according to Nalcor's interpretation, an extra 1500 MW a year on top of that from the Upper Churchill. Obviously, in that case, there would be no need to purchase power from the US or shut a dam down to fill a reservoir. That is the first obvious conclusion. The second conclusion to be drawn is the government is trying to get ahead of the political fire storm which will be ignited when Hydro-Quebec wins their court challenge against us on January 20, 2014. With a US purchase plan they can say that the WMA is no longer of any importance, because they can use the US power to do the same thing - so no biggy.

Then there are some further obvious questions. If the link to Nova Scotia is capable of carrying only 500 MW of power, and 20% of that is being dealt to Emera free for compensation to build the link (25% in the first five years), and Emera has a further option at market rates on the remainder, how will sufficient power be transmitted back from the US on the same line? After all, in theory only, Muskrat Falls is supposed to produce 800 plus MW a year. If say only 300 MW can be transmitted back to Newfoundland from the US, what makes up the 500 MW difference? Well one answer is likely to be: "we don't need all that power now". That seems to be a familiar refrain during this save face at any cost project. A question to that answer would be:" If we don't need that power why are we spending $8-10 billion building the dam?"

The Government of Newfoundland and Labrador is quickly becoming farcical. As we say in this province "too foolish to talk about". But we must. We must talk about it, because it's our financial future on the line. In no other province would a government get away with anything close to the gross incompetence, and spiteful stupidity this government has in this province. The fact that reporter James MacLeod fails to even connect the dots outlined above gives you a hint why they have so far. In any free society, a free and critically thinking press is necessary to hold the government accountable. It's not just up to the Official Opposition. In this province our media, with a few exceptions, simply relays the government message rather than critically challenge it. It's an all too familiar refrain here. This whole issue, including the economics of it, and the impending failure of the WMA in Quebec Superior Court, will play out in the new year. What we need is a press that does not simply repeat what they are told by the government and Nalcor, but actually dissects it. The people need to be "honestly" informed about what is happening to them now and in the future. This terrible admission that we must buy power from the US and shut dams down to fill reservoirs, proves yet again that we can not trust this government.

Muskrat Falls Math - into the Abyss

I have yet to read an article that attempts to tackle the complete Muskrat Falls "integrated business case", including especially the costs and returns it is designed to provide. So it's time to tackle that head on.

This week VP Gilbert Bennett, Nalcor stated the average production for Muskrat Falls is estimated at 510 megawatts (MW). That should be a big wake up call for people. Up until now Nalcor and the government had been holding fast to the full production capacity of the planned dam - 824 MW. That represents a 38% decrease in expected production from the Muskrat Falls facility. Ordinarily that would kill a project immediately, but the government has other plans. I'll get to that in a bit, but first the actual production costs compared to the returns for our treasury.

Back a year ago our now departed Minister of Natural Resources, Jerome Kennedy, stated in the House of Assembly that the cost of power produced at Muskrat Falls would be $.25 a kilowatt hour (kwh). That was based on production of 824 MW. That was to break even, and before costs associated with transmitting to Nova Scotia were factored in, and without cost over runs. 824 MW of power equals 4.9 terawatt hours, or 4.9 million megawatt hours of energy per year, or 4.9 billion kilowatt hours - for the purposes of this article we will stick with kwh.

So, if Muskrat Falls could produce full power, full time, it would produce 4.9 billion kwh at an annual cost of $1.225 billion - to break even (remember that number). That is to Soldiers Pond. As the energy converts from DC lines to AC lines, travels under the Gulf, and does that process again, it loses about 5% (conservatively) of it's energy on each end. Then there are the transmission fees Nalcor has to pay to Emera to send power across the sub sea line, etc. I'm not even going to factor that in to keep things semi-clean.

So, the annual budget necessary to run Muskrat Falls at a break even point is $1.225 billion. That doesn't change now that the average production, according to Bennett would be 510 MW per year. What it does mean is the cost per kwh goes from $.25 per kwh to $.40 per kwh. That is bad. Very bad. Now that $.40 per kwh has to be blended into Nalcor's already existing energy production (Churchill Falls is not included - explanation later) of 1850 MW or 11 billion kwh. Right now rates differ depending on where you live in the province and whether or not you are business or residential. Based on stated gross electricity sales of $520.7 million for 2012, the average price per kwh for power is 4.7 cents per kwh ($100 million of that $520.7 million is heavily subsidized Labrador and Industrial customers). 

Blending the current rate with the Muskrat Falls rate puts the new average rate at 13 cents per kwh or 300% higher than the current average rate. Of course that number includes industrial and Labrador clients.

Here is the hitch. All the numbers above are based on the Water Management Agreement being legal/constitutional. Without the Water Management Agreement, Nalcor stated in pre-filed evidence with the PUB, that Muskrat Falls could only run at 20% capacity. This issue is before the Court in Quebec - it will be heard on January 20, 2014. It is also before the Court here with yours truly. What happens if/when the obvious happens and the Water Management Agreement is thrown out?

Well, it changes the numbers radically. That takes the average production at Muskrat Falls down to a mind blowing 102 MW - or 607,142,857 kwh. To put that number into focus, the average price per kwh for Muskrat Falls energy would have to be $2.02 per kwh - by far the most expensive power on the planet by a landslide. In 2012 Nalcor generated that $520.7 million in revenue on 1850 MW. Now it's looking to generate an additional 102 - 510 MW for $1.225 billion a year. The math is pretty clear.

Of course Nalcor is, according to the Premier and Gilbert Bennett, planning on taking 1500 MW a year from the Upper Churchill starting in 2016. Seems they have been taking additional power from the Upper Churchill since June 2012 according to Hydro-Quebec (which is apparently why they filed suit). If that plan was actually legal the additional revenue, based on an average of 6 cents per kwh (the average spot price for 2012) would give Nalcor an extra $534,600,000.00. The Government and Nalcor have been spinning the line that Muskrat Falls will make $400 million in revenue. Seems they are depending on taking that "extra" power from Hydro-Quebec. Like I said, if it was legal then it would be great. It just isn't though. Even Nalcor own 2012 Financial Report states all the power, but recall, "generated at the Upper Churchill" belongs to Hydro-Quebec.

Just one last thing. If Muskrat Falls is projected to generate 510 MW Nova Scotia wants about 300 MW of that power at spot market prices, plus the 25% of generation it gets for free. My math has that total commitment to Emera being 427.5 MW for a blended price to them of 4 cents per kwh - about the same price they have promised to Labrador mining companies. Obviously, the government is not building a dam to give all but 82.5 MW to Nova Scotia. They need that Water Management Agreement to take that additional power from Hydro-Quebec or their deal with Emera is finished. All the economics, and therefore the project, rely on the Water Management Agreement. Bad as Muskrat Falls is for the taxpayer/ratepayers of Newfoundland and Labrador, the death of the Water Management Agreement is a step into the abyss if we continue to build...

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.

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.