'Hope' - Power Struggle Part 6 of 12

1984 letter shows Quebec would bend on Upper Churchill

“There’s a pattern, and it’s happened on several occasions. Whenever it was in Quebec’s interest … we get these hints that they’re willing to move on the 1969 (Upper Churchill) contract.”

— Jason Churchill, author of a report on the history of Churchill Falls Hydro that was included in 2003’s royal commission into the province’s place in Confederation. 

Sixth in a 12-part series. 

The defunct weekly provincial newspaper, The Independent (2004-2008), carried out extensive research and investigation into the Upper Churchill. From the contract’s signing in the 1960s, to the realization of its incredible lopsided nature towards Quebec, the shadow of the deal looms today over the potential development of Labrador’s Muskrat Falls. The following is the 6th in a series of 12 articles published in The Independent. 

By Clare-Marie Grigg

The Independent

March 12, 2006 

A complete copy of a 1984 letter of intent in which Hydro-Quebec agrees to address inequities in the Upper Churchill contract has been released publicly for the first time.

Vic Young, former chairman of Newfoundland and Labrador Hydro, and one of the two signatories on the document, along with the then-head of Hydro-Quebec, tells The Independent the contents of the letter are significant today in light of the province’s plans to develop the Lower Churchill.

“It is a document whose content we will ignore at our peril,” he says.

The five-page letter, which established a basis for Churchill Falls power negotiations, was obtained by The Independent through the Freedom of Information Act. 

Although excerpts from the statement have been previously released (the letter’s existence first came to light when Brian Tobin quoted from it in 1996 to rally national support for development of the Lower Churchill), a secrecy clause worked into the original document kept it from full public access — until now.

“What is so important, even today, is that Newfoundland and Labrador has a signed document from Quebec that clearly acknowledges the necessity of a fair and equitable return to Newfoundland and Labrador as the owner of the Churchill Falls resource,” Young says. 

Other major points made in the statement of intent include a need for Newfoundland and Labrador to access additional energy from the Upper Churchill at prices no more than those paid by Quebec, and a review of the 25-year automatic renewal clause, which extends the contract from 2016 to 2041. 

Due to the lopsided nature of the 1969 contract, Hydro-Quebec is currently earning an annual profit estimated to be close to $2 billion, compared to Newfoundland and Labrador’s $32 million. 

The statement of intent was first drawn up as a result of an attempt by then-premier Brian Peckford to regain provincial rights to the Churchill Falls water lease. 

Faced with a court case, Hydro-Quebec agreed to renegotiate its financial dominance over Newfoundland and Labrador’s hydroelectric resource.

In return, Hydro-Quebec wanted recognition of the risks it had taken in developing the Upper Churchill and an end to all legal action. 

An agreement between the two parties following the document’s signing was never reached and Peckford’s water rights case was overruled in the Supreme Court of Canada. 

Despite the lack of resolution to negotiations in 1984, Young says the revisions listed in the letter are still viable. 

“Whatever those changes might have been in 1984, they obviously have been magnified several fold by 2006 with world energy prices at record levels.”

Jason Churchill, author of a report on the history of Churchill Falls Hydro that was included in 2003’s royal commission into the province’s place in Confederation, says the letter shows what Hydro-Quebec is willing to do under pressure. 

Churchill is currently with the Conference Board of Canada in Ontario, working on a national energy framework examining the adequacy of Canadian energy policies.

"There’s a pattern, and it’s happened on several occasions," he says. “Whenever it was in Quebec’s interest … we get these hints that they’re willing to move on the 1969 contract.”

 

Churchill cites the deregulation of the North American energy market in the 1990s and Tobin’s nationwide public relations campaign threatening to pull the plug on the Upper Churchill as another example of Hydro-Quebec bending under duress.

Among other concessions, Tobin scored a winter availability contract from Hydro-Quebec with the company agreeing to pay $34 million a year for guaranteed peak power supplies.

Ed Hearn, one of the lawyers hired by Peckford in the 1980s to work on overturning the Upper Churchill, says although the statement of intent holds no legal impact today, it bears a moral one. 

But that’s irrelevant, he says, because Newfoundland and Labrador still needs a bargaining chip.

“That’s why I feel strongly about the utilization of 92a,” says Hearn, “and I think actually it was a background to this (the 1984 statement of intent).”

The Canadian Constitution was revised in 1982 and with it came a new clause called section 92a. If implemented, the clause could give the province the right to tax Hydro-Quebec for Newfoundland and Labrador hydroelectricity. It would mean millions of dollars more in revenue, while at the same time sending a firm message to Quebec. 

Hearn calls Hydro-Quebec’s tendency to respond to pressure a “glimmer of hope” for future negotiations. 

He adds Quebec has lost its ability to withhold transmission rights from Newfoundland and Labrador in the face of a desperate modern energy market and tighter U.S. regulations.

“(The Federal Energy Regulatory Commission) are developing these regional transmission organizations and essentially they’re arguing two things," he says. “One is you have to practice what’s called fair market practices, which means you must allow others to wheel energy through.” 

“The other second part is the idea they (utility owners) can only charge other people using their infrastructure at the same price, the fair price they also charge themselves … Quebec can no longer block our access to the American lines.”

In January the province announced it was supporting Newfoundland and Labrador Hydro in an application to Hydro-Quebec’s transmission division for the right to wheel future lower Churchill power through Quebec. 

Although the province is considering three expressions of interest (including one from Hydro-Quebec), it has consistently maintained a preference towards developing the lower Churchill independently.

Premier Danny Williams had previously stated the province is assessing ways to re-evaluate the Upper Churchill, including the possibility of implementing 92a, but he wouldn’t comment on the 1984 statement of intent. 

In a previous interview he said a co-development of the Lower Churchill with Hydro-Quebec would have to include the Upper Churchill. 

Sylvain Therberge, a spokesman for Hydro-Quebec, also refused comment on the 1984 letter when contacted by The Independent.

Natural Resources Minister Ed Byrne says he expects current public discussions towards formulating an overall provincial energy plan to wrap up shortly and estimates the final plan will be ready within eight months.

For now, the province is remaining silent on any Lower Churchill issues, which hasn’t deterred the International Brotherhood of Electrical Workers in both Quebec and Newfoundland from joining forces in anticipation of work.

Newfoundland local 1615 held a press conference last week in St. John’s to discuss its contribution to provincial energy plan discussions. The union advised the province should develop the Lower Churchill independently, with financial aid from Ottawa. 

In a surprising move, Denis Morris, business manager from the International Brotherhood of Electrical Workers in Quebec, flew over to offer his local’s support.

Morris, whose division represents 20 per cent of Quebec’s electricians and linesmen, says Hydro-Quebec’s own internal union has shown a reluctance to form inter-provincial partnerships in the past.

“Maybe the big part of the problem comes from there,” he says. “We’re looking to the future … if we have a good relationship and the manpower and good mobility we’re going to be able to build the Lower Churchill.”

A letter in perspective

Frustrated with Quebec’s refusal to allow Newfoundland and Labrador the right to wheel power through its province from the future development of the Lower Churchill, then-premier Brian Peckford turned to the Supreme Court of Canada in 1982.

Faced with legal action in the form of the Water Rights Revision Act, Hydro-Quebec swiftly reconsidered the position and offered to enter into negotiations on the basis should an agreement be reached, all legal suits would be dropped.

The Peckford administration passed the Water Rights Revision Act in the House of Assembly in an attempt to reclaim water rights granted in CFLCo’s (Churchill Falls Labrador Corp’s) 1961 water lease.

The province claimed the lease was the cornerstone of the Upper Churchill development, without which nothing could have been built. 

If the Supreme Court of Canada was to accept, the legislation was within the constitutional powers of the province to enact. Newfoundland and Labrador would potentially gain rights to recapture 5,200 MW of power or $600 million a year in lost revenues.

The threat caught the attention of Quebec politicians as well as Hydro-Quebec officials and led to a February 1984 Statement of Intent, signed by Vic Young, then-chairmen of Newfoundland and Labrador Hydro, and Jean Bernier, then-secretariat general of Hydro-Quebec.

It was the first and only time Hydro-Quebec has officially acknowledged a need to revise inequities in the upper Churchill contract, as well as declaring it would negotiate to devise a fair return for Newfoundland and Labrador. 

Hydro-Quebec stated it would agree to allow the province access to additional power at the same price paid by Quebec. It would review the 25-year renewal clause, ensure the financial viability of CFLCo; and combine efforts to develop the Lower Churchill. 

In return, Hydro-Quebec wanted recognition of the risks it had taken in developing the Upper Churchill and an end to all legal actions.

The letter concluded with a statement suggesting an agreement might be reached by March 30, 1984. 

Negotiations, proposals, and refusals were passed back and forth without any resolution. 

After Newfoundland and Labrador refused what seemed to be Quebec’s final offer, both sides withdrew to await the Supreme Court of Canada’s decision on the validity of the Water Rights Revision Act.

The court ruled against Newfoundland and Labrador, stating the act constituted interference with the existing contract between the two provinces.

Statement of Intent regarding Churchill Falls Negotiations (excerpts)

Following meetings in Montreal and St. John’s, during which Newfoundland and Labrador Hydro and Hydro-Quebec had extensive discussions, it was suggested that as a meaningful step in negotiations between the parties a general framework should be established within which negotiations could be carried out. 

The purpose of the present document is to define this general framework which is to be used as a reference within which the negotiations are to be pursued in good faith, the whole without prejudice to the respective positions and right of the parties should they fail to reach a definitive agreement.

Bearing in mind the need to reach a compromised approach to a more equitable return to Newfoundland as the owner of the hydraulic resources of the Upper Churchill, the parties agree to devise a formula whereby Newfoundland would receive a fair and equitable return for the electricity produced, taking into account the need to adapt the terms of existing arrangements to the new reality which has arisen since the original arrangement was entered into.

The parties agree to review the present renewal of the power contract, (the current contract expires in 2016, when a 25-year extension automatically kicks in).

The parties agree to negotiate … mechanisms of co-operation concerning the future development of the Churchill River Watershed and the Lower North Shore rivers.

The parties hereby agree that they are willing to pursue the negotiations with, in the general framework hereinabove described, seeking to achieve a settlement prior to March 30, 1984.